Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 8 - Evidence - Morning meeting
CALGARY, Monday, March 7, 2005
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 9:25 a.m. to examine and report on emerging issues related to its mandate.
Senator Tommy Banks (Chairman) in the Chair.
[English]
The Chairman: I see a quorum, and I therefore call the meeting to order.
This is a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources in Calgary on Monday, March 7. I apologize for the fact that we are starting late.
We will now hear from Mr. Marlo Raynolds, who is the Executive Director of the Pembina Institute in Alberta. I hope, Mr. Raynolds, that you will tell us what the Pembina Institute is and does, and that we will have some time left to ask you questions.
Mr. Marlo Raynolds, Executive Director, Pembina Institute: Thank you. Good morning, everybody. Thank you for having me today on a wonderful spring morning in Calgary.
The Pembina Institute is a non-profit environmental organization with about 35 staff across Canada and offices in Ottawa, Edmonton, Calgary, Vancouver, and where we started, in Drayton Valley, in the heart of the oil industry, the heart of the forestry industry and right amongst the cattle industry — so right in rural Alberta.
About 25 of our staff are here in Alberta. Organizationally we are focused on energy and the environment. We have existed for a little less than 20 years now, and we organize ourselves around four core audiences or four ways that we seek to create some change in the energy sector.
One is through the corporate sector, and we do fee-for-service consulting work with most of the major energy companies in Alberta. In that capacity, we help them to embed environmental and social aspects into decision making, into strategy, and we also work to intervene on certain projects as part of a coalition with other environmental organizations.
In that capacity, we review environmental impact assessments, so we have a deep understanding of the IEA process and of some of the major energy projects in Alberta.
The second is the community group, and here we do a lot of community energy planning. We have worked with 12 First Nations communities, primarily in B.C. and Alberta, looking at planning options on energy, including energy efficiency and local resources for energy.
The third area is our policy work. There we do policy research, primarily on climate change and renewable energy, and some fiscal policy.
Fourth is our education group, which is part of our longer-term strategy of bringing up the next generation of decision makers to help influence the types of decisions we make on energy issues.
That is the organization. If there are any questions about that, we can come to that following the brief opening here.
My understanding is you are beginning a fairly intensive week in Alberta, looking at energy and the environment. This is a very important place to be in Canada on energy. That is part of the reason we are based here.
I was asked to touch on four core areas. I will speak very briefly about that. Kyoto Protocol: Is Canada on the right track was one of the questions posed to me. Renewable energy: What can we do to further advance renewable energy in Canada? Fiscal measures and fiscal policy: Are we moving in the right direction? What options do we have there and on water?
With respect to the Kyoto Protocol, I would say from the perspective of sticking with our international commitment, we are on the right track. However, we have spent probably six or seven years now not really making the tough implementation decisions to meet our Kyoto obligations.
There has been a lot of talk, a lot of uncertainty around that discussion. It has been very challenging for the corporate sector, in that realm of uncertainty, to be able to make good decisions, to be able to reduce greenhouse gas emissions.
Now we are at a time where we really do need to show some strong leadership, put the political will forward and implement the plan to reduce emissions in order to meet the first commitment period.
You will be visiting and talking with a number of the companies that represent the large final emitters. In the short term, we need to ensure that the commitment in the original plan is met, of 55 megatonnes of reduction. There are discussions about reducing that target. We find that unfortunate, especially in the oil and gas sector, given some record profits in the last number of years.
We have positioned ourselves very strongly energy-wise in Alberta, in Canada, and it is time to reinvest those profits in reducing greenhouse gas emissions and other environmental impacts. By the oil and gas sector's own calculations, it costs about 25 cents per barrel of oil to meet the first commitment period 55 megatonnes, and we believe that is a reasonable expenditure to meet that target.
If we put the targets in place, industry will do what it does best, be creative, innovative, and it will meet those challenges. We have seen it in the past with ozone depletion, depleting CFCs. We have seen it with ultra low sulphur diesel; we have seen it with lead in gasoline. When all of those clear, regulatory targets are put in place and made mandatory, the corporate sector rises up and meets those challenges.
In the medium term, we really need to start thinking about what the second commitment period looks like and how we will plan for that.
We are hosting COP-11 this year in Montreal. How do we want to present ourselves as a country on this international agreement?
We really need to be thinking about the second commitment period. We need to have a process in place that ensures that the dialogue is concise, effective, and that we move to implementation and action as soon as possible and not spend another seven years thinking about how to meet the second commitment period.
In the longer term, assuming a goal of 500 parts per million or less of concentration in the atmosphere is adopted internationally, we need to think about how we will get there.
It starts with action today on the first commitment period, combined with the longer-term thinking, and that is really the challenge on the table there.
With respect to fiscal measures, we are starting to see some progress in that. This recent federal budget put in place some measures around renewable energy, but we are really behind in comparison to the European Union in using ecological fiscal reform, tax reform, to set the signals where we want to see them.
We still have a tax system that taxes labour, or jobs, something that we really want, and does not tax intense resource use or pollution, something we do not want. Therefore, how do we rebalance our tax system to further encourage what we do want, more jobs, and reduce what we do not want, pollution.
We need as a country to start thinking about and testing some of these ecological fiscal reform mechanisms that the European Union has been playing with, and I think there is a lot of opportunity for that.
We are criticized by OECD for lack of alignment of our fiscal policy with sustainable development. We have some opportunities to fix that.
One of the issues that I would leave with you with respect to fiscal measures is it took about 30 years and billions of dollars of federal expenditures to make the oil sands a reality, and it has been extremely profitable.
There is no doubt that it has been an economic engine for Alberta, for Canada. The question that it leaves in my mind is what will the next 30 years look like? If that type of investment paid off but left us with some critical environmental issues to deal with — water, land footprint, greenhouse gas emissions, some local air quality issues — what kind of investment do we need to make for the next 30 years of federal expenditure, of taxpayer dollars, to move into the era of sustainable energy? How do we get that going?
I think you will be talking to some others involved in the renewable energy business directly, and I encourage you to ask some good, tough questions about how to break down some of those barriers.
My understanding is some of the barriers exist in terms of access to transmission lines and some of those areas. I would say that the big barrier is a lack of a vision or a long-term strategy for sustainable energy in Canada. We have not said this is where we want to go, but we need to step back and move towards that through a concerted effort and make the necessary investments.
With respect to water, I spent yesterday up on the Crowfoot Glacier, and hence the little bit of colour in my face; I am not blushing. It is right across from the Bow Glacier and is often talked about as one of the rapidly receding glaciers. I know you are meeting with Parks Canada this afternoon, and they will be talking about some of the melting glaciers.
That relates to both the climate change element and the fluctuations in temperatures, extreme weather events, but also water flows. The Bow River flows right through Calgary, through my home of Canmore, and there is uncertainty; but there are some pretty clear indications that we could find ourselves in a very water-constrained situation in the not- to-distant future.
The oil and gas industry is not the largest consumer of water in Alberta; irrigation for agriculture is. One needs to ask if it is the straw that breaks the camel's back in terms of consumption. A three-fold growth in oil sands development in the Athabasca region is projected.
I understand you are going to Fort McMurray. There is about $11 billion worth of assets there, so if you ever wondered what $11 billion looks like, that is it. We think it could look somewhat different if we spent $11 billion in the sustainable energy world. These projects are on the books, the three-fold increase, so we are looking at about another $20 billion to $25 billion of investments and assets going into that region within the next 15 years, I believe.
That raises some big questions. It will not be the resource that limits development there. It will likely be water that will pose a critical challenge.
Currently, water is not priced. There is no dollar per cubic metre of water, so there is no economic signal or mechanism to provide an incentive. We have seen about a 40 per cent reduction in water flows over the last half century, I believe, in the Athabasca region. We have seen some extreme fluctuations.
Senator Milne: Did you say 40 per cent?
Mr. Raynolds: Yes. I would need to give you the exact date, but I believe it is over the last half century.
What technology can be developed, what advancements can be made, to close the loop on water in the oil sands area will be critical. The right incentives need to be put in place.
One of the challenges we have seen is working with the Department of Fisheries and Oceans on this. It disturbs me a little that the Oil Sands Environmental Coalition has to take DFO to court over how they reclassified a creek destruction project as an oil sands project.
There are some challenging questions. We are not seeing the right alignment in the oil sands area for the future.
Water is also a critical issue in Alberta for the conventional oil and gas sector.
These are the old, conventional energy wells, where they are pumping in water to extract more oil. The source of that water is critical, whether it is saline water, non-saline, surface water or drinkable groundwater.
I can provide an executive summary of the actual statistics, but we need to start focusing on using the saline water for that enhanced oil recovery and, as much as possible, avoid surface water, groundwater and non-saline water and ensure that that is used in reserve for agriculture, for cities and domestic consumption.
With respect to water issues, being ranked as a country at 28 out of 29 in per capita water consumption means there is a lot of room to be far better at consuming water efficiently, and that is something that I think we can push hard at a federal level.
The Chairman: Mr. Raynolds, would you just go over that 28 out of 29 business? Tell us what that ranking is again. Is that in terms of efficiency or per capita consumption?
Mr. Raynolds: The OECD ranks per capita consumption, and if first place is the best, in other words, the most efficient in water use, 29 is the worst. We are sitting at 28. I believe we are just behind the US.
I will leave my comments at that, with one question: How do we use what I believe is a unique opportunity for us in Alberta, and in Canada, with respect to energy when the investments in oil sands have paid off financially?
That will continue to reap profits for at least the next 10 or 15 years. We have attracted some of the major energy companies in the world. We have attracted probably some of the best engineers in the world. How do we use that opportunity of high financial resources, high intellectual capital and movement globally to reduce carbon emissions from the energy sector? How do we put all those pieces together to build a strong long-term strategy, long-term vision, for what sustainable energy could look like in Canada?
How do we attract, having the resources for renewable energy, the full value chain here? How do we make sure we have manufacturing and can apply our engineering and technology and experience to the renewable energy sector so that we are not importing wind turbines, we are manufacturing them ourselves? We have a market that supports that.
We can either be a technology user or a technology producer. I think it would be a great repositioning for Canada for us to advance sustainable energy and become leaders in the longer term, but we have a lot of work to do to get there.
The Chairman: Just before we go to senators' questions, would you talk a little about the likely recoverability of water that is used in agriculture on the one hand — for example, the fact that it goes into the water table and is reusable — and whether that is true of the water that is used in the two kinds of oil extraction: one, the oil sands, and two, refurbishing old wells.
Mr. Raynolds: Not being an expert on the entire water cycle and oil and gas and oil sands, I will to have to be somewhat cautious; however, on the oil sands side of it, and I cannot remember the ratio, but for every barrel of oil, it is at least a barrel of water. I believe it is more. I know it is at least equal.
You will see the oil sands settling ponds, and there is still a lot of research and development going on. How can you increase the pace of settling to be able to recover the water from that?
There is still a lot of uncertainty about how to make that effective and efficient and close the loop on that. I think the right incentives need to be put in place to make that happen, to move that forward, but the potential is there in the oil sands.
I do not have a good answer with respect to enhanced oil recovery, what percentage can be drawn back out. My gut feeling is I would rather use saline water for enhanced oil recovery than fresh water, because why have to reprocess some of that water to recover it?
The Chairman: You mentioned a couple of data items you would be able to provide us with, an executive summary of one and some specifics of another. Would you please get them to us as quickly as you can?
Mr. Raynolds: Absolutely.
The Chairman: Thank you.
Mr. Raynolds: It is my intention to provide executive summaries, about four or five reports, that I think will be relevant.
The Chairman: Thank you.
Senator Spivak: Thank you. That was very interesting.
The thing that bothers me is this — and I want to get into a question of tax policy — the oil sands contain hundreds of years of resources. That is what I have heard, hundred of years.
I think we should get into alternative energy, but given the amount of resources there are and the economic climate, the financial climate, I think it is probably more important to concentrate on how we can fix them up in terms of spending money. What is your opinion on that, because that is a reality? There are hundreds of years of resources there.
Of course, there has been a recent budget. There were some items in there, but I wanted to ask you what you think would be the ideal tax policy, how that compares with the first steps in the budget and with other countries.
Maybe if you could give us an answer to that as well as the other question, then I could go on from there.
Mr. Raynolds: Thank you. Yes, it is true that there are hundreds of years of resources in the oil sands. I suppose it depends on what consumption level one uses in a projection. If we look at increases in consumption in China and India over the longer term, the 100 years can dwindle very quickly.
The challenge, as I think I stated in my opening remarks, is the access to the resources will not limit development there.
The environmental impacts and the energy inputs required to produce from the oil sands have a potential to limit economic extraction. It is currently very dependent on natural gas.
An alternative to natural gas is gasification of coke, which is a by-product of bitumen. Significant carbon dioxide emissions are associated with that, so we need to contain that coke.
The other alternative, and if there is a potential silver lining in the oil sands, for me this would be it, is deep geothermal. A number of the energy companies have invested in some preliminary research on deep geothermal. If we can make some technical breakthroughs, it has the potential to revolutionize the energy industry in Alberta, and just about anywhere. This is very deep geothermal as a heat source for producing from oil sands.
With respect to the hundreds of years of resources, yes, we need to invest in making sure that we are cleaning up the oil sands as much as possible, that we are closing the loop on water, that we are managing the carbon dioxide emissions and that we are managing the cumulative effects.
The real question is can that concentrated area sustain the magnitude of development and intensity, both socially and environmentally? I think that is the crux and the challenge there.
Regardless, oil resources will deplete over time in not only Canada, but internationally, and this will drive a lot of changes in the energy sector.
Senator Spivak: Conventional oil is depleting — we are talking about conventional oil — but not the oil sands.
Mr. Raynolds: Correct, but we need to remember that the oil sands, for example, right now represent less than 10 per cent of the U.S. imports. If we were to wipe out all the conventional oil and try to just rely on oil sands internationally, I believe that is a quite unrealistic scenario without extreme oil prices.
Eventually, we need to move into a different energy source for transportation and we have some choices to make now about how to make that transition.
That was a long-winded way of getting to your question of hundreds of years, but there are some significant intensity challenges and cumulative effects challenges.
With respect to the ideal tax policy, the transition will require time. We could not immediately say ``All right, the tap is shut off on current fossil fuel-based or energy intensive resources,'' but we need to shift our tax incentives or tax policies towards energy efficiency, renewable energy and sustainable energy.
That will take time. Some of the examples that we are seeing in Europe, with the introduction of some carbon taxes and higher gasoline taxes, are the types of transitions that we need to make over time. If we send a signal about gasoline prices over an extended period, that will change consumer behaviour on vehicle purchases. I think it will help drive our overall fleet efficiency as well.
We are not very energy inefficient in Canada, so there is a lot of room to play. We can make a factor 4, factor 10, improvement in energy efficiency in domestic use in Canada. We need to put the right tax policies in place for that.
Senator Spivak: There has been an agreement on how much heavy industry needs to reduce emissions.
You are suggesting it is a time factor. If we move into conservation and energy efficiency over a longer period of time, greenhouse gas emissions will still go up, and in the meantime, we need to look at technology to reduce those emissions. There is a time factor in using tax policy to encourage conservation and efficiency.
A deal was made with the heavy energy companies, was it not, as to what they have to reduce, and you said the cost would be about 25 cents a barrel?
Mr. Raynolds: That is correct.
Senator Spivak: There has been some talk that even that might be made more generous.
Can you tell us anything about that? What have they agreed to? What have they informally agreed to reduce?
Mr. Raynolds: What I can tell you is in the 2001-02 climate change plan, it was a 15 percent reduction against business as usual for the large final emitters, and that translated into 55 megatonnes of production against our Canadian target of about 240 megatonnes.
The anticipation was a majority of that would be done through a greenhouse gas trading system, and that the cost would be capped at $15 per tonne. That was what was in place.
Senator Spivak: That is right.
Mr. Raynolds: Now that translated into the equivalent of about 25 cents per barrel of oil.
Currently, I cannot tell you what negotiations have occurred or what the new deal will be. There are rumours that it will be reduced from 55 megatonnes. There is also discussion about being able to get credits for investing in longer- term technology.
In our opinion, further concessions on that agreement are unacceptable, given that the resources exist to make those reductions, and given that this first phase of reduction is not about new technology.
The new technology needs to be pursued for the longer term, but any further concessions come back on the taxpayer in terms of meeting our international obligation.
Senator Spivak: That is right.
Mr. Raynolds: In our opinion, the large final emitters do need to meet that target that was built into the first plan, and that should not be further reduced at this point.
I would encourage you to connect with the Petroleum Technology Association of Canada. They are not on your list of witnesses today, but their assessment is economic actions could be taken by the oil and gas sector that would reduce emissions by 29 megatonnes, as compared to 55, at no cost, and with a billion-dollar annual savings to the sector. That gets you 29 megatonnes right there.
I think the opportunities do exist, and it is time for large final emitters to meet that part of the commitment.
Further, they represent some 50 per cent of the greenhouse gas emissions. They are not being asked to reduce emissions proportionally, so I think the current target needs to stick.
Senator Spivak: I noticed the energy research people are suggesting that we should stretch it out over a longer term and that the government invest in their research, that subsidies to research are the answer. What is your opinion of that as a policy?
Mr. Raynolds: There is no doubt that we need a long-term focus on reducing greenhouse gas emissions. If we are planning to seek a 500 parts per million of concentration globally, it will require a long-term vision. That has to start with early action, a first step and a first commitment, to demonstrate that we are serious about that.
When we signed on to this in the late 1990s, it was clear that we would be able to meet the challenge. We have now delayed and delayed, and it is tougher and tougher to meet it in a shorter time period. We will have to make purchases overseas.
Senator Spivak: If we took the polluter-pays principle seriously, would the oil industry still be profitable? According to first principles, that should be the environmental strategy. If you pollute, you pay. After all, we are a free enterprise society; we have a mixed economy, but in free enterprise, it is tough love. What do you think? Would they still be profitable?
Mr. Raynolds: If the polluter-pays principle were embedded in all of industry, I think we would be far more profitable, and profit would be defined not just in terms of shareholder value, but more broadly in terms of full societal value. I absolutely believe we would be far more profitable.
Senator Milne: I thank you very much, Mr. Raynolds, for coming. I have some concerns, first of all, arising out of some of the things you said.
You talked about Fisheries and Oceans, and how someone is taking somebody to court. Would you please expand on that, because my ears prick up when I hear about the government suing over whether something is a creek bed issue or an oil sands issue, which is basically water versus oil.
Mr. Raynolds: I would be happy to send you the details on that file.
Senator Milne: Who is suing whom and over what?
Mr. Raynolds: It is a conflict between the Oil Sands Environmental Coalition, which is made up of the Pembina Institute, the Fort McMurray regional organization and Toxic Watch in Alberta, and the Department of Fisheries and Oceans. It is going to the Supreme Court. It is in relation to how an oil sands project was classified underneath the Environmental Impact Assessment Act.
DFO has quite a bit of flexibility in how they classify a project. One of the options is to classify it as an oil sands project, which we believe the project was and is intended for. Another option is to classify it as creek destruction project.
Senator Milne: That is what they have classified it as.
Mr. Raynolds: That is how it was classified. That sets for us —
Senator Milne: A different barrier to meet?
Mr. Raynolds: Well, a creek destruction project does not require a complete look at all the impact and aspects of the development.
The Chairman: The nature of the suit is to change the level or kind of environmental assessment that would be undertaken?
Mr. Raynolds: Based on the classification of the project. It sets a precedent for other oil sands projects being classified as a creek destruction project.
Senator Milne: There are fewer hurdles to jump when they do the environmental assessment?
Mr. Raynolds: That is right. I will put that on my list of material to forward to you.
Senator Milne: One of the things that we are really interested in is what research is going on into new ways to use our fossil fuel resources. Here in Alberta you have some of the largest coal and bitumen deposits in the world. What additional measures do you think government should adopt to protect human health and the environment from the impacts of their development and what is your position on so-called clean coal technology? Is it really clean?
I am also interested in what you said about deep geothermal as a potential new extraction method. What kind of research is going on into that, and have they mapped how far down you have to go before you find a heat source great enough to use to extract oil?
Mr. Raynolds: I do not know about the full life cycle aspects of clean coal. I do not sufficiently understand all the pieces to really comment on some of the potential impacts. There have been different scenarios and models of what clean coal could look like — even including zero-emission coal — that would translate into potentially providing hydrogen for a hydrogen economy. I do not have a deep knowledge of the actual technology.
Part of it is making sure there is sequestration of carbon dioxide. That raises a number of questions about long-term viability of sequestration and transportation of carbon dioxide. Some good research is going on in Alberta on carbon capture and sequestration. We are part of that in terms of monitoring it, keeping an eye out and asking some questions.
Sequestration will likely be part of the solution to meeting our Kyoto commitments and reducing greenhouse gas emissions, so we will need to make some investments there.
However, I think it would be a shame to put all of our investment eggs into the one basket of carbon capture and sequestration. We need to make adequate investments in dealing with the demand side, the energy efficiency side and also the renewable energy side. I think we have to take a balanced-portfolio approach to that.
I do not know enough to talk about all the potential implications of clean coal, but it does need to be looked at from upstream through downstream from a life cycle perspective.
The deep geothermal is in the research phase. A coalition of companies here in Alberta is doing a pre-feasibility study of it at a cost of a few million dollars. It is taking a significant look at deep geothermal, but we are talking about in the range of 8 to 12 kilometres of drilling.
There are two kinds of core challenges. My understanding at this stage is some of the drilling technology needs to be further advanced, but where better to develop it and test it than in Alberta in terms of being able to close the loop on the water cycle and extract the heat from it.
Given the right investments in the technology, it has a lot of potential for use not only in Alberta, Canada, but just about anywhere when you start getting to that depth.
Senator Milne: Now, Mr. Chair, I heard something just last night. Apparently, the Alberta government has come up with a large sum of money to put into postsecondary education and into research. I do not know whether we are talking about millions or billions of dollars.
I gather the premier made an announcement just last week. I do not know the details because it did not hit the Ontario papers, I am afraid.
Do you think this will make a difference to this kind of research? I know of young researchers who have had to leave not only Alberta, but Canada, because they cannot find jobs that will allow them to continue their research. The funding for research just has not been there.
Mr. Raynolds: Yes. In terms of intellectual capital and research, having done my graduate work in mechanical engineering at U of A, in the combustion lab there, I can say that our facilities do not compete with those of some American universities.
We do need to make investments in research. We do need to make investments in intellectual capital and in knowledge.
At the same time, we need to remind ourselves that technology research, R&D, is fuzzy, warm and politically easy. It is, in many ways, a delay in taking some short-term necessary actions on energy efficiency and sending proper signals to our economy on the type of future we want.
I think it needs to be balanced. We cannot just rest on long-term research and development. We need to focus on some of the shorter-term challenges that we are facing as well.
Senator Milne: We need to do something to reach out to these young Canadian researchers who are now scattered around the world, because other countries are funding them and we are not.
Do you know anything about coal bed methane projects and how those impinge on freshwater aquifers?
Mr. Raynolds: Our institute has done quite a bit of research on coal bed methane in relationship to water. I will add that to my collection of executive summaries that I will forward to you.
Senator Milne: This is the sign of a good teacher. You say, ``I do not know the answer, but I will find out for you and let you know.''
Mr. Raynolds: There has been a lot of discussion and some significant concerns about coal bed methane. We have to acknowledge that it is a different type of coal bed methane than south of the border, where there have been some serious water challenges and issues. My understanding is it is comparable, but not at the same levels of intensity or concern.
One of the larger concerns about coal bed methane is the number of wells that will need to be drilled. I would be better off not even trying to quote the number, but it is about five or six times that for conventional gas drilling. That increases the number of holes that will have to be drilled into each landowner's acreage.
I will send you some more detailed information on coal bed methane.
Senator Milne: Good. You talked about being up on the Crowfoot Glacier this weekend. That brings me from aquifers to glacial runoff, which is so important to Alberta. What is happening to the glaciers? Did you say there is a 40 per cent decrease in flow?
Mr. Raynolds: Sorry, I have to go to my cheat sheets.
At the end of the 20th century, the summer flow in the major rivers had declined to approximately 60 per cent of the flow at the beginning of the century.
Senator Milne: So it is 40 per cent reduction.
Mr. Raynolds: A 40 per cent reduction. However, that is over the course of a century and in the flows of Alberta's rivers. How much of that is glacier related versus precipitation, I am not the person to ask.
It is clear that the glaciers are receding. There are multiple reasons for that to occur, but we know climate changes in some shape or form play a role. What that likely means for the longer term is water shortages in Alberta, and that raises some big questions and concerns.
Senator Milne: Have any measurements been done? You say there has been a 40 per cent reduction over the course of the last century, but has research been done on annual reductions? What is happening? Is this accelerating?
Mr. Raynolds: Professor Schindler at the University of Alberta is probably your best resource on that.
Senator Milne: We have had him before the committee.
The Chairman: And will again.
Mr. Raynolds: Unfortunately, from a water perspective, I just do not have the scientific expertise.
Senator Milne: Thank you very much.
The Chairman: As you can tell, we have a large number of questions that we would like to pursue further with you, Mr. Raynolds, but because of our mechanical difficulty, we cannot take much more time.
I will give you a couple of bootleg questions at the end. I am hopeful that you would agree to meet with us again at some point because we are planning to spend a lot of time on this study.
We will also be spending a lot of time on another topic at the end of this month. We will be given the task of re- examining, as is mandated in the legislation, the Environmental Protection Act. That will come to this committee and will be going off in a slightly different direction in that respect. We will want to ask you some questions about that, too.
Your institute recently released a study called ``Government Spending on Canada's Oil and Gas Industry,'' which concluded that the Government of Canada provided the oil and gas industry with, I think, close to a billion and a half dollars in subsidies in 2002, et cetera.
Have you had a reaction on those points from either the Government of Canada on the one hand, or industry on the other?
Mr. Raynolds: Yes. We have had a reaction from the Canadian Association of Petroleum Producers — you are meeting with Mr. Alvarez this afternoon — a very detailed reaction, and we provided a response to that. The dialogue between the two organizations is continuing, so we feel we are bringing some further clarity to it.
Yes, it is true. Since 1996-97, federal expenditures on the oil sands have been in the range of $500 million to $1.4 billion, $1.5 billion.
The Chairman: Which have paid off?
Mr. Raynolds: Financially they have paid off. Environmentally they have raised some incredible challenges, and for me it raises the issue of if it took 30 years and that level of investment to create a financial success in a fossil fuel resource, what will it take over the next 30 years to create a success story on renewable energy?
The Chairman: My final question: Did I understand you to say there are measures right now that industry could take that will reduce 29 megatonnes a year using existing technology and at no cost to them?
Mr. Raynolds: In terms of capital cost investments, absolutely. This is according to the Petroleum Technology Association of Canada. Eric Lloyd is the president and the person to confirm that study, but yes, 29 megatonnes through economically viable implementation and an estimated billion dollars of benefits annually to the oil and gas sector.
The Chairman: Given the medals that would be awarded for that, why do we need further incentives to get them to do it?
Mr. Raynolds: If I were part of the industry and faced uncertainty about whether I was to be regulated and given targets, why would I take any action?
The Chairman: In short, it is an unclear expression of policy from the government?
Mr. Raynolds: Correct.
The Chairman: Thank you.
Mr. Raynolds, thanks very much for being with us. I regret that we do not have more time. We will ask you to return to talk to us again.
Before us we have Mr. Steve O'Gorman, the Manager of Business Development and Marketing for the Canadian Hydro Developers Association; Ms. Theresa Howland, the Green Energy Marketing Manager of Vision Quest and the 2005 Chair of the Canadian Wind Energy Industry; Mr. Jason Edworthy, the Managing Director of External Relations for Vision Quest; Mr. Jim Provias, the Vice-President of Renewable Energy and Business Development for Suncor, whose facilities we will be visiting on Friday; and Mr. David Lewin, who is the Senior Vice-President of Sustainable Development for EPCOR, which used to be the Edmonton Power Corporation, but now has a much more economical name.
Welcome. As you can see, this meeting is relatively informal. I apologize again for the time constraints. We would invite you to speak to us in the briefest possible way, but being careful to make the points that you wish to make, so that we can allow the greatest possible time for after the fact.
Mr. Steve O'Gorman, Manager, Business Development & Marketing, Canadian Hydro Developers: Thank you very much for the opportunity to present this morning. I will be speaking about renewable energy, and the company that I represent, Canadian Hydro Developers, is a publicly listed corporation. We have been in business 15 years, building exclusively green-powered projects.
We focus on low-impact renewable energy, and we consider the work we do to be clean, simple and sound. It is clean in terms of being low impact and renewable. It is a balanced portfolio of wind, hydro and biomass facilities. We have an excellent track record of demonstrating that we can address both the interest of our investors and the concerns of the environment.
We have facilities across Canada — in B.C., Alberta and Ontario. We have a total of 15 facilities to date and are developing two more.
Our first biomass facility is due to come online any time now, and we have a hydro facility out on the B.C. coast that will be coming online in June or July. We have invested about $179 million since 2000 and close to a quarter of a billion since we started in 1990.
We have 50 full-time employees, and in our project pipeline we have identified prospects in the 800 megawatt range that would result in, if we developed them all over the next 10 years, an investment of $2 billion.
I am not saying we will develop all of those, but there is certainly a lot of potential in this industry.
To give you a sense of what has been going on in this industry, I focused on a regional analysis in this presentation. We are a little more familiar with the ground here than in Ontario. I would like to be able to provide some numbers, but I do not have them handy, so I will focus on Alberta and B.C.
Just in summary, in the past five years alone, the green power industry, the low-impact renewable development industry, has put into the ground facilities that are now generating 2,300 gigawatt hours.
It is a fairly significant amount of generation. That represents the total consumption of about 230,000 households in the region. That represents a capital investment of about $920 million, and from an O&M perspective, we are, on an annual basis, close to $43 million.
The Chairman: We have a system of fines whereby if you do not spell out what you are talking about before you use an acronym, it costs you 10 bucks.
Mr. O'Gorman: Then I am in trouble. Thanks for the heads up. In plain language, there are probably 230,000 households. The annual consumption, rather than boring you with kilowatt hours —
Senator Milne: Kilowatt hours is fine. A gigawatt is how many kilowatts?
Mr. O'Gorman: It is a million.
The Chairman: For the record, O&M is?
Mr. O'Gorman: Operating and maintenance.
The Chairman: Thank you.
Mr. O'Gorman: There is a mix of what I consider small independent corporations like ours, and larger, integrated energy companies, some of whom are represented here today.
The Chairman: If I could interrupt you, Mr. O'Gorman, for the record, how do you generate your electricity?
Mr. O'Gorman: We generate it from wind facilities in Southern Alberta and hydro facilities in the interior of B.C. We have a biomass facility where we are just finishing the final testing in Grande Prairie. It is a broad spectrum.
The kind of acceleration and growth that we expect to see in this industry from a regional perspective is such that we can easily double the last five years' production numbers in the next five years, and double that again in the five-year period beyond that.
If we are able to accomplish that, we are looking at significant capital dollars invested in the region, close to $2.76 billion, generating electricity for an additional 690,000 households.
One critical point that is worth making here is that these dollars flow primarily into the rural economy. These are facilities distributed all over the rural economy, in Southern Alberta, the Pincher Creek area, Lethbridge area, Grande Prairie, Revelstoke; Squamish is north of Vancouver. That is to give you a sense of the Alberta/B.C. situation.
However, anywhere you go across Canada where they are developing renewables, you will find them typically embedded within the rural economy. We are hiring local people; and when you are buying concrete, you buy it from the nearest source.
We put a lot of those dollars directly into the rural economy, certainly on the capital side, and on the operating and maintenance side. We are helping to build a rural tax base. This industry generates a significant benefit to the rural economy.
Some of the benefits I have mentioned briefly: new capital and job creation, often in rural districts. Another benefit of green power development: long-term stable pricing. We do not have any fuel cost risks, and so we are able to offer contracts that stretch into the 20-year range. On the right project, we would even consider going out to 50 years.
We help to generate cleaner air and reduce greenhouse gas emissions. We are diversifying Canada's energy supply. We are helping make that energy supply more secure, and we are helping to drive innovation across the board.
I will just make a couple of quick notes for our industry in terms of Budget 2005. The budget has outlined the creation of a renewable power production incentive for other low-impact renewable resources such as the run-of-river hydro, biomass, geothermal, wave, tidal, solar.
This puts the other renewable resources on the some footing as wind power, with its production incentive, which the budget also addressed and expanded to 4,000 megawatts, providing price certainty at $10 a megawatt hour.
That is a significant development as well, and certainly the government deserves some recognition. They have started to note that our industry is of one substance and that these kinds of incentives help drive its development.
There is also an acceleration of the capital cost allowance rate, which certainly impacts the larger corporations that have taxable income.
Some quick comments then on the budget: Certainly this budget will have a significant positive impact on the development of renewable resources, not only in this region but across Canada. Expect a lot of growth across the board.
We are eager to see these features of the budget enacted in legislation. We are keenly awaiting the implementation of the renewable power production incentive and expect to be working with government on the development of that program.
The final comment is about a national renewable energy strategy, and I think it was alluded to in the budget. We believe this is essential to help focus attention on our industry, scope out its potential and provide a roadmap for development. We have a lot to contribute, and a national strategy would be a significant accomplishment.
To summarize briefly, ours is no longer a niche industry. We are into the norm. If you look at the capital dollars invested over the last five years, there are many benefits to society. These are not only environmental benefits, but also economic and social benefits, and those go directly into rural districts across the country.
We offer stable pricing, which is a significant benefit. We believe that enacting legislation is an important step, and we would like to accelerate the growth and see the implementation of a national renewable energy strategy.
The Chairman: Thank you, Mr. O'Gorman.
Ms. Theresa Howland, Green Energy Marketing Manager, Vision Quest; 2005 Chair of the Canadian Wind Energy Association: Thanks. I will just reiterate that it is a pleasure to come here to speak to you today.
As was mentioned, I am the chair of the board of directors for the Canadian Wind Energy Association, and CanWEA represents the wind industry across Canada. We have 150 corporate members, comprised of integrated energy companies, solar, wind energy companies, independent power producers, wind turbine component manufacturers and wind turbine manufacturers. Therefore, we represent the entire gamut of the industry, as well as a number of individual advocates.
I will give you a little background on wind energy specifically. As many of you know, the size of wind turbines has increased dramatically over the last two decades, which has resulted in the technology being commercially viable.
It is the fastest growing energy source in the world and has had a sustained growth rate over the past five years of 30 to 35 per cent.
The global installed capacity in 1999 was 13,500 megawatts. That had increased by the end of 2004 to 46,000 megawatts, so we have seen a dramatic increase. It is projected to continue to grow at similar rates, taking us to a projected 95,000 megawatts worldwide in 2008.
It is a little different story in Canada. Although we have seen similar growth, we are starting from a smaller base. Therefore, in 2000 we had 137 megawatts; in 2004 we had 445 megawatts, with about 2,000 megawatts that are either under construction or have already been awarded power purchase agreements that will lead to development in the near future.
We have a minimum expectation of 56,000 megawatts of wind energy in Canada by 2012, and that is based on all the provincial initiatives that have been announced and the budget announcement on expansion of the wind power production incentive to support 4,000 of those megawatts.
You can see on this page where we rank in terms of worldwide installed capacity; Canada ranks 12th in the world. Germany has well over 16,000 megawatts installed, and Denmark has well over 3,000 megawatts. We are in the process of catching up to some of the many countries that have been making significant use of wind energy for the last five to ten years.
It is important to note that right now, less than 1 per cent of Canada's electricity supply comes from wind power. It is certainly possible to get upwards of 20 per cent over time.
We have seen that in some other countries. Northern Germany, for example, is well over 15 per cent wind powered, and Denmark is over 20 per cent. Therefore there is definitely a lot of opportunity to grow within Canada. We see wind energy as an economic opportunity for this country.
As Mr. O'Gorman mentioned, rural economies benefit from this. Each megawatt of wind energy creates $1.5 million of investment and two and a half direct job-years of employment. You can see that our increases and our projections will make this a very viable industry.
As a side note, we have not so far done any specific studies of the economic impact of wind energy in Canada, but we are working with Industry Canada to do that right now and will have a study published in the next couple of months. We are excited about that.
We have definitely seen a lot of growth and the wind power production incentive is, obviously, crucial to the industry; and some of the other budget announcements will help to support that growth.
We see a big opportunity in the provincial initiatives that have been announced. They need to be fulfilled. Many of the provinces where you are from are announcing initiatives that are in the thousands of megawatts. Manitoba is interested in 1,000 megawatts; Ontario is looking for up to 2,700 megawatts.
We need those provinces to continue to fulfill their policy commitments, and that helps leverage the federal dollars that have been announced.
We face some challenges in the years ahead as we move towards the type of growth that I mentioned. One of those is greater interconnection. We need to work with the local utilities, the transmission service providers — the people who own the wires and the infrastructure — to determine the right way to come online and avoid creating onerous barriers to that happening in all of the jurisdictions that I mentioned.
We have a number of players within the industry, as was mentioned, including commercial enterprises that are continuing to work with the technology. We are excited about the level of investment that these companies are willing to make. We know it will continue to grow and we look forward to the economic opportunity that will come out of that.
As we continue to move forward, we will face continued public scrutiny of wind power across Canada, so we are looking for public engagement mechanisms. How do we work with the different communities to ensure a high level of acceptance of wind energy projects in these rural areas that may have seen little or no development to date? It is an understanding of the technology, an embracing of these new structures and what they mean in terms of a clean energy source and a clean energy future for Canada.
We are looking at significant public engagement activity on wind energy over the next year to make sure we do not face significant barriers to development. One of the other challenges that we face, and for which we hope to continue to see support, is the fully integrated wind energy strategy for Canada. We certainly see wind energy as a big part of Canada's electricity future, contributing significantly to reducing greenhouse gases and creating economic opportunity.
At the same time, we have not seen a commitment to a strategy. We do not see wind as the be-all and end-all of development, but it is a part of the strategy and there is, obviously, a good role for it in what that will look like.
Our association has proposed several initiatives that would help to support that, including the development of a comprehensive wind energy strategy and the integration of federal and provincial initiatives.
For example, when environmental impact assessments are required to access the wind power production incentive funds, are they being aligned with provincial environmental assessment processes that also need to be completed?
We would like to see some coordinating body for that.
The Chairman: So would we.
Ms. Howland: One of the most important items we are looking at right now is the provincial initiatives. The provinces have stepped to the plate and said they want to generate a portion of their energy from wind. We need to make sure there is recognition of the environmental value of that wind energy when we are talking about dealing with climate change and reducing greenhouse gases.
Mr. Jason Edworthy, Managing Director, External Relations, Vision Quest: Thank you very much for the invitation to appear before you today. Senator Banks and Senator Adams, it is nice to see you again. Senator Spivak and Senator Milne, thank you very much for this opportunity.
As indicated in the handout about us, Vision Quest is a wind power group. We are a pure player in wind power. Although we have lots of good competition, we are currently the largest player in Canada.
As Ms. Howland has pointed out, it is still a very small game. We are also part of a larger, much more diverse power generation company, TransAlta.
I wanted to speak to you today about one particular topic. I thought maybe focusing on one issue might be quite helpful, and Ms. Howland has offered me an opening. That is the role of wind and other clean power sources in Canada's climate change plan.
From a high-level perspective, obviously, sources of electricity that create no emissions whatsoever — clean power sources — either reduce air emissions by displacing another source that does, or by avoiding new construction plants that could be dirtier sources.
It makes sense to most people that clean sources will result in reduced greenhouse gas emissions.
It makes sense to promote these sources, to take advantage of them and to recognize and reward their contribution. Wind power itself could make a significant contribution in Canada.
The Canadian Wind Energy Association's 10 X 10 plan estimated a contribution of up to 25 megatons. Based on your previous discussion with Mr. Raynolds, you will understand that is a significant contribution.
Canada's climate change plan as it has been revealed to us over the years does not seem to support this, recognize it or reward it. We think that is wrong. We believe that Canadians will think it just does not make sense.
We have not seen the latest version, but it is our understanding that under the large final emitters provisions, plan LFE, if it continues the way it has been, wind and other renewable energy sources will not quality for domestic offset credits under the trading system.
I would like to contrast this with the Kyoto mechanisms, including the clean development mechanism, or CDM, which would recognize this. To put this in perspective, we have looked into ways to obtain offset credits from wind and use them, for example, within our own parent company, TransAlta.
Now TransAlta recently completed a groundbreaking trade with Chile for CDM credits to be used in the future under Kyoto. It was a significant trade and an exercising of the opportunities under the Kyoto Protocol. In theory, we can invest our money in wind farms in a developing country such as, for example, Mexico, where TransAlta currently operates power generation facilities.
We could, in theory, build and operate such a facility, sell the electricity locally, and sell qualifying Kyoto offset credits back to Canada, these CDM credits. Thus we could invest outside Canada, export our dollars, our expertise and our jobs to get the offset credits there that we could use here. These are offset credits that we are currently unable to generate from our own facilities here in Canada.
My simple point is that our preference is to invest domestically, to grow our industry here, and to help Canada meet its commitments in this area. We are very concerned that it appears that we will not be able to do that.
My simple message is that we would urge you to strongly suggest to Environment Canada and EnerCan in any way you can to include all clean sources of energy, not just wind, in a rural, domestic offset trading program.
The Chairman: Thank you very much, Mr. Edworthy, and it is nice to see you again.
Mr. Jim Provias, Vice-President, Renewable Energy and Business Development, Suncor: Well, as the other speakers have said, thank you very much, senators, for the invitation.
I believe handout has been provided, so I will take you through that. Suncor has defined renewable energy as part of our commitment to sustainable development. As a senior energy company — and I am on the first page of the handout, the title page — with a strong balance sheet, we can take the risk of making investments to support an emerging renewable energy business in Canada.
Whether it is internal or external, we refer to this as a parallel path approach: first, responsible and sustainable development of our hydrocarbon assets, which you were hearing about earlier from Mr. Raynolds; and secondly, investing to help diversify Canada's energy mix to meet future energy needs.
We are focusing on wind energy because the power source is predictable given the proper science. Our observations of the two projects that we have developed to date support that statement.
It is a clean energy source. There are no emissions and a small surface footprint on a per turbine basis.
The technology is proven and operational on a large scale. As Ms. Howland was alluding to, there are thousands of turbines installed — about 7,000 in North America alone, and globally that number climbs upwards to 40,000-plus.
Capital efficiency trends have demonstrated that wind power is becoming more competitive with conventional energy. We also believe that with the right policies and market tools, wind energy in Canada will become a stand-alone viable industry. Key learning: On average, wind generation costs are still higher than for conventional generation sources. Now, there are some exceptions to that statement. Where good wind-resource sites exist, wind energy will start to compete on a cost basis with natural gas-fired generation when gas prices are high and with coal-fired generation, if the costs to reduce greenhouse gas emissions are included.
Having said that, wind power is intermittent, and even if it were cost competitive, it could not be a complete replacement for conventional generation, but it can be a complement. The flexibility of natural gas-fired generation and hydro facilities with storage dams make them an ideal mix with the variability of wind power.
We heard last week from the U.S. Department of Energy that some jurisdictions are starting to take advantage of this complementarity.
Continuing with the issue of costs, manufacturers have improved technology costs by increasing turbine sizes, as Ms. Howland alluded to, improving power curves and decreasing required maintenance. In the last year, these cost improvements have been offset by the rising costs of materials, whether steel or resin, and transportation, primarily from fuel, because there are no assembly plants in Canada. Most of the components are long-hauled from different ports in North America, particularly the United States.
From a future perspective, in the near term, we believe most of the cost improvements for onshore turbines will come from improvements in the North American supply chain management.
For these cost improvements to be realized, effective policies and market tools need to be in place to drive increases in wind turbine orders and supplier competition.
It is only when a sustained critical mass of turbine orders is achieved that the full benefits of a stand-alone viable industry will be realized in Canada.
In regulated markets, provincial policies such as renewable portfolio standards combined with a project bid structure that offers generators a fair return have led to project development.
Quebec and Ontario have been leaders in requests for renewable energy project proposals. In addition, market tools such as tax incentives for capital writeoffs, flow-through shares and, in particular, the federal wind power production incentive, have helped to both facilitate capital availability and improve overall project economics.
This has resulted in lower competitive bids in the Ontario and Quebec markets and has enabled project development in the deregulated Alberta market.
Unfortunately, renewable energy certificates, and I think this was Mr. Edworthy's point, have not yet proven to be an effective market tool due to lack of policy definition and market interest.
In Canada, as Ms. Howell indicated, approximately 450 megawatts of installed capacity has been developed, versus more than 16,000 megawatts in Germany. The majority of this development has been in Quebec and Alberta, and Ontario and Quebec are forecast to have the greatest growth, based on announced projects that have resulted from the provincial bid requests over the last year.
Transmission issues associated with interconnection costs, timing, standards and performance understanding have emerged in the regions that have the greatest concentration of wind projects, despite Canada's relatively low installed capacity.
Our view is that in areas of high-population density and where there is a greater number also of special interest groups, like Southern Ontario, stakeholder concerns such as impact on landscape are expected to be more regional and project timelines to be longer.
However, we believe that with early involvement and proper education, the majority of stakeholder concerns can be addressed satisfactorily.
I would like to conclude by speaking to the ``Call to Action'' slide, focusing on policy and market tools.
We believe a combination of effective policies and market tools are required to enable a stand-alone viable wind industry.
Provinces need to continue to establish renewable portfolio standards and then provide a material and consistent renewable pricing mechanism that reflects a fair return to the generator.
A good example of the above was the Ontario request for proposal and ensuing power purchase arrangements process that took place in 2004, expected to be repeated in 2005.
The Federal government needs to continue to provide production and tax incentives, as they have proven to be effective market tools. The recent budget announced an expanded wind power production incentive and a new renewable power production incentive, as our previous speakers just alluded to. The budget also increased the depreciation rates for capital cost allowance for tax write-offs.
Clear policy on the use of renewable energy certificates and how they may be applied against Canada's climate change obligations is required in order for these certificates to be an effective market tool and, we believe, the necessary complement to the existing market tools.
Finally, we believe that provincial regulators and utilities need to improve their understanding of grid management for wind power and streamline the permit process to reduce the cost and timelines for interconnection.
The Chairman: Thank you very much. Mr. Lewin.
Mr. David A. Lewin, Senior Vice-President, Sustainable Development, EPCOR: Thank you, senators, for the invitation to speak to you today. In the interests of time, I will quickly go through the handout that I hope you have.
A little about our company, EPCOR: We are an integrated energy company. We are, in fact, the old Edmonton Power. We provide electricity, water and natural gas. We own and operate power plants. We own and operate some electrical transmission and a lot of distribution networks, particularly in Edmonton.
We build, own and operate water and waste water treatment facilities, along with the infrastructure. We also provide water and power solutions to customers.
In terms of governance, EPCOR's sole shareholder is the City of Edmonton, but our structure is such that our board of directors are totally independent from city council and at arm's length from the shareholders, the City of Edmonton. We were pleased to receive the 2004 National Award in Governance from the Conference Board of Canada.
We operate in Alberta, British Columbia, Ontario, and in the Pacific Northwest U.S.
In terms of our portfolio of generation, we are primarily in fossil fuels. That is our history. We have been in the fossil-fuel electricity generation business, either coal or natural gas, for many years. We have fossil-fired plants, coal- fired subcritical plants, at Genesee; natural gas-fired plants at Clover Bar; also at Rossdale, the historic plant in the centre of Edmonton, which has had a long and checkered career but is now scheduled to be retired.
We also have a joint venture operation at Joffre that is natural gas-fired. In the Pacific Northwest, in Washington State at Frederickson, we are also part owners of a natural gas combined cycle unit.
Now a third unit at Genesee is in commercial operation. This is a coal-fired supercritical plant.
I might also add with respect particularly to coal, we are founding members of the Canadian Clean Power Coalition that is looking for ways to continue using coal but in a much more environmentally friendly way. I would be happy to answer any questions on that.
The new Genesee 3 unit is 450 megawatts. We have in fact sold half of the unit to TransAlta. That is why the handout mentions 225. We have just over 1,900 megawatts of fossil-fuelled plants.
On the renewable energy side, we have a run-of-river operating plant at Taylor Coulee in the province of Alberta. We own a wind turbine in Southern Alberta called the Weather Dancer in partnership with the Piikani Utility Corporation.
We also have two hydro plants in B.C. One is a conventional hydro plant, at Brown Lake; the other is a run-of-river plant in Miller Creek. They are all operating.
We have in development at our Clover Bar landfill gas site in Edmonton 4.5 megawatts generation of electricity from the methane that is produced in the landfill gas. We have been recovering that methane gas for many years and burning it in our Clove Bar plant, thereby eliminating methane from the atmosphere.
With less of an operation now at Clover Bar, we had to find another way to use the landfill gas and not just simply flare it, so we now have generators there that will use that gas.
We also have approval now to build an almost 40-megawatt wind farm at Kingsbridge in Ontario, so we have about 90 megawatts of renewable energy in our portfolio. That is bordering on about 5 per cent of our total capacity, not just in the province but across Canada.
Senator Milne: Where is Kingsbridge, Ontario? Is that in Southeast Ontario, near Windsor?
Mr. Tim Boston, Director, Government Relations, EPCOR: It is off Lake Huron.
Mr. Lewin: Port Albert.
We are supportive of measures to increase renewables. As you can see, we are in the business of renewables as well as fossil fuel. From the point of view of providing a diverse fuel mix for generation, we think that is crucial. To put it simply, we do not think that any of us, either nationally or provincially, should have all of our eggs in one basket, so to speak, strictly from a security of energy supply point of view.
Therefore we are diversifying into these different forms of energy supply. They are not without their challenges and so forth, but nevertheless, we feel that is a more satisfactory and sustainable way to go.
We also feel that diversity of power generation allows the system to optimize the strengths of each type of generation. In other words, no one type of generation is necessarily perfect, but the idea is to try to complement one with the other.
The diversity also contributes to power price stability and system reliability and security. I will talk about that in a moment.
Also, the need for diversity results from the geographical limitations that we see across Canada when it comes to energy supply. It should not be a particular surprise that the different provinces have begun to develop electricity generation from their natural resources.
When we talk about renewables, we are really talking about less than 50 megawatts. That is the way we would define it. It includes biomass, landfill gas, wind, run-of-river hydro and solar. We do have, and have had for a number of years, solar panels on our headquarters in downtown Edmonton lighting two floors of the building.
On the next page we have tried to put Canada into perspective with a number of other countries, and I know comments have been made here. However, with respect to development of renewables, I think historically you have to look at the regional differences in terms of resources across Canada.
Geography and natural resources are the reason Canada has fewer renewables than many other countries. Increasing the renewable generation has challenges. Of course, the incentive the Federal government provides, and has now extended, particularly with respect to wind, will help.
There is often a need for additional transmission lines and infrastructure, which can obviously add to the cost of developing renewables. There is always the NIMBY concern. In fact, I read over the weekend another term, BANANA, which is Build Absolutely Nothing Anywhere Near Anyone. I mention that because having been in the utility business for a number of years, it seems to be increasingly difficult to build anything anywhere these days. Nothing is without its challenges.
The capacity of wind, for example, which has been alluded to by others, is a challenge. We find that once you get, in any electrical system, to about 5 per cent of your supply — it depends on the configuration of the system — you have to start to take care of voltage stability and be aware of technical issues like that.
The challenge then is what we call the Canadian mosaic. As I mentioned earlier, Alberta has abundant fossil fuels, and it is natural for Alberta to want to continue to use them. It has some hydro potential. We have some great hydro potential in the far north, but it is a long way from the market, so there are some transmission challenges.
Quebec, on the other hand, and also B.C., has abundant hydro resources. It is not a surprise therefore that the majority of their generation is hydro-based. Actually, Alberta's proximity to B.C. creates an interesting situation, because there are synergies that can be shared between a hydro-based province and a fossil fuel-based province. We have demonstrated that, but at the moment there are transmission limitations. Our tie-in with British Columbia is relatively weak.
Electricity monopolies exist in nearly all of the provinces except Alberta, where we have a deregulated market and a power pool operation. The Alberta electricity market is competitive, and there are many more players than there used to be. It is a different marketplace from most of the other provinces.
We would just add some caution with respect to the use of non-market mechanisms to encourage additional generation of any type, particularly in Alberta, where there is a competitive marketplace.
The demand in Alberta is actually leading to the growth of renewables anyway. For example, the Government of Alberta has signed a green contract with ENMAX. The City of Calgary apparently runs its light-rail transit using green power.
We in Edmonton have signed contracts with the Royal Glenora Club to provide 10 per cent of their energy from green sources. A number of other companies and manufacturers are also using green sources provided by EPCOR.
We feel that the market is facilitating growth in renewables in the province anyway, but we emphasize letting the market work.
In the other provinces — and maybe it is unfair to say the ``non-competitive markets'' — it is governments that are setting targets for development of new renewable generation. Examples are Ontario, of course, and the requests for proposals for green power that have been issued, and British Columbia.
Setting either a megawatt or a megawatt-hour target and putting it out to tender is the way to ensure the most competitive projects are built.
We would support the continuation of the WPPI program. It is helpful in moderating the price impacts of increased renewable generation of most types. I agree wind is now the most competitive, but it does tend to be more expensive than conventional generation, so that, in itself, is a particular challenge.
There is, as I mentioned earlier, the technical issue of how much renewable energy can you satisfactorily tie in to any particular grid system.
My final comment is there is a role for all types of electricity generation across Canada. We would always encourage everyone to take a hard look at all the alternatives and not be tied into any one type, because with diversity you get much better security. Each type of generation really needs to find its niche. Finally, I will just mention that the ``Alberta Scene'' festival we are sponsoring — this is a plug for EPCOR — is EPCOR's gift to the people of Alberta for the 2005 provincial centennial and is being promoted in partnership with the National Arts Centre.
The Chairman: That is a substantial sponsorship, and I had my foot in that business for a long time. I commend you on it and thank you for it.
Mr. Lewin, before we get to questions, you generate electricity from virtually all sources, renewable and conventional?
Mr. Lewin: Yes.
The Chairman: We talk about efficiency in terms of the cost of production of energy, but in the case of wind energy, there is the entire cost of building the distribution system. The cost is real.
We have heard people suggest that in respect of fossil fuels of all kinds, all of the costs are not real and not internalized.
Do you think, since you produce both, that if those real costs were internalized in the production of other kinds of electrical power, that suddenly the competitive edge would change?
Mr. Lewin: It possibly could. I think you are referring to life-cycle costing.
The Chairman: Some specific costing too, because, to give an example, in the case of wind, you have pointed out there is no emission cleanup cost, or in the case of pure hydro, there is no cleanup cost except cleaning up after the construction is over.
Mr. Lewin: Right.
The Chairman: Most of the cleanup costs in respect of fossil fuels are deferred somehow, and somebody else will pay for them later. In respect of water, which is used to extract oil, there is, as we have heard, no cost attributed.
I am talking about internalizing those kinds of costs so there is a true price for those sources of energy. Am I barking up the wrong tree?
Mr. Lewin: Again, I think you are referring to life-cycle costing, that is, looking at coal or natural gas from the wellhead or the coal mine all the way through to the other, if you like, externality costs for emissions, the impacts of those and so forth.
I have seen many studies on those, and it becomes a difficult question to answer. There is no doubt that if you start to add in some of those externalities, that gap will narrow. I find it difficult to get a clear picture of by how much.
The Chairman: It depends on how much you charge for water?
Mr. Lewin: Yes.
The Chairman: Thank you very much.
Senator Milne: I have pages of notes here and I do not know quite where to start. If I ask a question of any one of you and somebody else has something to say, please jump in because we need to know the answers.
Mr. O'Gorman, you talked about the economic and social benefit, mainly of hydro generation projects, accruing to rural areas.
Unfortunately, though, rural areas are the most expensive to tie in to the grid. All of you talked about the costs of tying in to the grid to distribute the electricity that you are generating. I do like that BANANA term. I think it is wonderful.
You are particularly concerned with Alberta and B.C. What is Alberta doing about promoting expansion of the grid to lower the costs of tying hydro and wind energy into it?
Has any thought been given to expanding the grid northwards so that you can tap into some of this potential run-of- the-river or hydro generation in Northern Alberta, in Southern Northwest Territories?
I know the people in the Northwest Territories are very interested in somehow getting around Wood Buffalo Park and being able to send clean electricity either to Alberta, or around the other side and into Saskatchewan, because there is not the same tie-in to a grid as there is between Ontario and Quebec and the United States. You do not have the tie-in between the provinces here, either between Alberta and Saskatchewan or on into Manitoba or B.C.
These are massively expensive projects, and I cannot see how market-based power companies will ever be able to undertake that sort of expansion.
Mr. O'Gorman: Thank you, senator. Grid costs are a concern, and when prospecting, whether for wind or for hydro facilities, we will often give serious consideration to how far is it to the grid.
It can be a major cost, so it needs to be a significant project if you intend to run any distance at all. We developed the 45-megawatt facility south of Revelstoke and had to run a power line over 20 kilometres; it is a big undertaking.
In B.C. there is now an independent transmission corporation. There is also an independent transmission corporation in Alberta. That certainly helps, because they are in a better position to look at where the gaps are, what the potential is, and to consider building something out. Although certainly in Southern Alberta, where there is a lot of wind potential, it has not been easy to get the transmission lines built out.
You are absolutely right. East-west grid connections between Alberta and B.C. are very thin. We are part of the Western Electric Coordinating Council, so we can send to B.C. quite readily with a 500-megawatt line.
However, going east to Saskatchewan, they are in a different coordinating body, and there are some physical barriers to transmission. There is one small line between Alberta and Saskatchewan.
I have recently looked at the Southern Northwest Territories. There are some very good prospects from a renewable energy perspective in that area. The farthest north that the Alberta grid goes is to High Level. There are two power generating stations on the way up to High Level, both of which operate independently. They are stand-alone operations.
Senator Milne: It does not even go up as far as Fort McMurray?
Mr. O'Gorman: That is on the east side, and we are on the west side of Alberta. Yes, it does. There is a lot of power generation in the Fort McMurray area, but it will follow the tar sands as far as they go and stop at Wood Buffalo.
Along the west side of Alberta, over 200 kilometres of line are required to follow the road from High Level to Hay River.
Now, who would build that line and why? It is a chicken-and-egg situation. What is the potential up there? What would the value be? Building out that leg of the grid is a big undertaking.
The potential is there. Building a line is not beyond the range of possibilities. It is just a big capital cost, somebody will to have to bear the cost of transmission, and that somebody, in Alberta, is typically the users. That is not necessarily a motherhood or apple-pie kind of issue. Building transmission lines is a big deal.
Senator Milne: Transmission losses.
Mr. O'Gorman: There is that as well.
The Chairman: Can I ask you something about that? Senator Milne mentioned transmission losses. What is the insertion loss? What do you lose when you go into the beginning of a long transmission line and put in 4.5 megawatts? What comes out the other end? Is there an insertion loss?
Mr. O'Gorman: It is about 5 per cent.
Senator Milne: Per what distance?
Mr. O'Gorman: I think it is a generic 5 per cent loss.
Ms. Howland: Generally, there is a 5 per cent loss to get it into the grid, and then there are different calculations across the province for the overall grid that can be as high as 9 per cent, as low as 3 per cent.
The Chairman: However, it varies with distance, does it not?
Ms. Howland: It varies by distance, but also by the nature of the facilities in the area — what type of line is moving, how many substations, what is the load, the load balance and the generation balance.
You can have a cumulative effect, depending on where you are, of up to double digits in terms of losses in certain areas.
Senator Milne: Has any thought been given to locating turbines — coming to wind power generation — along hydro lines so you are right there on the grids?
Has any thought been given to small turbines that would power a house or a factory building? Could you put several of them up on the roof where nobody can see them so people do not complain about them?
Is there any experimentation or testing going on? Many homes out in rural areas have huge radar dishes to pick up all the television channels, so what is wrong with having a turbine too?
Mr. Edworthy: Senator, I can try and answer that. First, on locating along hydro lines, certainly, as Mr. O'Gorman said, all projects look carefully at the distance to power lines because it is very expensive to interconnect.
It is not a trivial cost to interconnect just a small machine to high-voltage lines. The protection, the circuit breakers, the transformers are all significant costs. It does lead us to try to build larger wind facilities with one substation.
As an example, the circuit breakers that we typically use for a 138,000-volt connection cost up to half a million dollars each, whatever the size of the wind turbine.
Therefore, we are driven to be a little more centralized. The good news is that when we do connect on these rural lines, it helps with efficiency and reduces the losses considerably, because instead of sending electricity from a central plant all the way down to Southern Alberta, we are actually pushing in the other direction. That saves energy and makes the system more efficient overall.
That is a big plus, even though the lines were not originally built for that use and we are running out of them in places.
With respect to smaller wind turbines, there has actually been a pretty good business in those over the years. Before I got involved with Vision Quest and I was selling equipment, we had a successful project with the hunters and trappers association in what is now Nunavut and sent up packages that would electrify small villages.
The challenge is that that technology tends to be designed much more for cottages, recreational properties. It is not heavyweight technology. It costs a lot and the consumer products wear out. They are not made to the same industrial specifications as the machines we are talking about here.
There is certainly an ongoing market for that, but it is very small. I know the Canadian Wind Energy Association is making a big effort to revitalize that market and pay attention to it because of the degree of interest.
Everyone would love to have their own windmill, but the fact is to do it economically and efficiently in Southern Canada, the wind farm approach seems to make the most sense.
Senator Milne: That is interesting, because I can remember back in the 1940s before electrical power reached much of rural Ontario, my uncle had a little whirligig up on the end of the barn that powered the radio, but there were also batteries to store what you were making.
I do not know what rules you have here, but some provinces have allowed individuals who are generating power to feed into the system, and as a result, either actually make money or reduce their own power costs.
This is happening in Ontario, but they do not allow, for example, lumber companies that are now beginning to use the biomass, the waste, for cogeneration to feed into the grid, which seems to me rather short-sighted.
Is that happening here in Alberta? I know you have lumber companies that are using biomass for cogeneration.
The Chairman: Do you not have a project in Grande Prairie that is specifically cogeneration?
Senator Milne: That is what they are using there, is it?
Mr. O'Gorman: Yes. Canadian Hydro is building a biomass facility, and we are right next to the Canfor mill in Grande Prairie. We use the bark and the sawdust that would otherwise be either sent to a landfill or sent up a silo.
Senator Milne: They use the black water somehow too, do they not?
Mr. O'Gorman: That is in pulp mill. In a sawmill, as distinguished from a pulp mill, you have basically just bark and sawdust. You have bark and sawdust in a pulp mill as well as what they call ``black liquor.''
Bark and sawdust are called ``hog fuel.'' I do not know what the rules are in Ontario, but yes, we are supplying the mill, and we are also supplying to the grid.
In fact, we are supplying half of the Alberta infrastructure green power purchase. That is basically wind from Southern Alberta and biomass from Northern Alberta on a 20-year basis. The long-term contract really facilitated the development of that facility.
Ms. Howland: I should just add, senator, that Ontario, given their impending energy crisis, has identified the cogeneration barriers and just last week announced the creation of an independent body to specifically deal with cogeneration.
Senator Milne: That is good.
Ms. Howland: For industrial applications.
Senator Milne: I was doing other things last week so I did not hear that. I am delighted to hear that. It is high time.
You talked about renewable energy certificates and allowing the consumers to offset the indirect emissions associated with electricity production. How exactly does that work? You mentioned problems such as exporting expertise and jobs in order to gain carbon benefits rather than doing it right here. Why can we not do it right here?
What are the barriers? What are the specific problems?
Mr. Edworthy: I should start off by saying we began selling such certificates the very first week we started generating with wind in Alberta in 1997. The purchasers were optimistic about their value, either as part of early action in those days, or, eventually, under Kyoto.
We worked hard to get some national standards and certification. We have also worked with the U.S. standards group that handles that because there is a brisk trade in these in the United States, interestingly enough.
They have gone through many permutations, from what we originally thought of as verified emissions reductions, to green tags or renewable energy certificates. It is mostly the latter that are being talked about now.
There is no particular barrier to selling to a motivated individual or company in Canada or the United States right now, and we continue to do so. In fact, that is what Ms. Howland does for us, and she is probably the most prolific salesperson of this product in North America.
In the last few years, sales have dropped off dramatically in Canada. The reason for that, as near as we can judge, is the uncertainty in the policy area with regard to climate change plans. Will you be able to use the offsets or the certificates from renewables or wind energy for Kyoto, for reducing your emissions on paper as offsets?
The sales have collapsed. This is at a time when, as Mr. O'Gorman and Mr. Provias have said, our development costs are still rising. What was always a very tough industry is now extremely tough. That is why I focused on urging policy firmness in that regard.
Senator Milne: That is very interesting.
Mr. Provias, you talked about the equipment needed for wind generation and building the turbine. All these parts have to be imported? Where did they come from? Where is the industry that is making these, and how come we cannot get into this industry ourselves?
Mr. Provias: I will speak to our experiences with our last project, just to use that as an example. On our last project we used General Electric turbines, so their responsibility was to provide the basic components of the turbines from their different locations.
They were outsourcing the blades, so they are manufactured in Brazil. They arrived at the port of Houston and were transported to Southern Alberta.
There is some optionality in towers. There are some tower manufacturers in Canada. A large part of the decision process as to where the towers ultimately came from was related to the manufacture of the turbines and the warranties and specifications that they were insisting on.
In our case, although we did pursue a Canadian sourcing, they had to be sourced from the U.S. due to timing and specification needs. I believe they came from North Dakota.
Senator Milne: That is not too bad.
Mr. Provias: Not too bad.
On top of the turbine sits what looks like a minibus, inside which are the gearbox, the generator and the control systems. General Electric's main assembly point was in Tehachapi, California, for some historical reasons having to do with where their wind business originated.
These nacelles, as they are called, were assembled in California and were again transported. Something like 160 large truckloads arrived on site, bringing all these different parts from California, Texas and North Dakota.
Senator Milne: Only one.
Mr. Provias: Not for one turbine; for, in our case, 20 turbines. That long haul is a huge factor in the costs.
In terms of the Canadian activity in Ontario and Quebec, I know there are some discussions going on about moving some assembly plants into Quebec, in particular, as part of that RFP process.
Hopefully, that will bring about some synergies, but additional competition is needed in North America. When you talk to General Electric or Vestas or other turbine manufacturers, the biggest factor holding them back is the critical mass of turbine orders.
In the absence of turbine orders, the companies that have historically had a basis in North America, like General Electric, are competing primarily against the European manufacturers that do not have a Canadian or U.S. presence from a manufacturing and assembly standpoint.
Senator Milne: Instead of shipping something from Brazil to Houston and then transporting it by land up here, it would almost be cheaper to send it through the channel and up to Prince Rupert would it not?
Mr. Provias: I cannot answer that. I know they are trying to deliver the best price, and we ultimately judge them on that.
Those orders took place probably a year and a half ago. The issue is that with commodity prices rising over the last year, any gains in turbine cost-efficiencies have been cancelled out.
Senator Milne: Completely offset by the cost.
Mr. Provias: Yes.
Senator Milne: You talked about the footprint of a turbine being smaller, but it is not a whole lot smaller in the case of a wind farm. The complaint from the BANANA people is they are pretty ugly. It is not a terribly beautiful sight when you see acre after acre after acre of these things driving through the mountain ranges in California.
What kinds of concerns do you get about these turbines? Is it bird collisions, noise pollution? Inconsistent output, of course, is always a problem that somehow has to be offset.
Perhaps it could be offset by putting these turbines along power dams.
Mr. Provias: The first part of your question, Senator Milne, was related to the footprint and aesthetics of turbines.
The footprint of an individual turbine is extremely small. It is amazing to see, when you look at the reclamation after construction, that you are literally right up to the base of the turbine in terms of useful land.
Senator Milne: There is one on the CNE grounds in downtown Toronto that has hardly any footprint. However, a wind farm is a different matter.
Mr. Provias: There are a couple of points about wind farms. One is turbine sizes. The fact that they have increased means that for a given megawatt-sized farm, less turbine is required.
From an aesthetic standpoint, you certainly have fewer machines now compared to the last five years, the last ten years.
Most people, when they think of negative aesthetics, think of the California experience, and anybody in the business, whether relatively new to it or those who have been championing it for decades, would agree that that is not what happens today.
When we look at developing a wind farm, we do pay a lot of attention to landscape design and spacing of turbines.
We are trying to optimize the landscapes of a wind farm relative to the surrounding terrain. Not all wind farms are created equal in that regard. We fully appreciate that that will always be an issue, and we need to do our best to demonstrate to the public that we are optimizing the aesthetics as much as possible.
There are those who support wind farms and like the look of them, and clearly there are those who do not, and hopefully there is middle ground that will continue to allow development to take place.
We believe there is a middle ground. On the noise pollution and bird collision aspect, there are standards and regulations covering the building of wind farms. We believe that those standards can be met.
Wind farms can coexist satisfactorily with the immediate neighbours or landowners from a noise perspective.
We pay a lot of attention to how standards can be exceeded and problems minimized, so we are being proactive in dealing with those issues.
Every proposed wind farm has to go through bird migration studies, and with those studies and proper siting considerations, that particular aspect is easily managed from our perspective.
I have lost track now of your third question.
Senator Milne: The third point was really a suggestion that people who are developing these could solve their grid problems by putting them along hydro dams to alleviate the variability of supply.
Mr. Provias: That was the point I was making in the presentation, that there are grid synergies between the variability of wind, as you noted, and the flexibility of hydro power, with its associated dams.
The other example I used was gas-fired generation, by virtue of the fact that it can be dialled up or dialled down.
As I mentioned, the U.S. Department of Energy gave a talk on the state of affairs in the U.S. They made specific reference to how utilities are looking at that complementarity more and more, and how certain regions of the U.S. are able to blend the variability of wind with the flexibility of either hydro or gas. What was initially viewed as awkward from a grid management control system perspective is becoming more synergistic in some regions, and the U.S. believes that that will become even more so as the electricity regulations there become more balanced in dealing with the variability and flexibility of renewable energy.
Right now the regulations are not geared to that. Their view is that as the regulations shift to consider more of the performance attributes of renewable energy, there will be more satisfactory grid management and more benefits to the utility as well as to the generator and consumers.
Ms. Howland: Can I just add a couple of things?
I just wanted to clarify something in terms of the aesthetics and land use. I think it is important to note that in our study, as well as independent third party studies that other groups have done, public support for wind energy is well over 80, 90 per cent.
In terms of the big picture, there is very little opposition. It is important to re-emphasize that the companies you see here today engage the local community to deal with these issues.
The Chairman: That is, as long as you build it over there, right?
Ms. Howland: Because of the economic benefits that the landowners are receiving through royalties, there is usually a very high level of support.
Mr. Edworthy: In fact, at our open houses, most of the discussion is not so much about what will it look like but how do I get to be a participant in the wind farm. There is no fear because there is such a high degree of familiarity in Alberta with wind energy facilities. There is virtually no NIMBY in Alberta, or anywhere where there are active projects.
Now that does not mean there are no players making mistakes and initiating some of that attitude, but as Ms. Howland said, the players you see at this table have done a very good job.
Can I just address another issue? You talked about variability, because there is this myth that wind is very intermittent, almost random, and you never know when it will come on.
It is important to challenge that, particularly at our latitude in Canada.
It is our experience, with 220 wind turbines, that our production tends to go down at night and rise in the early afternoon.
Senator Milne: After 4 o'clock in the afternoon.
Mr. Edworthy: Even early afternoon, particularly in the summer. It peaks between 1 and 5, and it is higher in the winter than in the summer.
In fact, the industry tends to behave in Alberta, where we have the most experience, like a peaker. I always ask people, if we were to store this energy and put it on at another time, when would we do it?
I strongly suggest that the myth that wind is intermittent and variable and does not match the load is sometimes just that — a myth. There are certainly places, like Iowa, where it does not match the load. However, in California it tends to match the summer load, the air conditioning load, very well. It is not much of a winter load, which is why snowbirds often say the wind farms are not working, because there is no wind, but there is also no load.
Here we tend to have a very good match, better than 90 per cent on average in Alberta, and I think that is an important point to make.
Senator Milne: That is very interesting. I wanted to congratulate Mr. Lewin on using methane from landfill sites. I hope you are looking at other areas, because Calgary must have a big landfill site somewhere.
Mr. Lewin: It is a strange thing to say, but we like landfills. Not all landfills are created equal, I am afraid. Yes, we have looked at Calgary's landfill. As far as we can determine, it tends to be a much dryer landfill. You have to have the right conditions and, unfortunately — or otherwise — the right mix of waste product going into the landfills before you get the biodegradation and the methane produced.
We have actually signed up for methane gas from a landfill in Southern Ontario, and we have been part of a consortium in B.C. as well.
Senator Milne: Which landfill in Southern Ontario?
Mr. Lewin: I knew you would ask me that. It is in the southern part of the province.
Mr. Boston: We will have to get back to you on that.
Senator Milne: It has to be somewhere near Toronto.
Mr. Lewin: Can I make a comment, by the way, on the renewable energy certificates? It is somewhat of an impediment. I think what it really comes down to is the Kyoto rules as they are drafted — or the interpretation of the Kyoto rules, and I am never quite sure which is correct — have in many ways become something of a restriction on encouraging people to do the right thing and to try these kinds of projects.
Our constant frustration with the interpretation of the Kyoto Protocol is if some of the rules could be relaxed, all kinds of things would happen and opportunities would be created.
For example, the conditions on our new Genesee 3 unit require that we offset our greenhouse gas emissions, carbon dioxide, down to the equivalent of a natural gas-fired combined cycle unit. We committed to doing that.
Now provincially we are allowed to go anywhere to acquire those offsets because the province does not constrain us. When 2008 arrives and we fall then under this international agreement called the ``Kyoto Protocol,'' we can only acquire those either domestically or from other Kyoto signatory countries.
It reduces the market from where you can obtain these kinds of offsets.
Senator Milne: It certainly reduces the nearest market.
Mr. Lewin: Exactly. The dollars follow the course of least resistance. We will want to buy from the lowest-cost provider. Currently, the United States is not a Kyoto signatory, but there are all kinds of opportunities there that are third party verifiable, and we are using them today.
They are verified by PricewaterhouseCoopers. We meet the rules in place provincially, but come 2008 we could not continue to do that because the U.S. is not a signatory to Kyoto. It takes away the opportunity for us to continue to do that and minimize, obviously, the costs as an operator.
Senator Milne: That is very good to have on the record.
Senator Adams: I come from an area where the only problem is that most of the equipment could not stand up there. The wind is too strong.
I begin with a question to the Canadian Wind Energy Association.
My interest is in the Nunavut area, with the very high cost of living up there, and I pay 45 cents a kilowatt hour at my home. If I want to get into the diesel business, I pay 47 cents a kilowatt, and so does the community.
To me, it does not really have much to do with a number of power corporations, but those people there that are really not interested too much in seeing the cost of energy go down for the community. People there work for the government. It is not privatized. They are very difficult to deal with. They do not really care, as long as they get paid eight hours a day, 12 months a year.
The people in the community, they want to have home ownership, and they are paying high power costs and a higher cost of fuel; they pay taxes, property taxes and school taxes. It is very difficult, living in Nunavut, to even privatize it and to have the wind generation.
Right now we have one experimental generator, set up about three or four years ago, for 60 kilowatts. I asked Nunavut Power Corp one time, ``How much do you put out, every year, for 360 kilowatts?'' ``Oh, it is a secret. I cannot tell you.'' ``I am on the Energy Committee, and the Senate wants to know what you guys are doing up here with the experimental 60-kilowatt generator.''
I find out one year it makes somewhere around 139,000 kilowatts. I thought it was very good for a 60-kilowatt generator.
The only thing is, if that 60-kilowatt generator produces 139,000 kilowatt hours in one year, and if it costs 45 cents a kilowatt, it is very difficult to find even one owner to invest in a 60-kilowatt generator.
Any kind of generator you make has to have some kind of cooling system. Sometimes, they have to be kind of open.
That one we have right now in Rankin was even set to 60 kilowatts, and we have the problem that some of the bearings for that wind generator break.
I do not know about new technology coming out now. I used to do some maintenance on some of the generators in the community, put a load on, put in a 45 gallon drum and put salt in it.
In the meantime, there are two things: If in the future up there in Nunavut, any investment would be able to make a profit and to cut down the costs. Right now, people are concerned about wind noise and stuff like that, and every windmill generating now cannot go over 60 kilometres an hour. After that, they put the brakes on automatically.
Now we cut down the noise, but if you go up over 60, the props you are talking about, made in Brazil, start breaking up.
We have a problem with the system up there. Are we able to have better technology now and a windmill system able to stand up in the Arctic? I have two friends who have had one machine up there for 30 years, in Cambridge Bay, and my other friends had three up there; they maybe gave up. They told me every time it breaks down, they had to go up there, fly it in. It cost them $5,000 to come back, do the maintenance to the wind generator.
Now I think we had a promise before Christmas from the minister. He says Nunavut is a priority for the wind generation. He told us that in our committee in Ottawa. I hope he will be able to give some money to develop more of the community in the Nunavut area.
I do not know if you guys have some experience up there in the territory, in Nunavut.
Ms. Howland: Mr. Edworthy certainly has some direct experience in the area. Canada's North has had some interesting challenges with respect to wind energy.
In a lot of respects, they were early adopters of the technology and faced some of those barriers that you mentioned, such as not having the expertise to do the maintenance, having to transport the equipment to southern areas for maintenance, and just increased costs from shipping people and parts. It has certainly not led to a very great experience to date.
That is not to say there is no opportunity. In terms of manufacturing turbines of the size that you mentioned, the 60 kilowatt to 200 kilowatt, Canada is actually developing some good expertise in that.
A couple of companies in Atlantic Canada are specifically focusing on building up expertise and manufacturing in that technology for use in the remote and northern communities.
Our association proposed a specific remote and northern communities initiative as part of our requests in the 2005 budget. We wanted to see some dollars go into R&D because that is one of the areas in the wind energy industry where more work is needed to perfect the technology so you do not have these maintenance or operating problems.
We want to see just a few dollars go into the R&D, and then a focus on a three-case study development project, actually putting installations in remote and northern communities to get the on-the-ground experience. We believe the industry is viable there, but they are facing the same challenges, and to date, the success just has not been there because of some of the costs you have mentioned.
There is a renewed interest, and the capacity exists within Canada to be very good at that. It is also technology that can be exported to other countries as well. It is not specific to the northern applications, but can be used for southern remote community initiatives as well, around the Equator.
Mr. Edworthy: I am a little longer in the tooth in this industry than many of the people at this table, and I was involved in Canada's first wind farm, which was in Cambridge Bay in 1987.
I am afraid I am not quite as optimistic as my colleague. Part of my experience there is that the Arctic is incredibly tough on equipment, as you well know.
You cannot expect a new Ford pickup truck to make it to 2,000 kilometres. It will be broken by the time it gets there. None of us who live in the south can begin to imagine how tough it is on equipment and the infrastructure.
At the same time, it is a very small market, and logistically, you can only have relatively small machines in these communities because of the challenges of making foundations, of lifting the equipment, of moving it around. We just do not have access to the same equipment.
The market in wind turbines has now moved way beyond these sizes. We are now involved with a 90-metre rotor diameter machine in Southern Alberta that is capable of 3,000 kilowatts, but the right size for Arctic communities is, as Ms. Howland said, in that 60- to 200-kilowatt range.
It is great that we are working on those, but what tends to happen is you do not get the latest technology. You get something that is really a reworking of an older, smaller machine of a previous generation. It is almost like a self- fulfilling prophesy because you end up with a cast-off opportunity.
Now, encouraging progress in this area is very good. That does provide some optimism, but the harsh reality is that with a small market, the tough logistics and the tough conditions, it will cost a lot. Hopefully not as much as 45 or 75 cents a kilowatt hour, but it will certainly not be the 10 cents a kilowatt hour we see in the south.
Senator Adams: I think there is a future up there, an opportunity to be able to provide that. The only problem is the maintenance. New technology is difficult to maintain up there. I think the experience needed for maintenance is kind of separate from some of the switchboard generating experience in the community.
We have 26 communities that we are concerned about environmentally. We are burning 365 times a year, 24 hours a day in 26 communities, plus in the territory, and the government is concerned about the environmental damage we do.
Mr. Edworthy: Not to mention the shipping of the fuel. The risk in shipping the fuel into the communities and storing it is very high.
I totally agree with you. I just do not want to sugar-coat the solution.
Senator Adams: In the meantime, down south you still deal very much with the municipality. Do you model the system more like in the States? I have been in California a few times, especially the San Francisco area.
How does the system work, like hydro in Alberta and getting it to the private resident and the policy of the government, especially provincially for the utility board? Is it easier to produce more kilowatt hours?
Ms. Howland: I think the biggest success, within specifically Alberta, has come from the fact that there has been a competitive market. There have been a lot of drivers allowing all the resources to develop as appropriate within this market. We still face challenges, obviously, that we have touched on throughout our discussion.
Senator Spivak: I have one question about the Genesee project. It is very good for sulphur but not so good for carbon dioxide emissions because it is only a 10 per cent reduction.
Is the existing 18 per cent lower than the average? That is 762 megawatts, but what about the rest of your coal-fired generators?
First of all, what is their performance like? Are they equipped with the latest technology or are they old technology?
Mr. Lewin: With respect to your first comment on Genesee 3, just to be clear, moving to supercritical — which was just jargon for higher temperatures and higher pressures — means that the overall thermal efficiency of the steam cycle is improved, as you mentioned, by about 10 per cent compared to the other units at Genesee. When you compare it, on average, to the older plants across the province, then it is about an 18 per cent improvement.
By going to that best available technology, you are in fact getting that improvement in efficiency. We have also committed — and it is a requirement of our operating licence now through Alberta Environment — to further reducing the carbon emissions down to the equivalent of a natural gas combined cycling unit. Therefore, we are reducing carbon dioxide by 52 per cent, not just 10.
It is a significant reduction overall. The technology to do it at the plants is not economically available. We have to go elsewhere — landfill gas projects, wind, hopefully, if we can count those. We are still not sure. It takes projects like that, where we can, in other words, capture offsets, or even go to the marketplace and purchase offsets, to reduce it down to that standard.
The existing units are 1980s vintage. I would say probably 1970s in terms of the design and so forth. They are older plants.
When the Kyoto Protocol kicks in in 2008 and we see the federal government's plan for dealing with those particular plants, then we will have to respond similarly.
However, from a technology point of view, there is nothing economically available to us to capture that carbon dioxide. We have to, again, adopt the process of either purchasing offsets or investing in offset projects to reduce the emissions, or the emission intensity, likely, but we are still anxious to see what those targets will be.
Senator Spivak: What part of your energy output is coal? What percentages are from those old plants and how feasible is it to put in scrubbers or whatever? There must be better technology for when that kicks in? That is still a big part of it; there is a lot of coal in Alberta and it is cheap.
Mr. Lewin: That is the challenge, of course.
Senator Spivak: It is not going anywhere. You will have to deal with that.
Mr. Lewin: There is no other market for the coal that we use either, so it is a relatively secure supply in terms of price as well.
Senator Spivak: It is not good for steel?
Mr. Lewin: Not the coal that we use. The metallurgical coal from the foothills and so forth is suitable for steelmaking. In fact, I understand it is being shipped to China, as we speak, for the steel operations there.
The Chairman: But you do not use that.
Mr. Lewin: No, we do not use that. That is much higher-value coal, so that has a market in steelmaking. We use the lower-quality coal, the subcutaneous coal, and there is really no other market for it. We have, depending on how you calculate it, 80 to 1,100 years of economical coal supply in this province. The challenge is to use it in a more environmentally friendly way.
There is no what you could call a scrubber, or a device or something, that you could economically attach to the existing units to capture carbon dioxide, and then presumably do something with that.
There is nothing economically available to do that, and there is no infrastructure available to do something with the vast volumes of carbon dioxide that you would have.
Now, one of the projects that we are working on under the Canadian Clean Power Coalition is to look at the next electricity generation beyond the supercritical and to ask ourselves, how can we continue to use coal but remove a lot of the big five emissions, as we call them? The big five emissions are nitrogen oxides, sulphur oxides, particulates, mercury and carbon dioxide.
By going to gasification of coal, which is what we have concluded is the next step, we can eliminate significant amounts of those big five emissions.
Right now, there is no black box, for example, that we can simply attach to the existing plant and do any of the things that we would all like to do.
Senator Spivak: We are talking about how many years into the future before that happens?
Mr. Lewin: Not that long. In fact, we have been working with the coalition that comprises the utilities in Alberta, the coal suppliers, but also the provinces of Alberta, Saskatchewan and Nova Scotia. At one time, Ontario was part of it, but decided to not continue.
This year, we are getting to the point where we will be coming back to the different levels of government, particularly the federal government, through Natural Resources Canada — who, by the way, are part of this Canadian Clean Power Coalition — for some funding help to go ahead and build what we call a clean coal demonstration project.
Now this will be likely of a commercial size, 300, 400 megawatts, and most likely based on gasification of coal. You have to also ask yourselves, what will you do with the quantity of carbon dioxide captured in the process?
We are fortunate in this province that the coalfields are very close to the Pembina oil fields, where there are a lot of shut-in wells. You can, through enhanced oil recovery, recover more oil from those wells. That has been happening in Weyburn, Saskatchewan, for a number of years.
Senator Spivak: One more question: At the GLOBE conference that is held every two years in Vancouver, there was one project that featured technology from, I think, China which suggested that you could somehow use concrete blocks to reduce the carbon dioxide and also make it easier to make cement.
Mr. Lewin: Well, we do that today.
Senator Spivak: You do that.
Mr. Lewin: Yes. EPCOR actually sells that technology.
Senator Spivak: So you are using the technology?
Mr. Lewin: Yes. What that is referring to is the use of fly ash, the ash content of the coal we capture, and we actually sell it. We sell it to Inland Cement, and I know that some of that fly ash is finding its way down to California for some road building activities. Actually, you can use it for building blocks for housing.
Senator Spivak: Does that reduce the carbon dioxide emissions?
Mr. Lewin: It does in a roundabout sort of way because it simplifies the process that the cement manufacturers have to use. It reduces their carbon dioxide production.
Senator Spivak: Right, but not the carbon dioxide emissions?
Mr. Lewin: Not in our plant. No, it reduces them at the cement manufacturers' plant. You have to think of it as an integrated process.
Senator Spivak: Thank you.
The Chairman: Ladies and gentlemen, I did not get to my list, and we do not have time for it, so I think it is possible we may want to ask you to come and talk to us again, or we may invite you to come and talk to us elsewhere.
Notwithstanding how busy you are, we may still have the temerity to ask you to come and talk to us again, because you have been very informative and very useful to us in our various questions about various aspects of our mandate.
We are joined now by Dr. Duke du Plessis, who is the Senior Research Manager for Clean Power and Petrolium Technologies, Alberta Energy Research Institute; and by Dr. Eddy Isaacs, who is its Managing Director.
Dr. Isaacs has to leave us at 12:50, senators. Dr. Duke du Plessis, do we have you for that last 10 minutes?
Mr. Duke du Plessis, Senior Research Manager, Clean Power and Petrolium Technologies, Alberta Energy Research Institute: Yes.
The Chairman: Then whichever of you wishes to begin now has the floor.
However, I would ask the senators to put the questions they have for Dr. Isaacs first because we have Dr. du Plessis for an extra 10 minutes.
Mr. Eddy Isaacs, Managing Director, Alberta Energy Research Institute: First of all, I thank you very much for inviting us. It is a great pleasure on our part to be here and to tell you a little about what we are doing.
We did put a position paper together that talked about energy development and future outlook.
I should say — and I would like to apologize — we did not really tell you what the Alberta Energy Research Institute is all about. Therefore, I propose that I spend a couple of minutes at least telling you what we have been doing and relating that to the position paper that we put forward.
The Alberta Energy Research Institute was established as an arm of the provincial government in August of 2000. It is sometimes referred to as the son of AOSTRA, the Alberta Oil Sands Technology and Research Authority.
Our mandate has been expanded to include all energy of importance to Alberta, and also to position Alberta for the future in energy. We have an active and powerful board consisting of business, industry and government members that we as staff report to, making sure that all this is done in a very strategic way.
I should say that very early on, we looked at the challenges facing the energy sector here in Alberta, and also the opportunities, and developed a strategy that we call the Alberta innovation strategy.
Our role is to invest in technology, in innovation that will, if you like, satisfy the strategy or lead us to achieve the strategic directions.
I should say the strategy also became part of Alberta's climate change action plan, because we not only talked about energy, but we talked about clean energy.
We talked about climate change, and we talked about important ways of integrating across the various forms of energy to achieve synergy and what we call an integrated energy economy. That is, an economy that can use the by- products of one form of energy to, if you like, allow the other parts to work much better together and achieve greater efficiency, utilization and environmental performance.
As we developed the strategy, we recognized early on that we would not be able to achieve this strategy alone and that we needed to do that very much in collaboration.
A key principle that we developed was the idea of collaboration and integration. We talked about collaboration across the country, not just in Alberta. Even though this was Alberta-led, it has evolved by bringing people together. It has evolved into an energy innovation network that could serve as a model for collaboration and to accelerate innovation, if you like, in this area.
That is by way of introduction.
I also wanted to just give you a feel for the position paper that we have put together that leads to the idea of the energy innovation network, which, incidentally, is to be publicly launched on March 16 in Ottawa and Calgary simultaneously. We are inviting people to that launch as well.
Our position paper starts by talking about the growth in global demand for energy. This should come as no surprise. We wanted to position it in this context.
In Canada we are looking at unconventional sources of energy because we are running out of conventional resources, whether it is conventional oil or something else. The oil sands are a good example in terms of replacing the dwindling supply of conventional oil.
We also think of unconventional gas as we move into coal bed methane, coal gas. As we move even into high grades offshore, we are starting to talk about unconventional resources.
Even our conventional offshore resources are, in many ways, unconventional, because we now have to do much more work and it is much more complex to produce these resources. It is this complexity that requires the innovation that we are talking about.
That is what that section tries to deal with.
We also consider that when we talk about clean coal technology, as an example, we are really talking about unconventional technology, because the conventional technologies, as David Lewin from EPCOR said, need to be updated and upgraded as the capital stock turnover starts to happen in the industry. We would like to be progressing into the coal gasification or clean coal technologies.
Even that shift, in my mind, speaks to unconventional resources or making use of the resources in an unconventional way.
We provided a section that talks about ``technology oil,'' and that is a case study of the oil sands, because without technology, the oil sands would never have been profitable and economic to produce.
This is a good example of a government-industry partnership that has led to, over many years of patient funding, the current buoyancy in that sector.
I should say this is not without serious challenges when it comes to carbon dioxide management, water management, use of new technology, getting access to additional resources and so on. There are some serious challenges along the way for the industry.
We have tried to identify some of those in the next section on overcoming economic and environmental barriers, and a number of those are listed for you. We think that technology integration is the key to the future. I talked about a strategy that tries to make use of the integrated approach, and is behind the idea of the energy innovation network, which is also summarized here. That is, trying to ensure that we have an abundant supply of environmentally responsible energy, and at the same time, that that is integrated across the various forms of energy in a way that will produce economic prosperity within the environmental performance.
The last section talks about the need to invest in research technology and innovation in a very positive way. This has to be done by governments as well as industry.
The reason governments have to invest is the resources belong to the people. Companies can be here today and gone tomorrow, and if you look at the investment portfolio of many of the companies, they are going after the easier to produce resources in Canada.
We have complex resources. We have major issues that need to be dealt with, and Dr. du Plessis will tell you a lot more about some of the complexity related to, for instance, clean coal technologies.
The idea of applying collaboration to an integrated strategy is an important one, and the investment that was undertaken separately now needs to be done in partnership so that we drive toward achieving certain targets and goals, as opposed to trying to do this in a fragmented fashion.
I think I have taken enough time so I will stop here.
Mr. du Plessis: Just to amplify what Mr. Isaacs has said, fossil fuels will remain the world's primary energy source, and coal will maintain its dominant position in energy generation, particularly electric power generation, for the foreseeable future. Coal will not disappear. It is with us, whether we like it or not.
We will need many energy sources to contribute to the electricity supply mix. However, of the choices we have, few of our energy resources are as abundant as coal. It is by far the dominant fossil-fuel resource worldwide, and particularly in Canada.
On that point, 66 per cent of Canada's energy resources reserves now are coal. Oil sands, bitumen, are at 25 per cent. You can see there are several orders of magnitude more coal than oil sands.
Of course, we are changing. The natural gas markets are changing. Gas is becoming less available and more expensive. The new power plants that have been built recently have been gas-fired, and that clearly has to change in the future, based on economics.
Clean coal is strategically important in helping to meet Canadian energy needs for heat, electric power, hydrogen and chemicals. Coal is a source not only of electricity, but of hydrogen. If we think about moving towards the hydrogen economy, coal will play a dominant role in that.
What will make the difference is that clean coal technologies will deliver energy without environmental compromise. This is the point that is not understood. The technology is not economic, but it has all the potential to deliver clean power economically.
Society's concerns about coal can be overcome with technology, and these technologies are fairly close to being realized now.
The key technology in this area is gasification, which will unleash the full usefulness of coal and provide us with clean electricity, and even hydrogen, for the future.
There are opportunities across Canada for clean coal technology, but immediate needs for advanced clean coal technologies exist in Atlantic Canada, Ontario, Saskatchewan and Alberta.
To make this happen will require visionary leadership, both from our government agencies and from our industry. Clear leadership and the common vision to achieve society's goals for abundant, clean and affordable energy is probably the biggest challenge we face.
The Chairman: Thank you, doctors.
Senator Milne: Dr. Isaacs, you were talking about the kick-off later in March of EnergyINet. Is that here in Calgary?
Mr. Isaacs: It is intended to be a network. The network is intended to catalyze innovation across the country in focused areas. It is not intended to capture all the areas, but certainly serve as a model for anybody else who wants to work in this kind of collaborative fashion.
It is intended to align the funders, the research providers, industry and government and provide them with a common vision for moving forward.
Dr. du Plessis referred to a need for visionary leadership. I think this is correct, but we also need to make sure that we are all moving with a common purpose, as opposed to in a fragmented way.
It is intended to catalyze innovation through a network, and not bricks and mortar.
Senator Milne: This is out here in cyberspace and we are talking about sharing of information and sources?
Mr. Isaacs: It is sharing of information. It is joint funding. It is investing in various technologies. It is creating business plans. It is creating the road maps needed to make intelligence choices of technologies, looking at global intelligence to make sure we understand what is out there, and bringing that back to Canada to create opportunities.
Senator Milne: How do you bring information on the Net, on the web, back to the four investment strategies that you talk about being at the forefront here in shifting from conventional oil and gas to oil sands, coal bed methane or, hopefully, listening to our last witnesses, garbage-produced methane, which is certainly out there already? Normally, garbage-produced methane is closer to sources that use electricity and closer to the grid.
I do not see how you are getting from never-never land out there on the web, with ideas floating around and sources and places where people can go for information, to an actual investment strategy.
There has to be somebody putting all this together and quite a bit of money behind it.
Mr. Isaacs: That is correct. I apologize that I did not make that clear. When I said ``the network,'' I did not mean just on the Net. I meant that this network will encompass the federal government and the various provincial governments who now participate — B.C., Alberta, Saskatchewan and, hopefully, Ontario, but they are not there yet.
Both EnerCan and Environment Canada have been participating. The idea is to align the funders so that we are now working in partnership, putting money together, and moving forward with industry to reach certain targets.
When I say ``network,'' it is not brick and mortar, but we could have business offices, if I can call them that, in Calgary, Regina and Vancouver.
It is focused on the key fossil-fuel energies, but also on alternate or renewable energy where that is important to stretch those technologies.
We will need all the energy we are able to produce. We export a lot of that, but we will also in the future need a lot of the renewable energy.
Therefore, trying to bring all that together in an integrated fashion made a lot of sense to us, and there are a lot of examples of where one form of energy can help make another form of energy successful.
Senator Milne: Where and when is this kick-off?
Mr. Isaacs: It is March 16. Next Wednesday, I believe.
Senator Milne: Whereabouts? In Ottawa?
The Chairman: And here, simultaneously.
Mr. Isaacs: Yes, it will be in the Telus Convention Centre.
Senator Milne: Right here. I know a few people who might be interested in coming to it.
Mr. Isaacs: I will send an invitation electronically.
Senator Milne: Thank you very much.
I understand that the Government of Alberta has provided $30 million over three years, starting about a year and a half ago, for investment in sustainable energy, and the funds are shared between you people and Alberta Environment.
You have been looking at fuel cell technology with that? What specific applications are you looking at and what progress have you made?
Mr. Isaacs: This was part of the climate change action plan that was developed about a couple of years ago. This funding was jointly provided to all of us. In the case of AERI, we are investing that money in technology and innovation.
The Department of Environment invests in the operating costs of Climate Change Central and other initiatives, including the buying of green power to try to encourage that.
We have been looking at various technologies, for example, oil recovery technologies that are less environmentally intrusive — such as moving from steam to solvents — and less energy intensive.
Those are the kinds of things that we have been doing. You mentioned the fuel cell. We now have a fuel cell program that includes bringing key research providers together from the University of Calgary, the University of Alberta and the Alberta Research Council.
We are now trying to coordinate that activity with the activities going on in B.C., especially at the NRC Institute for Fuel Cell Innovation and at the University of Victoria. As we speak, our program director is in Victoria talking to some of the people working in the fuel cell area.
Mr. du Plessis: Specifically, Alberta does have a fuel cell demonstration facility at NAIT, the Northern Alberta Institute of Technology, which is jointly funded by industry and the Alberta Energy Research Institute.
That is a first step towards gaining experience with this new technology and training people in its use and servicing.
Senator Spivak: Dr. du Plessis, I very much agree that you have to look at clean coal technology, because even if in Canada we could avoid using coal, it will still be used worldwide.
If you look at the life cycle of, say, coal gasification, what is the cost compared to fuel cell generators, which are very close to becoming a reality? Nobody has mentioned nuclear here.
In Manitoba, of course, we are lucky. We get our energy from hydro, and in Ontario it is a lot of nuclear energy. Quebec is hydro, B.C. is hydro, and Newfoundland might be. Therefore, we are really talking about Alberta and Atlantic Canada in terms of the dominance of coal. I understand it is important worldwide, and if Canada develops the technology, it will be a huge benefit.
What can you tell me about the true cost if you were to take the entire life cycle and internalize all of the costs? It seems to me that industry cannot keep its head in the sand and suggest that the external costs should be borne by the taxpayers and somehow hidden.
I do not think that is on for the future. We have to know what the real costs are.
Mr. du Plessis: I think we do know what the real costs are, and it depends on whether you want clean power or dirty power.
We know what it costs us now to produce power from coal, for instance, while the carbon dioxide is emitted into the atmosphere.
If we want to have clean power from coal, we have to remove the carbon dioxide and that costs additional money. Electricity will simply be more expensive if you make it totally clean, and that applies to fuel cells or whatever. You use the technology you need.
The Canadian Clean Power Coalition has done extensive studies to determine the costs for developing clean power.
I want to emphasize here that this power is totally clean, all the emissions are removed, including carbon dioxide, and that cost is roughly 50 per cent higher than we pay for dirty power now.
If you want an example, Genesee would power at $60 per megawatt hour. To build a plant that will totally remove the carbon dioxide, as well as all of the other emissions of concern, would cost $90 to $100 per megawatt hour. These are numbers that have been established by the Canadian Clean Power Coalition.
The question then is who should pay for this additional 50 per cent cost? There will have to be some kind of arrangement between government, industry and society on how you actually pay for your clean power.
The same is true of wind power. Wind power is clean, but it costs more, so how do you make it an economic proposition?
Senator Spivak: Right. However, I am saying to you that clean coal technology is important, but when you make choices about where to invest your money, what is the cost differential between natural gas and clean coal? Natural gas prices are heading into the stratosphere too, and nuclear is not cheap, but what is the cost differential?
You are talking about $100 per megawatt hour. What is natural gas per megawatt hour? What is nuclear?
Mr. du Plessis: Well, the question then has to be asked do you want to generate totally clean power from gas, which means it will be different from what it currently is? You have to take the carbon dioxide out of the combustion gases from natural gas.
I do not have that direct cost comparison, but you can be quite confident that it will be almost 50 per cent more than we are paying for electricity now.
Natural gas does not produce clean power. Oil sands do not produce clean power. You have to look at the total cycle of where that fuel comes from.
Eventually, it will come down to what is the most abundant source of energy and what is the most affordable? Coal has natural advantages, in that it is abundant and relatively low cost, so the price for coal will remain relatively stable.
The Chairman: Did you say in respect of the questions that Senator Spivak has been asking that clean coal — or the means to burn coal cleanly would be a better way to put it — now exists?
Mr. du Plessis: It exists, but it is expensive. That is one point.
The other point is that the technology is not totally proven in a commercial environment, and that is the step we have to take now. It is particularly true for our type of coal.
It is well known and reliable technology for high-quality coals; we talked about the different quality coals. It is not well known for low-quality coals, and that is what we have here.
Alberta Energy Research Institute is working with industry to bridge that gap, to bring reliable clean power technology, clean coal technology, to Alberta.
Senator Milne: This would apply to Nova Scotia too, because their coal is low quality.
Mr. du Plessis: No, Nova Scotia has better quality coal. There are other comparative situations. They can import fuel oil, for instance, and that coal, incidentally, is more expensive.
Senator Spivak: We are looking to influence government policy, so we have to look at an ideal situation, which is the long term — you also have to look at the medium term — you want power that is totally clean. Do you not agree?
Mr. du Plessis: Absolutely.
Senator Spivak: Thank you.
Mr. du Plessis: I think we all have that goal. I do not think there is any different view on that in industry or government.
The Chairman: In that respect, and before we let you go, Dr. Isaacs, the attitude towards the question of clean fuel and removing GHGs in Alberta is, for reasons that are obvious, different from that in some other parts of the country. We have heard from people all over the country, and in Alberta — and we are hearing it again this time — that what is absent is a clear direction. I hate to use the word ``policy.'' I will even use the words ``national energy policy,'' but with small ``n,'' small ``e'' and small ``p.'' Absent a national energy policy, people do not know what to do, where to go, in which direction.
We heard that this morning from several people who are industrial, for lack of a better term, generators of electricity, who say, with respect to what they should do next, ``We are not quite sure because we do not know which way the Government of Canada will leap.''
I am sorry, I just opened a whole new ball of wax, but you look at this mainly from an Alberta perspective, at least your organization does. I know that with the INet you will look at it in a more open sense.
Are we getting that right? Is everybody sitting around waiting to be told what to do?
Mr. Isaacs: I think that is the industry view, that they need certainty in terms of how things are approached.
The Chairman: That is reasonable, is it not?
Mr. Isaacs: It is absolutely reasonable. They need to know how much it will cost them in terms of carbon dioxide emissions and so on.
We started looking at this purely as an Alberta situation, but we have progressed to the point when we see this as an important Canadian concern.
The reason for that is that we will need all the forms of energy that we can get our hands on in the future, and we will need them to be clean.
I should say that one of the opportunities we have is to think beyond just producing electricity, because clean coal technology allows you to now start to produce hydrogen through gasification.
That hydrogen can be used in the fertilizer business to produce ammonia, as an example, or urea, or in the upgrading of bitumen. It can also be used in, say, dirty hydrogen, because it will not be a pure form of hydrogen that today is used in fuel cells that will produce more efficient energy and fuel cells in the future.
Then the other opportunity is to use the carbon dioxide in the enhanced oil recovery. You now start to look at the various forms of energy and you say to yourself, how do we make these things start to work so we are not just electricity producers or oil and gas producers or petrochemical producers? We are an integrated energy economy, if you like. We produce energy.
The form of energy could be hydrogen; it could be electricity. It is all those forms that we need to bring together.
That lends itself to a strategic opportunity that in my view has to be a Canadian opportunity.
The Chairman: A couple of years ago I was here talking about alternative ways of getting at it, particularly with respect to the oil sands. I was here in Calgary to make an announcement, presentation, unveiling of — you referred to it earlier — the idea of using solvent. At that point, it had moved from a lab to a case of we will actually try this on the ground. Tell us how that is going. Will we be able to save a lot of water by using that kind of technology? Is it successful in its on-the-ground in-place application? In general, how are we doing on the entire concept of reducing the use of water, and the loss of water, in the tar sands?
Mr. du Plessis: I just wanted to make a point. You asked about every province looking at their requirements separately versus together. However, the Canadian Clean Power Coalition is a national industry-driven effort to look at the technology needs and applications across the country. Technology is not usually developed in isolation.
That is what EnergyINet is trying to promote, that we should work together on the common problems.
Mr. Isaacs: Senator Banks, just getting back to your question on substitutes for steam in SAGD operations, I should point out that it does take a long time to develop technology and put that into commercial operation.
It took 30 years from the conception of SAGD by Roger Butler, who was then working at Imperial Oil and then eventually at the University of Calgary, to when it was starting to be practiced in the field.
I would say 30 field pilots were done by different companies to apply that technology to their particular resource, because the resource itself is very important in applications of technology.
It is not homogenous. There are a lot of issues. There are geological factors that have to be taken into account.
On the DOVAP technology, the VAPEX technology, a number of companies have come together with the Alberta government and the federal government.
This is a good example of collaboration, of putting programs together to test key technologies, and it uses a solvent as opposed to steam, so you do not need to use steam generation and natural gas.
Senator Milne: Can you reclaim the solvent then?
Mr. Isaacs: You have to reclaim the solvent. In fact, the economics of that process is based on how much of the solvent can I get back? If I leave any behind, then my economics just collapse, essentially.
A consortium led by Devon Energy is testing that technology in the field. I understand that Devon Energy is now selling that property and another company will take over that consortium. It is a 10-year project.
The Chairman: The field trial?
Mr. Isaacs: The field trial itself is a 10-year project, from 5 to 10 years. We are now into about the third year.
A lot of the work that is ongoing is to test the application of the solvent, to test the rates, the solvent losses, if I can put it that way, to see at what temperature and pressures this will be effective.
A lot of trials have been done using a coal solvent, and not applying any heat at all. There is a feeling that some heat will be needed; it will not be zero heat. There is a powerful technical committee of the industry that meets to make that happen.
Senator Milne: This morning, we had a gentleman from the Pembina Institute talking about deep geothermal sources for oil extraction.
Is your group doing any research on that?
Mr. Isaacs: We became aware through Suncor four or five months ago of the potential of drilling deep wells. The depth that we are talking about here is greater than Mount Everest is high. We are talking about quite deep reservoirs.
You need the key drilling technology to be able to do that. You also need the production technology.
Senator Milne: You need to know where the heat lines are too, in the earth's crust.
Mr. Isaacs: That is correct, but if you drill deep enough, you can get there. You need to use new material, so there are pieces of technology that can come together.
The oil sands operators are meeting together — and we are involved in that — to discuss how to make that technology viable. There are drilling engineers and production engineers looking at that entire technology.
If it does become viable and can be used to produce steam for the oil sands, then as you can imagine, this could be a fantastic development for geothermal energy.
The Chairman: Dr. Isaacs, I know that you find the conversation so scintillating that you have lost track of the time, but you must go now. Thank you very much for being with us.
Mr. Isaacs: Thank you all for having us.
The Chairman: I hope you will allow us to write to you with some other questions, because many have come up that we have not been able to pursue.
Dr. Du Plessis, would you tell us, if you were the king and able to instruct the Government of Canada on what to do now in order to move these issues ahead in a way that is responsible with respect to the economy, employment and resource efficiency et cetera, what you would advise? What does the Government of Canada need to do that it is not doing now?
By way of example, people keep saying, ``Well, we do not have cost certainty.'' My understanding is that the government has said with respect to GHG reduction costs, whatever they are, ``We will not let them go above 15 bucks, and if they do, the public purse will pay for it.'' Therefore, your cost is capped at $15 a tonne.
I use that as an example. What else does the government need to do?
Mr. du Plessis: I think at the highest level, government and industry should agree on a vision for the energy future for Canada. A key component of that will be investment in technology to achieve that goal of clean energy.
Key technologies have been identified that will make the difference, and we need to provide incentives in some form or another for industry to commercialize those technologies.
This will probably happen eventually because the economics will be such that market forces will make it happen.
We want it to happen as early as possible, and I think the government should find some way of incenting early commercialization of the key technologies.
The Chairman: You have obviously thought about that. What means should a government use to do that?
Mr. du Plessis: There are some good examples. The oil sands would not have been developed had the Alberta government not provided a $1 royalty cap on new oil sands development, and that royalty holiday is in effect as long as the companies invest and until they recover their capital cost. That is one way.
The other way is to co-invest with industry in demonstration facilities for this technology, and in that way accelerate the pace at which the technology is totally proven to be reliable.
We have good examples where that has already been done, and successfully, but there are other means.
The Chairman: Would some of them be characterized as sticks rather than carrots?
Mr. du Plessis: No. The ones I mentioned are carrots, and I do not think government needs to resort to sticks.
I think they should have a clear statement of what their expectation is and be willing to share some of the early risk- taking with industry.
Our oil sands development is a classic example of how government shared in the risk. We do not have to look for a new model. It worked and is very successful.
AOSTRA, now AERI, investing in early technology for the oil sands has led to uniquely successful technology in Alberta. I would say that is not a difficult formula. It does not get into subsidies, but it gets into risk-sharing.
The Chairman: It has, though, got into subsidies. The Government of Canada gave substantial subsidies, along with the Alberta government's royalty cap, to bring about those developments.
As we heard this morning, those subsidies and assistance by both orders of government have led to the development of what is now a profitable enterprise that works, of course, to everyone's benefit.
Will those governments, in light of their revenues, and those industries, in light of their obligations to their shareholders, do what you are talking about? That is to say, move the technology along more quickly with only carrots and no sticks? It would be a lovely situation if true. Is it true?
Mr. du Plessis: The government always has the option to use a stick in terms of legislation.
The Chairman: It used sticks to remove lead from gasoline. It used sticks to remove sulphur from natural gas, et cetera.
When the government did those things, everybody said the sky will fall, we will lose thousands of jobs and everybody will run away. None of those things happened and those sticks were successful.
Mr. du Plessis: I am not against that. I think that if you want quick action, then you use the stick and say it will be so, and everybody will find out how to make it so.
The Chairman: Would that be a function of the leadership that you said we need?
Mr. du Plessis: Yes, absolutely. What we lack is visionary leadership. There are ample opportunities and the prizes are phenomenal.
We need a government with vision, a willingness to enunciate expectations and, possibly, if that does not work, to bring in legislation.
I do not think it has to be draconian legislation. It will not take very much to get the industry to move in the right direction.
Senator Spivak: I think oil prices need to be included in that policy, not just oil energy prices, so that consumers share the cost. I do not think it is realistic any more to talk about cheap energy. We can talk about conservation and energy efficiency, but I think somebody has to bite the bullet and say energy will not be cheap in the future.
Do you think that should be part of the equation?
Mr. du Plessis: Well, energy prices are set by the international market. We cannot control that market, so everything you do has to be in context of a competitive market.
I do not think government can set market prices or artificially set prices for energy. You are right, there is no such thing as cheap energy any more, and there will not be in the future.
I suppose we as consumers have to get used to that. If it is to be clean, it will be somewhat more expensive.
The Chairman: Do you think Canadians have figured that out yet?
Mr. du Plessis: No, I do not think so.
The Chairman: Is that not amazing?
Senator Milne: Not judging by the kind of cars they are buying.
The Chairman: I have one final, almost rhetorical question, but I would like to find out if you have an opinion on it, because governments in general do not like to use big sticks.
It is not the best way to do things; it is always best to do things by example, by getting your own house in order, by setting goals and saying, ``Please, for the general good, let us go in this direction,'' and to see it happen from that.
The recent experience is — and I am not talking now just about electrical generation or, in fact, about any industry in particular — the large industrial emitters of one kind or another seem not to have jumped on the bandwagon, if you like.
While government is always reticent about saying, ``Well, we have tried to be at the front of this parade, set a good example and make arguments as to why we should do this for the general long-term good,'' some aspects of our economy have not enthusiastically joined the movement, if I can put it that way.
Do you think that in those cases — I think you alluded to this earlier — if we have made the good argument that appears to be irrefutable and if the examples have been set elsewhere down the road, it is sometimes appropriate for governments to say, to use your words, ``It will be so''?
Mr. du Plessis: Yes, within limits, not overnight and with phasing-in times and so on. Yes, I think it is appropriate to do so. It has worked in other jurisdictions; in California, for instance.
We are the largest emitters in terms of our vehicles. The largest single source of carbon dioxide comes from automobiles. The production source is relatively small in comparison.
The Chairman: Government has, and this relates to a report that this committee released a little while ago, made the point that the arguments have been heard, the good that would follow from common-sense efficiency has been shown, and the economic advantage of our individually turning out the lights, not letting the water run while we brush our teeth, buying ethanol gasoline, and the next time you need a new car, buy one that is more efficient, has been shown.
We are not doing that. We are still buying huge SUVs to drive downtown. Some people need SUVs, but people have not jumped on the bandwagon, given all of the inspiration and Rick Mercer's commercials. For all the years we have been talking about these issues, we still have not convinced people; and we talked about this earlier. We still do not understand that water has a price and that energy is not cheap any more.
So the corollary question to the large emitters and the stick is do we have to do the same with the people?
Mr. du Plessis: That is a perennial problem. I do not think we as a society buy into this concept. We will probably always have excessive, inefficient use of energy.
The point I am making, more than anything else, is that where you invest in technology to make these more efficient processes more economical, and as soon as possible, you win on both sides, particularly since technology creates employment. You are investing in your own future, your own technical solutions, rather than buying credits somewhere else.
I think the government emphasis on technology is the right one. It is a win-win situation and people can buy into that. Nobody will object to government investing more in commercialization of the right technology.
Senator Milne: I want to following on from what you are saying, Senator Banks, because on the last page of your presentation to us, Dr. du Plessis, you mention that one in every six workers in Alberta is involved in the energy industry, the path from concept to commercialization is a long and arduous one, et cetera, and the average technology takes 15 to 25 years to commercialize.
Therefore, the best approach is a government-industry partnership; I quite agree with you. This is the way I think we should be going, but it is not necessarily the way Alberta is going, is it?
Electrical power, energy and oil are completely market-driven.
It is very difficult to marry the two concepts.
Mr. du Plessis: I am not sure that I agree with you. I am saying the government cannot interfere in the marketplace. We cannot set a different price for oil from what the world price is. We cannot set the price of gas here.
Those are governed by market forces, but what we can do is invest in technology to produce these energy sources at the lowest possible cost and in the cleanest possible way.
That is where technology comes in, and that is where government can play, is playing, a significant role in Alberta, and through AERI, is investing significantly. I am personally working with industry on half a dozen projects that are heavily funded by the Alberta government. We are doing it. I think it is a matter of scale. We should do more of that, and we should accelerate the pace of developing and commercializing new technology.
It may be that you can reduce the time from 30 years to 10 years, but that is where government has a role to play. That is the high-risk area where industry cannot invest or does not want to invest because they have to satisfy their shareholders.
They will be willing to share the risk with government because, ultimately, it will be profitable and make money for them. We are talking about a transitional period.
The Chairman: We will work harder in that direction.
I must, sadly, cut off our interesting discussion. I would ask Dr. du Plessis if you would agree to accept some written questions from us.
Mr. du Plessis: Sure.
The Chairman: We would be very grateful for your response to them. We barely scratched the surface with you and Dr. Isaacs.
Thank you for your attendance here today.
The committee adjourned.