Natural Resources Committee on Feb. 26th, 2013

[Marie-Hélène Labrie]

Well, we really complement all the upstream activities that a municipality has already taken, so we're not really impacting on what it already does. We're there to—

[Ted Hsu, Liberal, Kingston and the Islands, ON]

So you don't care if they have a recycling program—

[Marie-Hélène Labrie]

No, not at all. In Edmonton they already—

[Ted Hsu, Liberal, Kingston and the Islands, ON]

—and organic waste, composting, and all that?

[Marie-Hélène Labrie]

In Edmonton they already divert 60% of their waste. They have one of the highest diversion rates in North America. They have the largest composting facility and they have very aggressive recycling programs.

We will contribute to increase the diversion rate to 90%.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Okay, and how much do they pay you per tonne?

[Marie-Hélène Labrie]

That is....

[Ted Hsu, Liberal, Kingston and the Islands, ON]

That is proprietary? I understand.

Okay, that's it. Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Hsu.

Now we start a five-minute round with Mr. Leef, followed by Mr. Calkins and Mr. Nicholls.

Go ahead, please, Mr. Leef.

[Ryan Leef, Conservative, Yukon, YT]

Thank you, Mr. Chairman.

Thank you to all our witnesses.

Mr. Egan, to avoid misleading conclusions and misleading inferences, safety records should be viewed and measured over a length of time. Notwithstanding events that have happened in Canada—which all levels of the government take very seriously—over time, how would you rate Canada's pipeline safety record?

[Timothy Egan]

Again, I'm here on behalf of the gas distribution industry, not the gas pipeline industry. That said, we work very closely with our pipeline colleagues, and I think the safety record is an extraordinary one.

In response to an earlier question, I noted that it's tough to compare the safety records when delivering gas to different projects in the north. If the gist of the question is to speak to the quality of pipeline safety in the country, frankly, it's extraordinary. The safety record is a remarkable safety record.

You can see demonstration of that under the performance of our pipelines over time. I don't have the chart with me, but I think my colleague from CEPA may have appeared before the committee at some point and shown the incident record over the course of the last several years, and the number of incidents is incredibly small. The performance of the pipeline industry is a remarkable one.

Again, my apologies that I can't bring statistics to you, but I can speak from my own internal knowledge. The record is a remarkable one and I think a world-leading one.

[Ryan Leef, Conservative, Yukon, YT]

That's a fair point. Thank you.

You were talking about some of the projects under the ETIC program, and if I just quickly do some math correctly, of the 20 projects, $9.5 million is roughly about half a million dollars per project. Would you call that scale medium-sized, are those large-scale projects, or would those be small-scale projects?

[Timothy Egan]

No, I'd call them all small. This is a relatively new initiative. These are all very small projects. We'd like to build much bigger ones. We just started this initiative roughly a year ago. The opportunity is to hopefully access more capital as it continues to get off the ground with more and more projects. But no, we would hope to build much bigger projects.

[Ryan Leef, Conservative, Yukon, YT]

Are you starting to see at least initial interest in growing that? How has it been received so far?

[Timothy Egan]

Again, it is early days. Initial reception has been very positive through our partners. I referenced briefly a water heater technology project we have with NRCan, where we have about 90 new technology water heaters in homes across the country. It's a partnership with utilities and service providers and home owners, and NRCan came into the initiative. We're just collecting the data on that right now, but it's already showing a 30% to 40% efficiency improvement on the technology. It's a phenomenal efficiency gain for the homeowner, which translates directly into reduced energy costs for the homeowner.

As we move these through and these results are demonstrated, the opportunity to build momentum around this is significant.

[Ryan Leef, Conservative, Yukon, YT]

When you look at the north, for example, and you talk about moving the product north, there are some natural gas reserves in the north. I'm from the Yukon and we have some there.

Can you perhaps just talk about some of the challenges with the technology and getting the product out of the ground, and then finding the consumer base to utilize that product and its offsetting relationship with...well, the decision about whether you bring it in or you get it there, and how do you find a market for it there?

[Timothy Egan]

As you know well, there are actually significant natural gas resources in the Canadian north. The Mackenzie Delta is a rich natural gas basin. The economics of developing those areas depends on market prices, and right now it looks like it will be a while off before we see significant new development of those resources. At the same time, we have many northern communities in the Yukon and elsewhere across the north that have ongoing energy needs. How are those met? Overwhelmingly, they're met by moving energy from the south into the north. We fly diesel in or we barge it in or we truck it in.

So the opportunity, as we see it, for natural gas is to ask whether there is a means for the federal government to consider substituting natural gas for a current energy supply and delivering more economically and in a more environmentally sustainable way the energy needs of northern communities. That's some of the research we're undertaking right now with our partners in the mining industry and with various other stakeholders. But long term, these are communities that are isolated from major infrastructure, like pipeline infrastructure, that could deliver energy much more economically. They have significant energy needs, and we need to be meeting those in the most effective way possible.

There is new micro and nano LNG technology. There's new CNG technology. The new applications of various alternative technologies that incorporate natural gas along with perhaps some renewable applications or local biomass and so on—we're interested in investigating as many of those as possible. Quite frankly, we see a market opportunity that delivers on a host of public objectives.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Leef.

Go ahead, Mr. Calkins, for up to five minutes.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you, Chair.

Madam Labrie, I want to talk to you about your technology a little bit more. My understanding, based on some research and knowledge I have, is that the technology is quite exciting, quite innovative. I know a number of other Alberta communities besides Edmonton have actually looked at the technology. Edmonton has obviously been the first one that's been able to complete the agreement process and the construction of a plant. But my understanding of the technology at the pilot project stage—and maybe you can inform or make the committee aware of whether there are different varieties of technology in your company—was that it didn't just use waste stream feedstock from municipal waste; it also used feedstock from other sources, such as straw and this one from the agricultural sectors. Could you explain or elaborate a little bit about that to the committee?

[Marie-Hélène Labrie]

You're right in saying that Enerkem technology can use more than municipal solid waste. We can use a wide variety of feedstock. At our pilot facility, which we've been operating since 2002, we tested over 20 types of feedstock, from wheat straw to wood residues, used utility poles, construction and demolition of forest residues—it's quite diverse. The same facility can use more than one type of feedstock, so it's very flexible from an input perspective, and also from an output perspective because we can produce more than cellulosic ethanol. As I said, we can produce methanol. We convert that methanol into ethanol. But there's also a wide variety of outputs. This is a biorefinery process that has a lot of flexibility from a feedstock perspective. That means we can locate our facilities in both urban and rural areas and we're not dependent on one feedstock—for example, municipal solid waste. We can diversify our pool.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

In order for the projects to be fiscally viable and to produce a return on investment, obviously, and also to produce not only a clean energy result in helping the government achieve its objectives for ethanol and so on...it has to be cost effective at the end of the day for the ratepayer. Can you enlighten the committee on your particular product technology, what it's done insofar as tipping fees or collection fees in your agreement? I know there are some secrets, but obviously city council in Edmonton would have dealt with their particular arrangement.

Is there anything that you can tell this committee that we would need to do at the federal government level to make it more self-reliant, to make the technology more self-reliant, on a business model that doesn't require large infusions of cash, not only for start-up but also for maintaining continued operations? Is there something we can do, whether it's a capital cost allowance or anything like that, that will hopefully create an environment where this is less dependent on taxpayers?

[Marie-Hélène Labrie]

We have to realize that this is a technology that's sustainable without government support. It's not a question of profitability. What it's all about is a question of financing those first plants. It's really a part of the chain of financing: from R and D to pilot to demo, you need to raise the capital. The first commercial plants.... We know that our business model is very strong, and it's profitable. Even without the tipping fee, we're able to be competitive with corn ethanol in gasoline.

However, raising the capital for those first facilities is where the challenge is. It's really as a support to finance those facilities that government support is so important. You cannot get a loan from a bank when you're financing a pioneering project and facilities like these, so you need to finance with equity. You're raising equity with venture capital, so your cost of capital is higher. It's really project financing here, and the support of the government is not to make these projects profitable but to help raise the money.

In a capital program like the NextGen Biofuels Fund program, there is a portion of the equity that comes from the government. This is refundable—SDTC's NextGen Biofuels Fund is refundable—so we will repay.

Then the operating incentive, the ecoENERGY for Biofuels program, really helps in the first years of operation. It provides a kind of certainty that in the first years of operations, when we ramp up our capacity, we have some support.

So it's really for that window that we need the support; it's not for longer-term profitability.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you.

If I have a little bit of time, I'd like to ask Mr. Hemstock a little bit about.... As an Albertan myself who pays electricity bills and so on, I am quite interested to hear you say that you have had about 390 residential-scale systems installed and that this is a program you have. Because this is distributed electrical generation, which is a new concept for our province, can you remind the committee how long that program has been in effect?

There used to be, obviously, the major generators, but as we move to a distributed generation model, which I think is coming in the foreseeable future, how do you see this playing out? The 390 systems you have done are not a lot at this point. Do you see this growing, and what is the technology enabler that allows that to happen?

[The Chair, Conservative, Leon Benoit]

Mr. Hemstock, could you give a short answer, please?

[Robert Hemstock]

Yes.

We've been doing it for about three years, and it has been primarily focused to date on residential houses. We are going to expand the program now to micro-solar generation on more commercial buildings and residential houses.

It certainly has been a successful program so far, in which we are installing the generation that actually fuels the house, right on top of the house, through solar panels. We have been assisted by the Climate Change and Emissions Management Corporation's funding of this program through Alberta. The money in that program is generated from our own payment of a $15-per-tonne charge on the coal plants we own.

I hope that gives you some sense of the nature of the program. Distributed generation is an innovative technology that we are pursuing, and we expect a significant growth in its application in Alberta.