In conversation with Bruce Ander: why district energy is important to the energy transition in Canada

Dominique Barker: Welcome to the Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape, with a view on addressing current issues in a concise format to help you navigate and take action. I’m your host, Dominique Barker. Please join me as we explore today’s most pressing matters with special guests that will give you some new perspective and help you make sense of what really matters.

Bruce Ander: What’s really exciting, you know, one of the challenges is capital. When we go to low carbon, we even have a larger capital requirement because we’re investing in new technologies and different technologies and projects. But that biggest challenge is also the biggest opportunity.

Dominique Barker: Today, we welcome Bruce Ander, President and CEO of Markham District Energy, which is a thermal energy utility owned by the city of Markham in Ontario. It provides services to over 13 million square feet of buildings. And Bruce has spent over 35 years in the Ontario energy sector. He’s the past chair of the International District Energy Association, the Canadian District Energy Association, as well as APPrO or the Association of Power Producers of Ontario. On today’s episode, we’re going to be discussing Markham District Energy’s recent announcement of a $270 million investment to expand clean energy projects in the city of Markham and why district energy is important to Canada’s energy transition. And I’m proud to say that CIBC was involved. We were a lender to Markham District Energy on this transaction. So good afternoon, Bruce, and welcome to The Sustainability Agenda.

Bruce Ander: Thanks, Dominique. Glad to be here.

Dominique Barker: So first I was saying to Bruce that I used to cover utilities, and I have to admit, I don’t know what district energy is. And so let’s start with that, because if I don’t know, I’m sure a lot of our audience doesn’t know. What is it?

Bruce Ander: Well, district energy is the industry of connecting buildings in an urban centre, maybe just a few buildings or hundreds of buildings to a thermal network. Think of the grids we have, the electricity grid, the natural gas grid. This is the third grid, which is the thermal grid. So we produce energy at a central plant or central plants. We produce hot water or chilled water, and that goes through the community in an underground piping system and enters the building. And that provides energy to either heat or cool a building or maybe a data centre or a laundry or something that uses thermal energy for industrial purposes. So the buildings that we connect to don’t have their own energy production plant. They don’t have their own boiler plant on the roof or chiller plant in the basement. They take the energy from our system through a series of pipes that then connects to their building secondary site. So it’s a bit of a hidden gem in our urban centres. There’s hundreds of district energy systems across Canada. In downtown Toronto, there’s one and many other cities and campuses across the country. And there’s hundreds of opportunities that are springing up across the country.

Dominique Barker: Okay, great. Thank you for that background. So Markham District Energy does have ambitious plans for growth over the next decade. What are some of the challenges that you’re trying to solve?

Bruce Ander: Well, district energy is a very capital intensive business. We have to build these plants and we have to build this underground distribution system before our customers are even there. This is why pension funds and long term investors like this business. It is capital intensive. But once the buildings connect to our system, they will be on our system for many decades. Some of the older systems in Canada are well over 50 years old. We are just over 20 years old. The challenge is raising capital, but it’s long patient capital. And once the system is operational, it’s a very solid business.

Dominique Barker: We talk about it being an important part of the transition story. Can you just explain why it’s considered lower carbon intensity?

Bruce Ander: What’s interesting is in our urban centres and we are becoming more urbanized. People are moving to the cities and urban centres are developing all over the country. In Toronto there’s more cranes I think in the air than any other city in Canada. Interestingly, buildings generate more greenhouse gas emissions than any other part of our economy. So if you’re going to reduce greenhouse gas emissions and move to net zero, which the country is talking about, which cities are talking about, you have to have a thermal energy strategy. And what’s interesting is there are many buildings just outside my window here that are obstructed in the last five years. If there was not a district energy system, they would have been built. They would have been good buildings, maybe a LEED platinum building or whatever, but they would never be net zero because they have their own energy production facility because they’ve connected to our system and they’re not the building itself is not the producer of the energy. We’re calling that whole relationship, they are net zero ready. Because they’re connected to our system, over time we can reduce our greenhouse gas emissions, our carbon profile, and that building will follow along with us towards net zero.

Dominique Barker: How are you developing the heat? The heat itself, like where is the heat source coming from and is that low carbon?

Bruce Ander: When we say low carbon, there’s a continuum for what it might have been 30 years ago to where we’re going to be 30 years from now. So think of the electricity sector, the same thing. 30 years ago, the electricity that you got to your home and a mixture of coal, oil and natural gas. Over the last 20, 30 years, we’ve moved off coal. We’ve moved much closer to net zero on the electricity side. We have the same situation on our thermal grid. We are more efficient than the buildings would otherwise be on their own, but we still burn fossil fuels. We are moving off fossil fuels. Part of this financing is helping us get there. And Europe is 30 years ahead of us in district energy. And they’ve had the same transition. We’re just following them, moving off fossil fuels into renewables, biomass and geo, ground source energy and all sorts of technologies to help us lower our carbon.

Dominique Barker: Yeah, that makes sense. We’re setting ourselves up for the future and it’s a little like electric vehicles. If you buy an electric vehicle on a grid that’s produced using coal electricity today, it’s not green, but you have the eventuality that the grid is going to move green. And so here we’re setting ourselves up to get off of fossil fuels using other sources of heat.

Bruce Ander: It’s a good analogy. If you bought a gas car, you don’t have that opportunity. So we are already greener than the building would have otherwise been had they just built it as an energy silo, if you like. But what’s really exciting, one of the challenges is capital. When we go to low carbon, we even have a larger capital requirement because we’re investing in new technologies and different technologies and projects. But that biggest challenge is also the biggest opportunity. You know, when I hear cities or the country talking about getting to net zero by 2050, that’s a huge challenge. But when I look at my business here in the city of Markham, serving these urban centres in Markham, we can actually get there. It’ll require capital, but we can over time move off of fossil fuels and start integrating low carbon technology.

Dominique Barker: So you’ve just raised 270 million. How are those investments going to be used?

Bruce Ander: We were talking to the Canada Infrastructure Bank for the last 18 months. We just closed a very significant financing with them and then CIBC came in alongside this Canada Infrastructure Bank. And the Canada Infrastructure Bank is a relatively new entity in Canada, but it’s a federally funded platform, if you like, to move along infrastructure investments towards a low carbon economy. They’ve seen district energy is a perfect application for their purpose. Not only Markham District Energy’s announcement we did last week, but they’ve also made investments in the downtown system Enwave, district energy in downtown Toronto and in BC. So I think the CIB has almost $1,000,000,000 committed to the sector. So the money that we’ve raised, financing we’ve closed is doing two basic things, connect every single building that’s going to be built. We have three urban centres in Markham. Eventually, when they’re fully built out in 20 or 30 years, they’ll be 100 million square feet of buildings. So our first goal to connect every single building. So with that, all the buildings become net zero ready. So whatever we do on our platform, they follow along. They follow our journey to net zero by 2050. That’s our target. But in that we have to invest in moving off of fossil fuels, becoming more efficient. So with this particular financing, there are several projects that we’re doing, ones in construction, ones we’re hoping to be in construction as early as next year. One interesting one is a heat recovery heat pump. So we have a heating system and we have a cooling system. So we’ve actually integrated those two systems. We’re providing cooling all year round to data centres. Those data centres throw off a lot of heat. So as opposed to wasting that heat into the atmosphere, we are recovering it through heat pump technology, elevating it and pumping that heat back into the community to heat it. That’s an interesting project. That project alone will save almost 5,000 tons of greenhouse gas emissions a year. A larger project is we also have, interestingly, the largest York region sewer truck going by one of our plants. It’s literally yards away from one of our plant locations and there’s a lot of heat in that sewage flow. These are projects that are being done all over the world and all over North America. We are planning to capture that heat in the sewage flow that goes by. Also with heat pump technology elevated to heat our community. When we do this project, it’ll be the largest wastewater energy recovery project in Canada. And the Canada Infrastructure Bank was very excited about these low carbon initiatives. They’re capital intensive, but the technology is here, so we just need to do it.

Dominique Barker: We find this in sustainability, things that are very capital intensive up front, as long as there’s a long life, tend to have a big payoff over time, especially as carbon costs start to be priced into to any modelling that is done on anything. I’m willing to bet that that will happen.

Bruce Ander: And you’re right, that’s what it’s happening here in Canada. We are pricing carbon. 15 years ago we weren’t and that’s why Europe was ahead of us because they did value the carbon value. So that’s helping us get there for sure.

Dominique Barker: Well, you’re definitely giving me a better understanding of district energy. I once spoke to a hotel operator who spoke about putting heat pumps, for example, in some hotels or some rooms that are on the same day will be cooling themselves. And a room right next door might be heating itself and so if you can manage it from one centralized location, that that could be really powerful. No pun intended.

Bruce Ander: Well it’s a micro example of what we’re talking about. Yeah, absolutely.

Dominique Barker: So, Bruce, just in your opinion, how ready are district energy systems in Canada to transition and maybe you can talk about the opportunity for other city owned utilities to do this sort of investment. What advice would you give them?

Bruce Ander: Well, if you look at the district energy sector in Canada or in North America, there are city owned district energy utilities like ours. There’s one in Hamilton, there’s one in downtown Toronto, run by Toronto Community Housing. But there’s also a lot of investor owned utilities. So what is interesting is district energy is not a new concept. The oldest system in Canada was created in London, Ontario in 1870, so it’s well over 100 years old. There are several systems that are well over 50 years old. And we’re just over 20. So we’re pretty young in that context. At one time, people thought of these district energy systems as old technology. You know, that’s what they built 100 years ago or 50 years ago or 30 years ago. Our whole industry is in a real renaissance right now because the lights come on that these systems that are all some of the legacy systems that are around, connect a whole bunch of buildings thermally. So now it’s already done. The net zero already is there. So they are ready to move to low carbon. And, you know, our colleagues down in Toronto at Enwave, they’re doing a lot of interesting projects. We are. Other systems in across Canada and BC are doing interesting projects. Again, to lower the carbon, moving away from fossil fuels, increasing efficiency. It’s all there and we don’t have to do anything at the buildings because they’re already connected. We just have to do it at the production level, if you like. And again, the Canada Infrastructure Bank, I think early on discovered that this is a real sector. They can help move along by stepping up with some capital.

Dominique Barker: So what advice would you give to those city owned utilities, I guess, to come up with a district heating and cooling and call Canada Infrastructure Bank?

Bruce Ander: Well, certainly if there’s an existing system, call the Canada Infrastructure Bank, but there’s capital elsewhere as well. There are a lot of cities in Ontario that have looked at doing district energy. They realize that this is an opportunity as they have an urban centre developing and it’s a very difficult thing to start because it’s so capital intensive up front. But my advice is do it because I’ve seen several projects that were attempted and it just got too difficult for the municipality to do it on their own. So partner with firms that do it and launch. Our experience is once the system is launched, even if it’s small, it will expand naturally. You know, density breeds density, and once you have a system, before you know it, there’s another building that suddenly planned very close by and you can connect it without the same upfront stress of launching. We’re seeing a lot of development in British Columbia, for example. They have a culture of sustainability, and I think that culture is driving a lot of systems in cities in Vancouver and adjacent cities and elsewhere in BC.

Dominique Barker: Bruce, thank you so much for taking the time to speak to us today. And I personally learned a lot about district energy. I hope that our listeners appreciated and learned something today too. Thank you.

Bruce Ander: Well, thanks for having me. I hope that helped.

Dominique Barker: Please join us next time as we tackle some of sustainability’s biggest questions, providing different perspectives to help you move forward. I’m your host, Dominique Barker, and this is The Sustainability Agenda.

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