Project Green District Energy Feasibility Study - Partners in Project ...

TRCA Pearson Eco-Business Zone District Energy Feasibility Study 10 April 2012
Secure Memoranda of Understanding (MOU) with prospective customers that may help attract
private interest in the DE utility
Find an effective private owner/operators for the DE utility through a competitive process, preferably
after an attractive opportunity has been defined, the offer in the RFP might include municipal share
of risk and promises of senior government funding (e.g. Infrastructure Ontario, Build Canada, FCM)
2) Sustaining
Market DE as a desirable feature of the area
Require that new buildings in the area be at least DE compatible (central hydronic heating and
cooling with ground level connections, low internal supply temperature and high ∆T)
Mandatory connection for new buildings should be viewed with caution as it has rate regulation
implications; i.e. if connection is mandated, how can fair rates be ensured?
Consider density bonusing for new buildings (developers allowed more height if connected to DE)
The Municipalities could develop a DES utility through a subsidiary corporation in a similar way
that the Town of Markham owns Markham District Energy. A corporation is the recommended
governance model to signal clear legal ability to conduct business including entering long-term
contracts, negotiating business partnerships and incurring debt.
The capital structure would be detailed following further definition of project scope and timing. It
would probably include equity and possibly loans from the Municipalities and/or partners as well
as grants and loans from senior levels of government.
Capital
Cash flow management during the early stages of a DE project can be made easier under
municipal ownership by grants and favourable loans, e.g. through the Federation of Canadian
Municipalities and Building Canada Plan. These grants and favourable loans can bridge the
financing gap between what is generally needed for a DE start-up and what might be
reasonably available on a commercial basis. Grants and other assistance for infrastructure
construction are generally more available for projects with municipal ownership.
Part of the original capital commitment could be recoverable from contracted revenue from the
first customer(s) that trigger(s) the need for construction to start. Construction should not be
planned until there is a significant customer commitment. The balance would be at risk pending
commitments from additional customers. This risk has been faced by all DES serving new
development areas as a large up-front investment must be dedicated to meet the needs of the
first customer without knowing how long it will take to sell the remaining capacity. The risk can
be explored with sensitivity analysis and the results shared with potential partners and lenders
during the course of detailed business planning and consultations.
Operations
Operation of the DES could be contracted out but it would be preferable to have a private
partner bring the required DE operating and management skills. As owners, they would be
expected to operate efficiently and the investment would be more attractive for them.
Since operations is a significant fixed cost it is often found that the early cash flow of a DES is
greatly improved if the DES can be “bolted on” to an existing operation and thereby avoid the
incremental cost of establishing a new operating organization.
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