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THE CORPORATION OF THE CITY OF NELSON REQUEST FOR DECISION
DATE: July 06, 2015 Regular Meeting TOPIC: PROPOSAL: City of
Nelson District Energy System Business Plan PROPOSED BY: Staff
___________________________________________________________________
ANALYSIS SUMMARY: In May 2015 a presentation for information on the
draft Business Plan was provided to council. The Nelson Hydro
District Energy Business Plan has now been circulated for review.
Alex Love and Fiona Galbraith will provide a verbal overview of the
Business Plan highlights and be able to address questions. BENEFITS
OR DISADVANTAGES AND NEGATIVE IMPACTS: The Business Plan is for
Council and the publics information. LEGISLATIVE IMPACTS,
PRECEDENTS, and POLICIES: It is within Council mandate and
authority to authorize proceeding with a District Energy System.
COSTS AND BUDGET IMPACT - REVENUE GENERATION: Proceeding to the
next phase of the District Energy System has a cost impact of about
$100,000. There is no reserve or budget specifically for this
purpose, however the Nelson Hydro capital reserve has sufficient
capacity to float the amount with the intention that it would be
transferred onto the books of the DES once the utility is
established. The full project has a capital cost of about
$5,000,000. We are recommending proceeding with constructing the
project contingent on a payback of 15 years or less. There are
several methods by which this can be achieved through a combination
of financing rates, grant funding, and customer connections. Even
though initially the utility revenues will be directed toward
paying back its own capital costs the utility will become a net
revenue generator for the city. The other benefits such as reduced
greenhouse gas emissions and local supply of energy will begin in
the first year of operation. IMPACT ON SUSTAINABILITY OBJECTIVES
AND STAFF RESOURCES: The DES will have a significant impact on
greenhouse gas (GHG) reductions which aligns with the City goals
(Low Carbon Path to 2040) and commitments to become carbon neutral
(Climate Action Charter). The GHG reductions from the base phase of
the DES would be sufficient to make the city corporate operations
carbon negative. COMMUNICATION: Council heard an overview of the
DES in May 2015. This Business Plan document will become publicly
available through the city website. Next phases of the project will
include detailed design, public engagement and bringing back to
council a final project decision with regards to construction.
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OPTIONS AND ALTERNATIVES: 1. Approve moving to the next stage of
developing the DES utility. 2. Refer to staff with direction for
further analysis. 3. Disapprove moving forward with the DES
utility.
ATTACHMENTS:
Nelson Hydro District Energy Business Plan Rev 5. Cover memo
from the Nelson Hydro General Manager (July 06, 2015)
RECOMMENDATION: That Council approves staff moving forward with
the next stage of developing the DES utility which includes;
Beginning public engagement, Securing financing authorization
through MFA for up to $4,000,000, Securing grant funding, Entering
into a Memorandum of Understanding with potential DES customers,
Undertaking preliminary design, Securing one or more central plant
site locations by entering into a Memorandum
of Understanding with relevant property owners, and Entering
into a Memorandum of Understanding with one or more regional
wood
waste suppliers.
Staff would not make firm financial commitments in excess of
$100,000 before returning to council with the finalized project
plan. Upon securement of loan financing, grant funding, and
customer MOUs, staff will bring the district energy project back to
council for approval to construct. AUTHOR: REVIEWED BY:
_______________________________ ______________________________
NELSON HYDRO GENERAL MANAGER CITY MANAGER
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MEMORANDUM Suite 101, 310 Ward St. Nelson, BC V1l 5S4 Tel (250)
352-8214 Fax (250) 352-6417 DATE: July 06, 2015 TO: Kevin Cormack,
CAO
Council City of Nelson FROM: Alex Love, General Manager SUBJECT:
District Energy System Attached you have the latest revision of the
District Energy System (DES) business plan. This plan provides a
good review of the DES features and benefits. You will notice it is
light on the financial analysis. Financial analysis has been done
but is not presented in detail because there are so many possible
variations (e.g. the results vary considerably depending on which
buildings get connected).With the scenarios we consider most
plausible I think we have a good case for moving forward with
building the DES though it will take grant funding to make it
financially viable. The most plausible base scenario (which
contemplates the NDCC, Civic center and KLDH as customers) is a $5
million capital project that with a $2.2 million grant fund would
leave the city with a $2.8 million project with a15 year payback.
Once built there will be opportunities to improve the performance
of the DES utility for example profitability would be improved if
any or all three of these take place;
adding cooling sales, adding more customers, and/or natural gas
rates increase faster than the assumption of 2%
Many steps in analyzing construction options, possible
customers, and possible sources of fuel have been undertaken. We
are now at the stage of being able to have meaningful discussions
with both fuel suppliers and customers as we can talk about rates
and timing. The next stage we are proposing involves us having
those discussions this will then reduce the possible variations to
a manageable and firm few which will let us bring back to council a
solid financial forecast which we expect will be equal or better
than that in the current business plan. This marks a turning point
in the DES conversation. The conversation is no longer about
whether but how best to move forward.
2015-07-06 DES Recommendation.docx 1 of 1
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Fink District Energy, Enderby, BC
Nelson Hydro
District Energy System Business Plan Revision 5
June 29th, 2015
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REVISIONS SUMMARY
Revision Date Description 1 24-Apr-15 First draft of business
plan, sent to Alex Love for review
2 07-May-15
Addition of more photos & graphics Addition of Section 7 -
Emissions Section 9 - updating of cost estimates Section 10 -
addition of rates in BC Section 11 addition of columns for KLH
models in table
11.1 and section on financing Section 12 revision of
recommendations
3 19-Jun-15
Section 3 - edits to description of GHG emissions & wood
waste
Section 7.2 - updated GHG emissions graph Section 7.2 added GHG
emissions savings chart Section 10 added energy cost savings
chart
4 25-Jun-15
Section 1 updated the Executive Summary Section 6 included
description of size of footprint needed
for CEP Section 9 updated cost estimates table to include
column
for KLH Section 10 removed LCOE notes and included graph
comparing BAU rates to DE Rates Section 11 simplified the
financial summary table
numbers will be input from AL model Section 12 revised
recommendations
5 27-Jun-15
Section 10 changed incentive rate graph to starting natural gas
rate of $9.98 to account for carbon tax
Section 11 Updated Financial Summary table with various examples
of project costs/financing/funding
Section 12 aligned recommendations with those in the RFD
Removed Draft watermark
Prepared by: Reviewed by:
(Original signed) (Original signed)
____________________ _____________________
Fiona Galbraith Alex Love
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TABLE OF CONTENTS 1. Executive Summary
......................................................................................................
1 2. Background
...................................................................................................................
2 2.1. Overview of District Energy
................................................................................
2
2.2. Context of District Energy
...................................................................................
2 3. Benefits of District Energy
...........................................................................................
3 4. District Energy Study Process
......................................................................................
4 4.1. Pre-Feasibility Study
............................................................................................
4 4.2. Biomass Feedstock
Analysis................................................................................
4 4.3. Feasibility Study
..................................................................................................
5
4.4. Cost Estimate Analysis
........................................................................................
5 5. Proposed District Energy System
.................................................................................
6 6. Biomass (Wood Waste) Heating Systems
....................................................................
7 7. Emissions
......................................................................................................................
8
7.1. Boiler Stack Emissions
........................................................................................
8 7.2. Greenhouse Gas Emissions
..................................................................................
9
8. Ownership Model for District Energy
........................................................................
11 9. Capital Cost Estimates
................................................................................................
12 10. Rate Model Options
....................................................................................................
13 11. Financial Summary
.....................................................................................................
15
11.1. Financing Options
..............................................................................................
16 12. Recommendations
.......................................................................................................
16
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1. Executive Summary The City of Nelson is considering the
development of a district energy system that would provide a low
carbon heating alternative to natural gas.
The benefits for customers of a district energy system include
improved energy efficiency, reduced maintenance costs, reliability,
reduced space requirements for mechanical equipment, and ease of
operation.
The district energy system being proposed in this plan is a
phased approach that would be located in the Lakefront area and
supply heat to buildings produced from biomass boilers using local
wood waste for fuel.
The first phase of the district energy project would include
core downtown buildings and Kootenay Lake Hospital as potential
customers. This phase would result in a greenhouse gas emission
reduction of approximately 1200 tonnes with the core buildings and
up to 2100 tonnes with the inclusion of Kootenay Lake Hospital.
The district energy system would be owned and operated by the
City of Nelson, under the direction of Nelson Hydro.
Capital costs for the project would range from $4.5 M to $5 M,
depending on which buildings were connected to the system.
The rate model would be an incentive rate with energy priced at
10% below the equivalent natural gas rate.
It is recommended that the City of Nelson proceed with the
development of a district energy system, provided that additional
funding can be sourced through grant opportunities to bring the
payback period for the project within a 15 year range.
Page 1 of 16
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2. Background 2.1. Overview of District Energy A district energy
(DE) system produces steam, hot water, or chilled water at a
central plant that is then delivered to various buildings connected
through an underground piping system. The energy delivered by the
system through steam or water can then be used for space heating,
domestic hot water, and air conditioning. For the purposes of this
report, district energy will refer to the delivery of energy in the
form of heat which is transported via hot water. With a district
energy system, individual buildings dont require their own heating
and cooling systems, although a backup system is beneficial for
redundancy. The benefits for customers of a district energy system
include improved energy efficiency, reduced maintenance costs,
reliability, reduced space requirements for mechanical equipment,
and ease of operation. Fuel sources for district energy heating
systems can range from renewable sources such as biomass (i.e. wood
waste) to standard energy sources such as natural gas or
electricity. A number of fuel sources were considered while
assessing the potential of a district energy system in Nelson and
it was determined that a system using wood waste as an energy
source was the most viable option.
2.2. Context of District Energy The City of Nelson is in a
unique position in that it owns and operates its own hydro utility,
Nelson Hydro. Nelson Hydro has a long history of electricity
generation and is looking to broaden the scope of its services. In
1896, the initial founders of Nelson Hydro had the foresight and
vision to establish a hydro utility that is now an important source
of revenue for the City of Nelson. In exploring the feasibility of
a district energy system, Nelson Hydro is carrying forward that
vision with an eye to the future of energy production.
If renewable energy is used as the fuel source for the district
energy, it can significantly reduce greenhouse gas emissions. The
City of Nelson has demonstrated its commitment to action on climate
change through a variety of policies and programs. In 2007, the
City was one of the early signatories of the provincial Climate
Action Charter with a commitment to reduce greenhouse gas emissions
in corporate operations. In 2010, the first phase of the Corporate
Greenhouse Gas Reduction Plan was passed by council and implemented
over the next five years. In 2011, the City developed the Low
Carbon Path to 2040: Energy and Emissions Action Plan to address
community wide greenhouse gas emissions. A key strategy of this
plan is to establish district energy systems with a target of
connecting 70,000 square meters of floor space by 2040.
Page 2 of 16
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3. Benefits of District Energy There are many benefits to the
community and region with the development of a district energy
system. As part of the BC Air Action Plan, released in 2008, the
province committed to phasing out wood residue (beehive) burners.
As a result, mills within the local area are looking for
alternative solutions for disposing of wood waste from production.
A biomass district energy system would be able to use this wood
waste for the creation of usable energy in the form of heat.
With regards to greenhouse gas emissions, the district energy
system being considered would displace natural gas as a fuel source
by using waste biomass, thereby greatly reducing the emissions
produced from burning natural gas. Natural gas is a fossil fuel
source that produces approximately 50 kg of carbon dioxide for
every gigajoule that is burned. Woody biomass, on the other hand,
is part of the natural carbon cycle (unlike fossilized carbon in
natural gas) that is considered a very carbon lean energy source as
it emits the same amount of carbon when burned as it would if left
to decompose naturally over a 100 year cycle. For the district
energy system, Nelson Hydro is committed to using wood waste from
local sources in the West Kootenays and accounting for upstream
emissions associated with transporting the wood waste.
A district energy system places the community of Nelson on a
path to greater energy resiliency with more local energy production
and revenue that is reinvested into the regional economy. Although
it may take time to pay off the initial investment, a district
energy system can provide a source of revenue for the municipality.
It will also provide Nelson Hydro with an opportunity to develop
expertise in the provision of heating energy that can be further
developed and expanded upon in the future.
Page 3 of 16
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4. District Energy Study Process 4.1. Pre-Feasibility Study In
2010, a pre-feasibility study was commissioned to determine the
viability of developing a district energy system in Nelson. Two
study areas were considered the Lakefront area (including the
downtown core) and the Selkirk area that included Selkirk Colleges
10th Street Campus.
The analysis included an evaluation of the configuration of the
piping systems, as well as the measurement of heating and cooling
requirements of buildings within each area. The energy sources
considered in the study were lake heat exchange, geothermal heat
exchange, solar thermal, and heat recovery. It was determined that
solar thermal was not as beneficial to the production of the system
as expected. The study also ascertained that a district energy
system within the community had potential and warranted further
investigation.
4.2. Biomass Feedstock Analysis Although not originally
considered in the pre-feasibility study, wood waste was identified
as an additional option to fuel a DE system. In order to determine
the availability of wood waste within the region and the cost of
this fuel source, a biomass feedstock analysis was conducted. The
study assessed the supply of sawmill residues available within a 40
km radius of Nelson and the additional residues available within
120 km of Nelson. It was determined that the energy system proposed
in the pre-feasibility study would require between 5% and 15% of
the available sawmill residues within 40 km of Nelson. When
interviewed, many local producers were enthusiastic about the
opportunity to provide the City of Nelson with wood waste at the
cost of transport.
Lakefront Study Area
Selkirk Study Area
Page 4 of 16
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4.3. Feasibility Study From 2013 to 2014, a feasibility study
was completed to further explore the feasibility and implementation
of a DE system. The same two study areas were considered, Lakefront
and Selkirk, but new heating systems were considered.
In reviewing the results of the pre-feasibility study, it was
found that building retrofit costs made up a large component of the
system costs. In the initial analysis, a low temperature heat pump
was examined for the lake heat exchange option. Most of the older
building stock in Nelson is designed for high temperature heating
systems (i.e. hot water), so the use of low temperature heat pumps
would have required extensive retrofitting of piping systems within
each building. Since the completion of the pre-feasibility study,
new technology had become available that allows heat pumps to
achieve much higher supply temperatures, thereby eliminating the
need for costly piping retrofits.
In the feasibility study, three heating systems were considered;
lake sourced low temperature heat pumps (evaluated in the
pre-feasibility study), lake sourced high temperature heat pumps,
and biomass boilers. Both the biomass boilers and high temperature
heat pumps are able to generate high supply temperatures for the
delivery of heat.
The feasibility study concluded that:
Biomass boilers provided the most economically feasible option
in the development of a renewable, low carbon district energy
system.
The Lakefront area was a more viable business option than the
Selkirk area primarily due to higher and more concentrated heat
loads.
A phased approach to development of the system should be used
with a select group of buildings in the downtown core presenting
the best option for inclusion in the first phase of development
that could include the Nelson and District Community Complex,
Soccer Quest, Civic Arena, and Curling Club.
4.4. Cost Estimate Analysis Upon completion of the feasibility
report, further research was conducted to refine the capital cost
estimates of the project in order to generate a higher degree of
accuracy to assess the business case for a district energy system.
This resulted in a refining of cost estimates for civil works and
energy transfer stations.
Page 5 of 16
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5. Proposed District Energy System The district energy system
being proposed in this plan is a phased approach that would be
located in the Lakefront area and supply heat to buildings produced
from biomass boilers using local wood waste for fuel.
In both the pre-feasibility and feasibility studies, the
Lakefront area was found to be preferential to the Selkirk area for
development of a DE system. The density and heat load of customers
are key factors in the financial viability of district energy and
the Lakefront area had a greater concentration of high heat load
customers, compared to the Selkirk study area.
Although a biomass boiler system was not initially considered in
the pre-feasibility study, it was determined to have the better
paybacks when compared to low temperature and high temperature heat
pump systems that would have used lake water as a heat source. Heat
pumps require electricity to function and electricity is much
higher in cost than wood waste, which can be sourced for the price
of transport. The abundant supply of wood waste residues in the
region also contribute to the viability of a biomass district
energy system, but long term supply contracts would need to be
obtained in order to ensure a low cost of fuel over the life of the
system.
Phasing of the district energy system allows for expansion in
the future as additional buildings and areas are tied onto the
system. In connecting a smaller group of core buildings in the
Lakefront area for Phase 1 of development, experience can be gained
in the construction and operation of the heating system prior to a
full build out.
An important consideration in construction of a DE system is the
location of the central energy plant. A variety of sites are being
examined, but a location has not yet been selected. Factors to be
considered in the selection process include access for delivery
vehicles, impacts on nearby residences, room for expansion of the
system, and proximity to potential customers.
Page 6 of 16
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6. Biomass (Wood Waste) Heating Systems Biomass heating systems
are comprised of a boiler that is designed to burn a variety of
wood waste materials from sawdust to shavings to wood chips. Some
systems are also designed to burn manufactured pellets made from
wood residues. The system being considered for Nelson would use raw
wood waste materials rather than pre-manufactured pellets as theres
a large supply of wood residue in the area and pellets would need
to be shipped from a greater distance.
Biomass boilers differ greatly from common wood stoves in that
the combustions process is highly efficient. At the end of the
combustion process, it is primarily water vapour and carbon dioxide
being released into the atmosphere. Additional equipment can also
be installed on the boiler stack, if needed, to ensure a high
standard of air quality that is compliant with Ministry of
Environment regulations. With the regional forest industry, biomass
is a good fit for the area and provides a valuable option for the
use of wood waste. Biomass based heating systems are already in
operation throughout BC including Revelstoke, Enderby, Prince
George, and a local system that heats the Arrow Fire Zone Attack
Base located near Playmor Junction (seen below).
Arrow Fire Zone Attack Base - Playmor Junction
Container housing the boiler
Bunker storing the fuel Building being heated
Page 7 of 16
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With a biomass district heating system, the central energy plant
would be comprised of a boiler house and a bunker for storage of
wood waste (i.e. fuel). For the heat loads being considered in
Phase 1 of this development, there would be enough fuel storage
capacity to last for 8 days. Fuel deliveries would occur 1-2 times
per week during the peak winter months and less frequently in the
shoulder seasons. The boiler would be installed in an enclosed
building with an approximately 20 m high stack. The footprint
needed to accommodate a 2 MW system would be 1200 square metres,
which is equivalent to the size of 4 tennis courts. This would
allow for development of the first phase of the system, which is 1
MW in size, and leave room to expand the system by an additional
megawatt.
Fink District Energy - Enderby, BC
Within the West Kootenays, the main options for disposal of wood
waste from mills are the:
burning of slab piles on site;
delivery of material to Celgar in Castlegar or Kettle Falls
Generating Station in North Washington for use in an energy plant;
or
delivery to landfill sites.
Based on these options, the use of biomass for Nelsons district
energy system would either be on par with the current business as
usual case, when compared to the use of waste for power generation,
or an improvement, when compared to disposal at a landfill or
burning on site.
7. Emissions 7.1. Boiler Stack Emissions The burning of wood
waste will produce a range of emissions in the flue gases. In an
ideal combustion environment only carbon dioxide and water vapour
would be produced. Biomass boilers arent able to achieve an ideal
combustion environment, but in a well designed combustion system
that allows for sufficient time and turbulence within the
combustion chamber,
Boiler House Bunker
Biomass Boiler
Stack
Central Energy Plant
Page 8 of 16
- other flue gases can be kept to a minimum. The primary stack
emissions that could impact air quality are carbon monoxide, small
particulates (
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Implementation of a biomass district heating system would reduce
emissions in the community by the same level as that produced
through municipal operations. In 2014, the City produced 999 tonnes
of emissions, a 200 tonne decrease compared to 2007 as a result of
the implementation of energy reduction projects. The City of Nelson
is a signatory of the provincial Corporate Climate Action Charter.
Through this program, the City could receive community carbon
credits for the district energy system which would help achieve
carbon neutrality in corporate operations.
An individual customer could expect the following greenhouse gas
emission reductions based on the annual heat load of their
facility. These are estimates only and specific savings would need
to be calculated on an individual facility basis.
GHG EMISSION SAVINGS (tCO2e)*
Small Building Medium Building
Large Building
Very Large Building
Annual Energy 300 GJ 1000 GJ 10,000 GJ 25,000 GJ
BAU 15 50 500 1250
DES 3 10 100 250
Savings/Yr 12 tCO2e 40 tCO2e 400 tCO2e 1000 tCO2e
* Savings assume that biomass boilers will cover 80% of annual
heat load and natural gas will cover 20% of the load.
Page 10 of 16
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8. Ownership Model for District Energy With over 100 years in
the energy business, Nelson Hydro and the City of Nelson are well
positioned for the role of being a heat provider, in addition to an
electricity supplier. In fact Nelson Hydro is already in the heat
supply business as the owner / operator of the geo-exchange heating
system at the 10th Street campus Selkirk College dormitory, which
has been in operation since 2011.
The district energy system would be owned and operated by the
City of Nelson, under the direction of Nelson Hydro. As an
electrical utility, Nelson Hydro has expertise in customer service,
billing, and operations. The development of a district energy
system would build upon this experience and broaden the scope of
services offered to the customer. In the long term, expansion of
Nelson Hydros capacity beyond that of an electrical utility can
create a lasting revenue source for the municipality, in the same
way the electrical utility has done over the last century.
Page 11 of 16
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9. Capital Cost Estimates As part of the feasibility study
process, an estimate of project costs was provided for the
construction of a district energy system. Specific costs for items
within the project were further tested by comparing them to
estimates provided by vendors and to similar cost estimates from
past capital projects. The capital cost estimate of the project has
been developed to a degree of accuracy that allows for a decision
on proceeding to the next stage of the project.
Category Description Capital Cost1
w/out KLH Capital Cost1
with KLH
Equipment Costs Boilers, fuel storage, fuel conveyance,
instrumentation and controls
$1,045,000 $1,201,750
Civil Works Distribution Pipes, trenching and backfilling, road
works $606,043 $721,192
Civic Works Central Plant Boiler house, land, site prep $631,000
$700,410
Mechanical Process Fire suppression, installation of equipment,
venting $289,000 $289,000
Energy Transfer Stations & Building Retrofits
Energy meters, heat transfer, building upgrades $493,000
$601,460
Owner Costs Project management, engineering, commissioning
$539,827 $701,776
Contingency 20% of project costs $685,654 $702,762
TOTAL $4,298,525 $4,918,350
1Cost estimates do not include taxes.
Page 12 of 16
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10. Rate Model Options For many district energy systems in BC, a
premium is being charged to recoup the cost of the system that
ranges from $14/GJ to $40/GJ (see table 10.1). In places such as
Surrey, a bylaw has been created requiring developers to build with
radiant hot water heating systems and connect their developments to
the district energy system. With such a high influx of people
moving into Surrey and the expansion of public transit nodes,
developers are competing to build in that area. This is not the
case for Nelsons district energy system, where customers will be
made up of the existing building stock and rates must be
competitive with the business as usual option of natural gas.
Table 10.1 BC District Energy System Rates
System $/GJ
Lonsdale Energy, North Vancouver $19
Prince George Downtown $21
Central Heat, Vancouver $14
Southeast False Creek, Vancouver $23
Westhills, Langford $23
Revelstoke Community Energy System varies by customer
Dockside Green, Victoria $27
Corix UniverCity, Burnaby $40
BC Average $24
The two rate models examined in the feasibility study were an
escalated cost of service model and an incentive rate. The
escalated cost of service structure charges the customer a rate
that increases each year, but pays for the system over its
lifespan. The incentive rate is designed to encourage voluntary
connection to the district energy system and offers a rate 10%
below that of delivered natural gas. The escalated cost of service
option, which charges an energy price reflective of the cost of
service, achieves a 6% rate of return. The incentive rate does not
achieve a rate of return and has a negative net present value,
meaning the system will not pay for itself over the its lifespan
using this rate model.
Page 13 of 16
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Using the incentive rate model, the cost of energy from the
district heating system would be tied to the business as usual
natural gas rate.
* Assumes an annual 2% escalation rate for cost of delivered
natural gas.
An individual customer could expect the following energy cost
savings based on the annual heat load of their facility. These are
estimates only and specific savings would need to be calculated on
an individual facility basis.
ENERGY COST SAVINGS ($)*
Small Building Medium Building
Large Building
Very Large Building
Annual Energy 300 GJ 1000 GJ 10,000 GJ 25,000 GJ
BAU $3,000 $10,000 $100,000 $250,000
DES $2,700 $9,000 $90,000 $225,000
Savings/Yr $300 $1,000 $10,000 $25,000
* Savings assume a delivered cost of natural gas of $10/GJ as
natural gas prices increase, savings will also increase.
Page 14 of 16
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11. Financial Summary Given that it isnt feasible to charge
customers a heating rate significantly higher than natural gas and
that the incentive rate of 10% below natural gas results in a
lengthy payback period for the City, it will be necessary to seek
additional funding for the project to proceed. Both the City, as a
municipality, and Nelson Hydro, as a utility, are in a position to
accept longer paybacks on projects than would be the case for a
corporate endeavour. A project with a payback of 15 years or less
would still be worthwhile as the infrastructure lasts well beyond
that period and the system can become an ongoing revenue source for
the municipality.
The following is a summary of district energy costs and
revenues, based on a variety of examples:
FINANCIAL SUMMARY
Example 1A Example
1B Example
2A Example
2B
Including Kootenay Lake Hospital? No No Yes Yes
Capital Cost $4.5 M $4.5 M $5.0 M $5.0 M
Funding Contribution $0 $3.9 M $0 $2.2 M
City of Nelson Investment $4.5 M $600 K $5.0 M $2.8 M
Capital Reserve/System Expansion $1.0 M $1.0 M $1.0 M $1.0 M
Total Borrowing (CoN Investment + Capital Reserve) $5.5 M $1.6 M
$6.0 M $3.8 M
Energy Sales (1st year) $159 K $159 K $379 K $379 K
Operating Costs (1st year) $123 K $123 K $206 K $206 K
Operating Net Revenue (1st year) $36 K $36 K $173 K $173 K
Payback Period >30 years 15 years >30 years 15 years
* Buildings included in the financial summary are: Nelson and
District Community Complex, Soccer Quest, Civic Arena, Curling
Club, and Kootenay Lake Hospital (depending on the scenario).
Page 15 of 16
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11.1. Financing Options The City of Nelson would borrow up to $4
million from the Municipal Financing Authority (MFA) which would
contribute towards the capital costs for the first phase of
development of the district energy system. The process for
borrowing this money would involve the creation of a Loan
Authorization bylaw that would require council approval. This would
be followed by an Alternate Approval Process (AAP) that provides an
opportunity for public input. If the AAP failed, meaning at least
10% of voters objected to the borrowing, then the decision would
need to go to a public referendum.
12. Recommendations It is recommended that Council approve staff
moving forward with the next stage of developing the DES utility
which includes;
Beginning public engagement,
Securing financing authorization through MFA for up to
$4,000,000,
Securing grant funding,
Entering into a Memorandum of Understanding with potential DES
customers,
Undertaking preliminary design,
Securing one or more central plant site locations by entering
into a Memorandum of Understanding with relevant property owners,
and
Entering into a Memorandum of Understanding with one or more
regional wood waste suppliers.
Staff would not make firm financial commitments in excess of
$100,000 before returning to council with the finalized project
plan. Upon securement of loan financing, grant funding, and
customer MOUs, staff will bring the district energy project back to
council for approval to construct.
Page 16 of 16
2015-07-06 RFD District Energy System_Rev 32015-07-06 DES
RecommendationDES Business Plan Rev 51. Executive Summary2.
Background2.1. Overview of District Energy2.2. Context of District
Energy
3. Benefits of District Energy4. District Energy Study
Process4.1. Pre-Feasibility Study4.2. Biomass Feedstock
Analysis4.3. Feasibility Study4.4. Cost Estimate Analysis
5. Proposed District Energy System6. Biomass (Wood Waste)
Heating Systems7. Emissions7.1. Boiler Stack Emissions7.2.
Greenhouse Gas Emissions
8. Ownership Model for District Energy9. Capital Cost
Estimates10. Rate Model Options11. Financial Summary11.1. Financing
Options
12. Recommendations