THE CORPORATION OF THE CITY OF NELSON REQUEST FOR DECISION

DATE: July 06, 2015 Regular Meeting TOPIC: PROPOSAL: City of Nelson District Energy System Business Plan PROPOSED BY: Staff ___________________________________________________________________ ANALYSIS SUMMARY: In May 2015 a presentation for information on the draft Business Plan was provided to council. The Nelson Hydro District Energy Business Plan has now been circulated for review. Alex Love and Fiona Galbraith will provide a verbal overview of the Business Plan highlights and be able to address questions. BENEFITS OR DISADVANTAGES AND NEGATIVE IMPACTS: The Business Plan is for Council and the publics information. LEGISLATIVE IMPACTS, PRECEDENTS, and POLICIES: It is within Council mandate and authority to authorize proceeding with a District Energy System. COSTS AND BUDGET IMPACT - REVENUE GENERATION: Proceeding to the next phase of the District Energy System has a cost impact of about $100,000. There is no reserve or budget specifically for this purpose, however the Nelson Hydro capital reserve has sufficient capacity to float the amount with the intention that it would be transferred onto the books of the DES once the utility is established. The full project has a capital cost of about $5,000,000. We are recommending proceeding with constructing the project contingent on a payback of 15 years or less. There are several methods by which this can be achieved through a combination of financing rates, grant funding, and customer connections. Even though initially the utility revenues will be directed toward paying back its own capital costs the utility will become a net revenue generator for the city. The other benefits such as reduced greenhouse gas emissions and local supply of energy will begin in the first year of operation. IMPACT ON SUSTAINABILITY OBJECTIVES AND STAFF RESOURCES: The DES will have a significant impact on greenhouse gas (GHG) reductions which aligns with the City goals (Low Carbon Path to 2040) and commitments to become carbon neutral (Climate Action Charter). The GHG reductions from the base phase of the DES would be sufficient to make the city corporate operations carbon negative. COMMUNICATION: Council heard an overview of the DES in May 2015. This Business Plan document will become publicly available through the city website. Next phases of the project will include detailed design, public engagement and bringing back to council a final project decision with regards to construction.

OPTIONS AND ALTERNATIVES: 1. Approve moving to the next stage of developing the DES utility. 2. Refer to staff with direction for further analysis. 3. Disapprove moving forward with the DES utility.

ATTACHMENTS:

Nelson Hydro District Energy Business Plan Rev 5. Cover memo from the Nelson Hydro General Manager (July 06, 2015)

RECOMMENDATION: That Council approves staff moving forward with the next stage of developing the DES utility which includes;

Beginning public engagement, Securing financing authorization through MFA for up to $4,000,000, Securing grant funding, Entering into a Memorandum of Understanding with potential DES customers, Undertaking preliminary design, 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. 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: July 06, 2015 TO: Kevin Cormack, CAO

Council City of Nelson FROM: Alex Love, General Manager SUBJECT: District Energy System 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.

2015-07-06 DES Recommendation.docx 1 of 1

Fink District Energy, Enderby, BC

Nelson Hydro

District Energy System Business Plan Revision 5

June 29th, 2015

REVISIONS SUMMARY

Revision Date Description 1 24-Apr-15 First draft of business plan, sent to Alex Love for review

2 07-May-15

Addition of more photos & graphics Addition of Section 7 - Emissions Section 9 - updating of cost estimates Section 10 - addition of rates in BC Section 11 addition of columns for KLH models in table

11.1 and section on financing Section 12 revision of recommendations

3 19-Jun-15

Section 3 - edits to description of GHG emissions & wood waste

Section 7.2 - updated GHG emissions graph Section 7.2 added GHG emissions savings chart Section 10 added energy cost savings chart

4 25-Jun-15

Section 1 updated the Executive Summary Section 6 included description of size of footprint needed

for CEP Section 9 updated cost estimates table to include column

for KLH Section 10 removed LCOE notes and included graph

comparing BAU rates to DE Rates Section 11 simplified the financial summary table

numbers will be input from AL model Section 12 revised recommendations

5 27-Jun-15

Section 10 changed incentive rate graph to starting natural gas rate of $9.98 to account for carbon tax

Section 11 Updated Financial Summary table with various examples of project costs/financing/funding

Section 12 aligned recommendations with those in the RFD

Removed Draft watermark

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.

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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.

2.2. Context of District Energy The City of Nelson is in a unique position in that it owns and operates its own hydro utility, Nelson Hydro. Nelson Hydro has a long history of electricity generation and is looking to broaden the scope of its services. In 1896, the initial founders of Nelson Hydro had the foresight and vision to establish a hydro utility that is now an important source of revenue for the City of Nelson. In exploring the feasibility of a district energy system, Nelson Hydro is carrying forward that vision with an eye to the future of energy production.

If renewable energy is used as the fuel source for the district energy, it can significantly reduce greenhouse gas emissions. The City of Nelson has demonstrated its commitment to action on climate change through a variety of policies and programs. In 2007, the City was one of the early signatories of the provincial Climate Action Charter with a commitment to reduce greenhouse gas emissions in corporate operations. In 2010, the first phase of the Corporate Greenhouse Gas Reduction Plan was passed by council and implemented over the next five years. In 2011, the City developed the Low Carbon Path to 2040: Energy and Emissions Action Plan to address community wide greenhouse gas emissions. A key strategy of this plan is to establish district energy systems with a target of connecting 70,000 square meters of floor space by 2040.

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3. Benefits of District Energy There are many benefits to the community and region with the development of a district energy system. As part of the BC Air Action Plan, released in 2008, the province committed to phasing out wood residue (beehive) burners. As a result, mills within the local area are looking for alternative solutions for disposing of wood waste from production. A biomass district energy system would be able to use this wood waste for the creation of usable energy in the form of heat.

With regards to greenhouse gas emissions, the district energy system being considered would displace natural gas as a fuel source by using waste biomass, thereby greatly reducing the emissions produced from burning natural gas. Natural gas is a fossil fuel source that produces approximately 50 kg of carbon dioxide for every gigajoule that is burned. Woody biomass, on the other hand, is part of the natural carbon cycle (unlike fossilized carbon in natural gas) that is considered a very carbon lean energy source as it emits the same amount of carbon when burned as it would if left to decompose naturally over a 100 year cycle. For the district energy system, Nelson Hydro is committed to using wood waste from local sources in the West Kootenays and accounting for upstream emissions associated with transporting the wood waste.

A district energy system places the community of Nelson on a path to greater energy resiliency with more local energy production and revenue that is reinvested into the regional economy. Although it may take time to pay off the initial investment, a district energy system can provide a source of revenue for the municipality. It will also provide Nelson Hydro with an opportunity to develop expertise in the provision of heating energy that can be further developed and expanded upon in the future.

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4. District Energy Study Process 4.1. Pre-Feasibility Study In 2010, a pre-feasibility study was commissioned to determine the viability of developing a district energy system in Nelson. Two study areas were considered the Lakefront area (including the downtown core) and the Selkirk area that included Selkirk Colleges 10th Street Campus.

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.

Lakefront Study Area

Selkirk Study Area

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4.3. Feasibility Study From 2013 to 2014, a feasibility study was completed to further explore the feasibility and implementation of a DE system. The same two study areas were considered, Lakefront and Selkirk, but new heating systems were considered.

In reviewing the results of the pre-feasibility study, it was found that building retrofit costs made up a large component of the system costs. In the initial analysis, a low temperature heat pump was examined for the lake heat exchange option. Most of the older building stock in Nelson is designed for high temperature heating systems (i.e. hot water), so the use of low temperature heat pumps would have required extensive retrofitting of piping systems within each building. Since the completion of the pre-feasibility study, new technology had become available that allows heat pumps to achieve much higher supply temperatures, thereby eliminating the need for costly piping retrofits.

In the feasibility study, three heating systems were considered; lake sourced low temperature heat pumps (evaluated in the pre-feasibility study), lake sourced high temperature heat pumps, and biomass boilers. Both the biomass boilers and high temperature heat pumps are able to generate high supply temperatures for the delivery of heat.

The feasibility study concluded that:

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.

4.4. Cost Estimate Analysis Upon completion of the feasibility report, further research was conducted to refine the capital cost estimates of the project in order to generate a higher degree of accuracy to assess the business case for a district energy system. This resulted in a refining of cost estimates for civil works and energy transfer stations.

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5. Proposed District Energy System 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.

In both the pre-feasibility and feasibility studies, the Lakefront area was found to be preferential to the Selkirk area for development of a DE system. The density and heat load of customers are key factors in the financial viability of district energy and the Lakefront area had a greater concentration of high heat load customers, compared to the Selkirk study area.

Although a biomass boiler system was not initially considered in the pre-feasibility study, it was determined to have the better paybacks when compared to low temperature and high temperature heat pump systems that would have used lake water as a heat source. Heat pumps require electricity to function and electricity is much higher in cost than wood waste, which can be sourced for the price of transport. The abundant supply of wood waste residues in the region also contribute to the viability of a biomass district energy system, but long term supply contracts would need to be obtained in order to ensure a low cost of fuel over the life of the system.

Phasing of the district energy system allows for expansion in the future as additional buildings and areas are tied onto the system. In connecting a smaller group of core buildings in the Lakefront area for Phase 1 of development, experience can be gained in the construction and operation of the heating system prior to a full build out.

An important consideration in construction of a DE system is the location of the central energy plant. A variety of sites are being examined, but a location has not yet been selected. Factors to be considered in the selection process include access for delivery vehicles, impacts on nearby residences, room for expansion of the system, and proximity to potential customers.

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6. Biomass (Wood Waste) Heating Systems Biomass heating systems are comprised of a boiler that is designed to burn a variety of wood waste materials from sawdust to shavings to wood chips. Some systems are also designed to burn manufactured pellets made from wood residues. The system being considered for Nelson would use raw wood waste materials rather than pre-manufactured pellets as theres a large supply of wood residue in the area and pellets would need to be shipped from a greater distance.

Biomass boilers differ greatly from common wood stoves in that the combustions process is highly efficient. At the end of the combustion process, it is primarily water vapour and carbon dioxide being released into the atmosphere. Additional equipment can also be installed on the boiler stack, if needed, to ensure a high standard of air quality that is compliant with Ministry of Environment regulations. With the regional forest industry, biomass is a good fit for the area and provides a valuable option for the use of wood waste. Biomass based heating systems are already in operation throughout BC including Revelstoke, Enderby, Prince George, and a local system that heats the Arrow Fire Zone Attack Base located near Playmor Junction (seen below).

Arrow Fire Zone Attack Base - Playmor Junction

Container housing the boiler

Bunker storing the fuel Building being heated

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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.

Fink District Energy - Enderby, BC

Within the West Kootenays, the main options for disposal of wood waste from mills are the:

burning of slab piles on site;

delivery of material to Celgar in Castlegar or Kettle Falls Generating Station in North Washington for use in an energy plant; or

delivery to landfill sites.

Based on these options, the use of biomass for Nelsons district energy system would either be on par with the current business as usual case, when compared to the use of waste for power generation, or an improvement, when compared to disposal at a landfill or burning on site.

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,

Boiler House Bunker

Biomass Boiler

Stack

Central Energy Plant

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other flue gases can be kept to a minimum. The primary stack emissions that could impact air quality are carbon monoxide, small particulates (

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

Annual Energy 300 GJ 1000 GJ 10,000 GJ 25,000 GJ

BAU 15 50 500 1250

DES 3 10 100 250

Savings/Yr 12 tCO2e 40 tCO2e 400 tCO2e 1000 tCO2e

* 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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8. Ownership Model for District Energy With over 100 years in the energy business, Nelson Hydro and the City of Nelson are well positioned for the role of being a heat provider, in addition to an electricity supplier. In fact Nelson Hydro is already in the heat supply business as the owner / operator of the geo-exchange heating system at the 10th Street campus Selkirk College dormitory, which has been in operation since 2011.

The district energy system would be owned and operated by the City of Nelson, under the direction of Nelson Hydro. As an electrical utility, Nelson Hydro has expertise in customer service, billing, and operations. The development of a district energy system would build upon this experience and broaden the scope of services offered to the customer. In the long term, expansion of Nelson Hydros capacity beyond that of an electrical utility can create a lasting revenue source for the municipality, in the same way the electrical utility has done over the last century.

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9. Capital Cost Estimates As part of the feasibility study process, an estimate of project costs was provided for the construction of a district energy system. Specific costs for items within the project were further tested by comparing them to estimates provided by vendors and to similar cost estimates from past capital projects. The capital cost estimate of the project has been developed to a degree of accuracy that allows for a decision on proceeding to the next stage of the project.

Category Description Capital Cost1

w/out KLH Capital Cost1

with KLH

Equipment Costs Boilers, fuel storage, fuel conveyance, instrumentation and controls

$1,045,000 $1,201,750

Civil Works Distribution Pipes, trenching and backfilling, road works $606,043 $721,192

Civic Works Central Plant Boiler house, land, site prep $631,000 $700,410

Mechanical Process Fire suppression, installation of equipment, venting $289,000 $289,000

Energy Transfer Stations & Building Retrofits

Energy meters, heat transfer, building upgrades $493,000 $601,460

Owner Costs Project management, engineering, commissioning $539,827 $701,776

Contingency 20% of project costs $685,654 $702,762

TOTAL $4,298,525 $4,918,350

1Cost estimates do not include taxes.

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10. Rate Model Options For many district energy systems in BC, a premium is being charged to recoup the cost of the system that ranges from $14/GJ to $40/GJ (see table 10.1). In places such as Surrey, a bylaw has been created requiring developers to build with radiant hot water heating systems and connect their developments to the district energy system. With such a high influx of people moving into Surrey and the expansion of public transit nodes, developers are competing to build in that area. This is not the case for Nelsons district energy system, where customers will be made up of the existing building stock and rates must be competitive with the business as usual option of natural gas.

Table 10.1 BC District Energy System Rates

System $/GJ

Lonsdale Energy, North Vancouver $19

Prince George Downtown $21

Central Heat, Vancouver $14

Southeast False Creek, Vancouver $23

Westhills, Langford $23

Revelstoke Community Energy System varies by customer

Dockside Green, Victoria $27

Corix UniverCity, Burnaby $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.

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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.

* Assumes an annual 2% escalation rate for cost of delivered natural gas.

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

Savings/Yr $300 $1,000 $10,000 $25,000

* Savings assume a delivered cost of natural gas of $10/GJ as natural gas prices increase, savings will also increase.

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11. Financial Summary Given that it isnt feasible to charge customers a heating rate significantly higher than natural gas and that the incentive rate of 10% below natural gas results in a lengthy payback period for the City, it will be necessary to seek additional funding for the project to proceed. Both the City, as a municipality, and Nelson Hydro, as a utility, are in a position to accept longer paybacks on projects than would be the case for a corporate endeavour. A project with a payback of 15 years or less would still be worthwhile as the infrastructure lasts well beyond that period and the system can become an ongoing revenue source for the municipality.

The following is a summary of district energy costs and revenues, based on a variety of examples:

FINANCIAL SUMMARY

Example 1A Example

1B Example

2A Example

2B

Including Kootenay Lake Hospital? No No Yes Yes

Capital Cost $4.5 M $4.5 M $5.0 M $5.0 M

Funding Contribution $0 $3.9 M $0 $2.2 M

City of Nelson Investment $4.5 M $600 K $5.0 M $2.8 M

Capital Reserve/System Expansion $1.0 M $1.0 M $1.0 M $1.0 M

Total Borrowing (CoN Investment + Capital Reserve) $5.5 M $1.6 M $6.0 M $3.8 M

Energy Sales (1st year) $159 K $159 K $379 K $379 K

Operating Costs (1st year) $123 K $123 K $206 K $206 K

Operating Net Revenue (1st year) $36 K $36 K $173 K $173 K

Payback Period >30 years 15 years >30 years 15 years

* 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).

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11.1. Financing Options The City of Nelson would borrow up to $4 million from the Municipal Financing Authority (MFA) which would contribute towards the capital costs for the first phase of development of the district energy system. The process for borrowing this money would involve the creation of a Loan Authorization bylaw that would require council approval. This would be followed by an Alternate Approval Process (AAP) that provides an opportunity for public input. If the AAP failed, meaning at least 10% of voters objected to the borrowing, then the decision would need to go to a public referendum.

12. Recommendations It is recommended that Council approve staff moving forward with the next stage of developing the DES utility which includes;

Beginning public engagement,

Securing financing authorization through MFA for up to $4,000,000,

Securing grant funding,

Entering into a Memorandum of Understanding with potential DES customers,

Undertaking preliminary design,

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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2015-07-06 RFD District Energy System_Rev 32015-07-06 DES RecommendationDES Business Plan Rev 51. Executive Summary2. Background2.1. Overview of District Energy2.2. Context of District Energy

3. Benefits of District Energy4. District Energy Study Process4.1. Pre-Feasibility Study4.2. Biomass Feedstock Analysis4.3. Feasibility Study4.4. Cost Estimate Analysis

5. Proposed District Energy System6. Biomass (Wood Waste) Heating Systems7. Emissions7.1. Boiler Stack Emissions7.2. Greenhouse Gas Emissions

8. Ownership Model for District Energy9. Capital Cost Estimates10. Rate Model Options11. Financial Summary11.1. Financing Options

12. Recommendations