This story was originally published by Canary Media.
Last month, utilities in New York state submitted plans for 13 pilot projects meant to replace fossil-gas pipelines with infrastructure that can power clean, carbon-free heat pumps.
These underground thermal networks range from dense midtown Manhattan commercial centers to low-income housing, and from neighborhoods in the Hudson Valley to the upstate town of Ithaca.
But the projects, spurred by a 2022 state law that puts New York on the cutting edge of a decarbonization strategy now being explored by a growing number of states, share a common goal: to cut fossil fuels and carbon emissions out of the gas utility business, while still carving out a role for those utilities in the decades to come.
That work will still involve digging trenches, laying pipelines and installing equipment — the same kind of capital investments that earn gas utilities long and stable rates of return today. But instead of flammable and planet-warming gas, those pipes will carry water or other liquids that transfer heat from underground — or from other buildings and sources in the network — that can be used by heat pumps to keep buildings warm.
Heat pumps, which operate like reversible air conditioners, are much more energy-efficient than fossil-fired furnaces or boilers. They’re even more efficient when they can exchange heat and cold with fluid at a stable temperature, rather than from cold outside air, as the more common air-source heat pumps do.
The U.S. Department of Energy estimates that ground-source heat pumps reduce energy consumption and emissions by up to 44 percent compared to air-source heat pumps and 72 percent compared to standard air-conditioning equipment.
Capturing and sharing waste heat from thermal energy networks can increase efficiency even further. That, in turn, can cut the electricity bills of customers, which will rise as they switch from gas to electric heating.
But most building owners would struggle to afford the cost of drilling boreholes and installing pipes for their own geothermal heat pump systems, or to craft contracts with their neighbors to build and share underground networks. That’s why New York’s approach to adapting the gas utility infrastructure holds so much promise. Doing so will help all those individual homeowners and businesses share in the costs and reap the rewards, said Lisa Dix, New York director for the nonprofit Building Decarbonization Coalition.
Her team led an effort to rally utility labor unions, environmental groups and community organizations behind the 2022 law, called the Utility Thermal Energy Network and Jobs Act. These groups have since coalesced into a coalition called UpgradeNY that hopes to see these pilot projects serve as a model for a statewide conversion.
The newly proposed projects in New York are meant to offer a “clear understanding of neighborhood scale thermal energy networks,” she said, “so that as the transition happens, we can get to the scale we need to get to.”
The projects could also help serve as an early blueprint for the other half dozen or so states pursuing or exploring this method of decarbonization, she said. “We’re going to have to stop digging the hole, stop subsidizing the expansion of the fossil fuel system.”
New York’s pilot projects
By design, the 13 pilot projects in New York cover a variety of different neighborhoods.
UpgradeNY has endorsed 11 of the projects but is asking the New York Public Service Commission to review the remaining two, one on Long Island and another in the city of Buffalo, that would continue to use fossil-gas-fired boilers for high-temperature heat.
Con Edison, the utility serving New York City and Westchester County, has proposed three projects taking on some of the most challenging urban settings, including the landmark Rockefeller Center.
For that project, Con Ed plans to convert three large commercial buildings from the utility’s district steam-heating network to heat pumps. These heat pumps would draw on water that’s warmed up by waste heat from sources including the sewers, data centers and adjoining buildings’ cooling systems.
“There are some misconceptions out there — people think you have to drill a million boreholes” to capture underground heat, Dix said. “But you can get your heat from different [underground sources]. You can get it from the subway. You can get it from the sewer. And it’s going to help decarbonize Con Ed’s steam system if we do it right.”
Real estate company Tishman Speyer, the owner of 30 Rockefeller Center, is a key partner in the project, she noted. The firm has a strong incentive to participate because the project could lower the cost of complying with New York City’s Local Law 97, which requires all large buildings to reduce their carbon emissions by 40 percent from 2019 levels by 2030.
Hitting those targets will require an estimated $18.2 billion in investment in alternatives to fossil-gas-fired boilers and furnaces. Shared networks could significantly reduce the cost to individual buildings, but property owners “don’t want to deal privately with all that permitting — they want the utility to deal with all that,” Dix said.
Another Con Ed project in Manhattan’s Chelsea neighborhood plans to get 100 % of heating, cooling and hot-water needs for a low-income multifamily residential building from a nearby data center. “We can have a data center literally heating an entire multifamily building or a big skyscraper,” Dix said.
Other projects on the list will test how thermal energy networks can link residential and commercial buildings in less dense environments. Those include a project by utility NYSEG in the city of Norwich that will connect homes and buildings to underground networks and waste heat from a grocery store’s refrigeration system, and a project by utility Orange & Rockland in the town of Haverstraw that will build two networks — one serving new waterfront construction, and the other municipal and school district buildings — that are close enough to be linked together in future expansions.
Dix highlighted a project that utility NYSEG has proposed in Ithaca, which in 2021 became the first U.S. city to pledge to completely decarbonize its buildings by 2030. It’s also the home of Cornell University, which has a district heating, cooling and cogeneration system that now uses fossil gas, but which the university hopes to convert to geothermal power.
How thermal energy networks could transform the gas utility business
New York is an early leader on this front, but thermal energy networks are gaining ground across the country.
Today, three other states — Colorado, Massachusetts and Minnesota — have passed laws that allow or mandate gas utilities to undertake thermal energy network pilot projects. In Massachusetts, the first utility-built network, covering 32 residential and five commercial buildings and 140 customers in the city of Framingham, is expected to be complete in the next few months.
Other states including Illinois, Maine, Vermont and Washington are exploring similar laws. And 13 gas utilities have created a Utility Networked Geothermal Collaborative to explore options.
To be clear, thermal energy networks, also called geothermal networks or geo-districts, aren’t a new idea. A number of cities, colleges and corporate campuses in Europe, Asia and North America use district energy systems — shared steam or hot water exchange networks — for heating and cooling needs, and many of them aim to switch from fossil fuels to zero-carbon electricity. In the U.S., geothermal networks that tap into underground heat, cool water from nearby lakes or waste heat from sewers and other buildings are proving the efficiency and cost benefits of the concept.
But gas utilities are an ideal party to carry out thermal energy networks at scale, said Audrey Schulman, co-executive director of the Home Energy Efficiency Team (HEET), a Cambridge, Massachusetts–based group that helped spur the state’s first such pilot projects by utilities Eversource and National Grid, including the project in Framingham.
First, gas utilities have the workforce, expertise and access to capital needed to build the sprawling and interconnected underground networks required, she said. Second, they’re already spending billions of dollars per year on fossil-gas pipeline expansions and repairs that will inevitably become “stranded assets” long before their costs are paid back by customers.
In Massachusetts, the state’s six investor-owned gas utilities plan to spend more than $40 billion on a Gas System Enhancement Program to replace the roughly 22 percent of gas lines in the state that are prone to leaks, she said. Customers pay the cost of those investments via increases on their bills that can persist for decades — far past the state’s deadline to reduce greenhouse gas emissions by 85 percent from 1990 levels by 2050.
The state’s push toward thermal energy networks will likely be accelerated by a December decision from the Massachusetts Department of Public Utilities to reject gas-utility decarbonization plans that relied too heavily on alternative fuels like hydrogen and renewable natural gas. Beyond that, the department’s “beyond gas” order calls for “minimizing additional investment in pipeline and distribution mains” and specifically calls out thermal energy networks as an alternative.
“The whole thing is about setting up the regulatory structure by which we get off gas and onto something else,” Schulman said.
New York faces similar choices as it works to implement its 2019 climate law that calls for cutting fossil gas use by at least one-third by 2030 and converting the “vast majority” of customers to electric heating by 2050, Dix said. Despite these imperatives, gas utilities in the state have spent $5 billion on infrastructure investments and identified $28 billion in pipeline replacement plans since the law’s passage.
This disconnect between climate imperatives isn’t limited to Massachusetts and New York. Consultancy Brattle Group found in a 2021 report that U.S. gas utilities may face $150 billion to $180 billion of “unrecovered” investment in pipelines over the coming decade. States including California and Colorado have set policies to limit expanding gas lines and to push gas utilities to transition customers to less-polluting alternatives.
Gas utilities across the country have largely fought such mandates or pushed proposals that rely on continuing to use their pipelines to carry carbon-neutral fuels such as biomethane or hydrogen. But a growing body of research indicates that these plans will likely falter due to the high cost and low availability of those alternative fuels.
At the same time, when looking for large-scale conversion of entire neighborhoods to low-carbon alternatives, “utilities make the most sense to do this,” Dix said. “They’ve got rights of way, they have the permitting authority, they have access to capital, and they have the workforce, which is already unionized.”
Like many other states with decarbonization mandates, New York has offered hundreds of millions of dollars in incentives for heat pumps and building electrification, and has imposed regulations limiting the expansion of fossil gas to new buildings.
But according to a 2023 report from the Building Decarbonization Coalition, this “house-by-house” approach could end up leaving gas utilities and regulators in a bind — being forced to maintain expensive gas distribution networks to supply fuel to a dwindling number of customers.
The customers that remain, meanwhile, will bear a greater and greater proportion of the cost of paying off those gas investments, leading to a vicious cycle of cost increases being imposed on people who can’t afford to make the switch to heat pumps on their own. These left-behind customers are more likely to be lower-income earners already struggling to afford increasingly expensive utility bills.
Thermal energy networks, by contrast, can be planned on a neighborhood-by-neighborhood basis, she said. That gives utilities and regulators an opportunity to target disadvantaged communities, areas with the most aged or leak-prone infrastructure, or other strategic approaches to shifting people from gas to electric heating and appliances en masse.
The efficiency benefits of these networks can also provide significant relief to power grids that will experience massive growth in demand from building heating and electric vehicles. Department of Energy research has found that installing geothermal heat pumps in nearly 80 percent of U.S. homes could reduce the costs of decarbonizing the grid by 30 percent and avoid the need for 24,500 miles of new transmission lines by 2050.
From pilot projects to statewide transformation
Many steps remain for New York to bring these on-paper pilots into the real world, however.
First, each utility will have to negotiate with the customers involved in the pilots on how to share the costs of installing heat pumps and other new equipment. Then they’ll need to build the projects and get them up and running, track the performance of the equipment and underlying networks, and assess the cost-effectiveness of the projects.
Bringing down the cost of these projects will be an important first test. Heat pumps are more expensive than gas furnaces, and designing and constructing the pipes, boreholes and networked heat-exchange technologies involved will be more costly than standard gas infrastructure projects.
“There will be a marginal cost increase compared to business as usual,” said Matt Rusteika, Building Decarbonization Coalition’s director of market transformation. “But because you’re not buying the gas, and the gas is like half the bill, the cost for consumers would come down.”
Altering laws now on the books in New York, Massachusetts and other states to allow utilities to switch customers from gas to thermal energy network service without triggering “obligation to serve” objections will also be important, he said. Under those laws, “if the customer says ‘I want gas,’ the utility has to give gas to them,” he said. That obligation is a core part of a utility’s mission, but its strict application could allow a single customer in a neighborhood slated for a thermal energy network to stymie the entire project.
In New York, the Utility Thermal Energy Network and Jobs Act suspends that law for the pilot projects now being considered, Dix said. But another law would need to be passed to extend that shift to the state at large. In Massachusetts, the Home Energy Efficiency Team and other environmental and community groups are endorsing a “Future of Clean Heat” bill that would make similar changes.
More complexities will emerge as utilities and regulators start to consider the methods for some members of a thermal energy network to exchange their waste heat with others, Rusteika said. “How you compensate people who provide it and those who use it is a more complicated question.”
For now, backers of thermal energy networks are waiting for the first pilot projects in Massachusetts and New York to provide the real-world testing grounds for answering these kinds of questions. Eversource’s first project in Framingham, Massachusetts is set to come online later this spring, he said. “We’re going to learn a lot about efficiency and functionality and comfort and cost from that pilot.”