Markham, Ontario to build world’s biggest wastewater energy transfer system

Markham District Energy will build the 18.5-megawatt system to tap into the warm wastewater flowing through a sewer trunk line near one of its existing facilities. Anil Mungal photo.

This article was published by The Energy Mix on July 25, 2024.

By Mitchell Beer

A district energy utility north of Toronto is about to begin construction on the world’s largest wastewater energy transfer (WET) installation, a project that is expected to reduce climate pollution by 30,000 tonnes per year, significantly reduce gas consumption, and supply heating and cooling for seven to eight million square feet of space in Markham, Ontario.

And the piece of the puzzle that sealed the deal was a carbon contract for difference, a mechanism that will protect the business assumptions behind the project from future changes in the federal carbon price.

Markham District Energy (MDE), a thermal utility owned by the City of Markham, will build the 18.5-megawatt system to tap into the warm wastewater flowing through a sewer trunk line near one of its existing facilities.

“Anchored by our comprehensive Greenprint Plan, the City of Markham continues to be a municipal leader in sustainability with targeted steps to achieve net-zero emissions by 2050,” Markham Mayor Frank Scarpitti said in a release. “Constructing the world’s largest wastewater energy transfer (WET) project is a leading example of how we can reach this ambitious objective.”

It’s an opportunity that MDE has had its eye on for a quarter-century, but only began to consider seriously about five years ago, President and CEO Bruce Ander told The Energy Mix. 

“We always knew there was constant temperature in this flow, and therefore an energy opportunity,” he said. But “you need a system to deliver it to. You could do a small project on a building scale with a small wastewater sewer trunk going by. But for the scale we needed, the community energy system had to develop to the point where the energy could be fully utilized.”

The utility’s Markham Downtown facility is built to serve 240 buildings totalling about 15 million square feet, “so that gives us the scale to use the energy flowing by,” he said. “That’s what we needed to have happen. We needed a place to put the energy.”

Scaling Wastewater Energy Transfer

Ander said Markham’s experience points to both the potential to bring wastewater energy transfer at the utility scale, and the success factors a community would have to put in place to make it work.

Every municipality has sewer lines, and “this is simply heat pump technology using the constant water temperature in a flow of water going by,” he said. “There are some special things you need to do with that water—it’s raw wastewater, so you have to deal with it and then return it to the sewer main after you’ve exchanged the temperature—but the potential is large.”

District energy systems are already in place in Ontario communities like Ottawa, Cornwall, Sudbury, and London, and in many parts of British Columbia, he added.

But a city would need a well-developed thermal grid to repeat Markham’s experience. “The key to wastewater energy recovery is to elevate the temperature to be able to use it in the heating system,” but that only works with a system that relies on low-temperature hot water, as opposed to steam. “With a legacy steam system, you don’t really have the ability to bring the temperature to that level.”

After that, the system would have to connect to dozens of buildings to make full use of the resource, or in Markham’s case, hundreds. “These are capital-intensive projects, so you need to scale in order to justify a project like WET,” Ander said. Unless a community already has a district energy system in place, “it will take years, frankly, to connect enough building load to use the thermal energy at scale.”

Still, he said some communities in B.C. are considering wastewater energy transfer projects, and Toronto Western Hospital is installing a $38-million system that is expected to reduce its carbon emissions by a little more than 8,000 tonnes per year. “With the pricing of carbon, and maybe with the protection of that carbon price [through contracts for difference], there might be other projects that will emerge in the next few years. They won’t be in every city and campus in the country, but there will be a number of them.”

Contract for Difference Seals the Deal

The Markham project is backed by a C$135-million loan facility from the Canada Infrastructure Bank, a $135-million line of credit from CIBC, $700,000 from Enbridge Gas, $16.7 million from the federal Low Carbon Economy Fund, and $8.2 million from the Green Municipal Fund. But the carbon contract for difference made all the difference, Ander said.

That part of the deal was essential because the system will be built to avoid burning natural gas. At $80 per tonne of carbon dioxide emissions, the federal floor price on carbon accounts for about half of the price of gas, and therefore half of the financial savings that MDE stands to achieve. Current federal policy calls for the carbon price to hit $170 per tonne by 2030.

“One thing we needed to do was to check the risk of changing carbon policy in Canada,” Ander said. So the contract for difference with the federal Canada Growth Fund is set up to “protect this project and MDE from carbon going to zero.” The deal is the first of its kind in Canada, and “a great product that we worked with the Government of Canada to execute,” he said.

As it stands, the project will bring a “modest return, but still a return that is acceptable,” under a 30-year contract between MDE and York Region.

When Finance Minister Chrystia Freeland, who attended the July 16 launch, first introduced the $15-billion Canada Growth Fund in her 2022 budget, then contracts for difference in the 2023 edition, there was concern in some quarters that their main purpose would be to support carbon capture and storage (CCS) projects that are far less ready for prime time than the heat pump technology on which wastewater energy transfer depends.

So far, CCS has been the primary focus of just one of the Growth Fund’s five investments, though by far the largest. They include $90 million to a deep geothermal company [pdf] in Alberta, a waste-to-energy project [pdf] in Edmonton, $50 million to a cleantech and climate impact investment fund [pdf] in Montreal, a $2-billion carbon capture and storage deal with Calgary-based Strathcona Resources, and MDE.

‘Big Moves’ Ahead

Ander predicted “some big moves in the future” that will boost district energy’s contribution to building decarbonization. “We’ve done some small moves already,” like installing cogeneration units to capture waste heat from natural gas facilities. But WET is something bigger, and bigger still is the opportunity to harness deep geothermal technology for clean heating and cooling.

In contrast to standard ground-source heat pumps, deep geothermal drills down “not just hundreds of feet but kilometres, to much hotter temperatures underground,” he explained. To date, deep geothermal has been seen mostly as a power generation technology, “but more importantly it can lead to thermal heating for large areas of density in our cities.”

Another option that “I never would have believed would be a topic” at district energy conferences, he said, is the potential to co-locate district energy units with small modular nuclear reactors (SMRs), if and when they’re installed in cities.

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