Markham, Ontario, in the 1990s was a city in need of a pivot: away from an era of increasing sprawl and toward denser neighbourhoods with better urban planning. The long-term pressures of climate change and the energy transition were already visible, and in 1999 Markham’s city councillors took the step of investing in a district energy system to heat and cool its downtown core. Instead of relying on individual boilers and cooling equipment in every building, the city backed a shared energy network designed to scale alongside new development.

Now, roughly 25 years later, insulated pipes buried beneath parts of Markham carry hot and chilled water between central energy plants and connected buildings across more than 14 million square feet of development. Markham’s investment paid off. The system has delivered a faster transition to cleaner energy while helping build amore resilient city by improving long-term energy reliability and flexibility as community needs evolve.

“The thing we’re able to do with[centralized plants] is adopt new technologies long before a building would,” says Peter Ronson, COO of Markham District Energy. “And so the buildings on a district energy system benefit from the transition to higher efficiency and lower carbon footprint.”

The opportunity for Canada

When it comes to shared community energy, Canada currently lags behind other regions such as Europe, the Middle East and Asia, where city-based systems are more common. The cities that are leading the charge in Canada are benefitting significantly, like Yellowknife in the Northwest Territories, which could save up to $160,000 annually with its district energy system.

A widespread shift to centralized thermal energy networks stands to improve the resilience of Canada’s economy while accelerating progress on emissions reductions. These projects are readily bankable and scale efficiently with private sector investment. Networked systems help municipalities become more resilient to power outages and energy shocks. Around the world, they have proven effective in different kinds of disasters, from ice storms to hurricanes. That’s partly because district energy systems can draw from multiple energy sources and are maintained using higher-grade equipment, says Gerard MacDonald, principal at Reshape Infrastructure Strategies in Vancouver.

Upfront investment, lasting benefits

Despite the economic and environmental advantages, district energy still faces enormous challenges getting projects officially off the ground, Ronson says. Energy systems like these require significant upfront financing. But on the other side of the ledger, they scale well as demand grows. Systems can be launched for just a few buildings and expand over time. Early support from the Federation of Canadian Municipalities’ Green Municipal Fund, which provides grants and loans to municipalities for clean energy and resilience projects, has helped get many of these first-phase systems off the ground.

“District energy is one of the smartest ways to decarbonize buildings,” MacDonald says, because it cuts emissions “with a lot less electricity than you would if you went at it building by building.” That’s why, he says, it is drawing attention not just from the district energy and electricity sectors, but also from politicians and others who care about costs for users.

Investors are noticing too. “District energy is increasingly compelling be-cause, compared to more traditional utility models, it can offer communities local control and greater resilience to fuel price shocks, outages and supply disruptions,” says Marieke Cloutier, senior director of programs at the Green Municipal Fund. “It offers large-scale, net-zero investment opportunities with strong returns and efficient transaction costs.” A crucial early supporter, the Green Municipal Fund continued investing in Markham Centre district energy for 20 years – providing more than $17 million in grants and loans. This system became Canada’s fastest-growing energy utility, attracting more than $270 million in additional capital across multiple stages of expansion, including from the Canadian Infrastructure Bank and Canadian Imperial Bank of Commerce.

Such early funding from the Green Municipal Fund plays a “de-risking” role for district energy projects, laying the groundwork for investors who want to fund green infrastructure but may find municipal deals too small or complex to navigate. District energy is capital intensive, so being able to borrow at low interest rates and offer reasonable security can be a strong accelerant. The Green Municipal Fund finances early work such as business cases and feasibility studies, so that by the time a project is ready for large-scale capital to come in, it is equipped with reliable data, clearer risk allocation and strong return potential.

Investors like the certainty of long-term infrastructure and utility-scale returns on investment, Ronson says. “Once you connect buildings to district energy systems, they’re typically connected forever.”

Networked for growth

As well as stable power and emissions reductions, cities with networked energy draw further advantages from these systems’ shared infrastructure, Cloutier says. They’re cheaper to run over time while providing municipalities with “more stable long-term revenue streams when compared to other conventional utility models.”

Markham now operates two district energy systems with four energy plants, and it’s commissioning another. The new addition will collect warmth from a large sanitary sewer running alongside one of its plant facilities, using a heat exchanger and industrial heat pumps. Ronson says the system will improve efficiency and provide a return on investment, all while reducing the carbon footprint of Markham’s heating network beginning this winter.

Twenty-seven years after pivoting to efficient thermal energy networks, Markham now leads a wider shift as other cities rethink how they heat and cool their downtowns. As cities and investors weigh their options, MacDonald argues that the real test is what works for the people who pay the bills. “It’s in the public interest to go the route of district energy because it’s lower cost, it can be low-carbon, and it’s not going to break the utility rate.”

FCM’s Green Municipal Fund (GMF) is a globally unique organization providing funding and education to municipalities to help them reach net-zero and build resilient communities. GMF manages approximately $2.4 billion in programs funded by the Government of Canada.

Learn more about how the GreenMunicipal Fund is helping derisk climate investment: greenmunicipalfund.ca/invest

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