District energy (DE) systems supply heating and cooling from a central energy source to multiple customers (commercial, residential, and industrial). In the U.S., the beginning of district heating (DH) can be traced back to the late 18th century, when Benjamin Franklin sold heat to several adjacent residences in Philadelphia. Almost 100 years later, in 1877, Birdsill Holley designed the first financially successful DH system in Lockport, New York. This system, based on the delivery of steam, was widely imitated. By 1887, 20 DH systems were in operation in the U.S. Cogeneration was introduced as early as 1890. In the U.S., the distribution medium was steam, while in Europe, the predominant distribution medium was hot water. In Europe, especially Scandinavia, the DH systems adopted low temperature water for supply, and that trend continues today with systems using supply temperatures of 160°F or lower. The disadvantages of steam systems (high heat losses, relative low cogeneration rate, and high capital intensive steam distribution systems) limited the spread of DE systems in the U.S. In the last 25 years, some modern medium hot water temperature systems have been developed in the U.S., however such systems are not widely used.
District heating systems are best used in city downtowns where the thermal load density and the annual load factor are high. A high-load density is needed to cover the capital investment for the distribution piping system, which usually constitutes a significant portion of the capital cost for the overall system, often amounting to 70% of the total cost. This makes district energy systems most attractive in serving densely populated urban areas and high-density building clusters with high thermal loads. Low-density residential areas do not represent the most attractive markets for DH; however, through the use of low temperature hot water and advanced piping design, Denmark has more than 1 million detached family homes on DH.