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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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