One of Ontario’s most lucrative incentives for conservation and demand management (CDM) will be terminated next summer, about two years after the rules were revised to make it more appealing to multi-residential landlords and condominium corporations. The newly released provincial Long Term Energy Plan (LTEP), now updated to replace the 2013 version, rescinds favoured status for combined heat and power (CHP) systems that rely on fossil fuels.

The move reflects the Ontario government’s agenda to integrate the Conservation First Framework — programs and incentives aimed at achieving a province-wide target of 7 terawatt-hours (7 billion kilowatt-hours) of energy savings by 2020 — with the provincial Climate Change Action Plan and Ontario’s commitment, as part of the pan-Canadian alliance, to work toward reducing national greenhouse gas (GHG) emissions to 30 per cent below 2005 levels by 2030. The Green Ontario Fund, launched last August, is now promoted as a “coordinated, one-window approach” for obtaining incentives, financing and services for low-carbon technologies, while the demand management aspect of longer standing CDM programs appears to have slipped in priority.

“Under current conservation programs, combined heat and power projects that use supplied fossil fuels to generate electricity on-site are eligible for incentives because they can significantly reduce demand on the electricity grid,” the 2017 LTEP acknowledges. “To help meet the Province’s climate change goals, these projects will no longer be eligible to apply for incentives under the Conservation First Framework and the Industrial Accelerator Program, starting July 1, 2018.”

This doesn’t rule out systems that recover energy from waste, or use renewable fuels directly or in combination with energy storage. “North Bay hospital has a CHP that has a wood chip option, so this is not uncommon,” reports Linda Varangu, executive director of the Canadian Coalition for Green Health Care.

Savings, load-shifting and resilience

For smaller landlords, however, renewable options may be more of a stretch. As the name suggests, combined heat and power systems generate electricity — typically via on-site reciprocating engines or gas turbines — and recover the waste heat to use for space heating, cooling and/or domestic hot water. The vast majority of commercial, institutional and multi-residential applications use it as a supplementary source to offset the costs of natural gas boilers and grid-connected electricity supply.

Beyond the energy efficiency and cost savings of redeploying waste heat for other useful purposes, CHP allows building operators to shift load off the grid during times of peak demand. That flexibility could have a big payoff for consumers large enough to qualify for the Industrial Conservation Initiative, which prorates participants’ Global Adjustment charges to their demand during the five hours of the year with the highest overall system demand.

Depending on the system size, CHP can also provide emergency power in lieu of diesel or natural gas backup generators. Health care providers, commercial real estate operators and condominium corporations are all considering that aspect of the technology with growing interest as they look to strengthen resilience to climate change and prepare for possible prolonged power outages.

“Traditional backup generators do not always perform during emergencies,” says JJ Knott of Healthcare Energy Leaders Ontario. “CHP plants have operated continuously during natural disasters like Hurricane Sandy in New York.”

Rule changes introduced with the most recent iteration of Ontario’s Save On Energy incentives further improved the economics for multi-residential and MUSH (municipal, universities/colleges, schools and health care) customers by allowing them to offload much of the risk to third-party contractors, who would continue to own and maintain the equipment within their clients’ buildings. “A lot of multi-res buildings are having this conversation,” Jennifer Grado, Toronto Hydro’s lead on CDM business development told SpringFest seminar attendees in April 2016.

Yet, contractors see the prospect of future rising electricity costs as the ultimate motivator. “The best rates we’re going to enjoy for electricity are today,” asserts Ray Samuels, executive vice president of dbs Power and Energy.

Payback periods in flux

Without the incentive — up to 40 per cent of the capital cost of the equipment and $0.20 per kilowatt-hour (kWh) of ensuing savings — Samuels estimates the payback period for the investment is likely to stretch eight to 12 months longer. However, his company already offers an alternative energy services contract model, which, he reports, clients have chosen over the lengthy process of applying for incentives and waiting for approval for their projects.

“If the rebate is going to be less than $100,000, what you would realize in savings by moving ahead with an installation is greater than what you would recover from the rebate by waiting,” he submits.

Termination of the incentive caught few industry insiders off-guard, but it does complicate the business case for bigger-ticket expenditures. Energy management specialists foresee a different scale of investment, focused more exclusively on energy savings rather than climate change adaptation.

“Many people in the industry are not shocked by the cancellation of incentives for (fossil fuel) CHP because the program seemed contradictory to the policy of reducing GHGs,” observes Rob Detta Colli, manager of energy and sustainability with Crossbridge Condominium Services. “Without incentives, I think projects will look to lower capital costs. CHP units will be much smaller. They will probably be sized more to meet the domestic hot water load and, as such, will not be able to provide any resilience.”

New and old alternatives

Technologies funded through the new Green Ontario Fund won’t necessarily be the most popular alternative option. It could be diesel.

“We still have a lot buildings that use diesel generators for backup power. If renewable technologies aren’t economically or technically feasible, the next best solution becomes cogen, which also provides buildings with a great deal of resilience,” says Bala Gnanam, director of sustainable building operations and strategic partnerships for the Building Owners and Managers Association (BOMA) of Greater Toronto. “One of the chapters in the Long Term Energy Plan is actually entitled: Responding to the Challenge of Climate Change. In that respect, resilience is responding to climate change.”

Farther afield, energy specialists in Europe’s health care sector are actively exploring the potential of coupling CHP with renewable fuels — in part with the prompt of the European Union’s promised €1 million (CAD $1.5 million) prize for a hospital that installs a CHP system relying on 100 per cent renewable energy sources. “In a few years, we should have a very interesting operating model from Europe on how this could be done, if someone in Ontario does not do it first,” Varangu predicts.

“There is still a vast array of solutions that will help all consumers both reduce energy cost and their carbon footprint,” concurs Andrew Pride, a consultant specializing in energy management and strategic conservation planning. “It will be exciting to see how the Green Ontario Fund might enhance the opportunities offered by the current suite of electricity and gas programs.”

Barbara Carss is editor-in-chief of Canadian Property Management.