Center City steam loop a ‘diamond in the rough,’ new CEO says as pressure builds to go green

The Center City district heating system produces steam at a central power plant and delivers it by underground pipes to about 500 buildings. The system is nearly 100 years old, and to casual observers, it seems like a relic of another era.

But William DiCroce, the chief executive of Vicinity Energy, which bought the system recently, would like to cast the district heating network into a different light: Rather than looking at it as one of the city’s largest producers of greenhouse gases, or as an aging industrial eyesore along the Schuylkill, he said it should be viewed as a model of energy efficiency, and as a potential vehicle for introducing renewable fuel to a broader market.

“I try to remind people that these big district energy systems were built back in the day by public utilities, and it would be cost-prohibitive today to replace that,” DiCroce said in an interview. “So it is a diamond in the rough.”

The system, also known as the Center City steam loop, provides high-pressure steam to about 162 customers, including skyscrapers such as the new Comcast Technology Center, the Philadelphia Museum of Art, and such institutions as the University of Pennsylvania and Drexel University. It heats about 100 million square feet of space, the equivalent of 150 art museums or more than 60 times the space of the new Comcast tower, the city’s tallest.

The district system was built by Philadelphia Electric Co., now known as Peco, but it has changed owners several times in recent decades. Veolia North America, a French company that bought the system in 2007, sold it last year to Antin Infrastructure Partners of Paris as part of a $1.25 billion transaction. The Philadelphia system was the largest of 13 systems that Antin bought.

Pennsylvania regulators approved the sale in December.

The company, headquartered in Boston, has adopted Vicinity Energy as its brand. DiCroce, who headed Veolia’s North American operations, including water and wastewater assets, moved over to the new company, which is focused exclusively on district energy systems.

“We’re now owned by an infrastructure fund with great access to low-cost capital, so we want to invest to grow our infrastructure, or maybe help customers retrofit or grow their own green infrastructure,” he said. “We’re in a much better position to work alongside them and invest and increase our positive impact on the energy environment.”

But political pressure to address climate change — the city has formally pledged to cut carbon emissions 80% by 2050 — may increasingly put Vicinity’s district heating system into the crosshairs.

Vicinity’s Grays Ferry cogeneration plant at 2600 Christian St., which uses natural gas, is the largest customer of Philadelphia Gas Works; the steam plant is responsible for more than 3% of Philadelphia’s carbon footprint, according to a city report last year.

The cogeneration plant accounts for about 80% of the system’s steam demand. The remainder is produced from smaller generators at the Christian Street site, or the Edison Plant at 908 Sansom St., which is located amid the Thomas Jefferson University complex. DiCroce said the Edison site only produces about 2% of the system’s steam but is an important part of keeping the system balanced on cold days.

In addition to natural gas, the plant’s air permits allow it to use oil, including No. 6 fuel oil, a residual product that contains a high level of sulfur and other impurities. The city has enacted a phasedown in the use of heavy fuel oil, but the Clean Air Council, an advocacy group, says the Vicinity plants should be weaned more quickly.

“To continue to permit heat and electricity generators to use fuel oil No. 6, essentially a waste product, in the city of Philadelphia is detrimental to air quality and goes against new regulations passed by City Council and the Air Pollution Control Board,” said Russell Zerbo, a Clean Air Council advocate. “The city’s gradual ban on fuel oil No. 6 will take effect over years, but it makes little sense to continue to allow centrally located, major pollution sources like the electricity generators at 2600 Christian St. and 908 Sansom St. to use this dirty fuel while a ban slowly takes effect.”

Because Vicinity’s big cogeneration plant simultaneously produces thermal energy and electricity, it achieves higher levels of efficiency that are difficult to match. But DiCroce believes there may be room to innovate with new fuels at some of the smaller generation units on its system, which are primarily powered by fuel oil.

DiCroce said the company has already experimented with using renewable biofuel at the Sansom Street plant as a replacement for fuel oil and is open to using renewable natural gas at its Grays Ferry plant if its customers demand it or regulators require it.

The decision on which fuel to use is largely determined by availability and economics, and DiCroce suggested one way to increase the use of renewable fuels is to increase market subsidies to make them more competitive with fossil fuels.

“The lion’s share of incentives have gone to solar and wind, but if we go to look at the thermal side of the system, we could incentivize whether it was renewable natural gas,” he said.

Electric boilers could replace some of the oil generators at the Christian Street site, drawing renewable power from the grid, if the market conditions were right, he said, though currently, the cost of electricity is prohibitive. Climate change activists are campaigning to convert buildings from fossil fuels to electricity, which would require big upgrades to the electric distribution system. Converting the boilers of a central power would achieve the same result, affecting 100 million square feet of space.

“The district energy system is indifferent to fuels,” he said.

The Philadelphia power plant may also face increasing pressure from its neighbors as more affluent residents migrate into the area surrounding the Grays Ferry plant — newer townhouses on 26th Street, next to the power plant, have sold recently for more than $600,000. On online bulletin boards, there is some grumbling from neighbors about the plant.

The cogeneration plant has been cited several times in the last five years, and fined $79,100, for exceeding permissible emissions of nitrogen oxides and for visible emissions. Zerbo, the Clean Air Council advocate, also noted the Schuylkill Station at 2600 Christian St. is “continually in violation of the Clean Water Act because of discharges of chlorine and suspended solids.”

Nicole Koedyker, the executive director of the South of South Neighborhood Association, said the group’s interactions with the power plant have been “pretty positive.” Some residents are employed at the plant, she said, and under Veolia’s ownership, the company installed more street lighting after a mugging last year.

She said she had not heard of any complaints about emissions or smells. And as for the plant’s industrial appearance, she said, “I think a lot of people have just gotten used to it.”

This story was updated to correct the number of customers served by the Vicinity Energy system, based upon a recent company filing with the Pennsylvania Public Utility Commission.