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CITY OF VANCOUVER ADMINISTRATIVE REPORT |
Report Date: |
March 22, 2005 | |
Author: |
Dale Mikkelsen/
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Phone No.: |
604.871.6168/6677 | |
RTS No.: |
04970 | |
CC File No.: |
3501 | |
Meeting Date: |
April 12, 2005 |
TO: |
Vancouver City Council |
FROM: |
Sustainability Group |
SUBJECT: |
Community Energy System Feasibility Study and Business Case |
RECOMMENDATION
A. THAT Council receive the report on a preliminary feasibility study, entitled
"Towards an Energy Utility for the False Creek Precinct: Feasibility and Options."
B. THAT Council direct staff to undertake a comprehensive study to define technology options, capital costs, operational parameters, partnership strategies, and a business case for the development and operation of a community energy system to meet City sustainability and greenhouse gas (GHG) reduction goals.
C. THAT Council direct staff to issue a Request For Proposals (RFP), and given the timing constraints for the comprehensive study, authorise the City Manager to approve the selection of the consultant(s). The RFP will be developed to ensure that the study addresses two distinct elements of a community energy system: (a) the technical and capital cost element, and (b) the business model, including risk assessment and business case. These elements may entail two distinct phases, or two consultancies, depending upon the final RFP structure and the City's review of consultant responses.
D. THAT Council direct staff to seek support for this study from senior levels of government and other partners (those without potential interests in the possible future development/operations/funding of a community energy system). Staff estimate the study cost at $250,000, with $50,000 allocated by Council as part of the Sustainability Group's 2005 Operating Budget and the remainder to be established through senior government support and partners. In order to expedite the process, short-term funding backup may be provided by Sustainability Group, from its existing 2005 Operating Budget approved by Council.
E. THAT Council direct staff to report back as necessary during the comprehensive study process, with a full report back upon completion of the study.
CITY MANAGER'S COMMENTS
The City Manager recommends approval of A thru E.
COUNCIL POLICY
On October 16, 1990, Council approved in principle Clouds of Change Recommendation #1 to reduce carbon dioxide emissions by 20% as part of the actions to address global climate change issues, subject to future reports on costs and trade-offs involved in achieving the objectives and targets. Reduced greenhouse gas (GHG) production through better energy efficiency was recommended.
In 1995, Vancouver joined the Federation of Canadian Municipalities' "20% Club", which became the Partners for Climate Protection Program in 1998.
In 2001, the Southeast False Creek Policy Statement was adopted by Council to shape the sustainable growth of the remaining 50 acres of waterfront land on False Creek, including the development of energy efficient buildings and technologies.
On April 23, 2002, Council adopted a Definition and Principles of Sustainability to guide, prioritize, and improve the sustainability of City actions and operations.
On May 2, 2002, Council carried the motion, proposed by the Federation of Canadian Municipalities, to support the Canadian Government's ratification of the Kyoto Protocol.
On March 25, 2003, Council approved an emissions reduction target of 20% from 1990 levels for the corporation of the City of Vancouver, subject to evaluation of the implications of the target to ensure it is realistic. On this same date, Council created the Cool Vancouver Task Force and requested that it report back with a report on the components of a Greenhouse Gas Reduction Action Plan for both the corporation and the community.
On June 24, 2003, Council received the Cool Vancouver Task Force's Discussion Paper on Greenhouse Gas Reduction Planning and approved (in principle) a target of 6% below 1990 emissions levels for the city (community) as a whole, subject to evaluation of the implications of the target to ensure it is realistic. Council also approved a process to develop GHG Reduction Plans for both the City (Corporate) and the Community and approved $30,000 for technical support for the development of these plans.
On December 2, 2003, Council unanimously approved the Corporate Climate Change Action Plan as proposed from the Cool Vancouver Task Force, affirming the target of a 20% reduction from 1990 levels by 2010 of emissions from the City's own operations and facilities.
On June 8, 2004, Council approved revisions to the Energy Utilisation By-law to improve the energy performance of new, large commercial and residential buildings by approximately 13% by updating references to the 2001 version of ASHRAE90.1.
On July 8, 2004, Council approved a program to promote the development of green building policy in the City. The development of a district energy system is a fundamental part of ensuring more energy efficient buildings in all future development.
On March 1, 2005, Vancouver City Council approved the Southeast False Creek Official Development Plan (ODP) at Public Hearing. The ODP provides a framework for the environmental, social and economic sustainability objectives, intent and policies in the South East False Creek Policy Statement.
On March 29, 2005, Council approved the Community Climate Change Action Plan to reduce greenhouse gas emissions by 6 percent below 1990 levels. The Plan contains specific elements related to creating community energy systems that provide energy without contributing to GHG emissions.
SUMMARY
This report provides an update to Council on a preliminary feasibility study (Appendix A) for an environmentally responsible community energy system, which was recently completed for the City by Compass Resource Management. This study is to inform development of a detailed technical study and implementation strategy with business case. This more in-depth and detailed study, which may be done in two distinct parts, is essential for the City in order to consider the options available for pursuing sustainability and climate change goals.
The preliminary feasibility study indicates that an integrated community energy system, based in part on the energy system being designed as part of the Southeast False Creek redevelopment, can significantly reduce GHG emissions, improve building energy efficiency by up to 50%, and operate in an economically responsible manner. Preliminary analytical work indicates that a conservative model for an integrated system could result in lower capital and annual operating costs than status quo, stand-alone, building-based energy systems. Further, this approach could free up significant additional capital for redirected investments, which could go toward higher efficiency or advanced technologies, or other infrastructure costs.
In addition, staff are seeking Council support to solicit support from external partners to participate in this more comprehensive study. Partners could include the Federation of Canadian Municipalities, Industry Canada, Western Economic Diversification, Natural Resource Canada, and other stakeholders without a potential conflict of interest with future involvement in the development of a community energy system, or that may influence the City's ability to make risk assessment and feasibility determinations without bias.
Council has allocated $50,000 from the Sustainability Group 2005 Operating Budget to help fund this study with confidence that the aforementioned partners will come on board early in the process. However, in order to expedite the issuance of an RFP and consultant selection, it is important for staff to have quick access to the remaining $200,000 from the Sustainability Group's operating budget or other civic sources until the partnership funding is in place. This significant commitment from the City to this project will have a strong influence on partnership support. The RFP will be developed to ensure that the study addresses two distinct elements of a community energy system: (a) the technical and capital cost element, and (b) the business model, including risk assessment. These may be two distinct phases, or two consultancies depending upon the final RFP structure and decisions made by staff involved. Upon issuance of the RFP and receipt of proposals, staff will review all applications and make recommendations to the City Manager, who will then review the decision and authorise the issuance of the contract to the successful consultant(s). This path is recommended in order to expedite delivery of the contract and meet the aggressive schedules for Southeast False Creek and the Olympic Athlete's Village, which will form the first development in the community energy system.
PURPOSE
Council are being asked to endorse recommendations A thru E in order to move forward with a process to secure an environmentally responsible source of heat and electrical energy generation for a significant portion of the False Creek Basin in order to facilitate the City's commitments to GHG reduction and sustainability initiatives, such as Southeast False Creek.
Figure A - Community Energy System
Community-scale energy systems would give the City the ability to look at clean energy and reduce GHG's at a significant scale, as well as the opportunity to determine how the use and distribution of this energy can be both utilised and regulated. A comprehensive approach will place Vancouver in a leadership role in North America, and will allow the development and growth of technology and utility services in Vancouver and British Columbia. With a careful and comprehensive approach to a feasibility and development study, Vancouver should be able to utilise technologies and modes of operation that can be replicated both within (possibly along the Cambie Street corridor in conjunction with RAV and in the East Fraser Lands) and beyond Vancouver.
This report provides the framework, structure and direction to move forward with a comprehensive analysis of the technical issues and business case to support future City decisions. The results of the preliminary feasibility study reinforce the need for additional analysis, but are not sufficient for any decisions at this time. This comprehensive study needs to progress quickly and efficiently in order to satisfy the development schedule of the Olympic Athlete's Village and the proposed neighbourhood energy system already endorsed by Council on March 1, 2005. Further, by completing this study at the same time the City is completing the overall site servicing study for the Athlete's Village, additional technical information can be provided to the Southeast False Creek project development team.
BACKGROUND
Over the past year, City staff have been working to develop both policy and new planning directions for all of the development areas around the False Creek Basin, stretching from the Plaza of Nations area in North False Creek, to the undeveloped lands south of CityGate, to the large industrial area of the Flats and into the new sustainable community of SEFC. In the immediate context, the 2010 Olympic Athlete's Village will begin infrastructure development early in 2006, with a Council endorsed neighbourhood energy system being a key part of this infrastructure. Additionally, significant new development and planning studies are either underway, under review or under development. This area represents a 550-acre body of nearly contiguous land that will be developed over the next 5 to 15 years. Since many of these sites are held by single landowners or large institutional partners, and the rezoning process will provide the City with direct opportunities to work with the landowners and developers to realise the potential for this community energy system. An initial review of existing zoning, proposed zoning and contemplated developments indicates that about 1.7 million square meters of development could occur within this 15-year timeframe.
The preliminary feasibility study concluded that the potential environmental, economic and social benefits of a community energy system were significant, and that both specific technical and economic analyses/business models were needed to make any decisions to create a community energy system.
DISCUSSION
Under a status-quo development regime, the development capacity in this area could consume as much as 600,000 GJ (giga-joules) of energy per year. With a sustainable community energy system, this energy could be provided in a way that significantly reduces GHG emissions. A heat energy system that is GHG neutral, and an electric energy system bolstered by a micro-grid of backup systems and co-generation units, could provide dramatic environmental benefits. Through the use of these alternative heat and electrical energy sources and systems, the buildings within the system inherently could have a reduced energy profile (often as much as 30%). These gains assume the construction of "typical" buildings, however if energy efficient, "green" buildings become the standard in this area, efficiencies in energy consumption could easily reach 50% or greater. Finally, any energy system that is anchored by non-fossil fuel energy supplies could be insulated from energy cost escalation, and could increase in value over time both for the owner/operator's and the user's of the system, building a sound investment model and energy security for all stakeholders.
This section describes the considerations related to creating a community energy system. Information from the preliminary feasibility study is included to provide Council with staff's current understanding of the questions that would need to be addressed by the comprehensive feasibility study and business case.
1. What are the study goals and scope?
· The City needs an assessment of the feasibility and options for an energy efficient and environmentally responsible, integrated community energy system, a model and business case for its sustainable operation, and an incremental growth strategy for up to 550 acres of land in and around the False Creek Flats area. This assessment needs to be done in two distinct parts to ensure that adequate resources are supplied to both the technical/capital cost assessment and the development of a full business model.
2. What is the projected development timeframe?
The 550 acres within the area to be studied is expected to be redeveloped completely over the next 15 years, with some portions to be done before 2010, including portions of Southeast False Creek and the Great Northern Way Campus. The 2010 Olympic Athlete's Village will begin infrastructure installations, including a neighbourhood energy system, early in 2006.
Figure B - Development Profile
3. What would be the characteristics of the energy production and use in this area under a status quo approach to development and services?
Based on the preliminary feasibility study, energy provision in the area would have the following characteristics under our current approach to development:
· Each development responsible for its own heating, cooling and emergency power systems
· Systems installed by developers
· Systems ultimately owned and operated by building owners
· Majority of heating and cooling met with electricity and smaller portion with natural gas
· Diesel generators used to meet emergency power loads
· Regular electricity service provided by BC Hydro
· Natural gas provided by Terasen
· Standard efficiency heating and cooling equipment
4. Why pursue a community energy system and management structure?
Given the characteristics of energy provision under our current development approach, analysis of the potential for creating a community energy system could offer the City the following opportunities:
· Reduce embodied energy in buildings and infrastructure;
· Increase energy efficiency of buildings;
· Increase use of local, efficient and renewable sources of energy (heating);
· Enhance energy management in the site;
· Establish a micro-grid for a pooled emergency power solution; and
· Acquire low-cost offsets to mitigate any residual impacts from energy use and supply for the site.
5. What are the economic and organisational factors and questions that need to be considered as part of this study?
· Extensive empirical evidence shows that consumers and businesses use short time horizons and high discount rates when selecting energy technologies.
· This behaviour tends to favour technologies with lower capital costs and higher operating costs. This bias is further exacerbated when the building owner is not also the building tenant.
· The extent to which capital investments in more efficient technologies are justified by operating costs over time is dependent on the organisational structure in place for providing energy services. To illustrate this point, utility investors have longer time horizons (particularly institutional investors, such as large pension funds) and lower discount rates. Utilities are thus more likely to support investments in technologies with higher capital costs and lower operating costs.
· Any decision to pursue a community energy system would need to address both the economic and organisational questions about energy supply choices, efficient distribution and use, and management structures that support broader City goals. The creation of a business case is essential to making economically sound decisions.
· While a community energy system could be expected to provide cleaner energy, more efficiently and with a higher quality of service, these benefits would need to be weighed against possible additional costs related to infrastructure (e.g., heating loops, emergency power circuits, control technologies), administrative costs (metering and billing), and organisational start-up, regulatory and governance costs.
6. What are the ways that a community energy system could be expected to reduce operating costs for energy services?
· Many technologies are more efficient as the size of systems increases.
· Efficiency of many technologies also improves as utilisation rates increase.
· A community energy system could pay higher capital costs of more efficient or advanced technologies, finance those costs over a longer term and realise substantial operational cost savings over time.
· Savings in maintenance costs with a larger system.
8. What environmental advantages could a community energy system offer?
· Immediate efficiency improvement from larger equipment and integrated operations.
· Some of the annual savings from longer amortisation periods, lower discount rates, lower capital costs and lower operating costs could be re-invested in environmental improvements such as:
- Better emission controls;
- Even more efficient equipment;
- Alternative fuels or technologies; and
- Other environmental offsets (e.g., GHG offsets).
· Better understanding of environmental impacts, and means to address them, through an integrated system than multiple owners each with multiple systems.
· As partial or full owner of such a system, the City could internalise environmental issues in system operations, and make trade-offs between customer rates, financial returns and environmental performance.
· If off-sets are purchased for residual environmental impacts, these costs could be recovered in service rates.
9. What are the considerations surrounding the creation, ownership and governance of a community energy system?
A community energy system could either publicly or privately owned. However, several factors suggest that public ownership of at least part of the system is worth further analysis.
· A public energy utility is not subject to provincial (BCUC) oversight, which could provide additional flexibility in planning and rate setting.
· Viability of a community energy system could be dependent upon development patterns and requirements:
- Requirements for interconnection of loads; and
- Synergies between installation of energy infrastructure and other municipal infrastructure (e.g., water, sewer, streets).
· As owner, the City could have more flexibility in making trade-offs between customer rates, investment returns and environmental performance.
10. What are the ownership and operations options for a community energy system?
The preliminary feasibility study provides a brief, initial review of the ownership and operations options that could be considered in the comprehensive study. The study would offer recommendations to the City on the best options for meeting its goals, and provide a business case for moving forward with any decisions.
Figure C - Ownership/Operations Alternatives
City Ownership & Operation |
City Ownership & Service Contract |
Mixed Ownership & Operation |
Other Ownership & Operation |
|
City owns and operates all utility assets. |
City would own all utility assets but contract construction, operations, and/or customer services from a service provider. |
City would own distribution assets (e.g., heat loops and emergency power circuits). Other investors would own heat and emergency power sources. City would pay annual fees for heat and emergency power services and recover costs through rates levied on customers. City may contract for additional services (e.g., construction, operations, and billing). |
Neighbourhood utility would be owned and operated by another entity with involvement of City limited to working with utility provider in securing loads and installing infrastructure. |
11. What are the immediate priorities?
· Complete the technical analysis and business case (as two distinct parts) for a community energy system in the area (scope, functions, governance structure). This analysis would include:
- Load forecast(s)
- Form and configuration of distribution infrastructure
- Initial heating and emergency power sources
- System ownership and governance model
- Pricing structure
- Financial and environmental analysis
- Business case, including investment pro forma
- Near-term action plan
· Establish design criteria to support provision of heating, cooling and emergency power services.
· Develop initial distribution infrastructure plan (including a link to installation of other municipal infrastructure).
· Identify initial heat and emergency power sources.
FINANCIAL IMPLICATIONS
If Recommendations A thru E are approved, the City will be contributing $50,000 toward the completion of a comprehensive study on the development of a sustainable and viable community energy system. The source of funding for the $50,000 is from the Sustainability Group's 2005 Operating Budget. All additional funding (up to an estimated $250,000) will ultimately come from partners and funding sources that support innovative technologies and sustainable urban development models that do not bias the study toward a single technology, provider, or operator (FCM, Industry Canada, etc.). In the event that the external funding is not entirely available or in place by the time the RFP has been issued and the contract awarded, and due to the aggressive schedule outlined for the 2010 Olympic Athlete's Village infrastructure development program, the City may cover the additional funding need until the external funds are secure. This short-term, bridge funding (up to $200,000) most likely would be drawn from the Sustainability Group's 2005 Operating Budget. No new funding is required at this time.
PERSONNEL IMPLICATIONS
There are no personnel implications, as this work will be done by a consultant(s) and supervised by existing staff in the Sustainability Group, and supported by existing staff in Engineering Services and Planning.
ENVIRONMENTAL IMPLICATIONS
The development of a community energy system using local and sustainable technologies could have several positive environmental implications.
At the local scale, a 550-acre community energy system could be GHG neutral on the heat energy side, and with significant GHG reductions on the electrical energy side. Building energy consumption could be reduced by as much as 50%. Additionally, energy prices at the local level should be insulated from expected future price escalation of fossil fuel-based energy systems. If successful, this model of community energy supply and distribution, as well as the ownership model, could be replicated on other large development areas (East Fraser Lands, RAV/Cambie Street Corridor, Jericho Lands, etc.).
At the regional scale, the impacts of replicability are pronounced, with significant greenfield development occurring throughout the GVRD and British Columbia. Successful demonstration of these technologies could influence all new developments that would need to install infrastructure, and could lead to a provincial network of environmentally sensitive and economically viable energy systems, owned and potentially operated at the municipal level to ensure sensitivity to local demands and needs.
At the national and international scale, the development of such a system would present an integrated energy system that many communities would seek to replicate. The combined knowledge and service businesses needed to design, finance, construct and operate such a system would be well positioned to export their services anywhere in the world. To the degree that this type of system enables accelerated technological innovation and new business development, our expertise at developing and applying these technologies also would be in a strong export position.
SOCIAL IMPLICATIONS
Social implications are not as immediately obvious, as community energy systems and the structuring of a service model focus primarily on the environmental gains and economic feasibility. However, social gains are not secondary in the larger picture of sustainability. All individuals that choose to develop, purchase, lease or locate in facilities developed within the community energy system would be insulated against energy cost escalation. In this way, a community energy system would encourage confidence and long-term commitment to locating into this area, building a robust and long-term social network that is currently lacking in many portions of this area.
IMPLEMENTATION PLAN
Council approval of Recommendations A thru E would assist staff in completing the detailed work necessary for the City to contemplate moving forward in creating this community energy system.
This Report will allow staff to issue the RFP for a comprehensive study, delivered in two distinct parts (through one consolidated or two independent consultancies) and hire a consultant(s) to do this work in a timely manner, reflective of the aggressive scheduling for the infrastructure development of the 2010 Olympic Athlete's Village. Staff will issue the RFP to a broad base of local, Canadian and North American expertise in order to attract the most qualified submissions that show a well rounded knowledge of technologies, business model development and operationalisation. Staff will review these submissions based on an understanding of the ownership and operation parameters under Federal, Provincial and civic legal jurisdictions.
Upon staff selection of a consultant(s), staff will recommend the consultant to the City Manager, who, acting on authority of Council approval as per Recommendation D in this Report, will approve award of the contract with support of the Director of Legal Services and the General Manager of Community Services.
CONCLUSION
Based on the work done through the preliminary feasibility study, staff can identify some key conclusions that encourage the continuation of this work.
· A community energy system to provide heating, cooling and emergency power services in the False Creek Precinct could be feasible and offer opportunities for increased efficiency, lower costs, lower risks, lower environmental impacts and more flexibility to adopt new technologies over the full life of the development.
· Initial consideration of ownership and operation options for a community energy system would suggest public ownership of some or all of the system, but the dimensions of that ownership should be considered in more detail.
· An initial approach to the community energy system would likely revolve around the following elements:
- Heating technologies: emphasis initially on waste heat recovery, geo-exchange, sewer heat recovery and higher-efficiency gas-fired technologies in first investment cycle; consider options to adopt other technologies in future equipment renewals
- Emergency power technologies: diesel generators initially; consider option to adopt co-generation and other technologies in future
- Consider offsets for residual environmental impacts
- Take advantage of cost-saving synergies by placing energy infrastructure in tandem with other municipal infrastructure, wherever possible
The preliminary feasibility study results support completing a further detailed study into the creation and implementation of a community energy system on 550 acres around the False Creek Basin. The feasibility study emphasises the environmental, economic and social sustainability of integrated energy systems, with significantly lower GHG emissions through alternative energy technologies, improved infrastructure resulting in better building construction, improved operating capital over time, reduced capital costs, and insulation from energy cost escalation building long-term community stability.
This comprehensive study should include two key parts: (a) a thorough assessment of total building load, heat and energy distribution systems, heat sources, micro-grid power systems, detailed economic and environmental ramifications, and (b) a complete business case for successful system creation, operation and maintenance. The results of this work would enable the City to make an informed decision about the path forward, as well as with a comprehensive business case to begin working with development projects in the area (SEFC Athlete's Village, Great Northern Way Campus).
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