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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:
TO:
FROM:
SUBJECT:
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.
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Nelson Hydro
District Energy System Business Plan
Revision 5
REVISIONS SUMMARY
Revision
Date
24-Apr-15
Description
07-May-15
19-Jun-15
25-Jun-15
27-Jun-15
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.
Page 1 of 16
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.
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Page 3 of 16
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.
Page 4 of 16
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.
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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
Biomass Boiler
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,
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 (<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.
Page 9 of 16
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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Page 11 of 16
Category
Description
Capital Cost1
w/out KLH
Capital Cost1
with KLH
$1,045,000
$1,201,750
Equipment Costs
$606,043
$721,192
$631,000
$700,410
Mechanical Process
$289,000
$289,000
$493,000
$601,460
Owner Costs
Project management,
engineering, commissioning
$539,827
$701,776
Contingency
$685,654
$702,762
$4,298,525
$4,918,350
TOTAL
1
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$/GJ
$19
$21
$14
$23
Westhills, Langford
$23
varies by customer
$27
$40
BC Average
$24
The two rate models examined in the feasibility study were an escalated cost of service model and
an incentive rate. The escalated cost of service structure charges the customer a rate that
increases each year, but pays for the system over its lifespan. The incentive rate is designed to
encourage voluntary connection to the district energy system and offers a rate 10% below that of
delivered natural gas. The escalated cost of service option, which charges an energy price
reflective of the cost of service, achieves a 6% rate of return. The incentive rate does not achieve
a rate of return and has a negative net present value, meaning the system will not pay for itself
over the its lifespan using this rate model.
Page 13 of 16
Using the incentive rate model, the cost of energy from the district heating system would be tied
to the business as usual natural gas rate.
An individual customer could expect the following energy cost savings based on the annual heat
load of their facility. These are estimates only and specific savings would need to be calculated
on an individual facility basis.
ENERGY COST SAVINGS ($)*
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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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
$4.5 M
$600 K
$5.0 M
$2.8 M
$1.0 M
$1.0 M
$1.0 M
$1.0 M
$5.5 M
$1.6 M
$6.0 M
$3.8 M
$159 K
$159 K
$379 K
$379 K
$123 K
$123 K
$206 K
$206 K
$36 K
$36 K
$173 K
$173 K
>30 years
15 years
>30 years
15 years
Total Borrowing
(CoN Investment + Capital Reserve)
* 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
12. Recommendations
It is recommended that Council approve staff moving forward with the next stage of developing
the DES utility which includes;
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.
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