Natural Resources Committee on April 23rd, 2009

[The Chair, Conservative, Leon Benoit]

Good morning, everyone. It's good to see you here this morning.

We are here pursuant to Standing Order 108(2) to continue our study on the contribution of integrated approaches for providing energy services in Canadian communities.

We have today, by teleconference, two groups of witnesses. The first is from Berlin, Germany; we have as an individual Dr. Christine Wörlen from Arepo Consult. We have by videoconference, as individuals from Malmö, Sweden, Mr. Öhrström from Ortelius Management and Mr. Arne Sandin from Triple-E.

We'll have each group make its ten-minute presentation, in the order in which you appear on the agenda. We'll start with Dr. Christine Wörlen for a presentation of up to ten minutes before we hear from the other group; then we'll go to questions and comments.

Again, welcome, and thank you very much for being with us today. We really appreciate it, as we know it's not easy with the time difference.

[Dr. Christine Wörlen, Arepo Consult, As an Individual]

Thank you, Mr. Chair.

It's actually 3 p.m., so it's quite pleasant. Thanks for having us. I'm quite flattered.

I'm an independent consultant with an extensive background in renewable energies, both at the national and international levels. I used to be a researcher for a study commission of the German Parliament from 2000 to 2002, studying low greenhouse gas futures for Germany, so I can very much relate to the situation you are in. I also worked and did my PhD in the United States, so I have a connection to North America in general. I've been to Canada many times.

My last job was as head of the renewable energy division at the German energy agency. We delivered policy advice to the German government as well as to other governments. We were working with German companies, particularly in the area of renewable energies, and we generally promoted in public discussion the issues of energy efficiency and renewable energies; for example, in terms of grid integration, smart grids, and telecommunication links, as well as biogas feed-in. These are just a couple of examples.

I was asked to speak to the German experience in renewable energies. I was told that you have been given a couple of slides that I provided. Is that correct?

[The Chair, Conservative, Leon Benoit]

Yes, that is correct. Thank you. We have the slides.

[Dr. Christine Wörlen]

Thank you very much.

I'll ask you to move to the first slide I provided. It's on page 4, and it is not the upper but the lower one, with a number of bars. These bars indicate five different ways to see how the German renewable energy sector has developed over the last 10 years.

When I started working in this area, around the late 1990s, we were told that this is as good as it gets in terms of renewables. As you know, Germany is not a very resource-rich country, either in terms of fossil resources or in terms of renewable energy resources. But because of a decided and very consistent, coherent, and stable policy framework, we were in fact able to develop that resource base quite a bit.

You can see the developments on these slides. In terms of overall final energy consumption, we were able to almost triple our use of reusable renewable energies. In the case of electricity, we were able to multiply it by a factor of 3.5, and in terms of heat, we were able to more than double the use of renewables in this sector.

Nevertheless, the European Union asked us to reach further for more ambitious targets, and you can see those in the slides in the red bars with the little dots. In fact, by 2020 we are asked to achieve 18% of our final energy consumption from renewable energies, and the German government intends to do that by covering 30% of our electricity use from renewables and 14% of our heat use.

Last but not least, we also have to cover a significant share of our transportation needs from biomass, but this is not something we will cover today.

On the next slide, on page 33, which has bars that go across rather than vertically, you can see what this meant for Germany in terms of CO₂ emission avoidance. In total, Germany was able to avoid about 117 million tonnes of CO₂ in the year 2007 alone. This compares with total emissions in Germany of 820 million tonnes. So we avoid about a seventh of the CO₂ emissions from the energy sector just by using renewable energies in the heat and electricity sectors.

If you turn to the slide numbered page 15, you can see where most of this growth comes from; it is the electricity sector. The German system relies, for the most part, on the functioning of a feed-in tariff system, meaning that as long ago as the early nineties, renewable energy electricity producers were guaranteed a specific rate for electricity for each kilowatt hour they produced. But this is only one aspect of why this law was so successful.

A very important aspect also is that the transmission system operator actually is required to buy every kilowatt hour that is produced from renewable energies. Also, the law specifies very clearly who bears the cost of grid connection and what timeframes are allowable for providing that grid connection. These kinds of clear rules save a lot of transaction costs on both sides--on the side of the transmission system operator as well as on the side of the plant operators.

The law is reviewed on a regular basis. It has a built-in digression, meaning that the tariffs go down by a pre-specified rate every year. So if I connect my plant to the grid this year, I will get more than if I wait a year and only connect it next year. This incentivizes early action, and it also adds to the cost-effectiveness of this regulation as well as to the long-term stability of the overall system.

In this review process, the government also uses the opportunity to adjust small technicalities in the law. For example, they provide additional guidance on grid codes and very technical details. This regular review process adds to the overall stability of the whole program.

This is as much as I want to say on the electricity sector, and I'm happy to take questions afterwards.

Let's now turn to heat. Heat generally was not quite as successful as electricity. You can see this on the slide on page 26. The upward trend is not quite as pronounced as it is in electricity. The government is also more cautious in terms of putting out targets on heat, for three reasons, really. The policy instruments that have been used so far have relied on investment subsidies and therefore have been very dependent on the government's budget. Secondly, this also implied that the detailed regulations for this type of support had to be adjusted every half-year, which is a very short timeframe, and basically all the small investors in solar thermal installations, for example, or in small biomass heat installations had to constantly keep track of the investment conditions that were supportive at this point in time and then wait or delay their investment proposals or just drop them. This constant revision of the rules was not very helpful to provide stable growth. So we had those two aspects of the lack of an effective policy framework.

But also, to be honest, the sector is much more difficult, and for renewable electricity generation, normal investment frameworks work. It's easy to build something on a green field. In the heat sector the retrofitting aspect is much more important, so this adds to the difficulties of achieving high growth rates here.

Lastly, I would like to draw your attention to slides 37 and 36, which demonstrate the overall impact these policies had on the German economy. In fact, renewable energies are a major growth factor for the German economy. We have, I believe, about 250,000 jobs in the renewable energy field. Some are consultants, like me, but we are really the very smallest part. We have more than 245,000 jobs in producing the facilities, running the facilities, setting them up, installing them, maintaining them, and financing them.

On slide 36 you can also see the effect on our GDP. It adds to the German economy a total turnover of about 25.5 billion euros, and this actually does not even include those revenues that regenerate from exports, which are significant. You can also see that most of this, 42%, comes from the biomass sector, 30% from the solar sector, and 23% from the wind sector. Hydro power and geothermal play a smaller role here.

Last but not least, in these times of crisis, we also notice that the renewable energy sector is good for the economy in that it is not very affected by the current crisis. We are confident that the sector will continue its growth. Yesterday I was at the Hannover Messe, which is one of the biggest fairs for machinery suppliers. They had to correct their growth predictions downward, but from a very optimistic 26% to a less optimistic 15% growth rate that they still expect to realize this year.

So much for my presentation. I'm looking forward to answering more of your questions.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Dr. Wörlen for your presentation.

We'll go directly now to the presentation from Malmö, Sweden. Mr. Öhrström and Mr. Sandin, you can divide the presentation, or if only one of you is going to give the presentation, just go ahead, please, for up to ten minutes.

[Arne Sandin, Triple-E, As an Individual]

We're going to leave the voice to Mr. Peter Öhrström because I have actually caught a spring cold here in Sweden. So Peter is going to do much of the talking.

Over to you, Peter.

[Peter Öhrström, Ortelius Management AB, As an Individual]

Thank you.

Thank you very much for the opportunity to participate in this hearing. We are both independent consultants working in the district heating sector. We are normally helping Swedish district heating companies in their operation, and especially in their market presentations.

We are also focusing on exporting Swedish district heating competence, as we understand that Sweden is among the world leaders when it comes to district heating systems.

We have been called in a very short time to participate in this hearing, so unfortunately we have not been able to send any presentation to you or any figures; we'll just have to read it. I'm sorry about that. All the same, we are going to focus on district heating, as I suppose this is the main interest for this hearing.

To begin with, I'd like to say something about the district heating advantages as we find them in Sweden. The district heating system.... There is actually a low prime energy demand due to the high system efficiency. There is a very high efficiency in the system when it's correctly done.

We also have good utilization of domestic renewable energy resources. There is big utilization of industrial waste heat in the Swedish system. The carbon dioxide emissions are very low. We use incineration where heat recovery is gained for the district heating systems. Cogeneration is normally a basic system in district heating systems where we produce electricity. Heat supply is profitable in Swedish cities. The environmental performance is actually outstanding.

There are so many advantages to district heating systems, not only in terms of energy sources and fuel usage but also environmentally. As well, it's always produced in a profitable way.

The district heating history in Sweden covers about 60 years now. All major cities in the country invested in these systems in the 1950s. Initially it was local environmental reasons that started the replacement of individual oil boilers. Although there was continuous expansion in the 1950s and 1960s, mainly in the big cities, a dispersion took place after two oil price peaks in the 1970s. Then even smaller cities invested in district heating systems in order to reduce heating costs and to improve system performance efficiencies.

Most municipalities started their district heating expansion by connecting major buildings such as hospitals, schools, administration buildings, and municipally owned apartment blocks. When network pipes were passing areas of smaller houses, these were also connected to the district heating system, basically due to bulk demand.

The infrastructure within each building made it easy to convert from oil boilers to district heating, where we normally have centralized systems, but the production and distribution system needed heavy investment. For the municipalities, normally the owners, the accepted depreciation period was about 20 to 30 years, but the return on investment was much shorter than that.

In Sweden, the municipalities dominated ownership of district heating systems. Fifty years ago, 35% of the system operations were organized in municipal administrations. Today, though, almost 100% are organized in business-driven companies. They are also making good profits.

Historically there has been a regulatory system advantage for these systems, which we call heating plants. The legal heating plan, which was sort of a map of the city, had different areas planned for district heating, electricity heating, and gas heating. This system was abolished in the mid-90s; district heating companies are now operating in an unregulated market, competing with other heating systems, often heat pumps in Sweden.

Still, the expansion not only proceeded, it even increased. During the 1980s, there was a major increase in district heating systems all around the country. This was a politically driven expansion in order to reduce oil dependence and emissions of especially sulphur dioxide and nitrogen oxide.

The incentives were basically economic in order to stimulate market conversion, but this was also the starting point for fuel conversion within the district heating systems. I'll talk about a few of the systems just to show what happened between 1981 and 2007.

In 1981 we had about 97 petajoules of district heating in the Swedish system. By 2007 it was almost double that, at 175 petajoules. The fossil fuel accounted for 87% in 1981; in 2007, it's 12%. Biomass was none in 1981 and 45% in 2007. Incineration has increased from 5% to 16% in these years. Heat pumps accounted for 0% in 1981, and today, or at least two years ago, it was 9%. Industrial waste heat was 3% in 1981 and 7% in 2007.

So in 2007, renewable energy sources, like biomass incineration, industrial waste heat and so on, accounted for 75% to 80% of the fuel supply in all the Swedish system. Since the eighties, the expansion of district heating indicates that Sweden has achieved the Kyoto agreement more than four times over.

The reduction of CO₂ emissions from the district heating system has exceeded 80% in these years. The market share for district heating among multi-family houses to date is 88%; offices and public buildings, 75%; and small houses, 12%.

Customer opinion about district heating is that the environmental aspects are the most important for choosing district heating, but they also say that simplicity and the trust in district heating is one of the biggest reasons for choosing it. It's also said to be modern and price-worthy, although the companies are profitable.

Fifty years ago, 35% of the operation was under municipal administrations, but there has been a conversion. Today, almost every operation is a business-driven company.

This was just a short brief of the development for more than 50 years. I hope to give you more appropriate and helpful answers to your questions.

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Öhrström and Mr. Sandin.

Thank you all for your presentations.

I'll explain a little about the organization here. I'm Leon Benoit, chair of the natural resources committee of the House of Commons. We have four political parties in our Canadian Parliament. All four are represented here at the committee.

I'll introduce members as they ask questions, and I will mention which party they're from so you have that background.

We will start the questioning, for up to seven minutes, with Mr. Regan, from the official opposition Liberal Party.

Go ahead.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman.

Thank you very much to the witnesses for joining us today, virtually, from quite a distance away.

Let me begin with Ms. Wörlen.

Can you describe the kinds of incentives provided either by the German government or by state governments to allow you to triple the energy from renewables?

[Dr. Christine Wörlen]

I have already mentioned the two most important parts. For electricity, it was the so-called EEG or Renewable Energy Sources Act. In North America, it is also sometimes known as the feed-in tariff or FiT scheme. This scheme works in two ways: first, it gives a guaranteed rate; second, it guarantees many other factors, like the grid connection. The guaranteed grid connection ensures that you can sell your electricity to the market, something that is not possible in Texas and other places. There are other regulations that take away certainty.

So one side is the purely financial side. The other side is the uncertainty in investment conditions. These incentives are often called subsidies, but they are not subsidies because they are not coming from the government's budget. They are coming from the transmission system operator, who has to buy this electricity and then sells it again on the free market.

Every utility in Germany, or every retailer for power, has to buy a share of this electricity to sell to customers. So every customer in Germany gets the same share—14% of electricity from renewables in their power mix. This is something similar to a renewable portfolio standard but very different in respect of what is actually regulated.

The rates compare not too badly with rates on the general market. On the power exchange, you can have power prices as low as 35 euros per megawatt hour, but we have also observed power prices as a high as 160 euros per megawatt hour.

The tariffs for wind, which are the lowest, are in the range of 60 euros per megawatt hour. So the more economical of these electricity sources are becoming marketable. We are also thinking about how to change this market setup so as to allow for a free market in this area.

Actually, I must correct myself. The most economical source is actually hydro power, even in Germany. But we have very limited natural potential for hydro power. The one that still has growth potential is wind.

So much for the electricity side. I have maybe one last word. The investment on the electricity side is made mainly by a special type of project developer, who has been developing this product for the last 15 years. The traditional utilities within Germany do not invest in wind-power farms. They are starting to invest in offshore, but not onshore. This is an indication that these rates are not high enough to give a standard mainstream utility an incentive to invest. They'd rather go into fossil fuels, where they can still make more money.

For heat, we had an incentive scheme that was building on investment support. If someone wanted to build a solar thermal collector on his roof, he would have to go to a merchant and get it installed and then hand in the bill to a public authority to get a cheque for reimbursement. The details on these regulations have changed very often. This proved to be a pretty unreliable program for consumers, which limited the take-up and effectiveness of these subsidies.

At the beginning of this year, the government put in place a regulation that obliges each household to cover a certain share of its heat demand from renewable energies. So if you build a new house, you have to cover about 15% of your heat demand from a solar resource. This is a regulation that has been proven on a municipal level in Germany. So far a number of municipalities have tried to put this in place in their local area and it has proven very effective. However, the federal government actually does not have any powers to put this in place and no mechanism for enforcing this. So we are now waiting for the länder, which are comparable to your provinces, to put in place directions on how to enforce this locally. And then also municipalities might, or might not, put in place even stronger regulations and even stronger demands on this. But without action on the side of the municipalities and länder, we will not see strict enforcement of this law.

Does that answer your question?

[Geoff Regan, Liberal, Halifax West, NS]

Yes, thank you very much. I have others, but I know I have less than a minute left in my time, so I think it's only reasonable to let it go on to the next intervenor.

Thank you very much.

[The Chair, Conservative, Leon Benoit]

The next questioner is from the Bloc Québécois, Madame Brunelle, for up to seven minutes.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Good morning, it is a pleasure to meet you. I hope that you are able to make use of the interpretation from French.

My first question goes to you, Ms. Wörlen. I find it interesting that, in Germany, renewable energy was a 25-billion-euro industry in 2007 and employed 249,300 people.

Does renewable energy make a profit? Have you been able to take advantage of government grants, and are they necessary to get processes like this off the ground?

[Dr. Christine Wörlen]

Yes. As I said, there are a number of incentives for the actual end user to buy the systems from the manufacturers. The government also launched in the early 1990s a resource program into renewable energy, but unfortunately, in Germany research into energy is divided between I think three or four different ministries, and responsibility constantly switches in terms of energy research. And renewable energies got the worst of that—they switched most often—so even though the German government overall is very proud of its achievements in terms of our R and D, it could have done a much better job on that end.

In total the subsidies, the public moneys, that go into research and development are much lower for renewable energies than for all other sources of energy, and it has been like that for a very long time. If you're interested in that, I can pull up the latest figures on that.

Last but not least, a large amount of turnover that you don't see in these 25.5 billion euros is from exports. These exports, I guess, are in a range—I would have to make a wild guess—somewhere between another 15 billion euros and maybe a little more. They have also been supported with public moneys in terms of marketing support abroad, information about foreign markets in order to encourage German industry to go abroad and sell in other markets. But the leverage of these small investments the government made in these technical support measures is very high. It's about a factor of a thousand. So one euro that is put into one of these market support measures is leveraging a thousand euros in terms of exports. So there are some highly cost-effective measures the government can take in order to facilitate this type of growth.

Another example I might give is eastern Germany, which has had to build up a whole new infrastructure of industry over those 20 years. There have been effective measures of regional development from the European Union as well as the German government, so some regions in eastern Germany are now called the solar valley because so many solar firms have located there and generate decent growth and job opportunities—areas like Bitterfeld, which used to be a very run-down chemistry site.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Good morning, Mr. Öhrström.

You say that Sweden has been interested in green energy heating systems for 60 years and that the increase in the price of oil has made it possible to develop alternative solutions. I come from the province of Quebec where more than 90% of our energy comes from hydroelectricity. We are starting to develop wind energy a little. Though we are fortunate to be able to take advantage of this energy, It is difficult to interest provincial governments and the federal government in alternative energy sources.

In Sweden's case, what was the key to becoming really interested in district heating systems and alternative energy plans?

[Peter Öhrström]

When it started it was basically a question of the local environment and the price of fossil fuel oil. We were caught in oil dependence. We found it was very high in heated buildings--way beyond 8%. When the prices rose, it was a problem for the economy, for single families, and so on.

The two basic reasons were oil dependence and the regional environment. At that time we were talking about sulphur dioxide and nitrogen oxides. There was a plan to make more efficient and fuel-efficient systems and convert those systems.

In Sweden, 50% of all energy comes from hydro power; it used to be nuclear power. I'm not sure of the figure, but today about 50% comes from cogeneration. The district heating system is a source of electricity production that is more efficient than just power plants, because the waste heat is used for heating buildings.

So the reasons were more efficient electricity production, oil dependence, and environmental aspects.

[The Chair, Conservative, Leon Benoit]

You have time for a very short question, Madame Brunelle.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

My question goes to you all.

Because of the tar sands, the federal government wants to conduct research into carbon capture. The research has not advanced very far and we are told that carbon caption presents a lot of challenges.

Have you conducted experiments with carbon capture, and what results did you get in your countries?

[The Chair, Conservative, Leon Benoit]

I think the question is on carbon capture. I'm not sure the interpretation was quite right. Go ahead, anyone who would like to answer.

[Dr. Christine Wörlen]

You go ahead.

[Peter Öhrström]

I know that the Swedish company, Vattenfall, is working quite a lot with carbon dioxide capture.

[Arne Sandin]

They're doing research in that area.

[Peter Öhrström]

They're doing research in Germany on carbon dioxide capture, but this is very early. There is no way of doing it in an economical way today, but they are researching it. Vattenfall believes a lot in carbon dioxide capture.

[The Chair, Conservative, Leon Benoit]

Thank you.

Go ahead.

[Dr. Christine Wörlen]

In Germany, all the big utilities are currently putting in place carbon-capture-ready coal power plants, and they want to invest as soon as possible in this technology. It's operational on a pilot scale. The main uncertainties are the costs, the effects on the energy efficiency of the coal power plant, and whether or not it is possible to store this carbon safely under the ground.

I already referred to the study commission I worked for in 2000-2002. We tried to identify low-carbon pathways for Germany. Unfortunately, our result was that even Germany will have to use carbon capture and storage to a significant degree until renewable energies are able to develop even better than now. Everybody thinks it is necessary.