When I travel to Portland it’s almost always on the train, which delivers me to the Pearl District. The Peal has been much hailed as an example of comprehensive planning, financing, and redevelopment. On my most recent train trip my reading included a recent report that found that the North Pearl District has all the right ingredients to move ahead with district energy. The North Pearl District might be able to finance neighborhood district energy using the Green Energy Investment Trust (GEIT) model—a GEIT would create an investment instrument for investing in renewable energy infrastructure. With local Tax Increment Financing capacity at its limits, an alternative financing model for district energy would be welcome.

After I jumped off the train I walked through the North Pearl District. It isn’t as evenly built out as the rest of the Pearl District. Situated between the landings of the Broadway and Fremont bridges, a big part of the area maintains a light industrial and commercial warehouse feel. The lack of development in the area makes North Pearl an attractive place to consider district energy. District energy—centralized energy production and capture of waste heat—is an idea that has been used all over the world and in our region with great success. District energy has proven to be a more efficient way of heating and cooling buildings and it is an effective way to capture renewable sources of energy like ground source heat and geothermal.

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  • Let’s take a look at what the report—Business Analysis for a Neighborhood Energy Utility in the North Pearl District—found about the feasibility of district energy in the North Pearl.  The study was commissioned in conjunction with the City of Portland’s North Pearl District Plan (NPDP) which intends “to provide a blue-print for expansion of the Pearl District northward, and better connections to the Willamette River and adjacent neighborhoods to the north and west.” The group of community members and city planners working on the NPDP prioritized making future development in the North Pearl District carbon neutral and decided to explore how a district energy model could help achieve that. The report concludes:

    A district heating and cooling system for the North Pearl District is financially sound and would have immediate environmental benefits under a wide range of assumptions and technologies. Even the simplest option of centralizing natural gas boilers and electric chillers offers immediate benefits simply through the potential recovery of waste heat from cooling.

    The study further found that eventual replacement of natural gas with bioenergy—something like Seattle Steam’s biowaste furnace—would provide even further benefits in terms of emissions and still be financially viable.

    So what’s the hang up? A year after the report concluded district energy is beneficial to the goals of carbon neutrality, and also makes financial sense, nothing has happened. A few things have cooled off the implementation of district energy. First, the real estate market isn’t what it used to be. There simply isn’t a lot of new development on the near horizon. That means a lot less capital to invest in infrastructure and without customers for the energy the financial feasibility is questionable. Second, (as blog commenter John Gear suggested in his criticisms of Tax Increment Financing (TIF)), TIF has been used a lot in Portland over the last decade. Some city officials feel that the tool has used up a lot of the region’s debt capacity. There is only so much debt that a TIF district can access, and the more it accesses reduces debt capacity for other local governments. Finally, the City of Portland would have to deal with myriad policy issues like how to draw the boundaries of the district, establishing agreements for use of the right of way, and making determinations on permits and fees. There also has to be a decision about whether the City would be the owner of the new utility.

    Some progress has been made on the permitting front with recent amendments to the land use rules that allow renewable energy development on a neighborhood scale. Previously, Portland’s code didn’t allow locating renewable energy production in neighborhoods. The issues with TIF and the real estate market might sort themselves out over time. But the lack of development makes putting infrastructure now even more important. Building an energy district would be a lot simpler while property is unoccupied and undeveloped than trying to retrofit buildings after they’ve been constructed.

    As I described in my previous post, a GEIT approach would provide patient investors an opportunity to make a green investment by buying shares in the utility. That initial offering could generate some of the up front capital to build out the preliminary district energy infrastructure. The new utility could be privately owned or owned together with the city as an investor. When demand for housing in the North Pearl returns investors will be well positioned to get a return when those residents and businesses purchase energy from their utility.

    A GEIT for North Pearl might sound like a wild idea but both the Deloitte paper—which discussed Real Estate Investment Trusts as a funding model for infrastructure—I wrote about and the feasibility study mentioned the importance of international investors and their interest in infrastructure projects.  The North Pearl study concludes that “it would be quite likely that the City would find interest among numerous potential partners including international district energy developers and providers, other district energy system owners, and other utility providers.” It may be that making district energy happen in the North Pearl will require casting a wider net for investors and creating an investment vehicle that could produce great returns in the next decade for forward thinking and patient investors.