City of Quesnel Conducts Final Feasiblity Study for Innovative Community Energy System in North Cariboo

The City of Quesnel and Terasen Gas are completing a final feasibility study for an innovative biomass-based, combined heat and power district energy system that will provide a clean, local source of energy and long-term economic opportunities for the community.

In 2006, the Quesnel Community and Economic Development Corporation, a subsidiary of the City of Quesnel, initiated a program to develop local industries based on bio-energy, bio-products and waste streams from the community and industry in Quesnel. The initiative was developed as part of an effort to diversify Quesnel’s economy, generate revenue streams for the City independent of property taxes and support the City’s Climate Action Charter commitment to become carbon neutral by 2012.

As part of phase one of the initiative, the Development Corporation explored a variety of bio-energy technologies and inventoried bio-energy resources available in the area. With the assistance of $230,000 in seed funding from Western Economic Diversification Canada, BC Innovation Council, the Green Municipal Fund and BC Hydro to conduct pre-feasibility studies, the Development Corporation identified a combined heat and power district energy system using waste heat and wood residues from West Fraser’s sawmill as being the most viable option.

In the spring of 2009, the Development Corporation took its first major financing step towards the estimated $14 million system, dubbed the Quesnel Community Energy System (QCES), securing a $4.1 million Innovative Clean Energy fund commitment by the provincial government.  A year later, the City and Terasen Gas signed a letter of intent to conduct a final feasibility study on the QCES, and pending the findings, form a partnership to finance and implement the project. In parallel, BC Hydro offered to enter into bilateral negotiations towards an Electricity Purchase Agreement under its Distributed Generation program.

The QCES will supply 81,000 gigajoules per year of heat via a district energy loop to at least 12 industrial, commercial, multi-family residential and public buildings, equivalent to the home-heating needs of approximately 5,000 people. It will also generate at least 14.2 gigawatt hours of clean electricity per year proposed for sale to BC Hydro. By capturing waste heat and producing power, the QCES will achieve an enviable energy efficiency of more than 90 per cent. It is anticipated that the QCES will be fully operational by late 2012.

Engagement and Governance

The City first considered a district energy system in 2004 following a recommendation by the Council Environment Committee in the Community Energy Plan. The City’s energy manager hired FVB Energy and Terasen Energy Services, a former subsidiary of Terasen Gas, to develop a concept plan based on a standalone wood burner located in downtown Quesnel. While the concept showed promise, it was determined to be uneconomical due the cost of the stand alone burner. Additionally, public consultation revealed concern about whether there would be significant emissions from the wood burner. There was also concern that the City would be in competition with industry over wood fibre.

In 2006, the district energy system concept was revisited by the City and the Development Corporation as they considered sustainable development initiatives to prepare for the impacts of the Mountain Pine Beetle infestation as part of the Official Community Plan process. The Development Corporation identified a combined heat and power district energy system using waste heat and wood residues from West Fraser’s sawmill as being the most viable option. As biomass combustion to dry lumber was already occurring at West Fraser’ burner, which is equipped with electrostatic emission reduction technology, public concerns over air quality was alleviated. Likewise, there were no longer concerns over competition with industry for wood fibre. For their part, West Fraser would generate a revenue stream from the project for utilization of its infrastructure, as well as operational and maintenance services.

In spring of 2009, the Development Corporation leveraged the prefeasibility work it had done on the QCES into a $4.1 million Innovative Clean Energy fund commitment by the provincial government. The following year, in July of 2010, the City and Terasen Gas signed a letter of intent to conduct a detailed financial, legal and engineering feasibility study on the QCES. In principle, the letter represents an agreement, pending the outcome of the final feasibility study, to finance the balance of the estimated $14 million capital costs, and develop and operate the QCES. With Terasen taking a leading role in the QCES development and offering major financing, the Development Corporation moved to a background role, but formed an Advisory Committee with City management representatives to further assist in implementation of the project. The former Executive Director of the Development Corporation, who initiated the QCES project, was retained as a contractor to help maintain local management involvement, reporting to both Terasen and the City.

Policy Framework

Provincial renewable energy and climate action policy have played a key role in the QCES development. The Innovative Clean Energy Fund commitment was instrumental in creating enough momentum to carry the project into its second phase and secure major private financing. Bilateral negotiation towards an Electricity Purchase Agreement with BC Hydro is being conducted through BC Hydro’s Distributed Generation program, for which the QCES would be a pilot project. The Distributed Generation program seeks to facilitate the development of smaller-scale electricity generation located close to the customers in order to minimize transmission loss and maximize the resiliency of local energy by reducing their dependence on centralized generation facilities.

The Province’s carbon tax provides an incentive for privately owned buildings to connect to the QCES. Emissions reductions from municipal building connected to the QCES will support the City’s Climate Action Charter commitment to become carbon neutral. There is also the potential to sell carbon credits from the project to offset companies, providing an additional revenue stream for the QCES.

Implementation

Pending the successful completion of the final feasibility study and agreements among the City, Terasen, West Fraser Timber and BC Hydro, as well as community and First Nations consultations, approval from the BC Utilities Commission will be the final step prior to the build out phase of the QCES (BCUC approval would not be required if the project was fully municipally owned). As currently proposed, the QCES will modify the existing biomass energy system at West Fraser's sawmill to deliver 5.5 MW of heat through a district heating pipeline to at least 12 industrial, commercial, multi-family residential and public buildings, as well as generate 1.7 megawatts of electricity proposed for sale to BC Hydro.

An extension of the pipeline into Quesnel's industrial district is a future option. Subject to further engineering, approximately 40 per cent of all energy utilized through the project, and 100 per cent of energy required for district heating, will be from recovered waste heat. An estimated 9,000 tonnes of wood residuals from milling operations will be burned to increase electricity production. The QCES will integrate an innovative organic Rankine cycle turbine to generate electricity. The organic Rankine cycle utilizes a fluid that vaporizes at a lower temperature than water and is optimal for lower temperature waste heat applications. By capturing waste heat and producing power, the QCES will achieve an energy efficiency of more than 90 per cent. It is anticipated that the QCES will be fully operational by late 2012.

Barriers and Breakthroughs

The primary barrier for the QCES was making a viable business case. That barrier was overcome with the re-conceptualization of the QCES based on a resource recovery model integrated into West Fraser’s industrial facilities. By retrofitting an existing energy system, substantial construction costs will be avoided. In particular, the resource recovery approach allows for electricity production, which is crucial to the business case, generating approximately 65 per cent of revenues in the current concept.

As the contours of the QCES began to take shape in 2007, City Council was supportive but cautious of financial commitment given the prospect of future tax base challenges resulting from ongoing forestry market instability and the impacts of the pine beetle infestation. The $4.1 million Innovative Clean Energy fund commitment by the provincial government was a breakthrough for the QCES, enabling the financial footing for a partnership with Terasen.

Results

Based on 1.7 MW of power production and 5.5 MW of heat service to 12 buildings, the QCES will prospectively reduce greenhouse gas emissions by 6,000 tonnes per year, produce 81,000 gigajoules per year of heat and generate 14.2 gigawatt hours per year of clean electricity. The QCES will have the capacity to serve the majority of large commercial and public sector buildings in the City with efficient and cost-effective heating.

The project will create an estimated 84 jobs during the construction phase, plus up to four jobs once the system is operational. The QCES will provide a new revenue source for the City outside of traditional tax-based revenues, while keeping a percentage of wealth in the community that would otherwise leave the local economy as energy payments. Beyond Quesnel, the QCES will provide a powerful example of industry, local government and utility providers working together to develop and operate an innovative, integrated and sustainable community energy system.

Contact: 
Matt Wood, City of Quesnel Communications Supervisor, 250-991-7475 mwood@city.quesnel.bc.ca
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