Rate hikes emerge as rare downside of district energy systems

District energy systems are small-scale utilities that provide heat, hot water, and air conditioning to a network of buildings.

District energy systems offer an opportunity to develop heating and cooling from resources that would be inaccessible to an individual building. Moment/Getty Images photo by Darwin Fan.

This article was published by The Energy Mix on March 1, 2024.

Developer-owned district energy facilities—which are cropping up as a low-cost way to add low-carbon energy sources into new developments—may put their small pool of customers at risk of rate spikes.

An example of this played out over the past year in British Columbia, where customers recently fought against—and failed to prevent—a 15 per cent rate increase that district energy provider Creative Energy said was needed to cover costs of “an increasingly complex environment” and “large and persistent inflationary pressures,” reports The Globe and Mail.

The rate increase affected customers across a network of 200 or so buildings in downtown Vancouver serviced by Creative Energy, a subsidiary of developer Westbank Corp. The BC Utilities Commission, which regulates private utilities to ensure they bill customers fairly, approved the increase, and Creative Energy has since applied for another 11 per cent rise.

District energy systems are small-scale utilities that provide heat, hot water, and air conditioning to a network of buildings in a given location, offering an opportunity to develop heating and cooling from resources that would be inaccessible to an individual building. Such facilities can also provide access to low-carbon sources that may not be available through a larger grid, though many such facilities continue to rely on fossil fuels.

Though they can have higher initial start-up costs, district energy facilities pay off in the long run if customers gain long-term access to low-cost heat and cooling. But due to the smaller scale of the facilities, unanticipated extra costs can mean the difference between a “rate shock and a comfortable, yet of course regrettable, increase” for their relatively small pools of customers, said Leigha Worth, executive director of the non-profit B.C. Public Interest Advocacy Centre, which represents interveners at the commission.

Worth represented Creative Energy customers who asked the commission to retroactively reduce their 2023 rate hike to 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,” Worth said.

“And it’s certainly not something that I would ever expect to see from [provincial utilities] BC Hydro or Fortis,” she added. “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.”

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