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4 Impediments
Pages 57-75

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From page 57... ... They also include the high cost of building a new system, the taxes and fees that add to those costs, the requirements that potential investors place on loans that further raise costs and complicate planning, the restrictions imposed by economic regulation, and the complex institutional arrangements that are required to meet the political needs of local and state governments as well as labor and public interest groups. Once again, it is worth noting that the impediments have largely affected the urban, investor-owned utility systems. Read the entire page →
From page 58... ... Third, similarly lacking awareness of the magnitude of successful systems in the United States, the financial community imposes high risk penalties on what it perceives as a new and untested technology. Unbiased and widely disseminated data about successful systems have not been available to the financial community or the general public. Read the entire page →
From page 59... ... TAXES AND FEES District heating and cooling systems are subject to a variety of federal, state, and local taxes that often place investor-owned utility systems at a competitive disadvantage relative to other energy supply systems. AS a result, district heating and cooling has sometimes lost the price advantage that should be its prime attraction. Read the entire page →
From page 60... ... The Tax Equity and Fiscal Responsibility Act of 1982 made district heating and cooling projects eligible for tax-exempt industrial development bonds (Kier et al., 1981~. In 1984, however, Congress placed a per state limit of $150 per capita on tax-exempt industrial development bonds that any municipality or state agency may sell. Read the entire page →
From page 61... ... is not regulated when it sells thermal energy from its municipal solid waste incinerator to institutional users, such as the Cherry Hill housing development run by the Housing Authority of Baltimore County (HABC) , but would be if it sold directly to privately owned residential units (see Appendix A) Read the entire page →
From page 62... ... The profit from district heating and cooling systems hinges on pricing energy services, allocating benefits and costs among customers and investors, and initially limiting services to areas of high energy demand. The uncertainty about regulatory treatment of these issues significantly affects both actual and perceived financial risks of district heating and cooling compared with those of more conventional systems. Read the entire page →
From page 63... ... , acting under the authority of the Clean Air Act, sets air quality standards that state governments must adopt plans to meet. The current standards allow the use of the so-called "bubble policy," which permits power plants to make trade-offs among fuels and pollution control equipment. Read the entire page →
From page 64... ... Service Area 12 7.1 o 3.3 5.9 TWIN CITIES BOSTO N FIGURE 4-1 Annual average increase in SO2 emissions due to district heating (Levine and Santini, 1981~. Read the entire page →
From page 65... ... 65 24 22 20 12 10 8 6 4 2 o Before District Htg. ///~ After District Htg. Read the entire page →
From page 66... ... 47 41 48 30 11 28 ~inneapolk .Paul TWIN CITIES Cay Cay Fringe FIGURE 4-3 Ambient SO2 levels in the Twin Cities from heating and other large point sources (Levine and Santini, 1981) Read the entire page →
From page 67... ... the average, district heating operates with 80-percent fixed costs 20-percent variable costs, exactly the opposite of the cost ratios its gas competitors. This shows that district heating and cooling extremely sensitive to interest rates and financing methods. Read the entire page →
From page 68... ... 68 40 35 30 25 20 15 10 s o NORTHEASTERN CITIES ~ r_~ I _ _ _ r-Ji (MIDWESTERN CITIES L_J l J PLANT TRANS- DISTRI- BLDG. REPLACEMENT CHARGES MISSION BUTION RETROFIT CAPACITY FIGURE 4-4 Components of system cost as a percentage of total costs (Argonne National Laboratory) Read the entire page →
From page 69... ... Thus, these projects must compete with other projects in obtaining tax-exempt financing under each state's $150 per capita limit. Since 1981, a number of cities have relied for financing on various government grant programs, such as the urban development action grant (UDAG) Read the entire page →
From page 70... ... 70 TABLE 4-1 Construction and Permanent Financing for Alternative Energy Projects: Key Risk Assessment and Containment Strategies Key Project Cons ider ations -Well-contained risks -Existing and identified markets for the energy produced -Long-term sales contracts -Proven technologies -A favorable regulatory environment Financing Techniques -Internal corporate cash flow -Borrowing with full faith and credit of the corporate sponsor -Project financing, when the project generates sufficient cash flows to meet debt service or lease payments Major Components of Project Financing -For construction financing, short-term, floating-rate loan -For permanent financing, single-vnvestor lease, leveraged lease, limited partnership, or joint venture Basic Economic Factors -Current and future fuel prices -Current and future electricity rates -Utility avoided cost rates -Proj ect -Cost of costs capital Read the entire page →
From page 71... ... -Geographic considerations (state implementation of PURPA, utilities' fuel and capacity costs, difficulty of adding generating capacity) : Best environments in California, Gulf Coast, New England, and Middle Atlantic states Summary of Alternative Energy Projects Risks -Design risk: Can facility be built? Read the entire page →
From page 72... ... Until the 1984 tax law established a per state limit of $150 per capita on industrial development bonds, tax-exempt financing appeared to provide an attractive alternative to private investors. This type of financing usually involves two steps: issuing tax-exempt bonds through state or local governments and loaning the bond proceeds to the private developer, who agrees to install a district heating and cooling system and related improvements. Read the entire page →
From page 74... ... Both general obligation bonds and revenue bonds are used to finance district heating and cooling projects. The general obligation bond is secured by the pledge of the municipality's full faith and credit and is supported by the municipality's authority to tax and collect sufficient money to meet its obligations. Read the entire page →
From page 75... ... The proposals focused on federal energy tax credits (H.R. Read the entire page →

From page 57...

... They also include the high cost of building a new system, the taxes and fees that add to those costs, the requirements that potential investors place on loans that further raise costs and complicate planning, the restrictions imposed by economic regulation, and the complex institutional arrangements that are required to meet the political needs of local and state governments as well as labor and public interest groups. Once again, it is worth noting that the impediments have largely affected the urban, investor-owned utility systems.

4 Impediments Pages 57-75

4 Impediments
Pages 57-75