"District energy" is a fairly simple idea, it's that it is more efficient to build a big heating and cooling system for several buildings than it is to install small units in each separate one. It manifests this efficiency in two ways. First, there is just the basic principle of taking advantage of what economists call "economies of scale". This doesn't just involve saving money---large, centralized facilities can also afford to install better pollution abatement equipment. Secondly, in a large facility there is the opportunity to use the waste heat from specific industrial processes to do other things instead of simply letting it dissipate into the surrounding environment.
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| District Energy System, Graphic from City of Guelph District Energy Strategic Plan |
As far as I know, Guelph has four district energy systems. One has been at the University since the 1960s.
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| The Recently-Installed Cool Water Storage Tank for the University District Energy System. Image used under "Fair Use Provision", From a University Promotional Website |
In addition, Polycon (a division of Magna) in Guelph installed a 7 megawatt physical plant in 2015.
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| Polycon's Combined Electricity and Heat Plant at 65 Independence Place, Guelph Image used under "Fair Use Provision" of Copyright Act Photo from the Ellis Don website |
These two images raise an important point that readers should understand. There is a certain "fluidity" to district energy projects in that they can take many different forms, follow very different business models, and, do very different things. In the Polycon example, the plant is a "Behind the Meter" electricity generator. This means that it doesn't sell any of the electricity it produces to Ontario's Independent Electrical System Operator (IESO). (This is the crown corporation that manages the electricity spot market in Ontario.) "Waste" heat left over from generating electricity is then used in the Polycon plant. The university system, in contrast, primarily provides both winter heating and summer air conditioning on campus. The tank in the above picture is part of a giant "heat sink" that allows the university to use the difference in temperatures from day to day and day to night, to save energy in it's chilled water air conditioning plant.
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A second element of a District Energy project involves ownership. The Polycon and University examples are very simple to understand. They are both very big institutions who own their facilities outright and use them exclusively to service their own buildings. In contrast, the Corporation of Guelph owns two systems that are supposed to provide heating and cooling to a wide variety of individual customers who choose to enter into long-term contracts with the city.
One of them is downtown and is situated in the downtown arena (the "Sleeman Centre".) It provides heat and cooling for the arena, the auditorium across Woolwich (the "River Run Centre"), and, the condo tower (the "River Mill" building) built by the Tricar Group.
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| Here's a promotional map from Tricar that shows where the location of customers for the downtown district energy system. Image from Tricar, "Fair Use" provision. |
A second facility exists in the Hanlon Creek Business Park. It's customers are an office building owned by "M F Property Management" and a warehouse for Wurth Canada. Originally it provided electricity which was sold onto the grid through the Independent Electrical System Operator (IESO), but once the city decided to walk away from district energy, the plant was downgraded to one that just provides heat to its two customers.
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| The original Hanlon Creek Business Park district energy system---including electricity generation. Image from the Ellis Don website, used under the "fair use" provision of the Copyright law. |
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| The Current Halon Creek Business Park district energy hub. Doesn't look all that different to me---. Photo by Bill Hulet with help from Dr. Tim Allman. |
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| The Hanlon Creek Business Park with the two customers and the district energy plant locations. Original Guelph promotional map with labels added by Bill Hulet. |
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As I mentioned in my previous article on the Community Energy Initiative, one of the key "products" that a municipal government offers to the community is planning and co-ordination. Traditionally this involved providing things like the police, the fire department, roads, potable water, sewage treatment, planning, etc. By doing so, it allows home owners and business people the opportunity to focus on their own particular activities without having to worry about finding a way to get all of these essential supports. And, because the city government provides them for everyone, it means that we get the advantages of scale, uniform standards, and, predictability that make all the difference between organization and chaos. Seen from this point of view, providing heating and cooling as a municipal service can be seen as simply the same sort of thing as piping in drinking water and piping out sewage. Some large institutions---like Polycon and the University---are so big that already can have economies of scale. This means that they don't have to have an outside organizing body (ie: the city) co-ordinating the provision of heating and cooling. In contrast, "small potatoes" like Tricar, Wurth Canada, and, M. F. Property Management aren't big enough to warrant creating their own system.
This is why the city---under the auspices of the Community Energy Initiative---decided to build the two district energy systems: one downtown and the other in the Hanlon Creek Business Park. There are two obvious questions raised by this, however: "Why did the city do this instead of getting a private business to do it?", and, "Why haven't they been as successful as promised?"
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| Enwave steam plant and smoke stack viewed from Pearl and Simcoe Street, Toronto. Photo by Saud, c/o Wiki Commons |
Having said the above, there are a few general things about district energy systems that can be said. They do tend to be more efficient than each individual building having it's own heating and air conditioning systems. But they are rather capital intensive, and the rates of returns aren't so high that they can quickly pay off investments. Consider the following figures that come from a paper by Hans-Holger Rogner in a 1993 Paper in Energy Studies Review. What these numbers compare are the figures just for heating (not air conditioning---like Enwave's system, or, dual electricity generation and heat---like Polycon.) Also, the percentage is a comparison between the heat created by burning natural gas versus the heat available to be used by the customer.
- Average new gas-fueled individual building furnace technology: 61.4%
- Best available gas-fueled individual building furnace technology: 65.9%
- District heating based on centralized boilers: 71.3%
- Combined Heat and Electricity using natural gas turbines with heat recovery for district heat: 87.5%
Looking the above, you can see that there is only a 8% improvement in efficiency (ie: [71.3 - 65.9] / 65.9) when you switch from the best available individual furnace technology to a centralized boiler (like at the university and downtown systems.) If I do the same calculation with combined heat and electricity (like at Polycon and the original Hanlon Creek Industrial Park site), the efficiency is a much more respectable 33%.
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I admit that I can be quite pushy about trying to get people to support the "Guelph-Back-Grounder". It is important to understand, however, how much of a disadvantage this news source labours under. Unlike the vast majority of blogs, it is devoted to local news. And that makes a huge difference! If I were writing on subjects of international or even national interest I would have a pool of potential subscribers that would number in the millions. That means that even if I were able to get a tiny fraction of one percent of them as subscribers I'd have a very successful publication. But because I've decided to report local news, I'm limited to a maximum total of about 100,000 subscribers. This means that for local indie news to be a viable business model people are going to have to accept that it will require a higher percentage of paid subscribers and cost more per person than a national or international source.
If you want local news that isn't just click bait people are going to have to pay for it. So how about ponying up as little as a buck a month for the "Back-Grounder"? It's easy to do on Patreon. You can also toss money in the Tip Jar if you don't want to make a long term commitment.
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I admit that I can be quite pushy about trying to get people to support the "Guelph-Back-Grounder". It is important to understand, however, how much of a disadvantage this news source labours under. Unlike the vast majority of blogs, it is devoted to local news. And that makes a huge difference! If I were writing on subjects of international or even national interest I would have a pool of potential subscribers that would number in the millions. That means that even if I were able to get a tiny fraction of one percent of them as subscribers I'd have a very successful publication. But because I've decided to report local news, I'm limited to a maximum total of about 100,000 subscribers. This means that for local indie news to be a viable business model people are going to have to accept that it will require a higher percentage of paid subscribers and cost more per person than a national or international source.
If you want local news that isn't just click bait people are going to have to pay for it. So how about ponying up as little as a buck a month for the "Back-Grounder"? It's easy to do on Patreon. You can also toss money in the Tip Jar if you don't want to make a long term commitment.
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Please remember that the above numbers refer only to comparative energy efficiency for heating alone. When we are talking about this sort of thing we also have to take into account two other very important issues: the cost of energy, and, the cost of borrowing money. As near as I can tell, Guelph started to become serious about developing district energy in 2011, so it would be useful to look at changes in both natural gas prices and the cost of borrowing money since then.
First, here's an average yearly natural gas price from Union Gas as quoted by the Ontario Energy Board.
First, here's an average yearly natural gas price from Union Gas as quoted by the Ontario Energy Board.
- 2011: 13.3 cents per cubic metre
- 2012: 9.4 cents
- 2013: 10.9 cents
- 2014: 19.4 cents
- 2015: 13.1 cents
- 2016: 9.8 cents
- 2017: 17.6 cents
- 2018: 15 cents
- 2019: 18 cents
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As I mentioned before, district energy systems are very capital intensive. The two systems that Guelph installed cost about $14 million, which isn't a huge price when you consider that if they ran at full capacity they would probably be able to replace more than that in the price of installed physical plant in customer's buildings. (I'm told that combined heating and air conditioning plants in a large condo tower can cost about $1 million.)
But there is a complexity to large human habitations in that it is possible for developers to push the costs of heating and cooling onto the final occupants in a building. For example, it was very common at one time for builders to simply install electric baseboard heaters with separate electrical hook-ups in apartments, which meant that each renter could be charged independently for heating through their electricity bills. I understand that even when more cost-effective systems are used (for example using combination air conditioning and air source heat pumps, or, through radiators attached to a water heater), some condominiums have separate systems installed per unit. In a city where there is a tremendous shortage of housing, like Guelph, where prices have increased by 200 to 300% since 2001, there is precious little incentive for developers to compete with each other on the basis of saving condo buyers or renters money either in initial investment in their own power plants or in long-term operating costs.
Another complexity comes from realizing that there is more than one place that a capital investment can increase energy efficiency. The figures from Rogner's paper refer to efficiency of physical plant, but there are also important efficiencies that can come from the end use. For example, there are significant savings that can come from things like insulation and tightening up leaks in the building envelope. If you are only working with an 8% increase in efficiency from a District Energy system, then perhaps a better "bang for the buck" would involve increasing the amount of insulation and quality of windows installed in an apartment or condominium tower.
Just to make the evaluation of district energy even more complicated, recent prime interest rates have been at historic lows---averaging between 3% and 3.95%. It's important to understand that this is the lowest that the prime rate has been at since before the Second World War. This means that while it is true that district energy systems are very capital intensive, we are living at a time when capital costs are the lowest they've been in generations. If it only costs 4% to borrow money that will result in an 8% cost saving, it sounds pretty good. But it's important to understand that while efficiency and the cost of borrowing money need to be connected when planning investments in energy efficiency, they are fundamentally a question of "apples and oranges". If the 8% savings in energy amounts of $20 because of the low cost of natural gas, and you have to invest $10 million to save it because the technology is so capital intensive---well, 4% equals $400,000 so you do the math. ;-) On the other hand, if the 8% savings come to $10,000 a year and you only have to invest $20,000 to save that much, then the 4% interest comes to only $800/year---which means that it's a great deal. These are just hypothetical numbers, but I include them to point out the importance of remembering that the calculus involved in setting up a district energy system is really complex and involves numbers that fluctuate for unpredictable reasons---which is why I suspect most private business owners have been loathe to invest in starting them from scratch.
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And don't forget the fact that district energy systems involve two things that fall directly under municipal governance: planning and utilities. City planning departments decide whether or not a specific project can be built in a specific place. District energy projects work best with new builds simply because if you are building a tower from the ground up you can save money if you don't have to build an expensive heating and cooling system. In contrast, if you already have an existing building, you've already spent the money to provide heat and air conditioning yourself. If you are a private business that is trying to make a profit off district energy, you have to know that the city is committed to letting developers build the sort of buildings that will sign on as customers.
Secondly, the pipes that connect your heating and cooling facility to new customers are going to be put under the roads. And the process of putting them there is going to be really disruptive to traffic and really expensive. (One of the reasons that Fusion Homes---the condos at the old W. C. Woods site---said that they didn't sign up for the downtown system was the extreme cost of running pipes past the Speed River.) Since the city owns the roads, they are both the experts on doing this sort of thing and the final arbitrar about what does and does not get done.
The diversity of factors determining the economics is further augmented by the fact that the distribution infrastructure of district energy systems is inherently capital intensive with payback periods resembling those in the utility sector. Consequently, utilities are best suited to own and operate district energy systems. (from Rogner's 1993 paper)And don't forget the issues that I raised in my first article on this subject. Any increase in the efficiency of any physical plant in the city of Guelph is going to raise the productivity of the city, which will free up money to either be harvested as profits to be reinvested or as wages to circulate through local economy. In addition, a dollar saved through efficiency is a dollar that will not leak out to the company that is providing fossil fuels from out of province or even out of country.
And if all this isn't enough to make your head spin, don't forget that increases in efficiency also have a value in a world where it's government policy to put a price on carbon. Under a cap-and-trade system increased carbon efficiencies can be sold for profit on the emissions market. Moreover, when government programs exist that subsidize capital investment in efficiency, a district energy system can apply for grants from other levels of government. For example, Guelph received a $145,750 grant from the Green Municipal Fund to do the initial research for the municipal district energy project. (And, I might point out the this grant was given under the Stephen Harper government with the then Natural Resources Minister Lisa Raitt doing the photo op.)
So to sum up, there is a case for developing municipal district energy systems. But the math is extremely complicated and based on a variety of important variables. This doesn't mean, however, that district energy system cannot be profitable, or that private businesses will not buy into them---just that they seem to something that businesses will only invest in after municipal utilities set them up and "prove the concept".
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| Logo used under the "Fair Use" provision, Image c/o Wiki Commons. |
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This is the point where I think I need to stop and break the story into two parts. City Council decided that the district energy hubs were a financial failure and decided to put the project "on ice". Since describing this is a very different process than outlining the back ground, I'm going to make that the focus of another installment.
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Furthermore, I say to you---climate change must be dealt with!
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