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Aug 21, 2023

Vicinity battles with PGW, with Philly climate implications

Vicinity Energy, which operates Philadelphia’s steam loop system, is now

Vicinity Energy, which operates Philadelphia's steam loop system, is now battling with PGW, another century-old institution, over its Center City customers.

Vicinity Energy's Operations Manager Mike Ancona explains how a modern co-generation plant creates the steam that heats Center City office buildings. (Kimberly Paynter/WHYY)

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Beneath Philadelphia's streets lies a 41-mile network of pipes carrying low-pressure steam to dozens of buildings in Center City. From the Wanamaker building and the University of Pennsylvania to the Philadelphia Museum of Art and the new Comcast Towers — all are heated by a system installed about 100 years ago and referred to as "the steam loop."

"It's like a ring of steam, where you have a bunch of people connected to that ring taking the steam and using it," said Mike Ancona, operations manager for Vicinity Energy, a private equity firm that now owns and operates Philadelphia's steam loop system.

The steam still gets generated at the same plant on the Schuylkill River in the city's Grays Ferry neighborhood. A red brick building built in 1915 now houses modern boilers alongside a co-generation facility that feeds electricity to the grid, while at the same time, using excess heat to produce the steam that heats Center City office buildings.

The plant is a study in contrasts, and illustrates the evolution of electric generation. High-arched ceilings are lined with tiles, and detailed brickwork points to an era when electricity had begun to replace gas lighting in earnest.

"So, when this place was built, like 100 years ago, these boilers ran on coal," Ancona said. "If we can go back in time, there would have been a 60,000-ton coal pile sitting here."

Geothermal energy lies right beneath our feet. Could Philadelphia tap into it?

Philadelphia's decarbonization goals run right up against PGW, the gas utility it owns. Some say the solution lies below the city.

1 year ago

The plant originally burned coal that arrived on river barges; it then switched to burning oil during World War II. Unlike plants that simply burn a fuel source to generate electricity, co-generation makes use of the waste heat to also produce hot water, chilled water, and in this case, steam. Co-generation is therefore more efficient.

Today, the Vicinity plant burns natural gas transported through underground pipes that are owned and operated by the city-owned Philadelphia Gas Works.

Vicinity is now battling with PGW, another century-old institution, over its Center City customers.

It's an economic and business fight that also has climate implications. PGW is under pressure to decarbonize — not an easy task for a company that provides fossil fuel to heat the majority of the city's commercial and residential buildings. About one-quarter of the utility's residential customers live below the federal poverty line, and many struggle to pay their monthly bills. PGW has been expanding its more reliable commercial customer base by convincing building owners to convert from the district steam system to individual natural gas boilers.

The bulk of Philadelphia's greenhouse gas emissions come from buildings. And while emissions from that sector have dropped by about one-third between 2006 and 2019, the city attributes this to improved efficiencies in appliances and increased renewables powering the electric grid. The city wants to reach net zero carbon emissions by 2050, which would be difficult, as long as buildings continue to be heated by natural gas.

Vicinity Energy says it has a good solution to help the city reach its climate goals: decarbonize all the buildings within the current steam loop. Through a combination of biofuel, currently sourced from local restaurants, "renewable natural gas" from organic waste, along with electricity generated by renewables such as wind and solar, it says it can greatly reduce or eliminate the use of natural gas to generate steam. The company says it plans to install state-of-the-art storage technology like molten salt or volcanic rock to take advantage of renewables both day and night. Vicinity's district energy steam plant in Boston is moving in that direction.

"We can quickly switch our fuel sources as soon as they become available," said Sara DeMille, Vicinity's head of marketing. "So as soon as more biogenic fuel becomes available, we can take it on. As soon as renewable natural gas becomes available in the quantities that we need, we can take it on."

Since the plant supplies electricity to the grid, it can also receive it from solar and wind sources, DeMille said.

Vicinity CEO Bill DiCroce said PGW is offering deals for buildings to switch from district steam to gas-fired boilers, which would lock in fossil fuel use for decades. DiCroce admits that district steam is more expensive than natural gas right now, but says it's cheaper than other renewables.

"People solve for two greens; they solve for the dollars and carbon," DiCroce said. "Different institutions, different people decide which green to lean towards. So those who decide to lean toward the cheapest alternative will make different decisions than those who are trying to look forward to a less carbon-intensive future."

As institutions like universities commit to net zero, DiCroce said, district steam systems are becoming more popular.

Robert Thornton, president and CEO of the International District Energy Association, said the systems are experiencing a renaissance. After Superstorm Sandy hit the East Coast in 2012, the district energy heating and cooling systems remained online despite power failures. Universities like Princeton are decarbonizing their buildings simply by changing their fuel, without the need for additional infrastructure, according to Thornton.

"District energy is actually a very elegant solution, particularly for cities, campuses, communities, and clusters of buildings," he said. "It enables buildings to get to net zero."

In North America, 2.7 billion square feet of space is heated and/or cooled by district energy systems. About 50 towns and cities in Pennsylvania have steam loops, including Harrisburg and Pittsburgh. Across North America, there are about 900 systems, with the largest concentration in older East Coast cities like Boston, New York, and Baltimore. Thornton says switching those systems from fossil fuel to cleaner energy is a more cost-effective way to achieve electrification without overloading the current electrical system.

"In central business districts or campuses or health care systems or any place where business continuity is important, district energy is a very valuable asset," Thornton said. "And I hate to see Philadelphia cut off its nose to spite its face."

PGW won't say how many businesses it has switched to individual gas boilers, what kind of infrastructure would be needed to replace the steam, such as new gas pipelines, or what kind of deals they have offered Vicinity's customers. But a spokesperson said the company is on board with the city's move to decarbonize buildings and that switching to natural gas is more efficient, while steam systems are more carbon-intensive.

"Generating new revenue opportunities that significantly reduce carbon emissions benefits all of PGW's customers," wrote PGW spokesperson Richard Barnes in an email. "Project specs vary by project, but the intent across the board is to improve energy efficiency and to reduce the current amount of energy that is used in support of city, state, and federal climate action goals. This is a positive."

It's unclear how increasing the use of natural gas boilers would help Philadelphia reach its goal of net zero by 2050. PGW would not provide any data when asked for an explanation. Barnes said solutions to reduce the use of natural gas are complex, with no "singular solution."

"Yet PGW is unwavering in our work to support the city's energy goals and we care deeply about our City and our customers’ ability to afford to safely heat their homes and businesses," Barnes wrote. "We believe that it is important for the press, as well as our customers and stakeholders, to know and understand that in almost every instance currently, the onsite use of natural gas is less expensive and more energy-efficient than alternatives including electricity and steam."

PGW did not respond to requests to clarify its position. But experts say combined heat and power plants, such as the one that Vicinity uses to generate both electricity and steam, are considered more efficient, because any waste heat is not lost, but is used. In Vicinity's case, the waste heat produces steam.

PGW has agreed to explore how to reduce its carbon footprint. It participated in crafting the Business Diversification Study, released in December, which aims to tackle the difficult question of how the city can meet its climate goals while also owning a fossil fuel company. The report recommends further study into three separate future pathways for PGW: geothermal energy, expanded weatherization, and harvesting sewer gas or landfill gas that produces methane.

Still, as WHYY News has reported, executives at PGW were involved in crafting state legislation that would hamstring the city if it wanted to incentivize or force buildings to electrify.

PGW emails show involvement in drafting bill that runs counter to climate goals

The city opposes the measure, now making its way through Harrisburg, that would tie the hands of Pennsylvania municipalities regarding electrification.

2 years ago

Despite President Joe Biden's commitment to tackling climate change, two large district steam customers that decided to make the switch to PGW are Amtrak's 30th Street Station and Independence Historical Park, which is operated by the National Park Service.

Those two examples irk environmental groups that have now taken up the cause. The Clean Air Council reached out to both Amtrak and the National Park Service in an unsuccessful effort to convince them to stick to district energy. The council's CEO Joe Minott is also critical of PGW for expanding natural gas use at a time he says the utility needs to find ways to move away from fossil fuel.

"PGW needs to look at a non-fossil fuel future, which obviously if you’re Philadelphia Gas Works, is really hard," Minott said. "In fact, they’re doing the opposite. They’re becoming very aggressive in terms of trying to find new clients."

Minott is especially frustrated by the fact that, in the case of Amtrak and the National Park Service, there were no attempts to look at the impact on greenhouse gas emissions, no public hearings or comment opportunities, and no public bidding process. Clean Air Council has tried to get information about PGW contracts with both Amtrak and the National Park Service, but their Right-to-Know requests have either been ignored or denied.

A spokesperson for Amtrak said switching from district steam to natural gas boilers would be both more efficient and save the transportation system money.

"Diversifying the sources offers more reliable heating for the building and provides significant energy cost efficiencies to Amtrak over the contract term," wrote Amtrak spokesperson Olivia Irvin in an email. "Amtrak shares the administration's commitment to a lower carbon future and we will be working to integrate carbon assessments into our projects. To that end, we are working closely with [the developer Plenary Infrastructure Philadelphia] to quantify the social and environmental impact of the planned upgrades."

Amtrak would give no further details on the contract, or any environmental assessment it may have done. The National Park Service did not reply to multiple requests for comment.

Joseph Ingrao, an attorney with Clean Air Council, says at a time when the Biden administration is working to incentivize clean energy through the recent budget bill, having federal institutions switch away from the district energy system makes no sense.

"The federal government has pledged over $14 million to install these natural gas boilers that can only burn natural gas for heat," he said. "They’re creating this $14 million sunk cost, especially if there will be better options in five years."

And while PGW has expressed concern in the past that its low-income ratepayers cannot afford a switch to clean energy, Ingrao said that view is short-sighted.

"PGW is now playing a game of chicken with climate change," Ingrao said. "And one day it's going to be completely infeasible to continue with natural gas. And in the long-term, this is only going to strand low-income ratepayers. They’re going to be left with this at a time where it's even harder to switch than now."

In addition to the competition for customers, the two are in a legal dispute over the cost of distribution. PGW says Vicinity gets a cut-rate deal for the use of its pipeline, which was negotiated 25 years ago and will expire at the end of this year. As a result, PGW says other ratepayers subsidize the steam loop system $250 million annually, and it wants to raise the fee Vicinity pays for distribution.

Vicinity says it's an apples-to-oranges comparison to make, because there are no other similar commercial customers. The company wants to buy the pipeline used to distribute its gas for $10 million along with paying a higher rate for winter transportation but it says PGW rejected its proposal.

"If PGW accepted Vicinity's offer to buy the pipeline," said DiCroce, "it would provide PGW with the resources to deal with their own challenges, which are many."

Vicinity filed a complaint with the Public Utility Commission in October 2021, alleging predatory and anti-competitive behavior regarding the proposed fee hike.

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