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Business case district heating

 
 

 

"Every investment by AIL must be confirmed by economic facts. TM.RESULTS guided us through the business plan process and helped develop project scenarios. Thanks to their goal-oriented methods and extensive simulations, we gained expert and detailed insight into the market situation and competition. This paved the way for us to make a grounded and economically sound decision."

Mathieu Moggi,
Head of Thermal & Renewable Energy, AIL SA

A district heating system for increased energy efficiency, reduced use of fossil fuels and CO2 emissions

During the cleaning process, the Bioggio wastewater treatment plant (WWTP) releases water into the river that is above the statutory temperature limits. To exploit this unused heat source for the surrounding community, the Aziende Industriali di Lugano (AIL) management evaluated the technical and economic feasibility of building a combined heat and power plant (CHP) as well as the construction of a district heating network.

The investment for a gradual implementation of large heat pumps, cogeneration and district heating network for the surrounding region (within 25 km) was estimated to be a high double-digit million Swiss franc amount.

Faced with the current low costs of conventional energy sources (heating oil and natural gas), are the sizeable investments needed for a CHP and district heating network worth it?

Investment evaluation: The key challenge was to identify and define scenarios and forecasts for planned investments, operating costs and revenue streams (P/L statements) for different customer segments: corporate accounts with high energy requirements, administrative buildings and schools, tall buildings and multi and single-family homes.

Compared to the costs of oil and gas heating, are end user prices for district heating competitive?

Critical analyses are important when evaluating the project's potential; this includes factors such as actual project implementation, variances in the project stages (reduced or complete infrastructure), price and cost development of other energy sources (oil, gas and electricity) and the impact of a district heating network on AIL’s gas sector (reduction / disassembly of the gas network and revenue losses).

To assess the profitability and sustainability of CHP/district heating network investments, TM.RESULTS developed a business plan for AIL and the communities involved. TM.RESULTS supported AIL through consultations and coaching in the following areas:

  • Development of a project mission statement (project vision, mission and values)
  • Deriving the strategic objectives and the critical success factors
  • SWOT analysis
  • Development of the business model
  • Development of a business plan, including future price development scenarios for other energy
    sources (oil, gas and electricity)
  • Identifying, developing and evaluating relevant drivers:
    • Market potential and revenue per customer segment; investment aid
    • Revenue from cogeneration
    • Operating costs (fixed and variable); depreciation
    • Investment for CHP and district heating network
    • Profit and loss account, financial flows and KPI (among others NPV/IRR)
  • Defining scenarios and performing sensitivity analysis ("what if" analyses)
  • Cost comparison of district heating (for capital, operations, production and CO2 taxes) for each
    customer segment with conventional fuels (oil and gas), also in combination with solar thermal
  • Graphic and dynamic presentation of all relevant scenarios, comparing models and indicators
  • Implementation roadmap

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