Natural Resources Committee on May 9th, 2024

[The Chair, Liberal, George Chahal]

I call this meeting to order.

Welcome to meeting number 98 of the House and Commons Standing Committee on Natural Resources.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Tuesday, November 29, 2022, the committee is commencing its study of Canada's electricity grid and network.

Since today's meeting is taking place in a hybrid format, I would like to make a few comments for the benefit of all.

Before we begin, I would like to remind all members and other meeting participants in the room of the following important preventive measures. To prevent disruptive and potentially harmful audio feedback incidents that can cause injuries, all in-person participants are reminded to keep their earpieces away from all microphones at all times.

As indicated in the communiqué from the Speaker to all members on Monday, April 29, the following measures have been taken to help prevent audio feedback incidents.

All earpieces have been replaced by a model that greatly reduces the probability of audio feedback. The new earpieces are black in colour, whereas the former earpieces were grey. Please only use an approved black earpiece. By default, all unused earpieces will be unplugged at the start of the meeting. When you are not using your earpiece, please place it face down on the middle of the sticker that you will find on the table, as indicated. Please consult the cards on the table for guidelines to prevent audio feedback incidents.

The room layout has been adjusted to increase the distance between microphones and reduce the chance of feedback from an ambient earpiece. These measures are in place so that we can conduct our business without interruption and protect the health and safety of all participants, including the interpreters.

Thank you all for your co-operation.

Here are some Zoom reminders. Please wait until I recognize you by name before speaking. All comments should be addressed through the chair. Additionally, screenshots or taking photos of your screen is not permitted.

I would now like to welcome our witnesses who are with us today.

From the Department of the Environment, we have Mark Cauchi, director general, energy and transportation; and Karishma Boroowa, director.

From the Department of Natural Resources, we have Drew Leyburne, assistant deputy minister; Debbie Scharf, assistant deputy minister, energy systems sector; Cynthia Handler, senior director of science and technology; and Michael Paunescu, director.

I will be using these cards. Yellow is a 30-second warning, and red means time is up.

Members, we will do three full rounds for today's meeting. We'll start with Ms. Scharf.

The floor is yours for five minutes.

[Debbie Scharf, Assistant Deputy Minister, Energy Systems Sector, Department of Natural Resources]

Thank you, Mr. Chair.

Good afternoon, everyone.

I'd like to first acknowledge that we gather on the traditional unceded territory of the Algonquin Anishinabe people.

Thank you for inviting us here today to talk about one of Canada's most important national assets. Like the railway or the St. Lawrence Seaway, our electricity sector is a significant Canadian—

[The Chair, Liberal, George Chahal]

Ms. Scharf, can I ask you to hold for one second?

It seems there is a potential interpretation issue, or is it just audio not coming through the earpiece?

It's not coming through. Nothing's coming through on the English.

Is the translation coming through, Mr. Simard?

What I'm being told is that the English audio is not coming through, but the French translation is coming through.

Mr. Patzer, is it okay if we continue with the opening remarks while...?

Thank you.

My apologies, Ms. Scharf. Please start from the top.

[Debbie Scharf]

Absolutely. Thank you.

Thank you for inviting us here to talk about one of Canada's most important assets.

Like the railway or the St. Lawrence Seaway, our electricity sector is a significant Canadian accomplishment. It not only powers our way of life, but also connects us as a country and to our friends down south with enough transmission lines to circle the globe four times.

Our grid and electricity sector are a competitive advantage for the 21st century, which makes your study timely and important.

As other countries now race to decarbonize their grids and dramatically expand the role of electricity in their economies for a net-zero future, Canada already has one of the cleanest electricity mixes in the world. More than 80% of our electricity comes from clean and non-emitting sources, which puts us among the top in the G20.

Hydroelectricity is a central part to our success. It accounts for 61% of the electricity Canada generated in 2022, followed by nuclear and natural gas at roughly 13% each, wind next at 6%, and coal still accounting for 4%. Other sources, like biomass, petroleum and solar rounded out the electricity mix.

The big story, however, has been the rapid decarbonization of Canada's electricity sector, even as its generating capacity has been growing. Between 2005 and 2021, for example, Canada's emissions from electricity generation were slashed in half, from 125 megatonnes of carbon dioxide equivalent to about 60 megatonnes.

Over the last four years alone, annual capital expenditures in the industry have averaged more than $26 billion—and that's each year—on everything from power generation to transmission and distribution investment, as well as new machinery and equipment.

While electricity rates do vary across the country, on average Canadian industries and households continue to benefit from some of the most affordable electricity rates among advanced economies.

That's the good news. The challenge for Canada is that to achieve a net-zero emissions economy by 2050, we still need to build out more electricity infrastructure in the next 25 years than we constructed over the country in the last century. That includes the significant investments that we need in transmission and distribution upgrades, new interties and energy storage, even greater energy efficiency, and changes on the demand side in areas like transportation and heating.

Adding to these challenges are the overlapping roles and responsibilities for electricity in Canada. Provinces and territories are responsible for defining their electricity policy, market and regulatory structures, including electricity prices, as well as managing their electricity systems. The federal government has regulatory powers over interprovincial and international power lines, nuclear power, electricity exports, as well as a shared jurisdiction over environmental regulations. The federal government also plays an important convening role on many of the issues facing the industry and an important role in innovation.

All of these moving parts were laid out in the “Powering Canada Forward” paper released jointly by Ministers Wilkinson and Minister Guilbeault last August. It makes the central point that moving to net zero is not just a challenge but a tremendous opportunity to strengthen Canada's competitiveness, because jurisdictions with clean grids have an advantage in attracting good projects and foreign direct investment.

We've seen that this is the case with Canada's electric vehicle manufacturing and supply chains. In the last four years, over $30 billion of foreign direct investment has been announced by Volkswagen, Ford, Northvolt, Molicel, Honda and others for battery and vehicle plants in Quebec, Ontario and British Columbia.

Natural Resources Canada has been part of a whole-of-government approach to Canada's electricity sector. We've been leading on targeted programming and policy, while Environment and Climate Change leads on regulations, Finance Canada on tax incentives and the Canada Infrastructure Bank and Canada growth fund on financing.

The federal commitment is to transition off unabated coal-fired generation by 2030, get on the path to net-zero electricity by 2035, and use this as a foundation for a prosperous net-zero emissions economy by 2050. However, we recognize that this is easier said than done. The pace and scale of action required will be difficult, particularly for those provinces that rely heavily on fossil fuels. That is why the federal government is committed to sharing in the heavy lifting and why we have found the constructive dialogue and discussions we've been having through the regional energy and resource tables so valuable.

There is significant variation in Canada's electricity sector. We understand this and we know that federal efforts must be sensitive to this. A key tool for NRCan is the smart renewables and electrification pathways program, or SREPs as it's called, which aims to help accelerate the deployment of renewable power, modernize the grid and incentivize private sector investment and indigenous ownership.

The program has been oversubscribed since its launch in 2021; budget 2023 provided almost $3 billion to recapitalize it and support critical regional priorities.

Examples of successful grid modernization projects include funding for advanced control systems, such as $25 million for a local Alberta distribution company and $17 million to the Alberta energy system operator. We also recapitalized NRCan's energy innovation program in last year's budget to expand our work on smart grid innovation, including non-wire alternatives, and we will continue to partner with provinces and territories to maximize the impact of public funding and private investments.

As I bring my remarks to a close, I would just like to note a few important milestones that are looming in the months ahead.

As NRCan relaunches the SREP program, other major federal investments related to the sector, such as the proposed clean electricity regulations and the clean electricity investment tax credits, will fall into place.

We are looking forward to the final report and recommendations from the Canada electricity advisory council that was launched last year as an independent body of experts to provide the Government of Canada with advice to help accelerate sustainable, affordable and reliable electricity systems. You may find that particularly useful to your work here. I know that we expect to draw heavily from it to inform the upcoming electricity strategy that was promised in “Powering Canada Forward”.

This concludes my remarks, Mr. Chair. My colleagues and I are happy to take any questions from the committee.

Thank you.

[The Chair, Liberal, George Chahal]

Thank you, Ms. Scharf, for your opening remarks.

We will now proceed with our first round of questioning.

We have Mr. Patzer, from the Conservative Party of Canada. Mr. Patzer, you have six minutes.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Thank you very much to the officials for coming. I appreciate your opening remarks.

The government did a study previously on clean electricity. Part of that involved a performance standard. In Saskatchewan and in Alberta, we rely quite heavily on natural gas. Today, for example, Alberta is running about 70% on gas. Yesterday in Saskatchewan, we were at about 71% with a combination of gas and coal, but part of the issue is that these cogeneration facilities for natural gas might stop exporting to the grid because of these standards, because of the proposed regulations. They're quite concerned about that.

I'm wondering what would happen if our provinces quit exporting to the grid. What would that mean for our energy security going forward?

[Mark Cauchi, Director General, Energy and Transportation, Department of the Environment]

I'm happy to take that question.

We are aware, obviously, of the importance of cogeneration electricity in Canada's grid, in particular in Alberta and Saskatchewan, which have high amounts of cogeneration supplying electricity to consumers. It is certainly something that we have heard during our consultations on the clean electricity regulations, and we are working with provinces at this time to look at and explore ways to bring more flexibility into the regulation for cogeneration in particular, recognizing that in a province like Alberta, you'd have roughly 40% cogeneration as part of the broader generation mix.

That's an important amount of electricity for Albertans. We recognize that. I think it's a lesser amount in Saskatchewan, but nonetheless, it's an important amount, and we are working to provide some additional flexibility in that regard.

Minister Guilbeault released an update recently, in February, on the clean electricity regulations, and in it he signalled his intent to explore more flexibility for cogeneration.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Has your department been given timelines on how quickly that needs to happen?

[Mark Cauchi]

Yes. We've indicated publicly that the final regulation for CER, the clean electricity regulations, will be released by the end of the year.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Okay. It will be by the end of this year.

There are lots of communities and businesses that are looking for more certainty. In Saskatchewan, we still have a few coal-fired plants. They have to be shut down by 2030, yet they've been given absolutely nothing as a replacement industry for their communities.

When the government takes industry away from people through regulation, they need to replace it, and nothing has happened yet. We're still waiting for these regulations to come out. Is there anybody talking about trying to give an extension to these communities to try to allow them more time to be able to get in a replacement industry of some kind?

[Mark Cauchi]

I think you raised coal. In the case of coal, the Government of Saskatchewan and the Government of Alberta have committed to phase out coal, to get off coal. I think the last coal unit in Alberta is going to be shuttered in the coming months.

We are on a much faster track in terms of phasing out coal than anyone ever expected would happen. We are obviously working very closely with provinces. There is a national regulation. We see actually all jurisdictions now in Canada publicly making commitments to phase out coal. We don't see major impacts related to that in specific communities. I think there are only a small number of coal units left in the country.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Yes, and those are definitely located in Saskatchewan and Alberta.

It is those coal units that literally saved lives this past winter. Those lives would not have been saved if these regulations had come into effect, because the provinces aren't going to export power to the grid. They're generated by cogeneration or even probably by coal as well. There would have been no extra power to ship over to Alberta when they're sending out warnings when it's -45°. Since it's the federal government that regulates interprovincial ties, I would think that would be very concerning to you guys.

Part of this, too, is the whole notion around phasing out natural gas, any new natural gas plants, by 2035. Has there been any thought or consideration on the safety factor that goes into that and the fact that the reliability of our grid is so heavily dependent on having baseload power? When it is -45°, wind turbines shut down, not because there's no wind, but because it's literally too cold for them to operate. That isn't a one-off thing. It's regularly that cold in the Prairies. It's not a new thing.

I get quite nervous and worried when I see the path we're headed on here with these regulations and whatnot. Again, at what level is safety a part of the conversation to make sure that people have safe, reliable, affordable power when it's minus 40° or plus 40°?

[Mark Cauchi]

I can assure the member that safety is actually a huge part of the conversation and one that is not lost on us. It's one that will be addressed, and is being addressed, in the context of developing the regulation.

In particular, you'll note in the proposed draft regulation that was published there were provisions made for the use of peak power and the use of natural gas to address peak power needs. We are actually going further in Minister Guilbeault's update from February to allow more room for jurisdictions to use gas as a balancing mechanism and during peak power times.

Safety is an important issue in Canada. It's well known to electricity operators—and frankly, our department, as well as NRCan—that there will be some need for natural gas in the future. It will be a much less used form of generation moving forward, but nonetheless there will be some gas.

Our intent is to help abate that gas—

[The Chair, Liberal, George Chahal]

Thank you, Mr. Cauchi.

Ms. Jones, you're up next for six minutes.

[Yvonne Jones, Liberal, Labrador, NL]

Thank you very much, Mr. Chair.

I want to thank the officials who are here today.

To follow up on Mr. Patzer's question, I also understood that just a few days ago, Premier Scott Moe said that they were going to more than likely use the SMR that was established in Estevan as the two coal generators and a coal mine come off-line .

Do you want to explain? I just picked it up in a clip. I'm thinking that this is what is being done to address the problem that Mr. Patzer has raised.

[Debbie Scharf]

Yes, nuclear technology is absolutely going to be a critical part of the electricity mix going forward, and there's no doubt that every province and territory does need to have access to reliable baseload power. If you don't have hydro, nuclear offers that alternative for a non-emitting, reliable, low-cost baseload.

Saskatchewan is incredibly interested in small modular reactors. We did announce federally a $74-million investment in some of the work that they were doing last summer for a grid-scale 300-megawatt small modular reactor in the province that they are trying to move on as quickly as they possibly can. I think that will be the first of several that we will see there.

Alberta followed suit not that long ago, with Ontario Power Generation and Capital Power announcing a partnership to look at SMRs in the province of Alberta as well, in recognition that because there are not large hydro assets in those two provinces, nuclear is going to have to play a critical part in 2035 forward.

[Yvonne Jones, Liberal, Labrador, NL]

I know Mr. Patzer talked about the winter at -40°. In terms of the blackouts in Alberta, it's my understanding that they had blackouts as recently as the last few weeks.

Is there another problem with their gas system, or something that's been happening there? Do you have knowledge of that, or can you provide us with some information?

[Mark Cauchi]

I think it's publicly known that Alberta has announced some regulatory and market reforms to their energy-only market.

Yes, they have experienced a significant number of blackouts and, I think, level 3 NERC alerts. I think they've had 11 in the last few years.

I think that there's an acknowledgement on the part of the provincial government that some reforms are needed to the energy-only market.

That's all I'll say on that front.

[Yvonne Jones, Liberal, Labrador, NL]

Okay.

I want to talk about the regional energy and resource tables for a moment. I know that the Government of Canada has been working hard at setting those tables with provinces and territories.

Can you tell me how many of those have now been established in the country and also if any of those are identifying grid interties or interprovincial ties as one of their priorities? Maybe there are a number of them seeing that as a priority when it comes to accessing cleaner energy sources.

[Debbie Scharf]

We do have regional energy and resource tables established in nine jurisdictions across the country. I will say that electricity has been identified as a critical priority in just about every one of those table discussions.

The inflection points, of course, are a little bit different because, as I mentioned earlier, the challenges and opportunities are different when it comes to electricity, depending on where you live. In some tables, such as in Newfoundland, where they have excess power from their existing hydro facilities, they are trying to electrify more end use in ports, mines, heating, etc. In a province such as British Columbia, which is trying to open up new parts of the province to critical minerals and further electrification of LNG, they're looking at transmission assets within the province.

Specifically to your question about interties, that is a primary priority in our discussions with both Nova Scotia and New Brunswick for the first phase of what we previously called the Atlantic Loop, which is the reliability intertie between the two provinces that will enable the trade of power and access to broader markets. That will be critical, in particular for Nova Scotia, in being able to get off coal by 2030, and it figures as a prominent priority in those table discussions.

[Yvonne Jones, Liberal, Labrador, NL]

Thank you.

Based on the assessments by officials or departments.... I'm not really sure if there have been any. We're studying transmission. Have there been particular areas of the country—you mentioned Nova Scotia and New Brunswick—where it's critical to get to that transmission capacity, to build on their systems, to allow for more interties but also to allow for cleaner energy to flow across the country?

[Debbie Scharf]

I'll just say that generally more interties are good because they enhance reliability.

To go back to the member's comment about Alberta, it was, in fact, the interties to British Columbia and Saskatchewan that enabled the imports of power to the province so they could balance that grid during those emergency days in the winter. It is critically important from a reliability perspective.

All provinces absolutely want the economic development in their province for generation, so they tend to bias to local development of generation. I think there's a growing recognition that interties provide that load-balancing reliability and allow for greater onboarding of intermittent renewables through their reliability benefit. We're seeing more and more provinces think about that.

There are certainly some challenges around interties with different market structures across the country. Who absorbs the risk? Who pays? However, certainly there's a growing recognition of the importance of those interties for reliability and grid balancing.

[The Chair, Liberal, George Chahal]

Thank you.

We'll now go to Monsieur Simard for six minutes.

[Mario Simard, Bloc, Jonquière, QC]

Thank you, Mr. Chair.

I want to thank the witnesses for being with us today.

You probably know that Hydro‑Québec plans to invest $100 billion by 2035 in new facilities and clean electricity generation. I saw the much-touted tax credit announced in the budget, as I'm sure you did, as well as the conditions attached to it.

Given the way Hydro‑Québec is set up, the idea of giving consumers back the money from the tax credit doesn't seem workable to me. Hydro‑Québec is not a facility. It's a pool of electricity. I can't say whether the electricity I consumed this week came from the La Romaine dam or the La Grande‑1 dam. It comes from a pool of electricity.

I don't see how the government can apply its proposed tax credit in the case of Quebec. In my opinion, it would not be feasible, particularly since electricity pricing in Quebec is the responsibility of the Régie de l'énergie. In Quebec, it is based on the heritage pool, meaning the electricity produced for regular people, not businesses. Even members of the National Assembly cannot touch the heritage pool. That is the responsibility of the energy regulator. It sets the fee structure.

I see that as a fairly significant stumbling block. I don't see how the federal government can intervene in hydroelectricity pricing in Quebec. It's impossible to do the math. I spoke to people at Hydro‑Québec who've worked there for more than 20 years, and they told me that they wouldn't be able to make the calculation.

I don't know if you've thought about this at the Department of the Environment or the Department of Natural Resources. As you know, Hydro‑Québec is one of the largest producers of hydroelectricity, and it has an investment plan of $100 billion, which is a huge amount of money. It's interested in the tax credit, but it doesn't seem applicable, at the very least.

[Debbie Scharf]

Thank you for your question.

Thank you for the question.

I believe you're referring to some of the conditionality requirements in the investment tax credits, in particular that the benefit of the investment tax credit should flow to ratepayers.

I unfortunately don't have any deep reflections on that, as it is my colleagues from the Department of Finance who will be outlining how those will be implemented, but I understand that they will be engaging in further consultations around how to design those conditionality requirements to make them workable.

I think the primary objective is to make sure that if utilities or private sector companies are receiving public funds, ratepayers are receiving the benefit. I think that's the objective we're trying to achieve, but certainly the implementation is going to be with our Department of Finance officials.