Natural Resources Committee on Oct. 23rd, 2017

[The Chair, Liberal, James Maloney]

Good afternoon, everybody.

We have a bit of a quirky agenda today in terms of scheduling—not in terms of witnesses, just so I'm clear.

Our first witness, Mr. Stenclik from General Electric, is available until 4:15. Our second witness, Mr. Matthiesen, will be joining us at 3:45. I'm hoping we can transition from Mr. Stenclik's presentation right into the second one, and then deal with questions all at once. That may be wishful thinking on my part, but we'll do our best.

Mr. Stenclik, thank you very much for joining us today. We're grateful. I know you have a tight schedule, so we'll get moving quickly. Just so you know the process, we'll give you up to 10 minutes to make your presentation, and that will be followed by a series of questions from members around the table.

Before the questions come, we are hoping to transition quickly to the next witness so that we can pose the same questions to both of you at the same time. When you complete your presentation, we'll see where we are and go from there.

I'll open the floor to you now. Take us away.

[Derek Stenclik, Manager, Power Systems Strategy, General Electric]

Thank you to everybody on the committee today. I appreciate the invitation to speak about this topic of Canadian interties. It's an increasingly important and interesting topic.

To give you an introduction, my name is Derek Stenclik. I'm the manager of the power systems strategy team with GE energy consulting. My team and I are power system experts who simulate the transmission grid across North America and globally, and use our simulations and our modelling to evaluate long-term planning in the utility and grid industry. These simulations are really on the interface between engineering and economic and technical analysis, and they mirror the way the power system operators work and dispatch the system.

Recently, my team and I were involved in the pan-Canadian wind integration study and are currently evaluating a few grid simulation studies across Canada: the regional electric co-operation and strategic infrastructure study—the RECSI study—as well as a renewable integration study in Saskatchewan. The analysis performed by GE energy consulting in these studies, the pan-Canadian wind integration study and almost all of our grid studies, indicates that increased transmission interconnections and co-operation between regions, whether those be Canadian provinces east-west across the country or north-south to neighbours in the United States, can be an effective strategy to reduce thermal electric generation, decrease carbon emissions, and increase renewable penetration.

A key finding from many of these studies has been that increased co-operation and increased interconnection between neighbouring power systems, utilities, or markets is a step in the right direction to move towards a low-carbon future and a high-renewable future.

Today it can be challenging at times to economically justify the cost of new grid infrastructure on disparate energy and electricity prices alone. While one region may have low electricity prices and others have slightly higher prices, typically the price differentials are not by themselves enough to justify new transmission capacity being built. It's about layering in several of the benefits, and I'll walk through those here today.

I'll list six benefits that you could see from increasing the strategic interties between the provinces and between the United States and Canada. There are several other benefits that are important, but the six primary ones that I can think of today include, first, energy benefits, meaning more efficient utilization of the generation fleet that's there today—using lower-cost resources in one region to offset more expensive or less efficient generation in other regions, so that there's an energy benefit.

As I said before, that's typically not enough in and of itself to make these investments economic. Other benefits include resource adequacy benefits. Here we're talking about reliability benefits and deferring new capital cost investments that are required on the generation fleet in order to meet peak demand. Having a broader portfolio and more interconnection between the regions allow system reliability to be maintained while using capacity sharing and the sharing of resources from one region to another. In general, as load grows, a reserve margin is maintained, and that's a surplus capacity that's needed. As you start to diversify the resource mix, the total amount of surplus capacity that's needed to maintain reliability can be reduced.

This is for three main drivers. A larger generation portfolio means that at any given point in time you'll have fewer generators on outage, whether for scheduled maintenance or emergency or forced outages. The larger generation portfolio that comes with interconnecting multiple regions benefits from a reliability perspective.

The second reason for the ability to reduce surplus capacity is seasonal load diversity. While some regions or provinces, such as Ontario, are summer-peaking—the highest electricity loads occur during the summer—in many other provinces the peak occurs in the winter.

There is a seasonal and weather-related diversity, the larger you make that footprint. The same is true when looking to the United States and states south of Canada, where most systems are summer-peaking and thus have surplus capacity available during the winter that can be effectively used to meet peak load in many winter-peaking systems in Canada.

Finally, similar to the seasonal load diversity, there is also a time-of-day load diversity. As the grid spans four time zones east to west across Canada, the peak load of the day will not occur at the exact same time in each of those provinces. Even having just a few hours of shifting between provinces can have a capacity benefit whereby surplus capacity needs will be reduced slightly.

A third benefit of the increased interties is grid services. This is not just energy and capacity, but things such as reserves regulation for both the variability and load of wind and solar, to allow the system to go up and down with those resources, and also for contingency events. If there is an emergency in one region, having more interconnections to neighbouring regions will help in contingency or emergency events.

A fourth benefit would be a renewable integration benefit, basically using transmission as a key tool to facilitate increasing the variable renewable generation, whether it be from wind or solar or another renewable. Transmission can be an effective tool for integrating renewables. There are a lot of drivers or reasons for this, but one that comes to mind is short-term balancing. The short-term fluctuations in wind and solar become less extreme the larger the geographic scope you're looking at. While a wind front or a cloud cover may come through one individual region very quickly and cause variability in those resources, the likelihood of this occurring across a large system the size of Canada, or even of portions of Canada, is much lower.

The second driver for the renewable integration benefit would be reduced curtailment. Curtailment occurs when the grid is unable to accept all of the variable renewable generation from wind and solar, and as a result you have to essentially waste what would have been a “zero marginal cost” resource. The inability of the grid to accept wind and solar leads to curtailment.

Increased transmission can help solve parts of that problem because time periods in which one province or region has high wind and solar output can be a time period when they export surplus energy to neighbouring provinces. Again, just balancing the real-time nuances of wind and solar variability can be achieved with interconnections.

A fifth benefit of increased strategic interties would be hydro-renewable coordination, using the vast hydro resources in Canada along with variable renewables to help offset some of the resource diversity. In some years or months when wind and solar output may be lower than others, hydro can be an effective tool for mitigating some of the variability while continuing to achieve renewable targets.

Last is resource diversity more generally. The larger transmission network across Canada will allow hydro-rich regions in some provinces to help offset generation shortages in other regions caused by fluctuations in gas or coal availability, and vice versa. In periods when hydro generation is lower or the hydro resource is low from one year to another or one month to another, surplus generation in other regions can help backstop those regions. Having a more diverse resource mix can be achieved not necessarily by installing new generation resources but just by using what's there more efficiently through increased transmission co-operation.

I won't go through all the details of the pan-Canadian wind integration study. Some of these benefits were addressed in that study; some were not.

At a high level, the pan-Canadian wind integration study showed that the Canadian power system can integrate up to 35% of its annual energy consumption coming from wind generation without the need for significant changes to operating practices or new investment. Given the fleet that's there today, there's no operational or reliability concern to doing that.

Changes will need to be made. One of those changes proposed was an increase in transmission interconnection. That was evaluated for that study both across the different provinces but also to the U.S. One of the big take-aways from the study was that reaching 35% wind penetration across Canada means there's going to be times when there are large amounts of wind export between the provinces and also to the United States.

Curtailment was mitigated with increased transmission, and transmission congestion was mitigated with increased transmission interconnection, and the study proposed that up to 4.6 to 4.8 gigawatts of new inter-area transfer capability, transmission capability, could be implemented at a cost of approximately $2.7 billion in order to facilitate that renewable and wind integration. We showed in all those scenarios that the transmission and wind build-out could be done cost-effectively.

I talked about the benefits of transmission. I want to touch on some of the risks and challenges quickly. I've listed three of them in my work here.

The first is social and environmental. There's always a challenge with any energy asset on the system, and transmission not being excluded, there's a need to balance some of the social and environmental costs that go along with implementing any new infrastructure. That's something that would have to be evaluated on a case-by-case basis moving forward.

A second challenge would be allocating the benefits. Whenever you implement new transmission infrastructure, there are going to be some regions or some areas that benefit more than others, and allocating those benefits equitably is a challenge and a role for legislation and regulation.

Finally, there is stability concern with increased tie-line contingencies. If you move forward to a large interconnected power system, there may be times when, if you operate the system solely on economics and not on reliability, one region may be a large importer of electricity. If there's a contingency or one of the transmission lines goes down during that operation, you risk a stability or reliability concern. With proper engineering judgment, with studying the stability and reliability impacts of transmission, and with operating the system to a secure level, that can be mitigated. That's something that's been done for many years across the power system, both in Canada and globally. It's certainly something that can be done here. When you're moving forward to a new system with increased transmission, it's something that should be evaluated.

Finally, the pan-Canadian study was a great start to looking at the increased strategic interties between the provinces and between the United States, but it wasn't a study designed solely for that purpose. Several other studies should be evaluated or could be evaluated in the future, including production cost studies, more similar studies that look at the economic utilization of the grid, reliability and capacity adequacy studies, and finally, grid stability studies. But—

[The Chair, Liberal, James Maloney]

Thank you, Mr. Stenclik, I'm going to have to stop you there.

[Derek Stenclik]

Please do.

[Voices]

Oh, oh!

[The Chair, Liberal, James Maloney]

We're just about ready to go with our next witness.

[Derek Stenclik]

Thank you for your time.

[The Chair, Liberal, James Maloney]

Thank you very much for that presentation. It was very helpful.

Mr. Matthiesen, thank you for bumping up your schedule so that you could accommodate us. We're grateful for that.

I'm not going to go into great detail. I'm going to turn the floor over to you. You have up to 10 minutes to make a presentation. Following that, there will be a series of questions from the members around the table.

I'll turn it over to you so that we can get going.

[John Matthiesen, Vice-President, Power and New Energy, Advisian Americas, WorleyParsons]

Good afternoon. My name is John Matthiesen. I'm the lead of Advisian's power and new energy team in the Americas.

Advisian is a strategy and technical advisory arm of the WorleyParsons Group, a company with more than 130 years of experience in the power sector. Advisian leverages the real-world practical experiences and technical depth of our consultants, who are focused on asset-intensive businesses such as the mining, hydrocarbons, chemicals, and infrastructure sectors.

The power and new energy team that I lead focuses on strategic and technical advisory services, early-phase project development, mergers and acquisition support through project due diligence and lenders' engineering, and owners' engineering services to clients, which include utilities, IPPs, various industry clients and institutions, financial institutions, and governments.

The new energy part of my team includes traditional renewable energy—such as onshore and offshore wind, solar power including photovoltaic and concentrated solar thermal power, hydroelectric, and geothermal power—all forms of energy storage, whether it's chemical, pumped hydro, compressed air, or thermal storage; microgrids; and distributed generation. We have dabbled in electric vehicles, as well as fuel cells and the integrated hydrogen infrastructure that comes with them.

I'd like to thank you for this opportunity to present some thoughts to the Standing Committee on Natural Resources. In the next few minutes I'll identify a few areas in which Advisian is seeing fantastic growth opportunities and other areas in which there are challenges to this growth. My comments really will focus on the 10 questions at the end of the email that was sent to me in advance.

We're seeing an energy transition taking place globally whereby roughly two-thirds of the current uses of oil and gas is changing to more sustainable, reliable, and economically better options, and threats to industries that source, extract, process, transport, and sell traditional fossil fuels are becoming more and more apparent.

Using rough figures, a third of the oil and gas is used for power generation. Today, solar and wind are cost-competitive with these technologies at the point of load. With the ever-reducing costs in concentrated solar, energy storage, hydrogen, and other technologies that allow intermittent renewable energy generation to provide reliable 24-hour power, the clock is ticking on the economic feasibility of continuing to build and operate traditional fossil fuel power pants. As an example, certain utilities in California have already made decisions such that it's unlikely another natural gas power plant will be constructed in that state.

Roughly another third of oil and gas is used for transportation. While it's a little further away, electric and fuel-cell powered ground transportation is nearing a tipping point in market acceptance and growth so that just about all manufacturers of automobiles are being forced to adopt and embrace. The governments of Norway and the Netherlands are moving forward with legislation to stop the sale or use of fossil-fuel powered cars by 2025. Larger countries, such as France, China, and India are looking at similar legislation.

About a year ago I made a personal announcement that I believe the last fossil-fuel powered car will roll of an assembly line in the western world by 2028, and since then Volvo has beaten my estimate by a staggering nine years by announcing that its last model year of cars with an ICE will be 2019.

The remaining third of oil and gas, roughly, is transformed into higher-value products, such as plastics in the chemicals industry. We feel that this industry will be thriving in the future as its primary feedstock drops in price.

Traditionally, WorleyParsons has been a hydrocarbons company. Roughly two-thirds of our revenue comes from clients who predominantly operate in this industry. We have recently noted shifts in some of our clients' behaviours such that they have begun to reposition their businesses to become early adopters in the energy transition. Some of these include Total buying an energy storage company, Saft, for over one billion euros; Shell developing a new energy business and repositioning itself as a transportation fuels company; and Dong divesting itself of oil and gas assets and renaming itself to remove oil and gas from its name. We're helping companies like these understand the challenges and guiding them through the energy transition.

Closer to home, Enbridge, Suncor, and TransCanada all have growing renewable energy businesses. Atco Power and Enbridge are dabbling with fuel cells and hydrogen, connected in minigrids at a residential level, as potential technologies of the future.

Speaking of hydrogen, we just completed a study for the South Australian government about how to create a hydrogen economy, and with it numerous clean energy jobs. The basis of the study was to ask what an abundance of clean power generated within the state of South Australia could be used for, other than paying the neighbours to take some of their excess generated power.

The result was that hydrogen could be generated through electrolysis with essentially free electricity and converted into ammonia. The ammonia would be exported to neighbouring countries such as Korea and Japan, where there is a demand for ammonia, both as a fertilizer and for conversion back to hydrogen to power their 26,000 public transit buses, which the government of Korea announced a requirement to convert to.

Canada may have several similar opportunities in provinces such as Quebec, Ontario, and B.C., where there are large amounts of clean power currently generated through hydro or nuclear. While the demand for new generation is slowing, if it could be created cost-effectively, a new industry could be created to counter the inevitable decline in oil and gas jobs on the horizon. Additionally, hydrogen could be used as seasonal storage in remote and northern communities that generate solar power in the summer and burn hydrogen in the winter.

Other trends we've been seeing are greater challenges to achieving a social licence to operate assets with carbon footprints or GHG emissions. Communities are having more say in which projects go ahead and want to know more about the local impacts of GHGs. The uncertain social acceptance of projects is also a huge barrier for financing projects.

Speaking of investors, we see a change in the types of questions that lenders are asking. For example, if a natural gas power plant is to be funded, lenders are asking whether the natural gas plant could be curtailed before the loan is paid back. Also, they ask, what the environmental challenges are in getting proper permits and approvals for this process for building new natural gas facilities. I do know that the Canadian Environmental Assessment Agency is in the process of making changes that will provide more certainty in this process, which is welcomed both by project developers and by their lenders.

There are some challenges we see, such as finding ways to properly educate the public on an apples-to-apples comparison of renewables when significant subsidies to oil and gas industries are provided in ways not easy to see, versus some past FIT contracts with renewables that make the complete costs very visible to the public. With the costs of solar and wind power reducing monthly, decisions based on six- or 12-month-old data are already out of date. These should also be compared with the soaring costs of nuclear refurbishments, which never seem to include insurance costs and, rarely, the long-term storage of their spent fuels.

This challenge can also be extended to remote and islanded communities, where there needs to be more effort and support to reduce their dependence on costly diesel. This would include communities and mines that are grid-connected but at the end of a long feeder line, and those that are completely islanded due to the uneconomical ability to connect them to the main grid via transmission.

Other challenges are around updating the curriculum in universities so that new graduates are aware of today's industry challenges and have innovative ideas on how to resolve them. Artificial intelligence, machine learning, new energy storage technologies, blockchain, augmented learning, power systems integration, virtual power plants, and cybersecurity should be the courses of today. These are the jobs that industry and in fact our company are looking to hire for.

While there is importance in the interconnected nature of long-distance transmission lines between provinces, states, and countries, the power industry is generally moving away from single-point generation sources supplying multiple cities long distances away. Instead, the future is a community-industrial-commercial scale microgrid, where local distributed multiple generation sources provide the needed heat and electricity for that community or industrial complex. Individual homes will purchase the power using blockchain-based transactions, bypassing traditional utilities. Instead, the role of utilities will be changing, and in fact is changing already.

Various state governments in the U.S., such as California, Connecticut, New York, Massachusetts, and Colorado, are rolling out grants and funding opportunities for the deployment of such microgrid systems. Canada could offer something similar to drive early-phase innovation and development of these technologies. In such a future state, cross-country transmission lines become less important. Fewer expensive long-distance systems are required. Instead, more locally distributed, smart, interconnected systems will be built.

I'd like to close by saying that the energy transition is already here. We are in its early days, but through technological advancements already taking place, the way we generate, transport, store, and use energy will look very different five and 10 years from now.

Decisions that spur innovation, attract the best talent and technology, and help Canadian companies be competitive on the world stage must be made in the immediate near-term future. If there's anything that I or Advisian can do to help the committee or the government further understand, study, benchmark, or conduct options analysis, we'd be pleased to help. That's exactly what we're doing for our clients, which include other governments around the world.

Thank you for your time.

[The Chair, Liberal, James Maloney]

Thank you for your presentation.

Ms. Ng, it's over to you.

[Mary Ng, Liberal, Markham—Thornhill, ON]

Thank you so much, gentlemen, for coming in today, both Derek and John, and for making your remarks to the committee.

It's really great to have GE here. You've recently opened the Grid IQ Global Innovation Centre in Markham. You've talked about this, and I'll ask some questions around it, but it's great that the firm there is working at improvements on the efficiency, reliability, and security of the world's electrical grids. It's great to hear about the studies you're doing. As one of the world's oldest and most established electrical companies, you're going to have a lot to offer us today on the subject of strategic electricity interties. We've heard a lot recently about how the role of interties will allow for more low-emitting electricity sources while also being able to meet the increased demand in the future.

To Mr. Matthiesen from WorleyParsons, thank you very much. This is another great company that also has a facility in Markham. We've listened to a lot of producers over the course of this study, so it's really nice to have someone here with the expertise, particularly the engineering expertise, that your company and the subsidiary Advisian are going to provide us. It's a bit of a unique perspective.

My first question is for GE. Your renewable energy division has been really successful. You've talked to us about the opportunities around strategic interties. You've done the pan-Canadian studies as well as studies in other provincial jurisdictions here in Canada. As this committee is looking at where the opportunities might be for regional strategic interties, can you talk to us—just because you guys have done the study—about where we might be thinking about a priority area? Where would those areas be regionally that might make some good sense for us to start looking at?

[Derek Stenclik]

Thank you. I appreciate your comments.

To get right to the point on what regions make the most sense, when we evaluate this through some of our pan-Canadian study work, we look for, first, regions that have the highest concentration of wind and solar energy, and where in one region you may have a surplus of wind energy that can be exported to a neighbouring region. In the analysis, we looked at certain areas—the Maritimes and Ontario—where today you're seeing some curtailment of wind resources, and they can be some of the early candidates for some transmission expansion to neighbouring provinces.

The other thing we've looked at in these studies is using transmission to facilitate the transition to a renewable grid. We're looking at the provinces that are more thermal based and could support additional renewables coming from outside of the province, but we're also looking at the building of new renewable capacity in their provinces and exporting. In provinces such as Saskatchewan and Alberta, which have an installed capacity that is more thermal—coal and natural gas—we're looking at transmission as one of many tools that can help facilitate that transition.

[Mary Ng, Liberal, Markham—Thornhill, ON]

Thank you.

A little earlier, you mentioned the ability to do the interties regionally and that there certainly is a way to transition capital costs that is effective. Can you talk a bit more about that?

[Derek Stenclik]

I'm sorry. Can you repeat the question on that in terms of capital costs?

[Mary Ng, Liberal, Markham—Thornhill, ON]

Yes. Actually, maybe it's not so much about capital costs. You were talking about the overall benefits of being able to do interties in a way that can be relatively cost-effective. Just talk to us about that so that the committee can understand it a little better.

[Derek Stenclik]

Here, in order to be cost-effective.... When evaluating the study, you have to look beyond just some of the energy savings of transferring a megawatt hour from one region to another and the differential energy price in one region versus the other. You have to look at and evaluate some of those other benefits in quantifying what are the capacity benefits of that increased intertie. Capacity benefit means ensuring you have enough firm generation capacity to meet the peak load at all times.

Typically, the power system in many regions has generation capacity that's built and installed only to serve load on a few hours or a few days of the year with the highest peak demand. In using transmission as a tool to broaden that portfolio, you can potentially defer investment in peaking generation capacity in lieu of using the resources across a wider network more reasonably.

There are another couple of benefits. Again, it's not about looking at just energy or capacity but also at some of the ancillary services, such as regulation and contingency reserves being provided, and then looking at things that are a little harder to quantify, like resource diversity or what the risk is of there being a low hydro year in one region or a natural gas shortage in another. Using that risk analysis, that's a little harder to quantify as well.

Did that help to answer it?

[Mary Ng, Liberal, Markham—Thornhill, ON]

Yes. Thank you very much.

I'm going to turn to Advisian or WorleyParsons, Mr. Matthiesen. As you're a very large multinational design firm specializing in asset management, I'm going to give you a bit of a two-part question. Maybe you can comment on the benefits of unused electrical generation and what that potential is. We've certainly heard from a lot of witnesses throughout this study about how interconnection increases can help a company or a power distributor manage their assets more effectively.

I'm wondering if you could comment on the benefits that increased interconnection can have on asset management for an electric utility provider.

[John Matthiesen]

Yes. I guess there are a number of points there.

On your first one around unused electrical generation, as you know, for certain provinces when we over-generate, we tend to have to pay our neighbours to take that power. That was actually the basis of the study we did in Australia, where there's a large penetration of solar. They're estimating that upwards of 50% of their power within the next couple of years will be generated by solar in South Australia. One of the possible solutions was using what is essentially free power coming across the grid to generate hydrogen through electrolysis at specific points on the grid. Also connected to that is the further installation of large-scale utility energy storage and being able to shift a load through different times of the day.

To your second point about managing assets and interconnection, if you're able to transfer power more easily as a utility that operates different loads or is able to manage the loads across different jurisdictions, you're naturally able to balance that more if you can shift it between one side or the other.

I'm not sure if that answers your question on the second part.

[Mary Ng, Liberal, Markham—Thornhill, ON]

It's going to have to. I'm out of time.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Schmale.

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

Thank you, Chair.

I appreciate the two of you being here today.

Mr. Stenclik, I would like to start with you, if you don't mind, because of your strong support and advocacy for wind power as well as solar.

[Derek Stenclik]

Yes.

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

I'm sorry for my colleagues here who have to hear this rant again.

Now, in Ontario.... I know that you are based in New York state. Is that correct?

[Derek Stenclik]

Yes, that's correct.

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

Okay. Do you know much about what we're dealing with in Ontario in terms of electricity, wind power, solar power, and the Green Energy Act and that sort of thing?