Blog Entry | June 24, 2014Changing the way we source our energy (heating, cooling and electricity) is closer than you think; catapulted by the advancements in local energy sourcing that are converging into Community Energy Systems.
Buildings require electricity, heating and in most cases cooling. Traditional methods of meeting those energy requirements utilize a more centralized distribution delivery system of natural gas for heating and the electrical distribution utility for heating, cooling and electrical needs. Governments created regulatory agencies to oversee rate-regulated utilities with the idea of enabling, in essence, franchise service territories so that these basic energy needs can be delivered with a credible distribution company and arguably at the best cost possible. The idea is that these rate-regulated utilities have lower risk of revenue and certainly have reasonable visibility into the rates that they can charge, that the investment return expectations in these utilities is on the lower end compared to other businesses.
Without getting into the merits of the model, the key is that the governments and regulators, and really most developers, believe that this default delivery system is in the rate payers’ interests.
The challenge with the model, from the public’s perspective, is that a tremendous amount of complacency sets in with respect to automatically allowing these rate-regulated utilities to be the deliverer of energy requirements. This is a pseudo monopoly because there is an assumption that it is the most cost effective option for the consumer.
I would argue that it is not. It’s not to say that these current energy distribution companies cannot deliver the untapped local energy potential to you, but that their current investment model is fairly cookie-cutter and void of tapping into the advantages of the free energy all around you and your properties.
In really simple terms, a community energy system is a heating/cooling and possibly power system that is more efficient because it takes advantage of diverse loads among its customers (not everyone needs heating or cooling at the same time), and the final piece is incorporating renewable and local energy sources around you.
The design component is fairly easy, but it does fly in the face of most engineering design firms that benefit more from taking simple designs of over-capacity boilers and chillers to meet your needs. It’s the simplest thing to do.
The renewables component is more complex but worth it! The sun heats up the ground around you and creates a layer from a few feet down to hundreds of feet that maintains a fairly constant temperature. You can use that to reject heat and to use heat for your heating and cooling. There are many names for it: geoexchange; geothermal; ground source heating.
You can also tap into the sun more directly with solar panel whether they be for electricity or for thermal requirements.
Yes, there is a capital cost to collecting and processing these renewables, but the buildings you are in will last for more than 20 years, and these systems can be paid off over time, this virtually eliminates and certainly greatly reduces your reliance on other commodities through distributed energy to your building.
This is smart energy! Others refer to this approach as integrated community energy, smart energy networks and in more simplistic ways, district energy.
Today, there are certain external dynamics at work that make this approach economic.
Historically, the challenge for these holistic integrated energy designers is that they come up with decent designs and models and slide over the proposal across the table. Developers and asset owners are not expecting to have to front those costs. By the way, did I mention that we are in the largest market for hot water tank rental?
The industry needs to meet the needs by creating and funding these unregulated utilities, and with interest rates being so low and the investment return expectations on long term assets or bonds being so low, we now have an amazing business case to start bringing in institutional investors like pension funds to own these assets. I absolutely see the current rate-regulated utilities getting into this business, but we are adding in a layer of customized approaches and designs that the industry aren’t used to accommodating.
I believe that the tipping point will occur when asset owners like cities, school boards and campus-like owners, express greater interests in enabling holistic integrated energy systems, and from the bottom, designers get better at demonstrating how these integrated systems can save the asset owners and users money.
The mark of success occurs when rate regulated utilities start becoming owners of these integrated systems.
Kudos to Oakville Hydro, Markham and Guelph for leading the way.
By Frank Carnevale
SVP of SustainCo Inc. – sustainable infrastructure solutions
Editor, The Sustainability Daily
RSI Board Member