After establishing firm ground in Ontario, Toronto-based distributed utility Subterra Renewables is acquiring companies and expanding into Western Canada and the U.S. to meet rising demand for greener buildings.
Subterra offers low-emissions heating and cooling for buildings and institutions by tapping into the ground as a thermal battery in a process called geoexchange. Up until 2023, Subterra drilled almost exclusively in Ontario, with over 90 per cent of its activity in the Greater Toronto Area.
It has acquired Alberta-based Earth Drilling Co. Ltd. and Nevada-based Harris Exploration to gain entry into the new markets. The expansion was further cemented by the creation of an office in Calgary that will be helmed by Subterra’s president Matthew Tokarik.
“We sent Matt because we expect this acquisition to open up the market in a very meaningful way for us,” Kareem Mirza, Subterra’s chief revenue officer, told Sustainable Biz Canada in an interview.
“We expect to be leaders in Alberta. We expect to compete to be the leader in B.C. and we’re showing that with being present.”
Earth, Harris and planned future acquisitions
Harris, which was owned by Earth Drilling, had previously collaborated with Subterra. Harris does “quality work," Mirza said, which enticed his firm to make the move.
The acquisitions address Subterra’s biggest problem: high demand but not enough rigs. Folding in Earth Drilling and Harris brings its rig count to 68, and two planned future acquisitions would increase that figure to over 100.
Mirza said Subterra plans up to five additional acquisitions, with two more U.S.-focused transactions it hopes to close in the next three to six months.
The acquisitions also add more skilled, experienced workers into Subterra’s fold. This is even more important than the rigs, Mirza said.
Subterra’s geoexchange offering
Subterra’s Aura service provides heating and cooling to off-take users like high-rise towers and condo developers.
Aura comprises of a network of pipes that circulate a heat-transferring fluid throughout a building. During the summer when cooling is in demand, the fluid pulls heat out of the building and pumps it underground in a closed-loop system. To heat a building in the winter, the process extracts the stored heat from the ground and distributes the thermal energy around the building.
“As opposed to all that wastefulness going into the atmosphere or having to utilize a fossil fuel to create the energy, what we’re saying is, let’s go ahead and use the earth and heat exchange with the Earth,” Mirza explained.
Aura does not require fossil fuels nor energy generation, which Mirza said makes it very clean, sustainable and efficient. Subterra says Aura can cut greenhouse gas emissions by up to 95 per cent compared to a natural gas heating system, and 100 per cent if the electrical grid is clean.
Subterra performs the drilling and pipe installation as a fully vertically-integrated company.
Similar to a utility, Subterra puts out the capital to install and maintain the infrastructure. But unlike a utility, it ensures the pricing is on a fixed term and on a fixed-price basis, Mirza said. Subterra also owns the Aura system in a building.
Rapid growth from going green
Subterra notched notable achievements since its founding in 2017. Mirza disclosed it is currently valued at over $500 million and backed by an open-ended infrastructure fund of over $1 billion. Notable clients include Mattamy Homes, and a full campus conversion for Oberlin College in Ohio.
Rapid growth propelled it to the No. 1 spot on the Globe and Mail Report on Business magazine’s list of Canada's Top Growing Companies of 2023 based on a three-year revenue increase of 42,676 per cent.
“It’s strictly to do with the number of buildings that are joining our utility offering . . . We have gone from doing just a couple of buildings to then suddenly doing dozens in a short period of time,” Mirza said.
There is also a greater emphasis on being an environmentally friendly business — from a pre-COVID state where “going green is good, but it was more of a nice to have,” to a world where the U.S. Inflation Reduction Act is law, the Toronto Green Building Standards are in place and New York State mandated buildings wean off natural gas. The carbon tax in Canada makes it more expensive to stay the course.
“All of these things combined have made it clear to folks that something that was nice to have, it’s not just the market is demanding it, but it is the prudent financial thing to do as well,” Mirza said.
From Ontario to North America
After Subterra completed over 50 projects, the company’s leadership decided it was time to expand its offering.
In Calgary, Tokarik will be “the president of whatever needs to be done,” Mirza said, including hiring and onboarding staff, and acquiring additional business.
Another promising market is British Columbia, where geothermal energy is already popular. Subterra also plans to open an office in Vancouver in the next two to three months.
“We’re not coming in there disrupting the market in any meaningful way from conventional over to geothermal, or for fossil fuels over to geothermal, because the market already understands that very well,” Mirza said, “What we’re going to do is bring our particular approach to geothermal and our very low-cost capital in terms of our utility offering to that market and compete with the existing players.”
The U.S. market is different. Geothermal energy is uncommon in the U.S. and Mirza said the distributed utility approach is “unheard of” in the U.S.
After winning its contract at Oberlin College, Subterra set its sights all across the U.S. The Midwest, the Northeast, New England and the Washington D.C. area are critical locations. Texas, Utah and Colorado also have potential.
Subterra hopes the Oberlin College contract will allow it to make a “very big play” into the academic institutional market in the U.S.