Natural Resources Committee on April 18th, 2007

[Robert Hornung]

We're often asked at what point wind energy becomes cost competitive with everything else. The honest answer to that question is that I don't know. It's an honest answer, because it doesn't just depend on wind energy; it depends on the costs of other sources as well and on what's going on.

There are many, including again the International Energy Agency, who would argue that between 2010 and 2020, at some point in that process, wind should be able to compete with almost anything. It's interesting to note that you will sometimes hear about the high cost of wind relative to other things. Often when you hear that sort of statement, what people are doing is comparing the cost of wind, or any other technology, with the cost of electricity from existing generation. That existing generation might have existed for 20 years or 40 years, and has paid off all its capital costs. What you really have to do is compare the cost of wind generation with respect to other forms of generation that you would build at this time.

The Ontario government has issued requests for proposals for wind energy. The average cost of electricity being provided under those proposals ranges from 8¢ to 8.5¢ per kilowatt hour. The Ontario government also issued requests for proposals for natural gas generation. They're not significantly cheaper than the wind energy. Quebec has the exact same experience.

In terms of the level of subsidy, I will say that we have argued that we believe the 1¢ subsidy that's currently in place, coupled with participation in the market that begins to reflect some of the cost of environmental impacts, is something that can provide a foundation for the industry to go forward.

The one last comment I would make, though, is that wind energy is a global industry and people--investors--are looking for the best places to invest, for where they're going to make the most money. When you look at the Canadian support structure for wind relative to that of other countries, Canada does not look as attractive. I'll use the U.S. as an example. The main U.S. incentive is called the production tax credit. We have a 1¢ per kilowatt hour production incentive in Canada. The U.S. production tax credit is 1.9¢ U.S. per kilowatt hour. It is a post-tax credit. The incentive in Canada is actually taxed, so you don't actually get the full 1¢ because you pay part of it back in taxes. We estimate the value of the U.S. incentive to be somewhere between three and four times the value of the Canadian incentive. And that will have an impact in terms of investment decisions.

[Mark Holland, Liberal, Ajax—Pickering, ON]

One of the things, obviously, that I think are important in undertaking this exercise is the fact that there are going to be a lot of Canada's electrical generating facilities turning over between the period of, say, 2012 and even later, into 2020. So I think the federal government needs to provide direction in terms of where it wants to go and make those kinds of decisions about, if we're giving assistance, where are we best placed to do that to ensure that we do have a sustainable energy supply.

One thing that was interesting, particularly from the presentation that was given from the Solar Industries Association, is that anything I've seen on renewable energy to this point places most of it on wind, and then a much smaller component on geothermal or on solar. In the presentation that was given on solar, if you add up the different components that are put there by the year 2025, you're looking at about 25,000 megawatts by 2025, which is a very big number. That represents 10% of Canada's supply now. I know you've broken it down a couple of other ways.

As it has been described by those advocating renewable energy before, the advantage of solar was for individual homes or for heaters for pools. What you're describing on the photovoltaics is 10,000 megawatts. The same number that wind is talking about in 2015, you're talking about 10 years later, when right now installed capacity in Ontario—which I realize is just Ontario—by 2012 would only be 40 megawatts. So how do we get there?

This is the first time I'm hearing that solar could provide that kind of number. Where is that coming from, or how would you get there?

[Richard Thorne]

That's a very good question. Unfortunately, I don't have all the details on this presentation. It was really my predecessor, or Elizabeth's predecessor, Rob McMonagle, who came up with some of the numbers here, so I would be a little sketchy in terms of where all of the tens of thousands of megawatts would come in.

[Elizabeth McDonald]

Perhaps we could come back to the committee with a written response to that.

[Mark Holland, Liberal, Ajax—Pickering, ON]

I don't have a problem. What I would hope the objective of the committee is, through this process, as we're looking to replace energy generation, is to take a look at what is achievable and how much it would cost relative to other options, how much it would cost the federal government. As I say, that's the biggest number I've ever seen for solar, which is very intriguing. I was just wondering what's behind those numbers.

[Elizabeth McDonald]

We'll come back to you with a written response.

[Richard Thorne]

Clearly, if you look at Germany, for example, they're installing hundreds of megawatts a month, and it doesn't take long to get up to those types of numbers. They're doing it worldwide.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Maybe you could provide us with just what you'd be looking at in terms of support, what would be needed from the federal government, what the cost to the federal government would be, and specifically how you would see that build over that timeframe, with maybe interim numbers of where you would like to see it in the nearer term, 2012 or 2015, that type of thing, as that number builds to those kinds of numbers.

[Richard Thorne]

Sure.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Holland, and thank you for those answers.

Madame DeBellefeuille.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Thank you very much for your presentations. I know that you had a lot of material, and that you only had a short time to present it. I appreciate it very much. You have left a number of documents that we will be able to read carefully.

My question is for Mr. Hornung. I know that the wind energy industry has been greatly fostered by a number of programs, which accounts for its rapid growth compared to geothermal or solar energy. You have taken advantage, so to speak, of support, often dynamic, from different provincial and territorial governments in order to be able to develop.

I am going to talk about the situation in Quebec, because I do not know what happens in other provinces. At the moment in Quebec, we are—I don't know if we can say at a crossroads—in a situation where there are development offers, but where resistance is being encountered from people who are stopping wind development, or slowing it down because wind farms are being established willy-nilly. I understand that companies, often foreign ones, set up in regions and negotiate conditions. What people are complaining about is not getting enough revenue or enough benefit from the turbines. In my riding, most of the regional county municipalities are drafting rules to curb the installation of wind turbines, yet evaluations have revealed the presence of very powerful.

In your association, what action are you taking? If people do not want wind turbines near their homes, on their land, that causes a problem for development, in Quebec anyway. I would also like to know whether it is fact or fiction that the investors are foreigners, and not Quebeckers or Canadians.

[Robert Hornung]

Thank you very much for your questions. There's quite a bit there, so if I miss something, please come back.

First, there are three things I'll touch on.

In terms of public opposition to wind energy projects, I think it's fair to say that it is emerging as more of an issue, but from our perspective, it's simply emerging as more of an issue because the number of projects is also increasing at the same time. As a percentage of the projects that are actually being produced, it's not actually increasing. The vast majority of projects across Canada, I will say, still have very strong community support. In fact, that partially explains why last year was very much a record year for Canada. We more than doubled the installed capacity, etc.

In Quebec there has been a lot of concern raised by the municipal governments, in particular, about wind development. The situation in Quebec is unique in that in all other jurisdictions, when a wind developer pays property taxes, for example, those go directly to the municipality; in Quebec that does not happen. In Quebec those revenues go into the provincial government, and then the provincial government reallocates them. They don't necessarily reallocate them in the same manner as they actually receive them. Therefore it's not always the case, then, that the municipal governments obtain the benefits in proportion to the fact that these projects are in their area. So as an industry association, we have worked with the municipal associations in Quebec to look at alternative mechanisms for ensuring that revenues actually go to the municipal governments that are hosting these projects. We are trying to work to develop some joint proposals to bring forward to the Quebec government on this issue.

We are working increasingly with municipal governments, I will also say. In fact, in June, in London, Ontario, we'll be hosting a conference on municipal issues in wind energy, where we're expecting about 250 municipal officials to come to learn about provincial priorities, about issues related to wind energy, to hear about some of the successes that have occurred in order to move forward. One of the challenges, of course, for a municipal government is that often when a wind energy developer comes in and says, “I would like to build a project here”, it's the first time a municipal government has had to deal with this. They have no existing by-laws, regulatory controls, anything like that, and so it's a process, in a sense, of learning by doing at this point in time.

With respect to investors in Quebec, Quebec calls for proposals. It's interesting because you described a sort of anarchistic situation that some people have described in Quebec. From our perspective, most of the Quebec process is actually very orderly. Hydro-Québec has identified a request for proposals, has gone out and done that. Now, Hydro-Québec has also signed some contracts outside that process, and I think that's where this perception of anarchy comes from. The Quebec government is the only provincial government at this point in time in Canada that actually requires local content requirements in its requests for proposals. So 60% of the investment associated with a wind energy project in Quebec must be made in Quebec. When you ask who is investing in these projects, it's true that from a turbine-manufacturing perspective, we don't really have Canadian turbine manufacturers at this point, although we now have, in Quebec, two different initiatives to license European technology and to actually manufacture the turbines in Quebec. So that will be a new initiative there in that regard.

In terms of the development, in the first request for proposals in Quebec, the company that won the bulk of the contracts under that is a partnership of a Quebec-based company, Energex, and an Alberta-based company, TransCanada Energy. So there is significant Quebec participation in that initiative.

As Quebec has now issued a 2,000-megawatt RFP, I am well aware that there are many people from outside of Quebec looking at that because it's the world's largest request for proposals, ever, for wind energy, so it's a tremendous opportunity. But there are also many organizations within Quebec who are planning to bid into that RFP, and ultimately it will be those who can provide that energy at the lowest cost who will succeed.

[The Chair, Conservative, Lee Richardson]

That was seven and a half minutes.

I'd like to go to Mr. Bevington.

[Dennis Bevington, NDP, Western Arctic, NT]

Thank you, Mr. Chair, and thank you, witnesses, for your presentations.

A number of questions come up. Of course, I'm very interested in seeing that we do something for the small wind turbines and remote communities in Canada. Many sites across the country are arguably using electricity at five or six times the rate of southern Canada in terms of cost, and these are great opportunities. A lot of modelling work needs to be done on it too, as to how to convert remote communities to the use of electricity because of the interaction between the intermittency. There are issues around attachment to diesel and the concepts of storage and use of electricity for heating in these remote communities as well. In many cases, the actual cost of electricity with the larger wind turbines could be quite attractive for other uses in those communities.

I think what's needed is a real statement from the industry about where we can go with wind in small communities. That kind of statement coming forward through this group would really help us through the committee or help us to crystallize some ideas about that and move that forward, and I had hoped it could come from your organization.

Perhaps you want to briefly comment on that.

[Robert Hornung]

Yes.

First, when you want to deploy wind energy, not just in a remote community but in any community, you need to take into consideration how it integrates with other sources. In a remote community you want to ensure that you're looking first at energy efficiency opportunities, reducing energy demand and then using wind and other sources to meet that demand. We have a very successful wind-diesel project currently under way in the community of Ramea Island in Newfoundland, which has taken six turbines and has offset, I believe, about 12% or 15% of the diesel fuel at this point.

With respect to your final request, I will share with the committee a detailed proposal that we have prepared, called the “Remote Community Wind Incentive Program”, and I will subsequently send it to the clerk. This proposal recognizes that there are differences in remote communities, so it has a stream that's targeted to large industrial installations like a mine in the north and a larger remote community and also more isolated remote communities as well. The program is designed a little differently in each of those cases to reflect that, but I will very happily share that with the committee.

[Dennis Bevington, NDP, Western Arctic, NT]

The other question I had for you was this. You talked about 100,000 megawatts of wind power being within reasonable distance of the existing transmission systems. Have you created a visioning exercise across the country that would link to the potential for the development of transmission and hydroelectric systems, for the deployment of huge amounts of wind power in the future for this country?

[Robert Hornung]

We haven't yet done that on a national scale. It's quite an exercise to do that in terms of, as you said, taking into account generation in different parts of the country, transmission needs, etc.

Perhaps the most comprehensive exercise like it that's going on in the country right now is the integrated power system planning exercise that's going on in Ontario. That exercise is looking at the 20-year plan in terms of new investment in transmission and different generating sources. Their current proposed plan is to move Ontario from its current 400 megawatts of wind energy to 5,000 megawatts by 2020 by making the necessary investments to be able to do that. We think they're still undershooting a little bit in terms of what's possible there, and we'll be intervening and talking about that

. But it's a comprehensive exercise to consider that, and you have to develop it on a bottom-up basis, jurisdiction by jurisdiction.

[Dennis Bevington, NDP, Western Arctic, NT]

To Mr. Tanguay, I had the opportunity a few years ago to visit the Stockholm heat pump, where they have about 350 megawatts of heat. They heat a large part of the city with that, and they're very clever about using it with heat storage as well to maximize their return. Do you have any sense that there are any projects on that scale that we could be looking at in Canada?

[Denis Tanguay]

There is something close to that in downtown Toronto--the Enwave project--a cooling system in downtown Toronto for the huge buildings. So we have examples in Canada of similar projects for energy storage and for the optimization of heating and cooling systems. I'm not aware of any other big projects like that elsewhere, but there are smaller ones.

I think the biggest problem right now in this country is that we have always approached energy policy in silos. We look at oil, we look at gas, we look at wind, we look at solar, and we look at geoexchange in silos, and we don't look at the interaction between all those energy forms.

There have been a few questions about how we are going to put all this power on the power lines and how we are going to replace all those power plants 10 or 15 years down the road. I think the true question is how we can optimize the energy system as a whole. Then we'll find a place for geoexchange, for example, in projects where we're displacing heat or cooling, for example, like in the Stockholm project. We can optimize the rest of the system when we look at where the energy is consumed.

Why do we produce energy anyway? It's because we need a service at the end of the pipeline. And the services are heating, cooling, and lighting, and things like that.

Robert just touched on this point. Rather than looking at how to put more energy into the system, let's start the other way around. How can we save it and optimize it at the consumption level? And then we just go back up to the origin of the energy, and then we have optimization.

[Dennis Bevington, NDP, Western Arctic, NT]

We're talking about replacing $150 billion worth of coal plants in the near future. Making that kind of investment would mean that we would be stuck in that kind of industry for a very long time. So we need to explore the alternatives for large-scale generation as well. You can't ignore it. You have to deal with that as well.

I don't disagree with you on the other side. I'm just saying that we need other examples and options for larger-scale use of renewable energy.

[Denis Tanguay]

I fully agree with you, and this is the reason Robert and I sit on the Energy Dialogue Group, and this has been our message for five years, basically. We need everything. The only message I have today is that we need everything, but optimize from the consumption side to the production side.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Tanguay and Mr. Bevington.

We'll go next to Monsieur Gourde.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you, Mr. Chair. I would like to congratulate our witnesses because their presentations were very interesting for our committee.

My question goes to all three witnesses since they represent three different types of renewable energy. In our 2007 budget, we made a number of changes to the capital cost allowance.

Can you tell us what the effect of these changes will be on investments in renewable energy systems? Could they be of use to you?

[Denis Tanguay]

For geoexchange, or low energy, our problem has always been that the accelerated capital cost allowance was linked to industrial processes or manufacturing. Heating a building, or cooling it during the summer is not necessarily an industrial process. Someone in the office looked at that last week. Unless I am mistaken, as I understand it, heating and cooling are now included in the accelerated depreciation capital cost allowance. That means that geoexchange could play a greater role there and benefit from the tax changes.

[Robert Hornung]

Clearly, wind energy is a very capital-intensive industry, and therefore, an initiative like that found in the budget--the extension of the 50% capital cost allowance in class 43.2 from 2012 to 2020--was a very important move from the perspective of the wind energy industry.

One of the challenges you face with tax-based measures, of course--and it's not an insurmountable challenge, but it's one that has to be considered--is that not everybody can take advantage of it. In fact, there are a number of wind developers that don't have, in essence, the tax appetite to make use of instruments like that.

One of the reasons the ecoENERGY for renewable power program is a very positive incentive program is that a broad range of different types of interests and corporate interests can actually participate in that program. So it is very positive. There are limitations within class 43.2 as well. There is a specified energy company rule that limits even a little bit further who can take advantage of that initiative.

So there are design issues that I think people will be interested in discussing in terms of how to ensure that tax-based measures can reach the broadest range of potential participants as possible.