Natural Resources Committee on Oct. 2nd, 2017

[Marc Brouillette]

In general, the idea of distributed energy resources is to keep energy local—I think you mentioned that—which basically would argue against building the infrastructure between provinces, because you're trying to get the solutions together.

What distributed energy resources are going to be really good at is, as they throw solar in with battery, they'll take the peak out and flatten the load required from the distribution system, creating, from a grid perspective, a smoother profile. That is great when you want to start optimizing the use of distribution and transmission assets. They do that because solar comes on during the day, and when you don't need the solar, you can dump it into the battery. The battery can round out the corners in the morning and at night, and you can kind of level off the demand. At the moment, that, from my analysis, is one of the most cost-effective ways to take advantage of distributed energy. Flattening the demand will actually allow the bulk system, which will always have cheaper electricity—I think so, anyway—to be more efficient.

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

I just wonder, when you say “battery”.... Right now we have, say, hydro or nuclear, which is that baseload energy. Would the interties facilitate using wind and solar with those baseloads if we have provinces that have one but not the other? For instance, we've had witnesses here from the maritime provinces and the Atlantic provinces talking about interties that could bring in hydro from Labrador and use it to balance the wind energy they're producing elsewhere.

[Marc Brouillette]

One of the big challenges with the renewables and Canada is that winters are cold and dark, and the solar thing is just not built to work in northern climates. This is one of the reasons I suggest that the northeastern U.S. has fewer options to electrify and that the benefit of having Canada right beside them is that we can send hydro power down to the U.S. Equally, it can go east-west, because the renewable options will be less effective up here than they will down there.

If we try to build a system based around solar battery in Canada, our electricity will be higher in price than the electricity from the same solar battery system down in California. We get less sun. That's the way it works.

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

Mr. Adams, you briefly mentioned how important it was for Newfoundland and Quebec to have some sort of agreement. I just wonder if you could expand on that as well.

[Tom Adams]

Yes. Thank you for the opportunity.

The Government of Newfoundland and Labrador is constructing a hydroelectric facility that has no storage capacity on the Lower Churchill at Muskrat Falls near Happy Valley-Goose Bay. The associated transmission links that Newfoundland is constructing from Labrador to the island and from the island to Cape Breton are insufficient to carry the peak generation capacity of the Muskrat Falls generator. If Newfoundland and Labrador cannot come to a storage agreement with Quebec around storage of energy, the Muskrat project is going to dump almost all of its production in the springtime, which is the one time of the year when it has a full flow of water, enabling full production.

Newfoundland proceeded with the construction of the Muskrat Falls project, notwithstanding the fact that, subject to the 1969 contract with them, Hydro-Québec owns and controls the assets at Upper Churchill. Newfoundland has always planned on using Upper Churchill generation in order to balance the seasonal flow problem of Muskrat Falls, but they don't have the contractual rights to do this.

The further Newfoundland goes into the project, spending billions after billions on a project they don't have the contractual rights to operate, the worse off Newfoundland's going to be. Very urgently, Newfoundland and Labrador need to make an agreement with Hydro-Québec. Since the federal government is so deeply responsible for causing the Muskrat Falls project in the first place, by virtue of its loan guarantees by first the Harper government and now the Trudeau government, the federal government needs to play a brokerage role. They need to bring these parties together, so that they can come to a fair and reasonable storage agreement for the excess production of Muskrat Falls in the springtime.

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

Okay, I'll just ask a quick question of Mr. Martin.

I believe that you mentioned using the Canada infrastructure bank as a possible source of funding for interties and how there are private financing firms that might be interested. We've also heard a lot about costs and things like that. I just wondered if you could comment on how that would compare with the typical costs we have in British Columbia or wherever we have provincial, public utilities whose profits go to those provinces and how that would affect the cost of using a more private infrastructure bank.

[Nicholas Martin]

I can't say too much about how much it's going to cost each utility to build, but the point was mainly that this isn't something that the federal government needs to pay for 100% or anything like that. However, if it's actually worthwhile and if this would be a good decision to make, then there is money to make, whether it's a private investor or it could be a utility that would make that economic decision as well, depending on the jurisdiction. From our conversations, we know there are private investors who are willing to put their capital at risk because they think this is a worthwhile idea that would make economic sense. That was the point I was trying to make.

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

If it would make economic sense, why not have the government pay for it?

[Nicholas Martin]

Then it becomes a question of where you put that risk, as well. There's a lot of instances where the government does make the decision. It's not to say that these are 100% guaranteed investments, but someone has put some due diligence in there. If they're willing to shoulder that risk, where the ratepayers or the taxpayers don't necessarily have to, it's generally a good thing to do.

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

But they would—

[The Chair, Liberal, James Maloney]

I'm going to have to stop you there. Sorry, Mr. Cannings.

Mr. Harvey, I believe you're next.

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

I want to thank you all for being here today, but Mr. Adams, I guess my questions are for you.

You spent a considerable amount of time during your presentation talking about the sovereignty of the provinces and their independence. You said that should be not only recognized but also reinforced, and you mentioned the importance of local generation from within each province. What do you feel is the best way for provinces across the country to achieve that energy independence, especially for the ones that have an energy deficiency? I guess that's my question.

How do you feel the baseload issue can best be addressed, given the intermittent nature of wind and solar in our northern climate?

[Tom Adams]

Constitutionally speaking, Canada's 10 provinces are really their own separate jurisdictions. We have 10 different stories about electricity across the country. The electricity situation of P.E.I. is as remote from the electricity situation of Alberta or B.C., or even its neighbouring provinces, as it is from many U.S. states. Each province has to find its own way. Some have public utilities. Some have private utilities. Some have hybrid markets.

One factor we all have in common is that the forces of technology change that are going on in the energy space are global forces. They're not restricted to individual jurisdictions.

I'm very optimistic about the future for a small, compact, distributed generation from natural gas-fired cogeneration, an opportunity that has a significant potential to bring electricity supply to a more local dimension, and which has the economic potential to really blow away future centralized generation.

You spoke specifically about provinces that have energy deficiencies. One example is P.E.I. They're not self-sufficient in electricity supply. It's far more cost-effective for them to trade extensively with their neighbours and to obtain the bulk of their electricity supply from their neighbours. There's a situation where interties are just a critical resource.

Again, what is the federal government's role in all of this? Bringing parties together and encouraging them to find efficiencies to assist their local ratepayers is an appropriate role, but building their transmission systems goes far beyond an appropriate role for the federal government.

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

Further to my point, in terms of more localized generation, I agree that P.E.I. is an excellent example of a province that's energy deficient and reliant on interconnections and energy produced by other sources. You were very critical of hydro generation, especially Muskrat Falls, but also in general. With cogenerated natural gas and SMRs, do you believe that SMRs will be a viable alternative for more localized generation in the future?

[Tom Adams]

There's a very recent interesting report on SMR technology in the United States. They've invested vast amounts of money over more than 50 years. The conclusion this research team came to was that there really is little future for the technologies they've been pursuing.

There are some very exciting private initiatives to pursue SMR technology, but in terms of currently available solutions off the shelf, it's a long way away.

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

In jurisdictions that don't have hydro or cost-effective hydro readily available, would you say natural gas is really the leading alternative?

[Tom Adams]

Absolutely. If you look at all the hydroelectric projects under way in Canada now or in recent years, they're all at a marginal cost far above the economic value of that generation. That includes Quebec, by the way. The Romaine project is a huge money loser. If looked at from a marginal cost point of view, all of Canada's electricity exports are money losers.

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

I recognize the significant upfront cost for hydro, but given its cleanliness over the long-term viability of these projects, I can see why jurisdictions have chosen to go with it as a baseload technology.

Taking that all into context, I agree that it's probably not the federal government's responsibility to be building interconnections. However, I do think it's the government's responsibility to start the conversation with provinces about how they can utilize interconnections to better secure their energy network and work collaboratively to lower the long-term economic impacts that the ratepayer is going to pay for their electricity. Would you agree with that?

[Tom Adams]

Absolutely. You've said it more articulately than I could, but I soundly agree.

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

Thank you.

[The Chair, Liberal, James Maloney]

There's a little more time, Marc, but very little.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you, Mr. Chair.

Mr. Brouillette, you said that the interconnections between the provinces would not be necessary over the next eight years because there is a surplus now. At the same time, you said that we have to worry about the future. So I have some trouble understanding your reasoning that we do not have to worry about interconnections.

We are talking about exporting electricity to the United States. The Hydro-Québec report I quoted compares electricity prices per kilowatt-hour. In Ontario, the price varies between 16¢ and 17¢, but it is 27¢ in Boston. We are talking about 29¢ for New York, 31¢ for San Francisco and 20¢ for Detroit. Since prices are much higher in the United States than in Canada, I wonder why you are not recommending that we invest in interconnections, either now or in the future.

[The Chair, Liberal, James Maloney]

You're going to have to answer that question very quickly.

[Marc Brouillette]

There are two things: present and future. In the present, the reason that interties between Ontario and Quebec don't need any additional work at the moment is that there's so much power on both sides that they can't get rid of. Why spend money? We have too much power and we can't get rid of it. Right now they're trying to dump it. Ontario is dumping a lot of power. Quebec is trying to dump a lot of power. The pricing situation in the United States has very little to do with having too much up here.

Interprovincial is one thing. North-south U.S. is another thing. We have interconnections being built in Lake Erie, and we have Quebec bidding on a lot of stuff to feed down to New England. They're all good ideas.

[The Chair, Liberal, James Maloney]

I'm going to have to stop you there.

Gentlemen, thank you, all three of you, for joining us today and helping us with this important study. We're going to have suspend the meeting in order to move on to our next set of witnesses. I appreciate your taking the time to be here today.