Innovative Business Models Open Up Opportunities for District Energy
Technological innovation has been a key driver to increasing adoption of sustainable energy. Solar, wind, and geothermal energy resources have always been in abundant supply, but the challenge has been in developing the technology needed to effectively harness all that energy. Yet there is another aspect of sustainable energy development that also requires ingenuity and forward thinking: financing. How are people going to pay for this technology?
This question is particularly relevant to building developers who are now facing tightening government policies and regulations to reduce the carbon footprint of their buildings. Finding new and innovative ways to increase building performance and reduce GHG emissions in a cost effective way has proven to be a difficult task for most developers. In this environment, district energy has emerged as a promising approach to power buildings and communities, but to develop district energy systems requires a considerable amount of time and upfront capital investment.
Typically, district energy involves a central heating and cooling system that supplies hot or cold water to surrounding buildings using underground pipes. There’s no need to include a standalone heating and cooling system inside every building, which opens additional space, lowers maintenance costs, and substantially reduces greenhouse gas emissions. Sometimes, these systems are fueled by natural gas, but they are equally well suited to geothermal, waste heat, or other renewables sources of energy.
You can see district energy systems at work in several noteworthy projects, including the Marine Gateway mixed-use complex in Vancouver. The development uses a closed-loop geo-exchange system to provide 70 per cent of the energy needed for its space heating and hot water, while natural gas boilers help handle peak load and provide a backup source of energy.
Richmond, a large suburb of Vancouver in BC, has also embraced district energy. The city’s Alexandra neighbourhood uses geothermal energy to heat and cool a range of different building types, from personal residences to the local Wal-Mart. Elsewhere in the city, the Oval Village area uses natural gas-fired boilers to power its own district energy system. Once enough buildings have been looped into the system, the city plans to expand to use waste heat from the sewer system.
Not every developer can afford the initial costs or operating risks of such systems. Incorporating a district energy system into condo towers or mixed-use developments costs significantly more capital to install than the conventional heating and cooling plant which it replaces. For a developer with no ownership stake in the building, there is little incentive to invest in such an expensive system since they don’t directly benefit from the long-term operational cost savings that come from the system. In the traditional business model of property development, the focus is on upfront cost reductions, which puts sustainable energy systems at a disadvantage against cheaper conventional technology.
Third-party ownership creates an opportunity for developers to incorporate district energy systems into their projects while substantially reducing the risk. A company with expertise in building and operating district energy systems can handle the financing, installation, and operation of the system in exchange for ownership. In turn, the company sells the energy back to tenants and provides them with clean, affordable energy at a predictable monthly price.
Marine Gateway is a prime example of how third- party ownership model can make it easier to incorporate district energy into a project. The developer lacked experience in district energy, so it turned to a utility provider to install and operate the system. This approach ensured that a company focused on district energy took on the risks of installing and operating the system, while the tenants reaped the benefits of clean, affordable
In the United States, Google set up a company called Dandelion to encourage more individual residences to use geothermal energy for heating and cooling. Homeowners can purchase the company’s system outright but they also have the option of paying nothing upfront and making payments over a 20-year span. Providing this financing option dramatically lowers the economic barriers to entry for many homeowners.
For district energy on a much larger scale, look at downtown Vancouver, where the Beatty Street plant has been powering a district energy system for five decades. Beneath the city’s busy downtown streets, there are 14 kilometers of pipe connecting over 210 buildings—including BC Place Stadium and Roger’s Arena—to a district heating system owned by a third party. New projects can simply link into the system and enjoy the advantages of the existing infrastructure.
Downtown Vancouver offers a glimpse at the potential efficiencies that can be found in a mature, well established district energy system. The Beatty Street plant runs on natural gas, but there have been public discussions about converting the system to use a low-carbon biofuel, such as wood chips. Such a move could dramatically cut the city’s greenhouse gas emissions. With one upgrade, hundreds of buildings could switch to a lower carbon form of energy.
The city likely would not have this opportunity if there hadn’t been a third-party owner to nurture and maintain the downtown district energy system, which is why innovative financing strategies are so important. Once barriers to entry are removed for developers, district energy systems can grow over time to encompass more and more buildings. After it has been established, the system can readily incorporate new technologies and fuel sources as they become viable. By moving past traditional modes of financing, we open the door for future energy innovations.