Natural Resources Committee on April 16th, 2007

[Michael Cleland]

I'm not sure I precisely understood the question in terms of inability to bring the gas.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

The pipeline is leaking all along the way.

[Michael Cleland]

There is some loss in the system; it's fairly small and it's being dealt with. It's money flowing through the pipeline, so you look for every opportunity you can find to reduce those losses. There is also a lot of energy used to move the gas. Gas has a fairly low energy density, so it's fairly expensive to move long distances, but the losses are relatively small, and industry is moving pretty consistently to try to reduce those losses.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

My second question is addressed to Mr. Konow. You spoke about energy efficiency and electricity. The same thing applies. Mr. Bevington told us that the electricity used corresponds to 93% of the electricity produced. That is correct. However, a great deal of electricity is lost in transportation, in interconnections. We lose a lot of electricity in production, when it is transformed, when it goes from one voltage to another.

Are you currently doing any basic research? If not, are you asking that research be done so as to find ways to limit these losses which should, in my opinion, be the first concern of your association insofar as energy efficiency is concerned?

[Hans Konow]

Thank you for your question.

I think my answer is very similar to Mr. Cleland's. Every lost electron represents money; therefore, the companies are extremely focused on being efficient in terms of the transmission, the generation, and the distribution of electricity.

That is not to say that the systems, the transmission systems and the distribution systems, are as efficient as they can be made. They must be upgraded. Most of the research and development in this area is done globally. The companies who supply equipment tend to be big multinational companies with very large research budgets. The utilities have some capacity to do research in this area, and Hydro-Québec is the leading example of that. So they add their know-how to the mix in optimizing how systems operate.

What we find is that there is a balance at some point between connecting very large areas to ever more remote generation sites, between the losses that are unavoidable even with increasingly efficient generation and transmission systems and the benefits of having this wider interconnection that will allow you to optimize the overall generation resources within a large interconnected system.

To give you an example of that, Quebec is a prime storage medium for northeastern North America, by storing water at night and bringing in power from other sources at night, at very, very low cost, and then returning that power during the day for the benefit of all participants within that market area.

A second benefit is the reserve margins that you heard about earlier. If you have a relatively large interconnected area, 15% reserve margins are adequate because the contingencies that you have to deal with, with one plant going out somewhere, are spread over a larger set of resources. So you can run the system and optimize it more efficiently at lower levels of reserves in a large interconnected market than you could if you were a small market, where if one plant went out suddenly you'd have a big problem.

So there's a complex balancing, and as someone who's only had 25 years in this business, I still don't fully understand how the engineering and the sophistication of all this is done, but it's a remarkable real-time machine that keeps the lights on 24 hours a day.

I hope I've answered your question, but I'm happy to take a supplementary.

[The Chair, Conservative, Lee Richardson]

I'd be happy to have you do that if we had time, but we don't, so I'm going to move on to Mr. Bevington. Thank you for that answer. It was a good question and it is very technical.

[Dennis Bevington, NDP, Western Arctic, NT]

Thanks to the presenters here.

I'm completely baffled at trying to do anything in five minutes with this very complex subject, which is energy and how it interrelates. Certainly having the two presenters here is very useful, because they do represent certain different opportunities. But if I speak to the gas industry, we're looking at replacing gas supplies in Canada with imported LNG in the future, because we simply can't match up our conventional resources right now with the supply issues we have.

Don't we have to take that into consideration as well as we look at how we integrate between these different functions? Many of the things you're talking about here are absolutely great for conserving gas as well and the need for conserving natural gas in this country. Could you speak to that a little bit, about the supply of natural gas?

[Michael Cleland]

Sure. That's a very good point and something the committee needs to think about.

The way to think about the supply of natural gas is in a North American context as opposed to a Canadian context. Indeed, in order to ensure the natural gas we're going to need in North America over the next several decades, we're probably going to have somewhere up to as much as 20% of our supply coming in through liquefied natural gas, in all likelihood. There's lots of gas in North America, but it's getting more expensive to get at and it's taking a long time to get the projects under way, as you're well aware. So it's absolutely critical that we do find ways to use it as efficiently as possible, right across the board.

We should be using it with 90% efficiency furnaces in our homes. We should be starting to invest in alternative ways of heating our homes, such as ground-source heat pumps. We should be making sure, where we have opportunities, for example, through direct burn, to use it that way as opposed to using it through central electricity generation, where you're getting maybe somewhere between 40% and 50%, or 60% at most, whereas in direct burn you can get over 90%, or in a combined heat and power application you can get about 90%. We should be using natural gas at those efficiencies, not the traditional ones.

[Dennis Bevington, NDP, Western Arctic, NT]

We're talking about energy efficiency here, and your presentation is very incremental in its approach to it. Wouldn't you say we need some bold steps as well? When we got rid of the lead in gasoline, we didn't do it incrementally over many years; we simply said no more lead in the gasoline, and it's gone.

When we talk about lighting, at what point in time are we going to set standards for light bulbs that are going to take the incandescents out of the market completely, and move to a much higher efficiency of lighting by regulation? Rather than your trying to work your way through the problem, let's set some standards that will generate considerable savings very quickly in energy use.

[Hans Konow]

As I mentioned earlier, I certainly believe that codes and standards are the way to drive substantial step-wise change into consuming products.

Lighting is an area that our industry has made a key focus. The previous witnesses testified to the lighting initiative that the federal government, together with the provinces, territories, and industry are working aggressively to move forward on. Particularly in areas such as public lighting and commercial lighting, there are tremendous opportunities that respond pretty quickly to the economics.

The residential lighting, I have to tell you, is a bit more of a challenge. It's partly because customer choice is there. People are used to buying those cheap little incandescent light bulbs and putting them in their lamps. The lamp shades fit, and it's all very simple, so it's sometimes tough to get people to change.

In Australia, they have made it a policy to outlaw incandescent lights. I don't recall the exact date, but they've set a certain date in the future when you won't be able to buy them on the market. That is one way to go about it, but that's a political decision. If you decide to do it, there's no problem from our end, and we can deal with it, but whether you want to do it or not, I don't know.

On the broader topic of bold initiatives, I would caution about wishful thinking. There have been many people, from Amory Lovins on, who have talked about how easy it is to get 50%, 60%, or 70% reductions from energy efficiency, and in theory it's all true. It can be done in specific settings, using specific technologies, but driving it through society is a far more complex business, and we've been at it a long time.

We have found all sorts of surprising barriers that you have to overcome, beginning with how houses are sold. If you work with builders and you say “Upgrade to the highest level of insulation and energy stock”, at times they will come back to us and say it puts another $15,000 or $10,000 or whatever on the house. We'll say “That doesn't sound like an awful lot, given that the house is $150,000 or $200,000.” They'll say, “You're not buying the house; it's my customers. When they come in the door and they look at the guy who has the housing tract next to me and it's $20,000 cheaper over there, they're buying his house, not my house.”

We worked for years to build the brand recognition of what an energy efficient house can do for you if you buy it, and it is getting traction. Today an energy efficient product has far more traction than it had 10 years ago. But my point is simply that we think the numbers you saw referenced in the study by me and the previous individuals represent a very accurate reality. We have a challenge in front of us to drive energy efficiency forward, and if we could get anywhere close to that 50% of growth being offset by energy efficiency, that in my view would be a terrific result—not a low-bar result; it would be a very good result.

I'll leave it at that, and maybe my colleague has a comment.

[The Chair, Conservative, Lee Richardson]

Thank you.

To wrap it up, we'll have Mr. Trost.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you, Mr. Chair.

This is natural resources we're doing. It's predominantly provincial jurisdiction, so I'm very interested in what the provinces are doing, and I'm most interested in what they are doing so that we don't overlap with their programs and so forth.

What are they doing? What areas are they not covering? What has worked and what hasn't worked for them?

[Hans Konow]

I can't give you an encyclopedic list of what they are or aren't doing. I guess what I would say is there are an awful lot of areas in which there are federal–provincial–territorial and industry collaboratives at work. The provinces have shown good leadership in areas near and dear to their hearts. They're certainly very active in areas like space heating, in working with industry and the federal government in terms of labelling and auditing and remedial measures to improve the housing and building stock. They play a leading role in building codes and a supporting role in terms of product standards; they're very interested in those areas. In terms of behavioural change and information provision, they certainly are active in those areas, as are we. To some extent, these are federal programs.

Where the federal role can be best served, I think, is where there are standardized products sold across the country for which either standards or information are required, which are easy to gather on a national level, and on which provinces can piggyback. Where there are more local or regional circumstances at play, then provinces, or industry in those provinces, can probably play more of a leading role.

[Michael Cleland]

I would just add a couple of points to that.

The standards example, where there is a clear federal role, is a good one because of the economies of scale of being able to do the thinking and because there is federal jurisdiction going to anything that transfers across borders, whether international or provincial. But with the provinces, they have direct jurisdiction to regulate things within the province. You need both of them; you can't actually pull this off in Canada without having both levels of government doing it.

One important part of this puzzle that we haven't talked about—and it's primarily provincial—is the regulators. Mr. Konow and I work very closely with the regulators in the provinces. They have a hugely important role in creating the right regulatory framework, through which demand-side management and energy efficiency programs will play. They need to work with their respective provincial governments and with the federal government to be able to do that.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

I found when you were talking about gas-electricity, or electricity-gas, that one of the most obvious things were people using gas-fired electricity to heat their houses with electrical baseboards.

Are there any specific examples you have of fuel switching showing that heating could be more efficient with gas, etc., such as specific projects? It often helps us to sell our case when we have specifics we can bite into?

[Michael Cleland]

A way to come at it, basically, is that you need to have the clearest set of signals possible for consumers, so they make the most efficient choice overall. Now, I stress this is “overall”. If you look at the whole system, as opposed to the individual building, in other words, at overall system efficiency, you can get 50% improvements in system efficiency by making that right choice. All this means is that when you have programs and incentives and information programs aimed at improving energy efficiency and at giving consumers information, you need to make sure you draw the line around the bigger system and that you make the information available to them so they can consider that choice.

[Hans Konow]

I just have a quick supplement to that.

I think the notion that electrical space heating is purely baseboard, of course, is incorrect. It's widespread and speaks to my earlier comment that builders loved it because it was cheap to put in; you slap them in the rooms, and each room is controllable. So there are reasons for it, but it's not an efficient way to heat a house.

Both gas and electricity offer opportunities with, say, ground-source heat pump technologies, which are tremendously efficient. The problem is they're expensive to install; their up-front capital cost is expensive. But the payback is their very low consumption. You wouldn't use it everywhere. For instance, I have a condominium with other heated residences on both sides of it, so I'm really heating two walls and helping my neighbours. I have old-fashioned baseboard heating in there and my bills are very reasonable. So to get me to switch to something that would require a significant capital outlay, well, good luck. The payback has to be within a reasonable period to incent someone to make that investment. Again, that's where programs come in, to see if they can shrink the payback period to something that passes whatever internal hurdle rate you may have to make such a purchase.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

My time appears to be over.

[The Chair, Conservative, Lee Richardson]

Monsieur Tonks, quickly.

[Alan Tonks, Liberal, York South—Weston, ON]

Something that has come up twice, Mr. Chairman, in committee is the use of electronic devices from a consumer perspective.

You had mentioned, Mr. Konow, that in 1975 the average number of consumer electronics devices per U.S. house was 1.3, compared with 25 in 2005.

In the previous deputation, we heard--and we've been concentrating on major appliances--that between 1990 and 2004, electricity use declined because of technology improvements in that particular consumer area. However, a 71% increase in electricity use for minor appliances--computers were referred to in that other statistic--has raised the overall electricity demand by 9%. So the impact is sort of like the proverbial caucus race: you have to run faster and faster just to stay in the same place.

From a consumer's perspective, I'm at a loss. My kids tell me that it's more efficient just to leave the laptop and the computers on. I can't believe that. I think they're stringing me a line. Can you confirm that they're stringing me a line? And what are we doing in terms of...? That's a fairly large order of magnitude in the consumer area.

[Hans Konow]

Well, it's certainly not cheaper to leave all your appliances on.

[Alan Tonks, Liberal, York South—Weston, ON]

Well, it's a Wii, that kind of thing.

[Hans Konow]

That's right.

No, in fact, one of the particular initiatives that the Europeans have been talking about is finding a way to reduce the consumption on or outright ban standby power on all equipment. In order to have it come on instantly when you push the button, it's quietly working in the background; a little light is always on. That's not a big drain, but multiply it by those 25 appliances and the 30 million Canadians and it actually represents a significant load on the system. If we could stop doing that or reduce it to extremely low levels, that would be a found saving with very little sacrifice or downside. But I don't think we're going to get people to have fewer appliances, fewer computers, or fewer cellphones that get plugged in at home.

I was at a meeting of utility executives from around the world recently. The other hot topic that interested me was the technology of plug-in hybrid vehicles and their role, in terms of reducing consumption of fossil fuels and reducing emissions, and also in terms of how you would integrate them into the grid so that you could actually draw on their batteries at certain peak times, plugged in all through society, and charge them when demand was lowest.

So there are some fascinating, if complex, things going on out there that will make our society much more energy efficient in the future.

[Alan Tonks, Liberal, York South—Weston, ON]

Good. Thank you.

No standby.

[The Chair, Conservative, Lee Richardson]

Great. Well, that's good.

Not bad. We have another 50 seconds here, and we're going to wrap this up.

I want to thank you very much, gentlemen, again.

I'm going to squeeze in a quick plug for a book. Mr. Cleland did distribute, I think, to your offices a notice about the Gas Association celebrating its centennial in 2007. They have commissioned a commemorative history book. It is Fuelling Progress: One hundred years of the Canadian Gas Association. There will be a ceremony here in the House of Commons. They're presenting a book to the national library and, I understand, to libraries all across Canada.

Mr. Cleland, is that the case?