Quesnel Community Energy System the first of its kind in North America

Innovative partnership will bring community-based energy and economic benefits to North Cariboo region of B.C.

QUESNEL, BC, July 7 /CNW/ - The City of Quesnel and Terasen Gas have signed a letter of intent (LOI) to conduct final feasibility work on a unique renewable energy system in Quesnel in cooperation with West Fraser Timber Co. Ltd. and BC Hydro. The LOI represents an agreement in principle to implement a combined heat and power system that will serve as both an energy source and economic benefit for its partners and the communities they serve.

The Quesnel Community Energy System (QCES) is a biomass system that will use waste heat and left-over residues from milling at West Fraser's Quesnel sawmill to generate both heat and electricity. The approach and technologies employed make the project a first in North America. No trees or other forest biomass will be harvested solely to power the QCES.

"The City is excited about this innovative and sustainable energy project," said Mayor Mary Sjostrom. "The project would not be moving forward without Terasen's critical technical and financing role, or without West Fraser's strong cooperation. We look forward to forging a strong and lasting relationship around this project."

"I also commend the city's Economic Development Corporation for its great work advancing the project and these partnerships," she continued. "Finding revenue that isn't based on property taxation is one of Council's strategic objectives, and this project has the potential to be a significant economic generator for the community."

"Community-based energy solutions allow us to incorporate new or alternative technologies - in this case, recovered heat and sawmill residuals - as part of our regulated energy service offerings," said Doug Stout, Vice President of Energy Solutions and External Relations at Terasen Gas and FortisBC. "The City of Quesnel has shown great leadership and vision in exploring the potential for this project, and moving it forward, which supports our efforts to move B.C. towards a sustainable energy future. The QCES will provide many benefits, including environmental protection, affordable costs for customers and proven reliability."

The system is expected to provide 5.5 megawatts (MW) of heat to numerous industrial, municipal, commercial or multi-family residential buildings in Quesnel. It will also produce up to 1.7 MW of electricity, which is proposed for purchase by BC Hydro for re-sale, providing its customers with access to a clean source of power.

The QCES supports the City of Quesnel's commitment to become carbon neutral by 2012 and its aim to generate revenue independent of property taxes, as well as Terasen Gas' commitment to the environment, which includes developing safe, reliable alternative energy solutions. The QCES will be designed to achieve more than 90 per cent energy efficiency, and each year would:

    
    -   reduce greenhouse gas emissions by 6,000 tonnes per year, the
        equivalent of taking more than 1,000 cars off the road
    -   produce 81,000 gigajoules of carbon-neutral heat, enough to heat the
        homes of about 5,000 people
    -   produce 14.2 gigawatt hours of carbon-neutral electricity
    

"BC Hydro looks forward to adding the power from QCES to its portfolio of clean energy sources," said BC Hydro's Deputy CEO and Executive Vice President, Bev Van Ruyven. "Projects such as Quesnel's demonstrate that creative solutions can result in a 'win-win' for both our customers and BC Hydro."

"This is a good opportunity to investigate ways to expand the value of our energy system, reduce our carbon footprint and explore a new approach to community cooperation," said Martin Ellefson, Manager of West Fraser's Quesnel Sawmill.

The initial capital cost of the QCES is estimated at $14 million. The City of Quesnel, through its Economic Development Corporation, secured grant funding of $4.13 million through B.C.'s Innovative Clean Energy Fund, with Terasen Gas funding the balance. Western Economic Diversification Canada, the Green Municipal Fund, BC Hydro and the BC Bioenergy Network have also been instrumental in moving the project forward.

Under the proposed agreement, the City of Quesnel, Terasen Gas and West Fraser will each participate in the project. It is proposed that QCES purchase excess heat from West Fraser, and BC Hydro purchase the electricity generated under an Electricity Purchase Agreement.

The partnership will now begin detailed engineering work to finalize analysis of the economic viability of the QCES. The BC Bioenergy Network is contributing and co-investing $200,000 in conjunction with Terasen Gas to facilitate the timely completion of the required business, financial, and legal frameworks as well as the detailed engineering work.

"BC Bioenergy Network is pleased to contribute to this innovative project that will be a first of its kind demonstration of community heat and power here in B.C., as well as provide an effective source of clean energy for the City of Quesnel. The project will demonstrate effective cooperation between communities, our two major utilities, and the forest sector in reducing greenhouse gases," said Michael Weedon, Executive Director for the BC Bioenergy Network.

Terasen Gas and the City will also work to negotiate and conclude detailed agreements with BC Hydro and West Fraser Timber. With the successful conclusion of these agreements and the engineering work, approval from the BC Utilities Commission will be required to proceed with the project. If approved, the QCES is expected to be operational in 2012.

The City of Quesnel is nestled in British Columbia's Cariboo Country at the confluence of the Fraser and Quesnel Rivers. More than 10,000 people call the City home. Its local government strives to provide its residents with an outstanding quality of life in a vibrant, prosperous, diversified community, achieved through a process of public consultation and trust.

Terasen Gas is mainly composed of the operations of Terasen Gas Inc. and Terasen Gas (Vancouver Island) Inc., both indirect wholly owned subsidiaries of Fortis Inc. Fortis Inc., the largest investor-owned distribution utility in Canada, serves approximately 2,100,000 gas and electric customers and has total assets exceeding $12 billion. Its regulated holdings include Terasen Gas and electric utilities in five Canadian provinces and three Caribbean countries. Fortis Inc. owns non-regulated hydroelectric generation assets across Canada and in Belize and upper New York State. It also owns hotels and commercial real estate in Canada. Fortis Inc. shares are listed on the Toronto Stock Exchange and trade under the symbol FTS. Additional information can be accessed at www.fortisinc.com or www.sedar.com

West Fraser is an integrated wood products company producing lumber, wood chips, LVL, MDF, plywood, pulp and newsprint. The Company has operations in western Canada and the southern United States.

A provincially-owned crown corporation, BC Hydro reports to the B.C. Ministry of Energy, Mines and Petroleum Resources. It is the third largest electric utility in Canada and serves customers in an area containing over 94 per cent of British Columbia's population. BC Hydro endeavours to provide energy solutions to its customers in an environmentally and socially responsible way by balancing British Columbians' energy needs with the concerns of the environment.

Established in April 2008 with a $25 million grant from the BC government, the BC Bioenergy Network is an industry-led association that acts as a catalyst for deploying near-term bioenergy technologies and organizing mission-driven research for the development and demonstration of sustainable to build a world class bioenergy capability in BC. For more information about the BCBN, visit www.bcbioenergy.ca.

    
    BACKGROUNDER: The Quesnel Community Energy System

    Overview
    --------
    

The City of Quesnel and Terasen Gas Inc. are proposing an innovative distributed energy project in cooperation with West Fraser Timber Co. Ltd. (West Fraser) and BC Hydro. The project, known as the Quesnel Community Energy System (QCES), will generate both heat and power for customers in Quesnel by capturing waste heat and left-over residues from an existing sawmill.

The system would be a first in North America. Although all the technologies proposed in the QCES are currently in operation today, including many similar heating systems in Europe, these installations either provide district heating only, power only, or are purpose-built. The QCES takes advantage of existing systems and infrastructure to generate both heat and power.

The QCES would modify the existing biomass energy system at West Fraser's Quesnel sawmill to generate 1.7 megawatts (MW) of electricity (about one third of Quesnel's current residential consumption). This power is intended for sale to BC Hydro through an Electricity Purchase Agreement. The system would also deliver 5.5MW of heat through a district heating pipeline to industrial, commercial, multi-family residential and public buildings. About 40 per cent of all energy utilized through the project will be from recovery of waste heat; an estimated 9,000 tonnes of wood waste from milling operations will be burned to increase power and heat production. No trees or other forest biomass will be harvested solely to power the QCES.

The QCES has good potential for growth. It could help attract new development along the pipeline route, and, if extended into Quesnel's industrial area, may help attract new customers that require low temperature process heat, such as food processors.

The final phase of feasibility work on the project will commence immediately and will conclude by late 2010. If the project is deemed to be feasible, and pending approval of Terasen Gas' application to the BC Utilities Commission, it is anticipated to be operational in 2012.

    
    Innovations
    -----------
    

The QCES will achieve an energy efficiency of more than 90 per cent by capturing waste heat and producing both electricity and heat. The project is unique because it uses an existing biomass energy system instead of building one from scratch, and integrates an organic Rankine cycle (ORC) turbine to generate power from waste heat (in contrast to a steam turbine, an ORC uses a working fluid that vaporizes at a lower temperature than water, and therefore can be used to generate power in lower temperature waste heat applications).

By retrofitting an existing, proven energy system, substantial construction costs can be avoided. The QCES may also make use of additional existing facilities to find efficiencies.

In addition, the project employs distributed generation (DG) - an approach that primarily uses smaller-scale electricity generation located close to the customers it is intended to serve. BC Hydro is interested in exploring distributed generation opportunities, such as the one proposed in Quesnel, which use renewable energy resources and are cost effective.

The partnership arrangements bring together industry, municipal government, utility providers, and heat customers. Many similar opportunities exist in Canada, and this project will help participants and observers better understand that potential.

    
    Participants
    ------------
    

The City of Quesnel, Terasen Gas Inc., West Fraser Mills Ltd., BC Hydro, and public and private sector building owners/operators are involved in the project. Letters of Intent and other agreements regarding the QCES have been arranged among Terasen Gas and the City of Quesnel; Terasen Gas, the City and BC Hydro; and West Fraser and the City.

    
    Cost and financing partners
    ---------------------------
    

Total capital costs are approximately $14 million, which would be jointly funded by the City of Quesnel and Terasen Gas. The City has secured a $4.13 million grant from BC's Innovative Clean Energy Fund, and most recently, the BC Bioenergy Network has contributed a $200,000 forgivable loan to help complete detailed engineering studies and business, legal, and financial frameworks that will finalize the project's economic viability. In addition:

    
    -   Western Economic Diversification Canada provided $150,000 of seed
        capital for research and development studies related to the project
    -   the Green Municipal Fund provided $54,000 towards initial feasibility
        research
    -   BC Hydro provided $40,000 towards subsequent feasibility research

    Benefits
    --------
    

If the project proceeds, an investment of $14 million to build the Quesnel Community Energy System will have numerous local economic, social and environmental benefits, including:

    
    -   Providing a new revenue source for the City outside the traditional
        tax-based revenues, which will help mitigate the potential loss of
        forest industry tax base resulting from the pine beetle infestation
    -   West Fraser will obtain a revenue stream from the project in exchange
        for utilization of its infrastructure and for operational and
        maintenance services
    -   Creating approximately 84 jobs during the construction of the QCES,
        plus up to four jobs once the system is operational
    -   Providing the capacity to serve the majority of large commercial and
        public sector heat users in the City with a stable, carbon-neutral
        source of heating
    -   Retaining wealth in the local economy that would otherwise leave the
        community as energy payments for fossil fuels consumed by the
        buildings the QCES will serve
    -   Diversifying Quesnel's economic portfolio - the district heating
        infrastructure can be expanded to provide carbon-neutral heat to new
        customers, such as food processors
    -   Meeting B.C.'s greenhouse gas reduction targets for publicly owned
        buildings at a reasonable cost. The project will allow the City to
        completely meet its commitment to become carbon neutral by 2012
    -   The project provides an excellent opportunity for BC Hydro, Terasen
        Gas and West Fraser to gain experience with organic Rankine cycle
        turbine technology, which may have wide application in B.C.
    

Based on 1.7MW of power production and heat service to 14 buildings initially, the QCES will:

    
    -   Reduce greenhouse gas emissions by 6,000 tonnes per year, the
        equivalent of taking more than 1,000 automobiles off the road
    -   Produce 81,000 gigajoules per year of carbon-neutral heat, the
        equivalent to the home-heating needs of approximately 5,000 people
    -   Generate 14.2 gigawatt hours per year of clean electricity,
        approximately equal to one third of the City of Quesnel's residential
        power demand
    -   Conserve natural gas supplies for future uses
    

For a diagram and image of the Quesnel energy system, click here: http://files.newswire.ca/890/Quesnelimages.pdf

For further information: Media Contacts: Marcus Wong, Corporate Communications Manager, Terasen Gas, Phone: [phone], [email protected]; Matt Wood, Communications Supervisor, City of Quesnel, Phone: [phone], [email protected]; Martin Ellefson, General Manager, Quesnel Sawmill, West Fraser Mills Ltd., Phone: [phone], [email protected]; Bob Gammer, BC Hydro Northern Community Relations, Phone: [phone], Cell: 250-961-0676, [email protected]; Michael Weedon, Executive Director, BC Bioenergy Network, Phone: [phone], [email protected]