Natural Resources Committee on Nov. 29th, 2018

[The Chair, Liberal, James Maloney]

Good morning, everybody. Welcome.

We have three witnesses for an hour and a half this morning. We are joined, through video conference, by Terry Young and Nik Schruder from the Independent Electricity System Operator. In the room with us is Mr. Brad White from SES Consulting; and at noon we will be joined by Bruce Rebel from the Association of Home Appliance Manufacturers Canada, who was here before. He did his presentation and then we got interrupted, so he's coming back to answer questions only. At 12:30 we're going to deal with some committee business.

On that note, the format is that each of your groups, gentlemen, will be given up to 10 minutes to do your presentation, which you can do in French and/or English. I suspect you'll be asked questions in both official languages. If you need the translation devices, they are available to you. Once all of the presentations are complete, we'll open the floor to questions from around the table.

Mr. White, you're here. Why don't you start us off?

Mr. White, I understand, has a three-slide PowerPoint, which is in English only, but it will be translated after and circulated.

If everyone is okay with that, we'll proceed on that basis. Are there any objections?

No? Okay.

Mr. White, go ahead, please.

[Brad White, President, SES Consulting]

Thank you very much.

Hello. It is a great pleasure and a real honour to have the opportunity to address the committee on this topic today.

First, I would like to tell you a little about our company. SES Consulting is based in Vancouver, and we have about 30 employees. We provide services around energy efficiency. Most of our work is engineering-related. We've been active in this business for about 13 years, in which time we've grown from a one-man operation into the thriving business we are today, with plans for continued growth and expansion. Our revenue growth over this time has averaged something in the order of 15% to 20% per year.

We're a bit of a different company in that in addition to the usual business metrics, we also set targets and track our performance in achieving GHG reductions for our clients. To date, we have participated directly in the reduction of over 20,000 tonnes of annual GHG emissions for our clients, and over the next 30 years our goal is to achieve cumulative reductions of one million tonnes.

The opportunity to play a role in the solution to climate change is integral to our corporate identity, and it's a key part of the reason that our employees choose to work for us. The focus of our work is primarily on existing buildings in the commercial and institutional sector across western Canada, with a small amount of work elsewhere in Canada and internationally. Our clients include universities, municipalities, health care organizations and commercial property owners. We count the University of Calgary, UBC, the City of Vancouver, Vancouver Coastal Health, and Telus among our active clients.

To give you a sense of the impact of some of our projects in existing buildings, I want to briefly highlight a couple of projects that I believe demonstrate that a revolution in energy efficiency in existing buildings is achievable—hence the slides.

The first project I want to highlight is the Vancity Savings Credit Union headquarters. We managed to achieve an overall emissions reduction of 76% in this building by essentially using the heat from the data centre in the building to heat the remainder of the building. This project had a six-year payback.

The next project I want to highlight is at the Vancouver General Hospital, in the Jim Pattison south pavilion. Here, we achieved an overall emissions reduction of greater than 2,000 tonnes annually—again, with a six-year payback—through the use of a technology called a heat recovery chiller.

The final project I want to highlight is 888 Dunsmuir, an office tower in downtown Vancouver. This building is on track to achieve a 38% emissions reduction and a five-year payback through updating the building control system and revising the building control strategies.

I'd also like to briefly highlight for the committee our work with the University of Calgary. They were the recipient of strategic infrastructure funding, and they're on track to achieve emissions reductions of over 24,000 tonnes, with anticipated cost savings of over $3 million per year and a payback under 10 years.

In terms of the economic impact of these projects, the cost of our engineering services is typically a small part—20% or less of the overall project cost. A portion of the remainder is equipment, but the largest component is usually made up of local trade labour—electricians, plumbers, programmers and HVAC technologists—who are responsible for doing the work in the buildings that achieve these savings. Our clients, in turn, benefit from the energy-cost reductions as well as other benefits in improved maintenance, and enhanced occupant satisfaction and marketability of their property.

There's no doubt that our work benefits enormously from long-standing government support for the energy efficiency sector in B.C. This support includes government and utility incentive programs, B.C.'s carbon tax and funding grants to public sector organizations for carbon reductions.

As you look at how you can provide greater support for energy efficiency at the federal level, the first recommendation I would have for the committee is to have consistent and reliable support. This is almost more important than what that support looks like. In the past, government efficiency programs have often fallen victim to changing political whims. Companies like ours invest a lot in aligning our services to help our clients take advantage of these programs, and it is hugely disruptive when they are suddenly cancelled, often with no warning. This perception of unreliability also makes it more difficult to plan for expansion and to have the confidence to invest in growing our business when we are uncertain as to what kind of support there will be.

Incentive programs, which can be quite effective, seem especially vulnerable to this. It may be desirable to also consider other forms of support that may be more durable—through the tax code, for example.

Second, while much of the focus of government support is on directly supporting energy efficiency projects, I believe one of the most important factors for the success of energy efficiency in B.C. is the presence of programs to support energy managers.

In B.C., both BC Hydro and FortisBC, which are our utilities, provide funding to support energy managers and energy specialists embedded within public and private sector organizations.

The presence of these energy managers is crucial as it creates an internal champion within these organizations to push efficiency projects forward. As this program has matured, we have seen these energy managers move up into senior leadership positions within their organizations, creating broader organizational change and further cementing support for energy efficiency.

When we work outside of B.C., where energy managers are much less common, we immediately notice the difference this makes. We find it much more difficult to get projects completed, even when the business case is extremely attractive.

Both UBC and BCIT have developed programs to support the training of these energy management professionals. These programs have been developed with the input and participation of firms like ours, which help to ensure that the course content is relevant to the real world. We end up hiring many of these program graduates ourselves.

Finally, in terms of regulation, one of the challenges with existing buildings is that they are very difficult to regulate. Stronger building codes—including approaches like the new step code in B.C.—are great tools for new buildings but are limited in how they can apply to existing buildings. Some approaches, like regulating equipment standards, can certainly be effective, but they don't necessarily do a good job of addressing the whole building performance.

Here though, we can look at other jurisdictions for examples of what has worked. One example I would like to draw to the committee's attention is Australia's NABERS program. This is a voluntary national labelling program for buildings that has gained widespread acceptance. It is referenced in state and local legislation there by, for example, requiring mandatory disclosure of energy performance to prospective tenants. Simply the act of making building energy performance transparent and allowing owners and the leasing market to understand where a building stands compared to its peers can be enough to motivate action around addressing efficiency. Australia reports that this initiative is responsible for reductions of over 800,000 tonnes of GHG emissions in the more than 10 years it has been active.

As an important side benefit, Australia has developed a very strong ecosystem of businesses and services to support this work. We now see their expertise being exported globally, with a surprising number of Australian companies in this space present in the North American market.

However, it is by no means too late for Canada and Canadian companies to establish ourselves as international leaders in efficiency. The challenge of making buildings—and existing buildings, in particular—more efficient is one that any country serious about tackling climate change is going to have to address. That represents an enormous market that is largely underserved—with a few exceptions like Australia. We even hear from many Europeans—who are often admired for their progressiveness in this area—that they, too, have tremendous untapped opportunity in their existing buildings.

In conclusion, I firmly believe that there's a tremendous economic opportunity in further developing Canada's energy efficiency sector not only in terms of the local impact that energy efficiency projects can have in supporting local investment and jobs and in reducing energy costs and emissions but also in the opportunity to export this expertise around the world.

Simply put, being leaders in developing practical solutions to climate change is good for business.

Thank you.

[The Chair, Liberal, James Maloney]

Thanks, Mr. White.

Mr. Young.

[Terry Young, Vice-President, Policy, Engagement and Innovation, Independent Electricity System Operator]

Good morning. My name is Terry Young, and I'm the vice-president of policy, engagement and innovation at the Independent Electricity System Operator, or IESO.

I'm joined here by my colleague, Nik Schruder. Nik is the director of energy efficiency with the IESO.

Thanks for inviting us here today to speak to you about the economic benefits of energy efficiency. I want to touch upon our experience here in Ontario, designing and delivering energy efficiency programs, but first I want to tell you a bit about the IESO and what we do.

We were created by Ontario's Electricity Act. We're governed by an independent board of directors, and we have a broad mandate that includes planning to meet Ontario's electricity reliability needs in the near and longer term, operating the provincial electricity grid in coordination with our neighbours both here in Canada and in the United States, administering the roughly $17-billion electricity market, engaging with stakeholders and communities across the province, and overseeing Ontario's energy efficiency efforts.

At its core, our mandate is about ensuring the reliability of Ontario's electricity system at the lowest cost to consumers, and energy efficiency plays an important role in meeting our electricity system needs.

Energy efficiency goes beyond lowering electricity bills. It's the most cost-effective resource in Ontario, and it can be used to help offset changes in the demand for electricity on the system, whether it's at a local, regional or bulk electricity system level. In fact, every dollar invested in energy efficiency avoids three dollars in investments in new transmission and distribution infrastructure. It also adds to the Ontario workforce and strengthens our local economy.

I'll draw your attention to a recent report prepared by Dunsky Consulting for Clean Energy Canada, which indicated that in Ontario the implementation of energy efficiency actions through the pan-Canadian framework will add an average of 52,000 jobs and $12.5 billion annually between 2017 and 2030. I believe Efficiency Canada presented to the committee several weeks ago and probably spoke about this report.

Looking more closely at our own progress, in 2017 we invested approximately $100 million in customer incentives to support Ontario businesses becoming more energy efficient. We also leveraged an additional $250 million in capital investments from customers.

Ontario is recognized as a leader for its achievement and commitment to energy efficiency. We've grown our success through a suite of programs available to residents, indigenous communities, small business and large industry. These “save on energy” programs ensure that all who are interested have an opportunity to participate.

These successes cannot be achieved, though, without partnership. Our partners help us promote, monitor, plan and invest in energy efficiency. We oversee and deliver programs alongside the various local distribution companies across the province, as well as our local service providers.

With the help of our partners, since 2015 the programs have saved 5.2 terawatt hours, which is equivalent to powering 570,000 homes for one year. These savings are a result of supporting over 90,000 energy efficiency projects in business and industrial facilities right across Ontario and influencing over 60 million energy efficiency products being purchased from Ontario retailers.

Our programs help achieve these results by offering rebates on equipment upgrades, providing opportunities for businesses to understand their energy use through audits, and supporting training and education initiatives that strengthen energy knowledge and management.

I want to echo Mr. White's comments on energy managers. I'm particularly proud of our energy manager program, which provides funding for Ontario businesses to hire qualified, full-time energy managers to help them identify strategic energy investments and secure financial incentives for projects and upgrades. Since 2015 we've funded over 110 energy managers, who have contributed to over 430 megawatt hours of energy savings for their facilities. The electricity savings that result from the programs produce cost savings, but have also been proven to strengthen operational efficiencies and improve corporate culture.

KI Canada, furniture manufacturers in Pembroke, Ontario, faced the challenge of keeping their full-time production technicians employed. In 2013 they set a goal to lower their energy use by 10%. By embracing efficiencies, they were able to surpass their goal and reduce their use by 30%, totalling $300,000 in savings. In the years following they achieved even greater reductions, equalling millions in savings.

Their success was realized by making improvements to their operations and equipment through save on energy programs and by creating a behavioural shift in the workforce. By embracing energy efficiency, they ignited a change in employee culture, which helped keep energy savings top of mind. More success stories like this can be found on our website, saveonenergy.ca. I would encourage you to explore some of those case studies.

Programs are also available for transmission-connected customers, to help them fast-track capital investment in major energy savings projects and receive funding for a full-time on-site energy manager.

Last week I had the opportunity to visit Lake Shore Gold mine in northern Ontario, just outside of Timmins. The mine receives funding through the IESO for a full-time energy manager at the facility. On-site energy managers help organizations better understand how they use energy in their day-to-day operations and how they can incorporate efficiencies to improve operations and save.

At Lake Shore Gold, the mine's energy manager uncovered efficiencies big and small, from making the switch to LEDs to helping reduce the energy consumption of their equipment, and through the efficiencies implemented by their energy manager, Lake Shore Gold was able to decrease the energy consumption of the mine's largest on-site motor.

I should note that all energy savings are independently verified by third party evaluation contractors, in accordance with the IESO's evaluation, measurement and verification protocols, and represent net verified savings. Put more simply, they are energy savings that occurred as a direct result of the program intervention.

When I look ahead to the future of energy efficiency, armed with the many lessons learned through our experience in recent years, I see a couple of areas of focus for us.

One relates to our program delivery model, moving away from prescriptive programs toward more flexible programs, with more options for customers to choose how they achieve energy savings, with a reduced administration. A successful example of this was the award-winning pay for performance program that we launched in 2016. It was one of the first pay for performance programs in North America.

The program sets a baseline of energy use against which future reductions were compared. It was up to the customer whether they achieved energy efficiency savings through more efficient HVAC systems, improved lighting or some other efficiency upgrades that made sense for their business. In turn, participants are compensated for their efforts by being paid four cents for each kilowatt hour of verified savings each year, for up to four years. A less prescriptive approach is simpler and more efficient, and it gives customers more choice and encourages innovation.

Another area of focus for us is seeing how energy efficiency can compete against other resources, like generators, in the future. Ontario, as you may know, is currently in the process of changing how we acquire electricity resources, developing what is known as a capacity auction. We want to explore how to allow energy efficiency to participate and compete against other resources in these future capacity auctions. It's been done successfully in other jurisdictions, so there is some precedence. We'll be looking for insights there as we try to implement this in Ontario.

As the body responsible for electricity planning in Ontario, we want to ensure that conservation continues to help reduce costs in the electricity system, by deferring the need for new investments in generation or other electricity infrastructure. This includes focusing future initiatives on reducing peak electricity demand. Electricity systems are built to make sure you have enough electricity to meet that peak demand. This is where energy efficiency can help reduce overall system costs by targeting programs for those peak periods.

We also want to continue exploring the ability of energy efficiency to meet local needs. For example, if we see electricity demand rising in a specific area of the province, whether due to new mines in the north or new greenhouses in the southwest, the local infrastructure may not be able to meet that new demand. It may require new transmission lines or distribution systems to bring in more power or new generation. Energy efficiency gives us another cost-effective option. We can work with those communities to see how energy efficiency can help offset that increased demand and reduce the need to build new infrastructure, or in some cases just buy us more time.

To wrap up my remarks, we've had a lot of success in Ontario with energy efficiency. I'm proud of the employees at the IESO for all the hard work we've done to help communities, businesses and the province at large benefit from energy efficiency. We'll continue to build on that success and evolve how we consider energy efficiency in managing the reliability of Ontario's electricity system at the lowest cost. That includes transforming the market, being less prescriptive, introducing more competition, and shifting to defining the need and letting the market determine how best to meet that need.

Nick and I are pleased to answer any questions you may have. Thanks again for this opportunity.

[The Chair, Liberal, James Maloney]

Thank you, Mr. Young. This committee actually talked at some length about coming to visit you. We almost made it last spring but it didn't quite work out, so we're very glad you're here today.

Mr. Harvey, you're going to start us off.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

I'm going to start off by thanking everybody for being here. I want to start with our presenters over video conference, and then I'll move to you, Mr. White.

You spent quite a bit of time talking about energy efficiency as it pertains to small and medium-sized businesses and industry, and how program delivery can affect the rate at which or the uptake at which businesses choose to invest in innovation in order to further their energy efficiency.

You talked about a more variable program delivery model as opposed to a more stringent model. I'm wondering how you feel. Traditionally, I come from business, and if it has a payback for business, business itself will uptake it. I'm more concerned with the ability for households to take advantage of opportunities that will allow them to become more energy efficient than small businesses, because as somebody who's been a small business owner, I would be more likely to take advantage of those opportunities if it were going to save my business money, regardless of whether or not you were going to pay me back four cents a megawatt hour, or whatever term you used. I'm just wondering if you think that further investment in helping businesses become more energy efficient is the best way to spend taxpayers' money, or if that money could be better allocated to households.

[Terry Young]

I would suggest to you that both have reached a level of maturity. I think what we've seen, particularly on the residential side, is a significant uptake on LED lighting, so improved lighting. We are getting that. In the businesses, I absolutely agree with you that, as a business owner, you're looking for ways to reduce your costs. Improvements in energy efficiency can do that, and so there are more business cases for that.

In both cases, the residential and the business side, the market has matured and the awareness of the benefits of these programs, or opportunities if you will, is such that we can start to look again at the level of investment that's required, and start to rely on the market more and the business opportunity more to drive some of this funding.

Through our efforts in Ontario over the last decade or so, we've certainly demonstrated the case, and we've certainly demonstrated the opportunity, and we've certainly demonstrated the savings that are there. That being the case, I think the market is in a position to respond more now.They don't need that level of incentive, or that level, as I mentioned, of those kinds of designed programs, that full suite. They see the opportunity.

Customers have become way more creative, way more innovative in terms of being able to take advantage of opportunities that are there. That's why we like so much the pay-for-performance program. We're not saying they have to do this, or they have to do that, or they have to do this, we're saying there's an opportunity here. At four cents a kilowatt hour, it very much competes with others. As I mentioned, it's the most cost-effective resource we have, so it can compete with other resources. But if we can also find a way to reduce our level of costs in this, that's what we're trying to do as well.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

That was my point, the four-cent payback on the energy efficiency. I'm just wondering; isn't the incentive to become more energy efficient saving energy? Have we not reached a point where businesses especially, but also maybe households as you indicated, are taking up this idea enough that we don't need to supplement them with taxpayers' money to achieve the outcome as we did when we originally started?

[Terry Young]

I suggest that we don't need to supplement to the extent that we have been. We have been continuing to reduce the level of incentives. We're continuing to look at this. When we look at the programs that we have in the field.... We look at free ridership all the time and determine whether or not incentives are needed. In some programs and some areas we think incentives are still needed to encourage people to do that. You see that particularly in large businesses where there is a relatively major investment needed. But in the programs we are providing, we insist that businesses and industry of all sizes are making their own investment as well.

Can we continue to pull back on this? I believe we can, and as we go forward, we want to see energy efficiency compete as a resource and actually be competitive with other types of resources.

I mentioned the capacity auction that we're introducing. I want to be able to be in a position where we're looking at energy efficiency as one of those resources that can compete. We believe that customers have the ability to do things provided there is that right level of help, if you will. But I would say that with the maturity we're seeing, both in the market and in those who are providing these products and services, and with the understanding that customers have, the level of support needed will continue to decline.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

Mr. White, what are your thoughts on this?

[Brad White]

I would disagree somewhat with the notion that businesses will do it anyway because it's a good opportunity. There are a bunch of restrictions in the system. Some businesses, especially small businesses, can make easy decisions like that. We notice, especially with some large organizations, a lot of barriers within the organization, the first one being not knowing what the opportunities are. They may very well have fantastic opportunities to save energy, but they're completely ignorant as to what those opportunities are. In order to find out where the opportunities are, you need to do an energy audit; you need to do a benchmarking study. You're talking $5,000, $10,000, or $20,000 for a study. That's the initial hump to get over.

I firmly believe that offering incentives and supports around that audit piece or that identification piece.... I think there can be a lot of research and development that actually brings the cost of that way down through data analytics and optimization. Those sorts of things are on the horizon for the next five years, but right now, the first barrier to get over is helping business owners and building owners identify what the opportunities are.

Even then, once you do that, there are some further barriers. Sometimes you're fighting for limited maintenance budgets. You may say, “Hey, you can spend $100,000 and get a five-year payback”, but they have that $100,000 earmarked for a new roof, and they don't have it to spend on a new building control system or new pumps. So maybe there's a financing piece that could help.

[The Chair, Liberal, James Maloney]

I'm going to have to interrupt you and stop you there. We have to move on.

Mr. Schmale.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

Actually, if you want to finish your thought, that will segue to my question.

[Brad White]

Sure. Very quickly I'll say that for things like a two-year payback, if it's a really, really obvious opportunity, it's very easy without any incentive. Once you get into the eight- or nine-year range, we find that gives a lot of businesses pause, and if incentives can bring that down to five, six or seven years, in our experience that has made a big difference, in terms of making those products something they want to invest in.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

The question is about the incentives. Obviously someone has to pay for these incentives somehow. What are your thoughts on that?

[Brad White]

There are different ways. In B.C., most of the incentives we have are utility-based, so ultimately it's the ratepayers who pay for those incentives, the argument being similar to the one the gentlemen joining us made, that it's often cheaper to buy energy efficiency through incentives than it is to put up a new power plant, or, as in our case in B.C., a new dam.

It makes sense from that point of view. I think the economics overall can make a lot of sense.

In terms of government incentives, if, as a society, we've decided there is value in reducing carbon emissions, then there's a cost that comes with that. If there's an intrinsic value in reducing those emissions, then I think some level of government support is appropriate.

Certainly, other industries benefit from support, in terms of tax incentives, investment tax credits, and things like that. I don't see any reason that the energy efficiency industry should be any different, given the tremendous local benefits to the Canadian economy.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

You mentioned businesses sometimes not having the capacity to take those steps forward. I would counter by saying that if a business wants to continue to be competitive in this environment, and energy savings are one way to achieve that, would they not for the most part.... Whether it be the chamber of commerce circle or the board of trade conversations taking place about energy efficiency, would this be a wider conversation rather than ones in isolated silos?

[Brad White]

Certainly, I think that's the case. I think it's a matter of expediency. By incenting things like energy managers, I think you speed up that cycle greatly. To allow those conversations to take place naturally and to develop in the market with their own momentum.... Businesses, especially large businesses, do move and change quite slowly. You could be talking about five or 10 years before that level of awareness percolates up naturally. I think you can accelerate that process by providing direct support for champions within these organizations.

Some organizations may develop that naturally, but I think we can kind of grease the wheels and make things move along quite a bit faster by providing that sort of direct support.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

You probably heard the news about the Oshawa General Motors plant closing. I had a conversation with the president about that. He said that he pays about $60 million per year for hydro. That's 75% more than he pays for his power in Texas. For a business, that is a massive amount of savings.

Had they decided that this market was competitive, I would assume General Motors would be saying, “Let's move down this path quickly,” or the price to do that would be so disproportionate that they might say, “Ontario's not a competitive place to do business.”

[Brad White]

As I said, my experience is in mainly the commercial and institutional sectors. It tends to be with municipalities, universities and commercial office buildings, which are less easy to relocate than is a manufacturing facility. I could certainly see how that would play a role in business decisions though. There's no question.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

I do want to ask you about the Australian model, which I think is very interesting. I think some homeowners are doing it already, showing their hydro bills and gas bills, and saying what their energy efficiency is. I agree it's a good way of showing people, because if one office building is terrible and one is better, I think that might....

[Brad White]

In terms of market theory, making information transparent helps people make better decisions in a marketplace. I think that's one piece of information that's not always transparent right now. I think that bringing some of that energy performance data to the light of day and making it something that's easy to access provides a natural incentive to improve that performance.

If I'm a tenant looking to lease office space and there is one building with terrible energy performance and one with great performance, that may be enough to make the decision in terms of my lease, because often those costs are passed directly to the tenants anyway.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

In Australia—I believe they have states in Australia—would that be a state decision, or would that be a federal jurisdiction? How would that work?

[Brad White]

The labelling program is a federal initiative, I believe, but states and local governments reference it in their legislation. I'm not an Australian policy expert, so I don't know all the ins and outs of how they've used the program. I do know that they report that about 82% of the office buildings in Australia are part of the program now. It is voluntary, but I think there is some specific state and local legislation that does reference it, which makes providing energy information to tenants, for example, mandatory. Using their national labelling system is one way they can do that.

[Jamie Schmale, Conservative, Haliburton—Kawartha Lakes—Brock, ON]

Will there be time for another round?