GROWING A DISTRICT ENERGY START-up – QUEST 2017 JASON GRABINSKY, Manager, Business Relationships AUGUST 31, 2017

Three-Pronged District Energy Strategy Downtown District Energy Combined Heat & Power Community Energy Leverage Infrastructure Displace boilers from building structures Reduce heating footprint by 90+% Optimize energy efficiency Produce power Displace natural gas combusted on site for heating Sustainable Communities District Energy and CHP contributes to sustainable development Low Risk, Avoided Costs, Predictable Costs, GHG Reduction

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ENMAX DISTRICT ENERGY & CHP BACKGROUND Commissioned in 2010 with 35 MW of thermal heating capacity (21,000 ft2 building). Partial funding of $31M from federal and provincial program (CAMRIF). Nearly 8M ft2 of connected or committed capacity. 5500 meters of pipeline installed throughout downtown and East Village district. Added 20MW of additional boiler capacity in 2014 to meet demand (55 MW total). Commissioning 3.3 MW of CHP in Q4 of 2017.

District Heating

Energy Transfer Station (ETS)

Configuration: DE & CHP

COMBINED ENERGY EFFICIENCY PAYOFF WITH CHP AND DE By combining DE and CHP, over 80% of the energy consumed by the boilers and CHP unit are utilized with only 20% exhausted through the heat stack. In some cases, a combined DE and CHP plant can be over 85% efficient. Source: International District Energy Association – Smart Tools in a 111(d) Toolbox: Combined heat and power and district energy

HOW CAN DE AND CHP HELP COMMUNITES REDUCE GHG EMMISSIONS? DE and CHP allows for a transition away from fossil fuel use and can result in a 30–50 per cent reduction in primary energy consumption. EXAMPLES Source: United Nations Environmental Programme: Distirct Energy In Cities, Unlocking the Potential of Energy Efficiency and Renewable Energy, 2015 Denmark has seen a 20 per cent reduction in national CO2 emissions since 1990 due to district heating, and many cities are turning to district energy as key components of climate action plans. District energy is a core strategy in putting Paris on the pathway to a 75 per cent reduction in CO2 emissions by 2050. In Copenhagen, recycling waste heat results in 655,000 tons of CO2 emission reductions while also displacing 1.4 million barrels of oil annually. And Tokyo, Japan’s, district heating and cooling systems use 44 per cent less primary energy and emit 50 per cent less CO2 compared to individual heating and cooling systems. Source: United Nations Environmental Programme: Distirct Energy In Cities, Unlocking the Potential of Energy Efficiency and Renewable Energy, 2015

HOW CAN DE AND CHP HELP COMMUNITES REDUCE GHG EMMISSIONS? Table below shows how district heating production in Gothenburg, Sweden doubled from 1973 to 2002, while emissions of CO2, SO2 and NOx simultaneously decreased. Heat production went from ~2000 GWh to over 4000 GWh from 1973 – 2002 while emmissions decreased with the inclusion of DE and CHP. Source: United Nations Environmental Programme: Distirct Energy In Cities, Unlocking the Potential of Energy Efficiency and Renewable Energy, 2015

“Starting a District Energy business is easy.” No -one. Ever.

OUR CHALLENGES First and only privately operated District Energy Centre in the province. Building owners and operators are unfamiliar with District Energy. Have strong value proposition but who wants to take on risk as early adopter. No pipe in the ground. New connections require costly civil construction. DE is non-regulated utility with no municipal mandate for buildings to connect. Constrained by resources to execute. Can we be competitive against self-generation over the contract term?

WHAT CHALLENGES DO ALBERTA MUNICIPALITIES FACE IN PROMOTING THE DEVELOPMENT OF DE AND CHP SYSTEMS? Developers are creating sustainability roles within their organizations however policies don’t align with their business model. Risks are high: Capital intensive, long payback, market won’t pay a premium for it. No clear path between policy, incentives, and implementation. CHP can benefit the grid but costs to interconnect are burdened by developers. Disincentives growth. DE and CHP assets are not exempt from carbon tax No mandatory connection, incentive to connect, or policies that require it to be assessed. 80% of consumption comes from commercial districts yet majority of carbon reduction initiatives benefits residential home owners.

WHAT HELP DO MUNICIPALITIES NEED FROM GOVERNMENT OF ALBERTA, BY WAY OF POLICIES, LEGISLATION, PROGRAMS AND OTHER ACTION? Connection policies by type in 45 champion cities analyzed by the United Nations. * Vancouver and Tokyo have this policy, but only for new developments over a certain size, and were not counted for this. (13%) ** Cities that are still developing their first district energy network are not included here because their connection policy is undecided. (27%) Source: United Nations Environmental Programme: District Energy In Cities, Unlocking the Potential of Energy Efficiency and Renewable Energy, 2015

Our price is based on our cost.

Customers decision is based on their alternatives.

OUR EVOLVING FINANCIAL MODEL ENMAX requires no upfront capital. Recover the cost to connect each building + IRR over contract term (20 yrs). Fixed Capacity Charge (FCC) is the $/kw/yr to recover cost. Gas is variable. Ex. 1000 kw load x $50 FCC = $50,000/yr + gas. Customers can prepay all or portions of the FCC. Each customer to pay a pro-rated share of the generation, transmission, and distribution. Working to establish a market rate for heat. Thermal mapping downtown core and probability weighting of future connections.

OUR SUCCESS 17 buildings under contract. 13 connected. Profitability is growing. Planning for the addition of new supply. Have created market pull for DE. Strong value prop to retrofit scenarios in market conditions where capital is in short supply. Set a standard for environmentally responsible energy generation in the Province. Other municipalities are looking to ENMAX to construct DE for their communities (Edmonton).

Questions?