Energizing Sudbury
District energy powers downtown Sudbury
by Brad Latta
In 1998, Sudbury, Ontario, and Toromont Energy Ltd. entered into a
unique agreement, creating Canada's first district-energy, public-private
partnership (P3), the Sudbury District Energy Corporation (SDEC). A
district energy system uses a central plant to meet the energy needs of a
cluster of buildings, eliminating their need for individual building-based
furnaces, air-conditioning units, boilers, etc.
The SDEC was born out of need, good timing and the right combination of
people. "In 1997, Sudbury Hydro was looking for alternative sources
of revenue," says Harvey Prudhomme, then the utility's general
manager. At the same time, Ontario was on the verge of opening up the
provincial electricity market and Bill Sutton, project manager for
Sudbury's new YMCA Centre for Life complex, was looking for a better deal.
Sutton looked to Sudbury Hydro to provide a solution and the utility
responded.
Assisted by Natural Resources Canada, which loaned funds for technical
and business case consultation, Sudbury Hydro conducted feasibility
studies. A district energy, co-generation system in the downtown core was
an environmentally friendly, cost-effective approach that promised a
long-term revenue stream. A single, centralized, highly efficient power
plant would provide heating and optional cooling to a number of buildings,
including municipally owned buildings, and at the same time create
electricity that the city could sell. While relatively new to Canada,
district energy was widely used in Europe - in Denmark, Finland, Lithuania
and the Ukraine, district heating accounts for more than 50 percent of the
national heating markets.
Sudbury's municipal councillors were intrigued but also concerned about
the money required. They suggested a way be found to share the costs and
the risks. The search for an acceptable private-sector partner began.
Sudbury's request for proposals (RFP) attracted a large number of
applicants. The project team - municipal and utility officials and a
private consultant - reduced the number to six, spoke at length with three
companies and finally entered into a letter of understanding with Toromont
Energy Ltd., a subsidiary of Toromont Industries Ltd. "Toromont
brought financing capability to the project and expertise that we didn't
have in establishing and operating a co-generation plant," says
Prudhomme
Sudbury's RFP was opportune for Toromont Energy Ltd., which was created
in specific response to energy deregulation in Ontario, says Bruce Ander,
a senior executive with the company. "We were looking for
opportunities. In effect, Sudbury's RFP was an invitation for us to go to
the city with our ideas. There was no similar project in Canada. We were
both breaking new ground."
As well as bringing the crucial ingredients together - expertise, local
knowledge and funding - this particular P3 "gave the customers who
signed on an acceptable comfort level," says Ander. "Had the
city developed the project on its own there would have been skeptical
customers - likewise, if Toromont had done it alone."
Finding customers was tough enough, says Prudhomme. "We were in a
'catch-22' situation. We couldn't get customers until we built the plant,
and we couldn't start the plant until we got some customers."
But find customers they did. The SDEC was built at a cost of $15
million with the City of Greater Sudbury and Toromont Energy each holding
10 percent equity. Toromont provided most of the remaining funding in the
form of a loan. As well as providing the initial loan, the Government of
Canada provided $500,000 in seed funding from the Climate Change Action
Fund. This included sponsoring a trip to Sweden and Denmark for several
Sudbury officials to take a close look at existing district-energy
facilities.
Today, SDEC's 5-megawatt co-generation plant provides hot water for
heating, and optional chilled water for cooling, through a network of
underground pipes, to a total of seven privately and publicly owned
buildings in the downtown core, including the municipal government
headquarters and the Sudbury Arena. Electricity produced by the plant is
contracted to the municipally owned Greater Sudbury Utilities Corp.
Although the electricity produced - enough to power 2,000 homes -
represents a relatively small portion of Sudbury's total 110-megawatt
requirement, it provides a revenue source that is expected to increase as
the provincial market opens up. In addition, it provides a valuable backup
source of energy in the event of an emergency.
Prudhomme feels that the process of setting up the P3 went well.
Toromont's Ander attributes the success of the project to a number of
factors. "P3s need champions. In Sudbury it was Gary Polano, city
manager at the time, Bruno Pozza at Sudbury Hydro and Bill Sutton with the
YMCA Centre for Life." Polano gives much of the credit to Sudbury's
municipal council for "taking a significant leap of faith in entering
into the partnership."
Good relationships are equally important. "When breaking new
ground, success ultimately comes down to the people involved," Ander
says. "You can't effectively deal with problems as they arise unless
you have good relationships. A P3 relationship is necessarily very time
consuming. A lot of resources go to managing that relationship."
According to Ander, a P3 also demands that the private-sector partner
make some adjustments to accommodate the requisite political process and
its need for information, which raises issues around what information is
required by the public versus what needs to be withheld because it is
commercially sensitive. For example, a private-sector partner might
willingly report certain information to an in camera municipal
council meeting but not feel comfortable reporting the same information in
a public meeting.
But that represents just one relatively small way in which private and
public sector partners traditionally diverge. "Culturally, we have a
faster decision-making process than our public partner. But the situation
is necessarily very different for a government partner that is entrusted
to manage public funds. Partners have to find a workable balance,"
says Ander.
Lastly, Ander says the private-sector partner should never lose sight
of the big picture. "You must have the financial strength and culture
to look long term," he says, explaining that unforeseen or unlikely
events can have an impact on a company's business plan but needn't derail
it.
So, is the SDEC a good model for other communities to follow? Ander
says not necessarily, pointing out that different communities have
different needs and areas of expertise. Toromont's recent arrangements
with three other Ontario communities vary greatly.
However, in Sudbury the SDEC model works. In December 2001, the SDEC
will increase its services with the addition of a new stand-alone
co-generation plant adjacent to the expanding Sudbury Regional Hospital.
The system will provide the hospital with heating, cooling, electricity
and steam. A 20-year agreement secures the SDEC as the hospital's
exclusive energy provider.
Would Harvey Prudhomme, who today sits on SDEC's board of directors,
call Sudbury's P3 a success? "We have an original $14 million project
that is going to pay for itself and then turn a profit," he responds.
"And with the addition of the new hospital plant, the city is going
to have a total of 11 megawatts of back-up power that in a major emergency
situation could provide energy to a lot of community care centres. Yes,
I'd call that a success."
Brad Latta is a freelance writer
based in Ottawa.
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