Thermal energy networks present an opportunity for natural gas utilities to play a role in the transition to electric heating, though the industry faces hurdles as it seeks to harness the technology to decarbonize buildings.

Under emerging policies, gas utilities would operate networked geothermal infrastructure, leveraging their highly trained workforces and expertise in underground pipeline systems. However, legislative and regulatory roadblocks remain, and utilities have little experience that investors can evaluate to judge the relative value of operating thermal energy networks.

The technology is already proven, according to panelists at a Sept. 24 Climate Week NYC event hosted by the Building Decarbonization Coalition and the Interfaith Center on Corporate Responsibility. Many European cities rely on district energy systems that use similar technology, and more than 50 college campuses across the US have transitioned to networked geothermal, said Ania Camargo Cortes, senior manager for thermal energy networks at the Building Decarbonization Coalition.

Thermal energy networks use liquid pipes on a shared loop heated or cooled by geothermal energy. Electric-powered ground-source heat pumps installed in buildings on the loop use the thermal energy for heating and cooling. Buildings can also share thermal energy, with facilities like datacenters and supermarkets feeding waste heat onto the network.

Large differences in underground temperature and heating needs can affect thermal energy network economics, but from a geological perspective, the approach is practical in most locations, Camargo Cortes said. Thermal energy networks require relatively shallow boreholes compared to the deep wells needed to tap geothermal resources for power generation.

"The technology actually works," Camargo Cortes said. "So the question is, can utilities do them too?"

Policy and regulation fixes

One major hurdle: Gas utilities are typically only allowed to sell natural gas, so lawmakers must pass legislation to authorize them to operate thermal energy networks, Camargo Cortes said.

So far, seven states — Colorado, Maryland, Massachusetts, Minnesota, New York, Vermont and Washington — have passed that legislation, she said. Stakeholders are working on similar legislation with PPL Corp.-owned multi-utility Rhode Island Energy, according to Climate Jobs RI Executive Director Michael Roles.

On Sept. 25, California Gov. Gavin Newsom signed a bill allowing gas utilities to pilot thermal energy networks.

The Building Decarbonization Coalition has tracked 21 filings by utilities in five states to pilot thermal energy networks. Consolidated Edison Co. of New York Inc. is developing three projects in New York, where regulators ordered investor-owned utilities to propose thermal energy network pilots.

Thermal energy networks represent a new commodity offering for Con Edison, so the company will have to devise innovative rates for each customer class, said Brittni Provencher, clean energy engineering manager at Con Edison.

There is another key regulatory difference between operating gas distribution systems and thermal energy networks. The geothermal bills do not grant gas utilities monopoly power over the thermal systems, so distributors could face competition from private developers, electric and water utilities and public entities.

Municipal electric companies have expressed interest in operating the infrastructure, Camargo Cortes said. Some cities are also exploring thermal energy network ownership, particularly to serve hard-to-decarbonize municipal assets, Roles said.

Bringing labor along

The transition to electric heating has raised questions about grid capacity, but thermal energy networks can reduce needed spending on new electric transmission, distribution and generation, Camargo Cortes said. While standalone air- and ground-source heat pumps are more efficient than gas furnaces and electric resistance heating, networked geothermal enhances that efficiency, flattening future peak demand for electric power, she said, citing research conducted by consultant E3 on behalf of Massachusetts gas utilities.

Thermal energy networks also provide a pathway to avoid the costs of repairing leak-prone pipes. These investments could cost US ratepayers up to $740 billion nationally through 2040, according to the Building Decarbonization Coalition.

Eliminating gas network maintenance has long been a point of contention between building electrification advocates and labor groups, particularly pipefitters unions. Thermal energy networks address that conflict because working on the infrastructure is similar to maintaining gas grids, and labor apprenticeship programs can pivot to networked geothermal, according to stakeholders.

The infrastructure option checks each of Climate Jobs RI's three priorities for policy solutions, Roles said — it helps states meet their climate goals, facilitates investment in local economies and creates community-based wealth through job creation.

Unlike installing standalone heat pumps, developing thermal energy networks preserves a role for pipefitters and utility workers, he said.

"Thermal energy networks is the one biggest hope we have to ensure that those workers are not displaced and don't lose those good-paying careers," Roles said.

Questions about capital spending

A pivot to thermal energy networks also raises questions about investor sentiment. Wall Street has long viewed accelerated pipeline replacement programs favorably when weighing gas utility stocks against other equity sectors.

Con Edison and other Northeast utilities with aging systems regularly top S&P Global Commodity Insights' annual rankings of gas utilities most actively addressing leak-prone pipe.

From an investor perspective, stranded asset risk is a major concern, according to Amy Orr, director of US shareholder engagement at Boston Common Asset Management, which offers sustainable investment products. Stranded asset risk is the possibility that new gas infrastructure investments will be underutilized as ratepayers transition to electric heating.

"Where you have these vulnerabilities in gas infrastructure, why don't we think about a technology that could replace that infrastructure rather than investing into something that will soon become obsolete?" Orr said.

Boston Common is not yet convinced that thermal energy networks can be the "be-all, end-all solution" for gas utility decarbonization, but pilots can help investors weigh the benefit of reducing stranded asset risk with concerns about whether thermal energy networks will create adequate capital investment opportunities, Orr said.

Legislation can also address investors' concerns, Camargo Cortes said. Lawmakers could approve accelerated cost recovery for replacing leak-prone gas pipe with networked geothermal pipe, she said. Additionally, statehouses could raise revenue caps for gas utilities that invest in thermal energy networks.