Thank you, committee members and Mr. Chair. I'm pleased to be here today to speak with the House of Commons Standing Committee on Natural Resources. I thank you for the invitation.
My opening comments today will give you some background on Qulliq Energy Corporation as well as our involvement in energy resource development in Nunavut.
On April 1, 2012, Qulliq Energy Corporation celebrated 11 years as Nunavut's own electrical utility. Qulliq Energy is responsible for supplying the electricity needs to the 25 communities in Nunavut. Nunavut is the only jurisdiction in Canada where 100% of the power being generated comes from fossil fuel generators. Unlike our southern neighbours, none of our communities are connected to a grid system. Each community is a stand-alone grid. QEC operates in an inhospitable environment for a utility company, with the added pressure of providing service to an area that is one-fifth of the land mass of Canada, across three different time zones.
Electricity generation in the north has traditionally relied on diesel generation, given its record of long service. However, with the increasing costs of fossil fuels, diesel generation in the long term will not be economical or sustainable. Currently the Government of Nunavut pays approximately 80% of Nunavut's energy costs, either directly or indirectly. Energy costs are subsidized in Nunavut through subsidy programs but also through underinvestment in the replacement of our existing capacity, much of which is at or near the end of its life cycle.
The costs of fossil fuels combined with the infrastructure replacement requirements result in Nunavut having the highest rates for power in all of Canada. Current residential energy costs average about 75 cents per kilowatt and range from 52 cents per kilowatt in Iqaluit to over $1 per kilowatt in Kugaaruk. These rates are only sufficient to maintain but not replace the existing infrastructure.
QEC is limited in the resources that are available to generate power, due to the risks associated with living and working in the north. Safe, efficient, and reliable power is a must when the temperature is minus 40 and the wind is blowing. The need for diesel generators in the north will not go away for many years, due to the requirement of having reliable backup systems and a consistent supply of power.
With Nunavut having high power rates, this effectively lowers the bar on the business case for renewable energy. However, at the same time, the cost of renewable energy infrastructure is raised due to the distance involved and the environmental conditions in which the infrastructure needs to be installed. The core business of QEC is to provide safe, reliable, and efficient electricity through responsive and respectful interaction with all stakeholders. Given the limited financial resources of QEC and the Government of Nunavut, which is our only shareholder, QEC cannot afford to be a research and development company. This does not mean that QEC is anti-alternative energy. However, with limited resources, the focus of the corporation must be on the core business. Funding for alternative energy initiatives would need to fall outside of core funding requirements of upgrading and replacing existing infrastructure.
QEC has applied to various federal programs for different alternative energy projects with various degrees of success. Our most recent successful efforts include 50% of the funding required to develop a smart grid for the City of Iqaluit. This project will move the distribution infrastructure to be in line with grid systems in the south and improve the service to our customers. The one project where QEC has been unsuccessful in obtaining funding is the development of hydroelectric power. Hydro is a proven technology in northern climates and is the best hope for reducing Nunavut's dependency on fossil fuels quickly, sustainably, and affordably. There are numerous power plants across the circumpolar world and in the Northwest Territories, the Yukon, Alaska, and Greenland.
Iqaluit is the largest community in Nunavut, with a population of just under 7,000 people. A hydroelectric development has been studied for the past few years and is now at the completion of the pre-feasibility stage. Funding in the estimated amount of $8 million is required to complete the feasibility and engineering studies. This project would provide the City of Iqaluit with clean, renewable energy for the next 100 years and reduce diesel fuel consumption for electrical generation alone by 14 million litres per year, at the current rate of consumption. The capital cost of this project is currently estimated at $300 million to $500 million for development.
The borrowing ability of QEC is tied to the Government of Nunavut, as all of QEC's debt is considered part of the Government of Nunavut's debt cap. The Government of Nunavut's debt cap was recently increased from $200 million to $400 million. This still places a hydroelectric project beyond the scope of financial possibility for the Government of Nunavut and QEC.
Alternative financing arrangements have been researched, but without a completed feasibility study, no plans can be made to bring the project to fruition.
A daily occurrence in the northern news is the talk about various mining developments. Nunavut holds vast deposits of minerals that require large amounts of power to develop. QEC has been in discussion with various mining proponents to explore synergistic opportunities for the development of diesel and hydroelectric power for these projects.
The characteristics of development lead time, regulatory conditions, and project lifespan all play a part in how a resource project can be linked to renewable or alternative power. Renewable energy, such as hydroelectric power, typically has a 50-year-plus lifespan, but only after an eight- to twelve-year development program, which includes all geology, economic, socio-economic, and environmental assessments in the building of the project.
Mines, on the other hand, have much shorter development programs and usually have shorter lifespans. The Meadowbank mine, operated by Agnico-Eagle, had an original lifespan from 2010 to 2019. Only recently did we learn from the news that the lifespan has been shortened, with a new end date of 2017.
The economics of mining require that the companies that own and operate the mines must be sensitive to changing conditions. These changing conditions complicate the synergistic opportunities that could be gained with energy resource development. Stable conditions and contracts are what are required for an energy resource development. Geographical location is also a fact to consider.
Most of the resource developments are occurring in locations that are not in close proximity to the communities within Nunavut. This is further complicated by the locations of potential hydroelectric sites not being in proximity to communities or resource development projects. In the majority of the sites the need for distribution infrastructure, either to a mine site or a community, must be factored into the development.
Energy infrastructure in the north, similar to that in most other provinces and territories in Canada, is at or near the end of its designed service life. The situation in Nunavut is that we have 17 out of 25 power plants that are at or near the end of their designed lives. To add to the stress on the power plants, economic and population growth are putting a strain on the existing systems, and a plan is required to address the upgrading and the replacement of infrastructure that provides an essential service to the residents and businesses of Nunavut.
Since the creation of the company until 2010-11, the capital plans only addressed the increasing capacity or generation needed to meet the growing demand, but did nothing to replace infrastructure. The total capital plans per year were in the $10 million to $13 million range. The cost to construct a single medium-sized diesel power plant in Nunavut is $12 million to $15 million. With 17 of the 25 power plants at the end of their lives, a cash infusion to support a replacement program is required.
Nunavut's utility ratepayers alone cannot pay for the cost of new infrastructure. The current capital plan for QEC is estimated at $25 million per year for the next 10 years. For the most part, this replaces and upgrades generation infrastructure only. Additional funding is required to replace and upgrade distribution plant infrastructure. Most community distribution systems have been added to, and/or portions have been replaced on an ad hoc basis because of limited funds. Many of the distribution systems are as old as the generating plant within the community and need to be addressed in a fashion similar to the power plants. It will require $2 million to $3 million per year for a period of 10 to 15 years to address this distribution issue.
In summary, energy resource development in the north should be accompanied by a stable and healthy power infrastructure as well as a predictable regulatory environment. QEC works hard at staying in touch with the stakeholders for resource development to ensure the maximum advantage for any new opportunities that are presented. The ties to our stakeholders as well as to industry provide for a flow of information to facilitate QEC's being a prime stakeholder in resource development.
QEC's focus is very much on the current infrastructure legacy, and plans must be in place to ensure many years of safe, reliable, and economical viable power is provided to Nunavummiut. The greatest challenge we have is operating with limited funds in the face of a growing population, a growing economy, and an aging infrastructure.
Mr. Chair, I would like to thank you and the committee members for the invitation to appear. I look forward to answering any questions you may have.