Jan. 24—ROCHESTER — The anticipated cost for a
$15.6 million energy conversion
of four city-owned buildings is on track to be more than $2.4 million below budget.
"They are all coming in under budget," Rochester Facilities and Property Manager Scot Ramsey said of construction and installation bids related to energy conversion plans at City Hall, the Rochester Public Library, the Mayo Civic Center and the Rochester Art Center.
The city is purchasing much of the equipment directly in an effort to control costs, but the Rochester City Council approved a final contract this week as part of $8.7 million in expenses related to installation and other preparation for the energy change.
The conversion is required with plans to end the Olmsted County steam supply used to heat and cool the downtown government buildings.
After facing an estimated $30 million price tag for replacing the aging infrastructure that delivers steam downtown from the county's Waste-to-Energy facility, Olmsted County commissioners opted to transition to heating and cooling the county's downtown buildings with local systems, while steam service will continue to be available for the county's east campus.
The city has until October to complete its transition.
Initial plans called for developing a downtown district energy system, using geothermal energy to serve a variety of public and private buildings, with pipes linking the structures to share any energy excesses and reduce overall utility costs.
"It's about recycling the heat and cooling between different buildings," Ramsey said, pointing out that the Civic Center naturally produces excess heat in the winter that could be moved to the library, if the proposed grid was in place.
The project was expected to cost $31.6 million, and the city asked state lawmakers to provide half the funds through state borrowing.
Since state legislation to approve borrowing was not approved last year and the city faced a deadline, the Rochester City Council opted to switch gears, landing on a compromise between the proposed district energy grid and simply installing new natural-gas boilers and electric chillers in all four buildings.
Installing the new equipment in each building was expected to cost a combined $13 million, which included $950,000 already spent on preliminary designs for the geothermal project.
The $15.6 million middle ground was designed to install two geothermal wells and pumps in City Hall, while giving the library, Civic Center and Art Center their own heating and cooling equipment.
The estimated cost came in at half the price of the district energy plan, but is expected to put the city in the position to expand the reach of the new system, if future state or federal funds are available to connect the other buildings.
"We need to prioritize our future," said council member Molly Dennis, when the council unanimously approved the energy approach last year.
Ramsey said estimates show the new system will save $602,000 in annual utility costs, which is up from the $535,000 in savings projected without the geothermal element.
The full district energy approach was expected to save the city $873,00 in annual costs.
The enhanced transition also puts City Hall on a course to operate on 100% renewable energy by 2030. Estimates point to a lower energy and carbon footprint with the installation of the geothermal unit once the new heating and cooling system is in place.
Using geothermal heating and cooling in City Hall is expected to cut the city's annual energy usage by one-fifth and reduce its carbon footprint by 500 tons of carbon dioxide a year.
Adding all the city-owned buildings to a district energy grid, even with the use of natural gas and electric equipment, could reduce impacts further. The district energy proposal estimated energy needs would be cut in half and related the carbon footprint reduced by more than another 500 tons of carbon dioxide a year.
The cost for the district plan would have required at least a $1 million increase in annual property tax revenue without state support. Council members deemed the price to be too steep.
The current plan is being funded with $7 million in federal funds provided in the American Rescue Plan Act, as well as up to $8.6 million in debt, which would require $147,500 in property taxes for annual payments.
The tax need will be reduced by any budget reductions seen as the project moves forward, but Ramsey said it's too early to anticipate the final cost, since work involves several buildings of different ages and unexpected expenses could be seen.
"I've planned for a healthy contingency," he said of the potential for unexpected cost overruns.
With plans to complete the installation in September, Ramsey said future expansion is possible, especially as new technology emerges.
"That system is being designed to hook up to a future district energy system," Ramsey said.
While the city has backed off its request for the state to borrow funds, Deputy City Administrator Aaron Parrish said it has applied for federal funds that could expand the project.
The added funds could be used to connect other city buildings to allow excess heat or cooled air, but, but it could also be used to expand the grid to provide services to future downtown construction projects, which would potentially provide added revenue for the city and further reduce energy costs.
Meanwhile, Olmsted County has already started its transition away from steam reliance at the city-county Government Center and the county's annex building.
"We started operating the new heating plant for the annex and Government Center last fall and expect to start the chiller plant for both buildings this spring," said Mat Miller, the county's director of facilities and building operation. "They are putting the finishing touches on the installation of the chiller plant right now."
Construction costs for converting the two county buildings are expected to be $3.8 million.