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The False Creek Neighbourhood Energy Utility in Vancouver on Feb. 9.Jennifer Gauthier/The Globe and Mail

Real estate developers on Canada’s West Coast are building their own small-scale utilities to bring heat, hot water and even air conditioning to larger projects, attracted by the promise of providing these comforts for a lower cost while releasing less carbon.

Led by Vancouver-based Westbank Corp., developers across British Columbia have constructed nearly a dozen of these “district energy” facilities in recent years, each for less than $15-million.

Real estate companies are also connected to another seven larger systems, according to an update last spring from the B.C. Utilities Commission, which regulates these private utilities to ensure they operate their near monopolies in a way that leads to them billing their customers fairly.

This age-old model of heating space and water by generating steam, which is also being deployed at massive condo developments in Toronto, became more popular across the country in the decades after the Second World War. They were constructed underneath central business districts, on military bases, university campuses and hospitals.

District energy plants and grids can cost more to start up but can pay off in the long run by generating hot water, heat and sometimes power or cooling at a central point instead of having each building buy and maintain its own less efficient boilers and electric heating systems.

Experts say the promise of district energy’s ability to lower emissions in British Columbia has been challenging: Most still use natural gas to heat their boilers, but there is considerable potential for industrial heat pumps to revolutionize these systems to become even more cost-effective and carbon-friendly.

But critics worry that developer-owned energy companies will be prone to charging their customers more in part because they are less able to absorb external costs that may be rounding errors for the public provider BC Hydro.

Such a situation played out at the B.C. Utilities Commission over the past year when customers of a network serving roughly 200 of downtown Vancouver’s buildings fought and lost a battle to curb a rate spike by Westbank’s district energy subsidiary, Creative Energy.

Brad Griffin, director of Simon Fraser University’s Canadian Energy and Emissions Data Centre, which posts public energy and greenhouse gas data on many of the country’s industries, said most of the 238 district energy systems his research group has surveyed in Canada are municipal plants in B.C. and Ontario.

But he said some real estate developers are now doing denser urban projects – such as Westbank’s redevelopment of Oakridge Park mall in the centre of Vancouver – that provide the steady customer stream needed to make commercial steam energy viable.

“We haven’t really done that a whole lot in the last few decades,” Mr. Griffin said. “If you’re a developer and you know there’s going to be 15 towers there, you know you’re going to have the demand.”

Westbank entered the heating and hot-water industry when it bought the 50-year-old Central Heat utility in 2014 – a time when Vancouver was inviting companies to build district energy plants to help reduce the emissions required to heat and cool high-rises in its more populated neighbourhoods.

Soon after purchasing the steam power plant and creating its district energy company Creative Energy, Westbank founder and chief executive officer Ian Gillespie told local news media that he planned to invest more than $100-million to expand the subsidiary’s customer base beyond its 210 buildings to all of downtown Vancouver, and then begin exporting these energy-efficient systems across Canada and abroad.

The massive expansion of the core system across all of downtown was rejected by the provincial utilities regulator in 2016, but Creative Energy and Westbank are now building a 17-storey office tower and a new underground plant beside BC Place Stadium.

That new district energy plant will help the utility pivot from natural gas to using electricity from BC Hydro to boil the water that flows to its existing downtown customers, which include office and residential towers as well as landmarks such as the neighbouring stadium, Rogers Arena and the Vancouver Convention Centre.

Just before Christmas, the B.C. Utilities Commission finished a year-long review and approved Creative Energy’s contentious application to raise rates by 15 per cent on these core downtown customers, which the company said in its final regulatory filing was in part driven by “an increasingly complex environment” and “large and persistent inflationary pressures.”

A raft of organizations had intervened to oppose the increase, arguing the company failed to control ballooning costs such as a surge in management pay while running a district energy grid in downtown Vancouver that hasn’t changed much in decades.

The dispute offered a window into the regulatory oversight faced by B.C.’s real estate developers as they build out their own neighbourhood systems.

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Led by Vancouver-based Westbank Corp., developers across British Columbia have constructed nearly a dozen of these 'district energy' facilities in recent years, each for less than $15-million.Jennifer Gauthier/The Globe and Mail

Creative Energy has recently applied to raise these rates for customers of its core downtown system another 11 per cent this year and more opposition is expected from some of the same parties that fought the previous increase using the utilities commission’s process.

Omni Group and Wall Financial, two other prominent Vancouver developers, have each built a district energy facility in B.C., while Westbank’s Creative Energy has eight plants approved, according to an update issued last spring by the commission.

Westbank has several more in the pipeline, including one at both the massive redevelopment of Oakridge Park mall as well as the Senakw community on the Squamish First Nation’s territory surrounding the Burrard Bridge. It also plans to operate a thermal energy plant in Toronto at a five-tower apartment complex it is building at Mirvish Village, the former site of the landmark Honest Ed’s thrift store.

Leigha Worth, who regularly represents interveners at the commission as executive director of non-profit law firm B.C. Public Interest Advocacy Centre, said she remains particularly concerned about any small utility in the province because extra costs mean the difference between “rate shock and a comfortable – yet of course regrettable – increase” for their relatively small pools of customers.

Her clients, a coalition of community-based organizations, requested the B.C. Utilities Commission direct Creative Energy to only increase its 2023 rates retroactively by 6 per cent.

“Every so often, utilities will make these types of applications and usually it’s due to some extraordinary sort of single once-in-a-while expense or situation that’s come up, but to have two year-over-year applications for 10 per cent is not something that I’ve seen since I’ve been doing this – and I started in 2007,” she said.

“And it’s certainly not something that I would ever expect to see from BC Hydro or Fortis. This goes to the systemic issue you have with smaller utilities, whether they’re founded by a real estate developer or anybody else: What are rounding errors for Hydro or Fortis become kind of insurmountable without these rate hikes for smaller operators.”

Westbank declined requests for an interview or comment, as did its partner, Toronto-based Instar Asset Management Inc., which bought a 50-per-cent equity stake in Creative Energy for an undisclosed sum in 2018.

Creative Energy declined two interview requests, but Diego Mandelbaum, its senior vice-president of development, sent two statements, both saying that as a matter of policy his company does not comment on its corporate structure or on projects still being assessed by the utilities regulator.

Mr. Mandelbaum’s latest statement did not address why Creative Energy is again applying for a double-digit rate increase this year for customers of its core downtown system, but characterized last year’s hike as reflecting “prudent operating needs while ensuring cost-effective, reliable, transparent delivery of energy to the public and our customers.”

His first statement added that the utility’s operations are “rigorously regulated” to ensure it serves customers in a cost-effective and transparent way by the B.C. Utilities Commission, which he noted recently approved new district energy systems it will build for Thompson Rivers University in Kamloops and the Senakw project.

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Construction crews work at 720 Beatty Street, adjacent to BC Place Stadium, in Vancouver, on Feb. 9.Jennifer Gauthier/The Globe and Mail

“Recognizing the critical nature of this [core downtown] system, we are heavily invested in modernizing and greening our infrastructure,” Mr. Mandelbaum’s statement said, referencing the construction of the new downtown plant that will generate steam from hydro power rather than natural gas.

“This is a key part of our commitment to assist the City of Vancouver in achieving its ambitious decarbonization goals of reducing carbon pollution by 50 per cent by 2030, and being carbon neutral by 2050, as well as responding to our customers’ needs.”

With research from Rick Cash

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