FEATURE Quantifying the real value
of district energy
Canada develops a model for demonstrating
socioeconomic benefits to the community.
Ken Church, PEng, Team Leader – Communities, Natural Resources Canada
Municipalities, like their citizens, have finite budgets and many interests competing for that
money. District energy may be just
one of those interests. Proponents
of district energy may cite its many
benefits: the improved efficiency, the
creation of urban resiliency and even
the use of local fuels or waste heat;
but as likely as not, their justifications are anecdotal. Quantification
of the real value of district energy to
the community is often elusive and
rarely available. Over the past few
years, however, Natural Resources
Canada (NRCan) has been working to
make quantification possible.
In Canada, the driving force
behind the development of district
energy has changed from the engi-
neering office to the urban planning
studio, and the technology is now
seen as an urban planning tool – one
that can be used to achieve multiple
goals and objectives within the com-
munity. With this shift, there has
been a change in perspective – from
looking at the cost of heat to the
value of the asset. This calls for a
more holistic evaluation in decision
making. The use of estimated value
rather than cost in business models
creates a change in mindset: The
focus becomes communal rather
than corporate, local rather than
imported and economic benefit rather
than financial return.
To better understand the economic benefits of district energy in
Canadian cities and provinces, NRCan
developed the District Energy Economic Model (DEEM) – a tool it has
used to estimate and compare the
socioeconomic impact of district
heating systems in Toronto, Calgary
and Vancouver. The agency hopes
that municipal and provincial governments can put DEEM to broader use
in the future.
ASSESSING ECONOMIC BENEFIT
The terms “economic benefit”
and “financial return” are often misused when comparing investment
options. Technically the financial
return simply refers to the rate in
terms of years or percent at which
the investment is returned to the
investor. The economic benefit,
however, relates to the best use of
resources in creating the product.
It is presented in terms of the gross
domestic product, employment cre-
ated, taxation revenue or the moneti-
zation of environmental impact. It is
entirely possible for an investment to
have a glowing financial return but
produce minimal economic benefit
to a community. Consider the use
of solar photovoltaics in third-world
countries: The technology’s produc-
tion of electricity is excellent, but its
value to the communities in terms of
job creation, GDP, etc., is low.
As municipalities closely manage
their finite resources and how their
assets are used, they will prioritize one
investment over another if it creates
economic benefits, such as jobs, for
the community. The relative importance of any one economic benefit
may differ with the particular stake-holder, however: The city council may
chiefly value a project’s ability to create a competitive community through
employment and economic development, whereas senior government
might value how a project enhances
the manufacturing sector or supports
municipal programs and policies.
For district energy, economic
analyses evaluate · direct benefits, associated with
construction and operation of the
plant, piping, etc.; · indirect benefits, associated with
the production of the equipment
itself; and · induced benefits, associated with
members of the workforce spending
their wages within the community.
Statistics Canada, the country’s
central statistical office, develops economic multipliers for defined industry sector groups, including district
energy, that describe their performance in terms of direct and indirect
benefits within each Canadian province and territory. These multipliers
