Vancouver Sustainable Energy

Small energy utilities for local neighbourhoods save money and the environment, but who will pay to build them?

Invest your energy: District energy will require private sector involvement, and municipalities willing to shoulder some risk, says Vancouver sustainability officer Chris Baber

Small energy utilities for local neighbourhoods save money and the environment, but who will pay to build them?

The five stacks of the Southeast False Creek Neighbourhood Energy Utility reach up toward the Cambie Street Bridge like the fingers of a steel giant. At night the “fingertips” – LED lights attached to each stack – glow in shades from blue to red, according to how much energy is being consumed in the roughly 12-block neighbourhood developing around Vancouver’s Olympic Village. The facility’s sloping steel roof makes it seem like the structure is actually helping hold up the bridge, instead of just sitting under it. Its west wall is almost all glazed, so that passersby can look at the pipes and equipment inside. Perhaps it would be a stretch to call a boiler room public art, but the effect adds a novel and surprising element to the streetscape. The city worked with Walter Francl Architecture Inc. to make the building as appealing as possible, explains Chris Baber, the city’s sustainability officer. “People were worried that it would, you know, smell like a sewer.”

This utility is the first in North America to capture heat from liquid waste and redistribute it to the surrounding neighbourhood, where it’s used for space heating and hot water. It’s an example of what’s commonly referred to as “district energy,” which is not to be confused with renewable energy; it refers to a system where a number of homes, businesses and industries share energy provided by one or more central sources. District energy can include renewable energy sources such as geothermal, wind or solar, or non-renewable sources such as the many systems that rely on natural gas. But because district energy is based on the principle of sharing, it creates economies of scale that make some renewable technologies more economically feasible.

For example, sewer heat exchange is so mechanically complex that it would be inefficient to build such a system for a single building, but with a 12-block neighbourhood hooked in at Southeast False Creek – which the city estimates will eventually be home to some 10,000 people – it starts to make more sense. And buildings can be both producers and consumers of energy: waste heat from industrial processes or large institutions such as schools or hospitals can be moved to where it is needed. District energy is also more flexible than the current prevailing system; it’s easier to upgrade, add to and retrofit.

Lighting the way: The “fingertips” of the Southeast False Creek utility glow to indicate energy use

The common misconception is that the heat in such systems comes from, well, steaming streams of human waste, hence all the efforts to make the utility building at Cambie and Second Avenue so attractive. But in fact, the bulk of the energy coursing through our sewers comes from hot water: every load of dishes or laundry, each hot shower you take. In the morning, the temperatures of the sewer water in the densely packed neighbourhood can reach 22 degrees Celsius, “which is quite remarkable,” says Baber, “because the city water supply, the potable water supply before it’s heated, is around six degrees Celsius. There’s a huge amount of waste energy that’s just going down the drain.”

Capturing the wasted energy that is coursing through our cities is one of the reasons that district energy projects such as the Southeast False Creek utility are exciting – “sexy,” even, as Vancouver councillor Heather Deal describes it. District energy has widespread appeal: for municipalities, under increasing pressure to reduce greenhouse gas emissions; for the private sector, which sees in them long-term flexibility in a changing energy market; and for the public, which stands to reap both the environmental and economic benefits.

While the operating cost of district energy can be significantly lower than conventional gas or electricity, the biggest barrier to implementation is the initial capital cost of building an energy plant to serve a neighbourhood already hooked into a centralized grid. Which raises an important question: If we want district energy to be part of our urban fabric in the future, who should foot the bill now?

The Southeast False Creek project was in part possible because of a unique funding formula. It received a $9.5-million grant from a federal gasoline-tax fund, administered through the Union of B.C. Municipalities. The city itself contributed $15 million up front and borrowed another $5 million from the Federation of Canadian Municipalities. Residents in the Southeast False Creek buildings will pay the same as they would if they were using a conventional electric heating system, and the city will pocket the difference, recovering the capital costs in 25 years. Not only that, says Baber, but in the long term Southeast False Creek customers will enjoy lower rates than BC Hydro customers because they will be using less energy overall.

Working waste: The water we flush down our drains can reach 22 degrees Celsius; that energy is captured at the Southeast False Creek utility

“These systems are possible,” says Mike Harcourt, “if everybody puts in their pound of flesh.” The former B.C. premier and Vancouver mayor, fresh from a tour of the False Creek utility, is optimistic. A longtime sustainability champion, he sees district energy as not only a cost-saving measure for municipalities in the face of fluctuating natural-gas and electricity prices but also as a means for them to achieve lower carbon footprints and greater livability.

Climate change policies are driving much of the demand for district energy systems. Although B.C. enjoys ample renewable electricity sources, roughly 40 per cent of the province’s total greenhouse gas emissions come from natural gas that provides heat and hot water in buildings. In addition to formulating a carbon tax on fossil fuels, the province has promised to reduce greenhouse gases by 33 per cent by the year 2020. Municipalities are a huge part of that effort; 176 in B.C. have signed a climate action charter with the aim of becoming carbon neutral by 2012. District energy systems could go a long way to achieving that goal.

Most municipalities, however, can’t afford the initial capital investment. Harcourt, long an advocate of shifting provincial taxation powers down to the municipal level, laments the fact that municipalities don’t have the resources or jurisdiction to meet the demands for creating a prosperous, sustainable economy. That said, he asserts that initiatives such as district energy also require outside-the-box thinking and innovative decision-making. “In the business world, they call this entrepreneurship,” Harcourt says. He insists he is “agnostic” on the question of whether district energy systems should be publicly or privately owned utilities. He just wants to get them done. “There’s no one model for how communities should approach district energy, whether it’s complete ownership or joint ventures or fully privately owned and operated utilities that the municipality issues tenders for. It’s in a state of experimentation and flux.”

Harcourt serves as chair of a new network of industry, government and non-governmental groups with an Epcot-esque name: Quality Urban Energy Systems of Tomorrow, or QUEST. Harcourt recalls the inaugural QUEST meetings, back in 2007. “The light bulb went on for a lot of people,” he recalls. “We decided that, yeah, energy is key to all of what we want in a sustainable city: more compact green buildings, mixed use, people not using gas-guzzling SUVs to get around, people walking and cycling more. The QUEST idea of integrating energy into all of the above just made sense. It was the missing link in a lot of the work I’d been doing up to that point.”

One of QUEST’s founding members is the Canadian Gas Association. While it might seem counterintuitive that a natural gas company would want to build energy systems designed to reduce fossil fuel use, for Terasen Gas, B.C.’s second-largest utility, it makes perfect sense. Doug Stout, vice-president of marketing and business development, says Terasen sees it as the way of the future: “We think it’s got a strong role to play in B.C. We talk a lot in B.C. about electricity as the solution for everything, and I don’t think that’s the case, just like natural gas isn’t the solution for everything.”

Terasen doesn’t actually make money on natural gas; it earns revenue by charging a rate for its delivery service. It is regulated by the B.C. Utilities Commission and is guaranteed a fair return for its investment in distribution infrastructure, regardless of whether this infrastructure is a district or conventional energy system. It owns and operates 10 district energy projects in the province right now, including the high-profile Dockside Green development in Victoria, which uses biofuel gasification technology, and Stout estimates there are another 60 at various stages of development.

Terasen has about $4 billion invested in gas infrastructure in B.C., and district energy systems are still a “very small piece” of its overall business, Stout says. Where possible, Terasen prefers to design, build, own and operate district energy. A lot of the skills needed for district energy, including administration, engineering and customer management, are similar to what Terasen has already developed as a gas utility, Stout says. Drawing on those broader skills brings further efficiencies to district energy projects.

District energy also poses risks: the operator has to be sure it will have enough long-term customers to make the investment in infrastructure worth it. This risk was averted in Southeast False Creek thanks to a tight Olympic deadline. Council didn’t make the decision to build its own district energy system until spring 2006. The city couldn’t afford to spend time on a tendering process and then wait around for a private utility to get the B.C. Utilities Commission’s permission to build. But the city had a guaranteed “anchor load”: 1,100 residential units, a 45,000-square-foot community centre and 6,000 square feet of commercial space, all ready to begin paying their energy bills as owners take possession in the months following the Olympic Games. By 2020 that load is expected to grow to 5,000 residential units and include a mid-size grocery story and an elementary school. This instant village eliminated one of the biggest risks in district energy, explains Sean Pander, the city’s climate change program manager. “Say you invest a truckful of money in pipe in the ground and a big centre, and only one building hooks up for the first 25 years,” he says. “Obviously, you’re bankrupt.”

The project’s success was in no small part thanks to city staff who had the expertise and resources to make it happen. There are 14 people working in Vancouver’s sustainability office: seven on climate change alone, three on sustainable development and green building, and four on internal sustainability initiatives. But while the city’s accomplishment is impressive, the Southeast False Creek facility is just a drop in the bucket in terms of both economic efficiencies and greenhouse gas reductions.

Power rules: All buildings near the Lonsdale district energy system must be built compatible

“Let’s face it: the city of Vancouver is limited to the city of Vancouver,” says Baber. “If we want to really see some profound reductions in carbon emissions, we’re going to have to look at areas outside the city, and we need the private sector there. Municipalities require a lot of resources, a lot of effort and some willingness to accept some risk too. There aren’t too many other municipalities out there that are going to do that.”

Rod Carle, the man in charge of the New Westminster Electric Utility Commission, is trying to bring district energy to his town. Most of its residents rely on electric baseboard heaters for space heating, he says. New Westminster buys electricity wholesale from BC Hydro, then sells it back to customers at market rates. Carle says residents benefit by having a publicly owned utility because they are closer to users, and end profits are shared within the community via lower taxes.

That is why he believes the city is a natural fit to build, own and operate a district energy system. Electric heat creates a huge winter demand for the city, which means it pays penalties to BC Hydro, which means higher taxes for the city’s residents, which means complaints at city council meetings. “If we can somehow offset or lower our peak, it’s a huge benefit for all of our customers,” says Carle. “We should look at district heating; we should look at alternative fuels; we should look at solar heating.”

In an area of New Westminster known as the Molson brewery district (because it was once the site of a brewery), there’s an opportunity to do just that. The brewery district is a 3½-hectare planned development that will feature retail space, government and medical offices, and up to 750 residential units. Construction began in March this year and is slated for completion in mid-2011. The development is a stone’s throw from a SkyTrain station and is adjacent to a hospital. The mix of commercial, residential and office space, plus a large hospital, makes the planned neighbourhood an ideal candidate for district energy because not all the users have the same peak loads. BC Hydro funded a feasibility study identifying it as a promising district energy site, and the developer that owns it, Wesgroup Properties LP, has boasted on its website that the project will feature “several eco-friendly initiatives, including an innovative alternative energy program.”

John Conicella, Wesgroup’s vice-president and managing director of development, says the first commercial building underway in the development will include a hydronic heating system with a natural-gas boiler, which in theory could hook into a future district energy system.

Electric or forced-air heating systems are the cheapest, most common way of building. Hydronic systems are roughly 15 to 20 per cent more expensive, but in New Westminster Wesgroup chose this option because it wanted to attract a certain kind of customer, in this case Thrifty Foods, a grocery store that would realize huge benefits from energy-efficient heating and cooling. Still, the decision to install the more expensive system is “something we struggle with all the time,” Conicella says. Wesgroup hasn’t decided whether the other residential buildings in the development will be built to be hooked into a district energy system or not.

“Ultimately, we have to make a decision because it’s our development,” says Conicella. “But it has to be economically sustainable.” He says Wesgroup is into the possibility of government grants to help cover the added cost.

For his part, Carle says New Westminster simply doesn’t have the money to invest in a district energy system, but he welcomes any opportunity for partnerships with the private sector and other levels of government.

In North Vancouver, the city has taken the decision out of the hands of developers by simply mandating that all new buildings within a certain radius of the Lonsdale district energy system must be built with the capacity to connect to it. The system is comprised of a series of small, efficient natural-gas boilers and was built and is owned jointly by the City of North Vancouver and Corix Utilities.

This kind of clear-cut rule is helpful for developers, says Conicella, who points out that while many other municipalities encourage sustainable ideas such as district energy, they don’t provide definite rules about how developers must build. “And what any developer wants to know before moving into a municipality is, What is the cost to do business?” says Conicella. What is clear to developers, he says, is that there hasn’t been a visible market incentive for undertaking the extra costs of putting in district-energy-ready buildings today. “Would people prefer to live in something that is designed to be environmentally friendly? Yes. Will they pay for it? The answer is no.”

This raises questions about the role and responsibility of residential and commercial users in the financing of district energy systems. Right now, municipalities are taking a conservative economic approach: the cost of building these systems must be recoverable through user rates, and those rates must be cost competitive. “Right now the philosophy most local governments are taking is that the general taxpayer will not subsidize a green system in a given neighbourhood,” says Pander. “But if the benefits are city-wide, I think there’s a fair debate that could take place around that.”

And Barry Milner, marketing director of GeoTility Systems Corp., a Kelowna-based company that installs geothermal systems in residential developments, believes the real estate market is beginning to recognize the value of district energy and other green building features. Geothermal, which uses the solar energy stored in the ground as a heat source, requires capital-intensive drilling and heat pumps to draw the energy up from the ground and into a building. To address the financing issue, GeoTility started its own utility, TerraSource, which initially deals with the developer to get a district energy plan approved and financed, and then recoups the cost via a connection and monthly access fee. The payback is about seven to 10 years, after which point the resident actually pays lower energy bills on average, and, argues Milner, has increased their property value.

“I think the important thing we need to understand is that it brings value to the building,” says Milner. “The stuff that we do now is going to have an impact on our children, on our livelihoods and our
wealth in the future. And in years to come, if you build a house that doesn’t have these features, you’re going to have a hard time selling it.”