But achieving large-scale emission reductions in buildings can only be attained by adopting thermal energy networks to heat and cool them, says Bruce Ander, CEO of Markham District Energy, a municipally owned network in operation since 2000.
He says district energy – something that has been used widely in Europe for at least 50 years and dates back to hot water-heated baths of ancient Rome – is the missing grid. Instead of each building having its own plants to produce hot and cold water as well as air conditioning, structures are tied to a closed-loop underground distribution system known as a thermal grid.
District energy systems reduce building GHG emissions by using centralized high-efficient HVAC equipment and less carbon-intensive fuel sources such as solar, sewer heat, biomass, cold lake water and ground heat. A community-scaled system can more easily adapt new technology because higher upfront capital costs can be shared among many buildings.
“If you truly want to talk about getting to net zero by 2050, if you have an urban centre developing, you need to have a thermal energy strategy and that is district energy, so that’s the secret weapon,” Ander said at an event announcing a $270-million partnership with the Canada Infrastructure Bank (CIB) and the CIBC to expand its district energy network in the City of Markham, northeast of Toronto.
Markham District Energy and the city itself have the shared goal of being net zero by 2050. CIB financing supports the reduction of this output by as much as 35,000 tonnes, he said.
Markham District Energy is the CIB’s third partnership in this subsector, raising its total investments to approximately $1 billion. Enwave in Toronto was the first and largest at $600 million while Lulu Island in Richmond, B.C. closed at $175 million. Total capital spending on the projects is $2.5 billion.
Russia, China and the European Union lead the way when it comes to district heating but its use in Canada has been growing over the last decade or two, much of it municipally led, said Rob Thornton, CEO of the International District Energy Association.
District energy is a key component of the City of Toronto’s plan to reduce emissions from buildings and help achieve its net-zero target by 2040. Enwave Energy Corp.’s system in Toronto, for example, extracts cold water from the depths of Lake Ontario to cool more than 80 buildings within the downtown core.
District energy systems leverage economies of scale by aggregating heating and cooling needs of multiple buildings, enabling investment in lower-carbon resources and energy-sharing of thermal energy across millions of square feet of connected buildings, Thornton added.
“For example, heat from a sewer main or data centre can be recovered and utilized as a source of thermal energy, rather than being dumped or discharged, making it a win-win for the local economy and environment.”
Since 2000, 2.7 billion square feet of space has been connected to district energy systems, primarily in North American and the Middle East, he said.
The private sector, including pension funds, has increasingly taken a shine to existing district energy systems because they generate predictable and stable returns, Thornton said, pointing to Brookfield Infrastructure selling its Enwave business in 2021 for about $4.1 billion, partially to the Ontario Teachers’ Pension Plan. But district energy systems have trouble attracting the growth capital to expand their systems and deliver additional energy savings.
While the economic case of an investment is paramount, customers and investors are increasingly expecting companies to behave ethically and develop ESG (Environmental, Social and Governance) and Sustainability strategies, Ander added.
Thornton said infrastructure banks like the CIB are needed as credit participants because of the upfront risks from such capital-intensive programs.
A core component of the CIB mandate is to create innovative financing solutions to attract private capital. It did so with CIBC by providing sufficient cushion to address risks associated with building out the Markham District Energy system that will result in a sizable annual reduction of greenhouse gas emissions.
CIB Chief Executive Officer Ehren Cory said bringing in a private financing partner with the municipally owned district energy company is the ideal mix for the infrastructure bank, whose primary mission is to accelerate change and reduce carbon emissions.
He said the CIB’s participation allows the Markham District Energy project to be “bigger and bolder” than could otherwise be done using traditional approaches.
“It’s long-term infrastructure that sets us up for the net-zero future,” he said. “And it’s the kind of infrastructure that without a nudge from somewhere like the CIB gets done piece by piece.”
Lisa Raitt, CIBC’s Vice Chair Global Investment Banking and a former federal Conservative cabinet minister, said public private partnerships are going to be increasingly required for many infrastructure projects because they are very ambitious and new.
“This is a good deal for us at CIBC, no question about it. However, the reality is that CIB coming in makes a lot of the uncertainty and a lot of the risk much more manageable for the private sector.”