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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.

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

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

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Fink District Energy, Enderby, BC

Nelson Hydro
District Energy System Business Plan
Revision 5

June 29th, 2015

REVISIONS SUMMARY
Revision

Date

24-Apr-15

Description

First draft of business plan, sent to Alex Love for review

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

07-May-15

19-Jun-15

25-Jun-15

27-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
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
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

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

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.

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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.

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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.

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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.

Selkirk Study Area

Lakefront Study Area

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.

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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.

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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.

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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).

Bunker storing the fuel


Building being heated

Container housing the boiler

Arrow Fire Zone Attack Base - Playmor Junction

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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.

Stack
Bunker

Boiler House

Central Energy Plant

Biomass Boiler

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,
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other flue gases can be kept to a minimum. The primary stack emissions that could impact air
quality are carbon monoxide, small particulates (<35 microns), nitrogen oxides, and sulphur
dioxide. The three key factors that affect the characteristics of the combustion process are
equipment, quality of fuel, and operations.
There are minerals present in biomass, taken up by the plant during growth, that are in trace
concentrations in the wood and higher levels in the bark and leaves. Most of these minerals will
contribute to the ash produced during the burning process. Larger particles will fall through the
grate of the biomass boiler and into the ash collection bin, while smaller particles can be carried
up with the flue gases, together with any particulate unburned carbon as fly ash. A range of
filters are available to catch these particles before they reach the outside air such as cyclones,
electrostatic precipitators, and fabric filters.
In British Columbia, there is no set standard to regulate emission thresholds of biomass energy
systems. The exception to this is boilers used for agricultural purposes, such as greenhouses.
Biomass energy systems that fall outside of agricultural applications require a permit that is
negotiated on an individual basis with the regional department of the Ministry of Environment.
The biomass district energy system will be developed in compliance with all Ministry of
Environment requirements for air quality.

7.2. Greenhouse Gas Emissions


Greenhouse gas emissions, not to be confused with stack emissions, are gases produced in the
process of burning of fuel that contribute to the atmospheric greenhouse effect and climate
change. A biomass district energy system will replace the burning of natural gas for heat with the
burning of wood waste. This will result in a decrease of greenhouse gas emissions being released
into the atmosphere.
Natural gas is a fossil fuel source that produces approximately 50 kg of carbon dioxide per
gigajoule burned and contains carbon that was created millions of years ago. Without the
extraction and burning of natural gas, the carbon content would have remained locked up.
Woody biomass, on the other hand, is part of the natural biogenic carbon cycle. The carbon in
biomass was taken up from the atmosphere and incorporated into the plant within the last 100
years. It is considered a very carbon lean energy source as the carbon released during combustion
would have eventually been released into the atmosphere through natural decomposition of the
wood.
The first phase of the district energy project would incorporate core downtown buildings and
would result in a greenhouse gas emission reduction of approximately 1200 tonnes annually. To
put this in perspective, the City of Nelson has a Corporate Greenhouse Gas Reduction Plan with
targets for reducing greenhouse emissions. The baseline year for measurement of corporate
emissions is 2007 and in that year, the City produced 1213 tonnes of emissions through corporate
operations.

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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

300 GJ

1000 GJ

10,000 GJ

25,000 GJ

BAU

15

50

500

1250

DES

10

100

250

12 tCO2e

40 tCO2e

400 tCO2e

1000 tCO2e

Annual
Energy

Savings/Yr

* Savings assume that biomass boilers will cover 80% of annual heat load and natural gas will
cover 20% of the load.
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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.

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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

$1,045,000

$1,201,750

Equipment Costs

Boilers, fuel storage, fuel


conveyance, instrumentation
and controls

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

$4,298,525

$4,918,350

TOTAL
1

Cost estimates do not include taxes.

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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.

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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

$300

$1,000

$10,000

$25,000

Savings/Yr

* Savings assume a delivered cost of natural gas of $10/GJ as natural gas prices increase,
savings will also increase.

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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

No

No

Yes

Yes

$4.5 M

$4.5 M

$5.0 M

$5.0 M

$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

$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

$36 K

$36 K

$173 K

$173 K

>30 years

15 years

>30 years

15 years

Including Kootenay Lake Hospital?


Capital Cost
Funding Contribution

Total Borrowing
(CoN Investment + Capital Reserve)

Operating Net Revenue (1st year)


Payback Period

* 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

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

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