Natural Resources Committee on Sept. 20th, 2017

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you all for spending your time with us this afternoon. I appreciated your comments about Canada's strength being the diversity of our energy sources.

Just before I start with my questions, I want to thank my Liberal colleagues for inserting into this study specific references to the Canadian energy strategy. I want to note on the record that it was an initiative launched by an Alberta premier at the time and adapted and accepted by all premiers precisely because it voices its support for diverse natural resources and energy development within Canada, from every region and from all sources.

In hindsight, I somewhat regret that we didn't include the Canadian energy strategy in our previous study on oil and gas, since it talks about the importance of regulatory certainty in critical energy infrastructure and the importance of diversifying export markets. It speaks to what is Canada's long track record, which you have already touched upon, in everything from our regulatory system to our investments in innovation and our long-standing commitment to balancing environmental stewardship with energy and economic development, with all of the prosperity and jobs such development provides to every Canadian and every community across the country.

I note at the outset—I have colleagues opposite who feel strongly about this as well—that I hope that throughout this study we can continue to talk about supporting responsible natural resources development and enhancing investment opportunities for responsible natural resources development in every sector, in every province in the country, and that we aren't in a scenario in which we are pitting sectors against sectors, as that might have disproportionate impacts in some regions or provinces.

I would note, of course, that this discussion around the development and investment of low-carbon and alternative and renewable energies goes hand in hand with a thriving oil and gas sector. The biggest private investors in alternative and renewable energy, such as wind and solar, are indeed conventional oil and gas companies and pipeline companies, such, for example, as Enbridge.

I want to thank you for your comments at the outset. Perhaps one day we can talk again about the goals and the recommendations in the Canadian energy strategy also, in the context of ensuring the sustainability and long-term prosperity of oil and gas development in Alberta, or in Canada as well.

Could you expand a little concerning these regional dialogues and give us, just for our knowledge, any specifics that you'd like to highlight about past challenges you see involving federal, provincial, and regional co-operation and any specifics you'd like to highlight about gaps you've identified or things that need to improve?

Connected to that, has this been or is it going to be part of the four major regulatory reviews? Will there be any impact on regulatory changes or adjustments stemming from those dialogues? If you could, just illuminate some of that for us.

[Niall O'Dea]

That's a very good question, and I will seek to unpack it.

I'm certainly happy to provide further context on the studies that are currently ongoing. I didn't cover it in my presentation, because I wanted to cleave to our 10-minute time limit, but on slide 14 of the deck we have provided a bit of a snapshot on the regional dialogues and on the specific questions that they are each addressing and that we are addressing in partnership with the provinces and territories and their utilities.

To turn to the west first, the main challenge in the west relates to the need to phase out coal in Alberta and Saskatchewan. That will require a combination of new wind and solar generation as well as dispatchable resources such as hydro, natural gas, or imports from neighbouring provinces. Natural gas is currently the lowest cost dispatchable option, but it is likely to become more costly as carbon pricing is phased in.

The main options under consideration for that western dialogue include transmission between Saskatchewan and Manitoba, as well as between B.C. and Alberta. The second is new hydroelectric developments in Alberta, Saskatchewan, and the Northwest Territories. Third is the electrification of natural gas processing and the potential for future LNG terminals. All these things are on the table in that western dialogue, and that's to address some of these gaps you spoke to.

In the Atlantic region, Nova Scotia and New Brunswick face a supply gap due to the coal phase-out, and they are constrained in that area by the limited current existing natural gas infrastructure for distribution. There is not the similar network we have elsewhere in Canada. Renewable resources such as wind and solar will be able to contribute in that space, but dispatchable capacities—so, again, firm capacity like hydro and nuclear—will be required to back up those variable resources. The main options being considered there are new hydro, be it Gull Island or some other smaller hydro opportunities; potentially new nuclear in New Brunswick, which is on the table as well in terms of this modelling study; and long-term electricity supply contracts with Quebec. Again, we're trying to take as broad a base as we can in order to work through that.

In terms of the history, I think Canada has traditionally developed most of its resources and connections north-south primarily—as I spoke to—because that's where the load centres and markets were for that electricity. I think the acceleration of the coal phase-out has created an incentive for co-operation. We see a great

open-mindedness

in the conversations among the provinces and utilities around exploring that. However, there is not a tradition of doing it, so a bit of it is information gaps around what that form of co-operation could be and also resolving very real market differentiation challenges. For instance, in Alberta you have a fully privatized electricity market, whereas in neighbouring provinces you may have vertically integrated, crown-owned utilities. The ability to co-operate across those borders, then, requires some pretty precise negotiations, ones that the federal government is happy to facilitate but ones that, clearly, we wouldn't be determinative in.

Then, in terms of the four reviews you mentioned, clearly those are a critical priority of the government currently. Our hope would be that they, once completed, would only strengthen the basis on which these projects, once identified, would move through. Clearly, each project that would be undertaken would need to undergo a thorough environmental assessment, thorough consultation, and engagement with indigenous peoples. That process, once the architecture following from those four reviews is established, should help greatly in moving those projects forward.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Cannings.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you for being here today.

It seems to me, if I can summarize what I've heard, that if we want to move electricity or create green, clean electricity in provinces such as Alberta, Saskatchewan, and Nova Scotia—and under the new framework you'll be wanting to encourage cleaner electrical sources—there are two options. One is to facilitate the transmission of clean energy and hydro between British Columbia and Alberta or between Manitoba and Saskatchewan and Ontario, etc. The other is that we can develop more regional renewable energy sources; so Alberta would be, and is, developing solar and wind.

I just wondered if you could comment on two parts of that. One is just in the engineering part of it. What is the minimum ratio of the dispatchable type of energy the grid needs right now? Is it something that can change if we modernize the grid? Also, what are the relative costs of these energy sources: wind, solar, and hydro? Big hydro projects all seem to be fairly expensive. I know you talked about a study that was going to come up with some answers to this, but are there any kinds of ideas right now?

[Niall O'Dea]

I'd be happy to offer commentary on that. I think this question of regionalized versus localized is a key question. The regional electricity corporation and strategic infrastructure dialogue and studies that I spoke about are focused on looking at that regional picture. But they are modelling in, as well, the contribution that more localized forms of electricity supply could provide.

Our sense is that ultimately, based on cost, efficiency, and driving most rapidly to GHG emission reductions, a combination of both those interconnections and localized, smaller-scale electricity production will form part of the equation.

In terms of the minimum ratio of dispatchable to variable, that really is contingent on how well connected your supply is. You can imagine a system in one area of southern Alberta where the wind blows very strong and there is a superb wind resource, but when the wind is not blowing there, that resource is not there, so that can be a weakness. When that resource is connected to other places that can balance that wind resource—so say the wind is blowing stronger in the middle of the U.S. Midwest at that point—if you can get a broader area interconnected, you can balance to have a higher portion of variable renewables in your overall mix. Part of the rationale for strategic interconnections is that they allow you to achieve more of that balancing of resources across a greater geography.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Is the concept of a smart grid part of that or is that more part of a smaller, more urban grid? Or is the smart grid part of what is making those second-by-second decisions?

[Niall O'Dea]

The smart grid is absolutely critical to both in fact. At the localized level, at the level of distribution to individual households, smart grid technologies are critical to doing things like being able to plug in your electric vehicle at night and have it be used as a battery for the grid as a whole and then unplug it in the morning and still be able to get to work. Smart grid technologies are critical there.

In the broader scale and in terms of transmission, we want to be able to manage a higher degree of variability within our broader transmission lines. Now we tend to use less than the total load that a given line is able to carry, based on engineering parameters, but if we know more about what's happening at any given time along that transmission line, we can actually get more electricity and a more variable amount of electricity across it, and that allows us to better utilize the resources we have.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

You mentioned electric vehicles. I was just wondering how often your department models or looks at this increased demand for electricity that we will be seeing as the world becomes more electrified and, especially with electric vehicles, that demand goes up. Every week there seems to be some new article saying this is happening far faster than we had thought. I assume you're on top of this. I just wonder what your current projections are for that increased need.

[Niall O'Dea]

Certainly. As to specific projections, I can turn to the team to ask if we have them.

[André Bernier, Senior Director, Electricity Resources Branch, Energy Sector, Department of Natural Resources]

We're looking at it, but I think there's a big question mark next to what the path is, because you could have a number of scenarios. Just to create a distinction, it's not just sort of a transmission generation challenge in the sense of quantity of electricity; part of the bottleneck is also what happens at the distribution level as households themselves take on a different role as energy consumers.

As Niall indicated, it also creates an opportunity, because with that comes storage capacity. I wouldn't want to put a specific number out there. We've looked at relatively modest scenarios, but there are also explosive ones. I think planning-wise it's good to have in mind as a constant right now that the range around those estimates can be quite wide.

[Niall O'Dea]

It is a question that utilities are seized with. In the context of the Atlantic regional electricity dialogue, it's one of the sensitivities that we're modelling in. We're modelling in not our projection of where the future will be in terms of electric vehicle penetration but, if you forecast different amounts of electric vehicle penetration, what you will need to support that.

[The Chair, Liberal, James Maloney]

Mr. Serré.

[Marc Serré, Liberal, Nickel Belt, ON]

I want to thank the witnesses for their presentations.

You spoke earlier about interconnections between certain provinces.

Can you provide examples of successful strategic interconnections?

[Niall O'Dea]

Certainly. We'll be pleased to do so.

My first example is a case in which the federal government wasn't very involved. It was the power-sharing agreement between Quebec and Ontario. The agreement involved the construction of infrastructure for the two provinces. A few years ago, a power exchange agreement was reached. The agreement concerned 500 megawatts in both winter and summer, to address the peak periods in each province. This summer, the provinces announced that they would increase this exchange. It's the example of a political agreement that involves infrastructure and that establishes this type of cooperation.

[Marc Serré, Liberal, Nickel Belt, ON]

Can you elaborate also a little the opportunities with the U.S.? Obviously we're a net exporter of electricity to the U.S., and exports have been increasing in the last few years. What other opportunities do we have as provinces to expand that selling to the United States? Is NAFTA playing a role in it? Without talking about the current negotiations, but historically, has NAFTA played a role in supporting that north-south trade?

[Niall O'Dea]

I'd be happy to speak to that.

NAFTA in its current form has produced no impediment and if anything has been a facilitator of trade in electricity. As a commodity, it is tariff-free and has remained so, which has certainly eased our ability to continue that trading relationship with the U.S.

In terms of the opportunity, there are currently six different transmission lines proposed across the country to expand our interconnection with the U.S. to facilitate exports. There have also been some key decisions in the U.S., including in the U.S. northeast, to count Canadian hydroelectricity as contributing towards their renewable portfolio standards. This has been key, because it allows them to count what is clean—Canadian clean energy—as clean when contributing to meeting their own emission reduction goals. We see utilities such as Hydro-Québec, Emera, and others participating in bid processes in New England and elsewhere, seeking to expand those opportunities.

Obviously those will be hyper-competitive bid processes, but I think Canada has great strength, particularly because what we can offer is the firm capacity of such things as hydro to combine with the variability of other resources that states may wish to develop locally. Firming that product allows them to build a higher proportion of variable renewable energy than they would be able to otherwise. This is something we see in Manitoba in its interaction with the Midwest as well.

[Marc Serré, Liberal, Nickel Belt, ON]

Energy costs greatly influence the competitiveness of our businesses. The costs are therefore very significant for the Canadian economy.

How do electricity costs in Canada compare with the costs in other G7 markets?

[Niall O'Dea]

Good question. In Canada, electricity costs are relatively low because our electricity resources are fairly well developed. It's mostly clean energy. Regarding the cost, we're talking about approximately 7¢ per kilowatt hour in Montreal, 16¢ per kilowatt hour in Prince Edward Island, but 30¢ per kilowatt hour in New York. The cost in Germany or elsewhere in Europe is even higher. This substantially contributes to our competitiveness. That's why in the future we're aiming to establish the most effective system possible. The system will be low cost, but will provide clean energy.

[Marc Serré, Liberal, Nickel Belt, ON]

Excellent.

In Budget 2016, funds were allocated to clean energy. Can you tell us the results of this investment?

[Niall O'Dea]

You're talking about the $2.5 million?

The money is being used to support the dialogue between the western and Atlantic provinces. We've already hired the consultants who will manage these studies. The companies are GE and Hatch. These people are currently finalizing the results. We've spoken to provincial representatives about the value of carrying out these studies and about the data, in particular the confidential data provided to conduct this analysis. We plan to release these results in early 2018 in two separate reports.

[Marc Serré, Liberal, Nickel Belt, ON]

I'm not sure that there is time to answer, but I'll ask if you could submit a report to the committee to give us a bit of a landscape about deregulation. Each province has its own regulatory system, and then the BES oversees nationally.

If you could give us a framework of the interconnection of the provinces and how that relates to the BES nationally, that would be helpful.

[Niall O'Dea]

We'd be happy to do so.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you for coming.

On the first page, the pan-Canadian framework, I find it interesting. I don't know anywhere where a definition is low-emitting sources, a definition of clean power...and then the goal is to have non-emitting sources. To me, that sounds like a good political realm, where we don't have to actually close in on anything in particular. It gives us a bit of room.

Actually, I don't know how you get non-emitting. Wind energy cannot be non-emitting. Anything that turns emits something.

I think we're using words that are used in a place to help convince our public that, my gosh, we're doing a really great thing. When I say that, I don't know what the definition is, but I think you should consider cleaning that up and being specific about what we mean in terms of production.

It was brought up that in terms of regional electricity, Canada-United States trade, we're a net exporter. I'm from Ontario. I would like to understand, if you would help me a little, what the cost-revenue balance is from Ontario to our exports to the United States. If you don't have that today, I would like to get it, because you know and I know that under the policies we actually give it away at times. Help me understand a little, then, in terms of the policy of generation of electricity.

In my area, in part of Ontario, we have a lot of green energy under the Green Energy Act.

What kind of duplication is needed in production of electricity for windmills and solar where in the winter we have 10 hours of sunlight and we have intermittent wind? What sort of duplication do we have to have with natural gas, or coal, which we don't have? We haven't built...for 30 years in Ontario.

I wonder if you could give me the cost analysis of what the revenue generation is as compared to the cost of the electricity in Ontario that we ship to the States as a net exporter?

[Niall O'Dea]

Maybe to first address the point about non-emitting, when we speak to non-emitting, we're talking about greenhouse gas emissions specifically, and that's in the production of energy once the facility is built. That's what our definition is for something like a nuclear plant, a hydro plant, a wind turbine, a solar panel. All are non-emitting at the stage of producing electricity, recognizing that from a life-cycle perspective, there may be greenhouse gases emitted in their production and manufacture.

In terms of the issue of Ontario, I might recommend speaking to OPG specifically about that balance and how they calculate it, but I can give you some broad framework for how to look at that question.