A time of reckoning is coming for building owners in U.S. cities that have enacted performance standards to reduce greenhouse gas emissions.
With compliance deadlines looming, many owners see their options as undesirable: expensive energy renovations or formidable non-compliance fines. But in many cities, an alternative solution is right there. District energy networks can pipe usable thermal energy directly into buildings for heating and cooling, enabling owners to avoid complications and risks of expensive HVAC retrofits and tenant disruption of costly renovations.
The simplicity of district energy makes it an increasingly attractive way for building owners to comply with new rules. A building needs few changes to link to a district energy system; it’s usually a straightforward piping interconnection. In contrast, electrification, another method commonly used to meet performance standards, can mean extensive and costly infrastructure investments and building upgrades that may impact tenants.
As cities enact greenhouse gas requirements, district energy has undergone a major renaissance. In 2020, San Francisco passed the All-Electric New Construction Ordinance that bans natural gas in new buildings. While many owners see electrification as the most likely alternative, it’s difficult for buildings in the city to secure the volume of power required at a reasonable cost. Transmission and distribution constraints limit movement and placement of added power capacity into the city, and due to scarcity and demand, those costs are already high. According to federal statistics, San Francisco’s electricity costs were 110% higher than the national average in November 2024. Analysts expect electricity rates to continue rising as demand grows due to electrification, AI and data center energy consumption.
To combat this, one company is decarbonizing its district energy system and stabilizing its electricity costs by buying hydroelectricity from the nearby Hetch Hetchy dam to power a new electric boiler in its central plant. Because the district energy system serves two square miles in a dense urban area, they achieved the economy of scale to negotiate a long-term power purchase agreement with favorable and stable terms. The result: dozens of buildings can be decarbonized at once as opposed to each one getting an individual electrical upgrade or disrupting tenants to retrofit HVAC equipment.
A similar story is playing out in Boston. The second iteration of its Building Emissions Reduction and Disclosure Ordinance (BERDO 2.0) requires that buildings over a certain size meet carbon emissions standards beginning in 2025 and reach net zero emissions by 2050.
One local system, the largest provider of district energy solutions in the U.S., serves 245 buildings totaling 71.4 million square feet—in Boston and Cambridge and has prepared the district steam system for the city’s 2050 goal by installing a 42-MW electric boiler that will use renewable electricity to produce steam. This will allow customers to meet building performance standards without disruptive and costly HVAC replacements or renovating their buildings.
By aggregating steam needs of its connected customers, they can leverage their facility connection to the high-voltage electricity grid to purchase lower-cost renewable power at a wholesale level, which also provides additional reliability and resilience.
Opportunities and Challenges Ahead
District energy is ideally suited for clusters of buildings in cities, communities and campuses. By aggregating the heating and cooling needs of energy users situated near one another, district energy networks can invest in highly efficient, industrial-grade technologies and lower-carbon solutions that may not be financially viable for individual buildings. But the industry faces challenges in making district energy more available.
Many decision makers remain unaware that district energy provides a decarbonization option, and when calculating the cost of decarbonization, building owners often don’t consider its ancillary advantages. In addition to clear benefits of avoiding capital replacement costs and ease of implementation, district energy provides unexpected benefits such as allowing owners to reclaim space for tenant amenities by removing on-site boilers, chillers, cooling towers and other equipment, and enhancing property values.
It’s also not always easy for owners to determine a levelized cost of energy comparison between district energy and electrification. District energy can provide more predictable owning and operating expenses. In contrast, retail electricity costs can be volatile, especially during peak winter or summer periods when supply uncertainty increases due to demand growth, along with changes in building code compliance requirements and market conditions.
Tackling these problems will require a combined effort and coordination within the industry, improved regulatory and policy solutions, and more education of customers and decision makers. Doing so will lead to further innovation and expansion for district energy systems nationwide, enabling more building owners a way to decarbonize faster and with lower risk.
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About the Author
Rob Thornton is President & CEO of the International District Energy Association (IDEA), founded in 1909 to advance efficient and sustainable district energy systems in cities, communities and campuses. In this role since 2000, he represents about 3,000 IDEA members in 28 countries and serves as principal industry advocate for a more favorable policy and regulatory environment for district energy systems.
