District Energy Already Works — But it Goes Against the Grain

District energy — networks of underground pipes that deliver heat and cooling the way wires deliver electricity — is now operating in more than 200 Canadian communities, according to the district energy industry's own count, though it still meets just 2.5% of the country's heating demand. The technology isn't the reason for that gap. The reason is who profits from the alternative, and how.

Why it matters: Space and water heating account for a large share of what Canadians spend on energy, and in most of the country, that heat still comes from burning fossil gas. Every year a community stays with gas instead of a lower-carbon alternative, it's locking in decades more of that cost and those emissions — not because nothing better exists, but because the company selling the gas has a financial reason to keep selling it.

A subsidy built into how utilities get paid

Regulated gas distributors don't just earn money from the fuel they sell. Regulators guarantee them a set rate of return on the pipelines and infrastructure they build — approved capital investment. That means the more infrastructure a utility installs, the more it earns. It's just how the rules are written. But it means a gas utility has a built-in financial incentive to keep expanding the gas network even as the case for doing so gets weaker, and it means every new gas hookup approved today becomes cost future ratepayers are on the hook for if that infrastructure gets stranded by the transition already underway.

This is a feedback loop, and it's the reinforcing kind

In systems terms, that's what's called a reinforcing loop — one where the system's own behaviour produces more of the same behaviour, rather than correcting course. More gas infrastructure means more guaranteed utility revenue which means more incentive to build more gas infrastructure. Left alone, loops like this don't run out of steam on their own; they need something outside them to interrupt the cycle — a different regulatory formula, a different revenue model, or a competing option good enough to break the pattern. District energy is that competing option in urban centres. It just has to survive the loop working against it long enough to get built.

Proof this is accelerating, not stalling

The clearest evidence isn't one success story but several in just the past two years. In July 2024, the federal government put $24.9 million into expanding Markham District Energy's network, already described as Canada's fastest-growing energy utility, serving more than 15 million square feet across 240 buildings. The expansion includes what's billed as the world's largest wastewater-to-energy facility, expected to cut more than 700,000 tonnes of emissions over its lifetime. In Ottawa and Gatineau, a $1.3-billion modernization of the National Capital Region's district energy system, which the federal government calls the first large-scale steam-to-low-temperature-hot-water conversion in North America, aims to cut emissions 92% below 2005 levels, reach carbon neutrality by 2030 and save an estimated $500 million by 2055. And in February 2026, two Canadian projects, Enwave's thermal-battery system at The Well in Toronto and Markham District Energy's wastewater heat-recovery facility, were among nine winners at the Global District Energy Climate Awards. It's a sign this momentum is registering internationally, not just locally.

None of that happened because a gas utility's revenue model suddenly changed. It happened because these particular projects found the funding, partners, and champions willing to build against the grain. The loop hasn't gone away. What's changed is that enough projects are now big enough, and well-funded enough, to push through it anyway.

Where this leaves communities right now

None of this means district energy is easy or automatic. It works best where there's a dense enough cluster of buildings — a hospital campus, a downtown core, a university — to justify the upfront cost of the pipe network, and building one still means going up against a utility whose revenue model rewards the status quo. But the barrier isn't technical. Sweden and Copenhagen both built out major district energy systems after the 1970s oil shocks made the old way of heating homes look like a liability instead of a convenience; Copenhagen now meets 98% of its heating needs this way. Canada has the same tools available, and the recent projects above show the money is starting to follow.

The bottom line: the biggest obstacle to lower-carbon heating in Canada’s cities isn't a missing technology — it's a payment structure that rewards utilities for building more of the thing we're trying to move away from. Fix how utilities get paid, and district energy stops needing to win an uphill fight against some of the very companies best positioned to build it.