Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 20 - Evidence - March 2, 2011 (morning meeting)
CHARLOTTETOWN, Wednesday, March 2, 2011
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 9:10 a.m. to study the current state and future of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good morning, ladies and gentlemen. This is a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources as we continue our comprehensive study on the energy sector as we strive to determine a strategic way forward, given all of the global challenges that are facing humankind in the use of energy and the supply and demand and the upcoming gap between the two.
Without further ado, I would like to welcome Minister Richard Brown, who is the Minister of Environment, Energy and Forestry for Prince Edward Island, and with him today is Mr. Wayne MacQuarrie, CEO of the PEI Energy Corporation on the Island.
My name is David Angus. I am a senator from Quebec and the chair of this committee, which has been engaged in this energy study for nearly two years now. We are in the second phase, which is a fact-finding exercise in the various regions of Canada.
The diversity amongst the Canadian regions is very profound. We are particularly interested to be here in Atlantic Canada this week. We have already been in Nova Scotia and New Brunswick, and we will be in Newfoundland and Labrador tomorrow. We are very impressed by what we see as a new focus on regional cooperation, which obviously can only help matters, especially in a difficult file such as the energy file where collaboration, inter-connectivity, dialogue, conversation and working together are the touchstones that will make for positive outcomes, in our view.
To my right is the deputy chair of the committee, Senator Grant Mitchell from Alberta. To his right, from the Library of Parliament, are Mr. Marc LeBlanc and Ms. Sam Banks. We have Senator Rob Peterson from Saskatchewan and Senator Daniel Lang from the Yukon Territory. To my left is our clerk, Ms. Lynn Gordon, who I think the witnesses probably know. We have Senator Richard Neufeld from British Columbia, Senator Elaine McCoy from Alberta, and to her left, also from Alberta, the only elected senator, Senator Bert Brown. We feel that we are fairly representative; we try to approach our work in a non-partisan way.
I apologize for being a few minutes late starting, ladies and gentlemen. We had the pleasure of an almost impromptu visit with Premier Ghiz and of course Mr. Brown, so we have had a rather refreshing introduction to energy matters here on the Island.
Without further ado, the Honourable Richard Brown has the floor.
Hon. Richard Brown, Minister of the Environment, Energy and Forestry, Government of Prince Edward Island: Thank you very much, Mr. Chair. It is a cold day, but a great day with friends around. I just want to welcome you all to Prince Edward Island. I see number of senators from Alberta. I was one of the Eastern Canadians that went to Alberta in the early 1970s to work in the oil rigs and earn some money to go back to college. I went out with $300 and came back with $200, so it was not a very good adventure. It is tough budgeting out there. I was there when Ralph Klein told us to go home. He and I had quite a few chats afterwards. He is a good fellow.
The crux of my presentation today is a Canada-first policy. I am looking towards this Senate Committee to go back with a report to the Parliament of Canada and to the people of Canada saying that we should have a Canada-first energy policy here in Canada to promote Canadian provinces. I am a strong believer that energy pricing is a major factor in creating jobs and keeping employment in Canada. One of the major costs of many companies is the cost of energy, and the better the pricing that we can give to our Canadian companies for energy, the better the creation of more economic activities for Canada.
We have companies that are looking at potentially moving if electricity prices go up. Maritime Electric Company Limited in Summerside, a utility in Prince Edward Island here, is doing a very good job at working with companies in Prince Edward Island to provide them the best cost possible for energy. I am a strong believer that we need to continue to work to lower those costs as much as possible.
As you see — and our electric utility may correct some of these numbers — from our analysis, we spend about $500 million a year on energy needs for Prince Edward Island. That is electricity, fuel and other products that come in. Seventy-six per cent of our total energy consumption is in the form of liquid petroleum products, which is great. I do not think we get ours from Alberta but from the pipelines that go to Ontario. It is a great resource, and the more we can get from Canadians, the better, I think.
Fourteen per cent of our total energy requirements are in the form of electricity; 12 per cent of that is imported and 2 per cent is produced locally. That is 2 per cent of the total amount of energy, but right now about 20 per cent of our energy is locally produced from wind farms on Prince Edward Island.
Prince Edward Island has a great tradition with wind analysis. We were one of the first provinces besides Pincher Creek, Alberta, to produce energy from wind. We have the Wind Energy Institute of Canada, WEICan, in Tignish. Its research facility is doing some fantastic work in wind production. It was developed in the early 1980s, and it has been doing a tremendous amount of work to integrate wind energy into the grid system and produce high-efficiency wind products. That work continues.
We are also working with hydrogen. We have a hydrogen electrolyzer that is taking wind directly from the wind turbines. We are having some success in that area. It is progressing quite well. Most other hydrogen products need to take power from the grid, as I understand it. They need a constant flow of power. However, in our Hydrogen Village project, we have been able to take it right from the fluctuating wind. It is a very exciting project, and we continue to work on that area.
With respect to Prince Edward Island's energy situation, the total electric energy mix by fuel type consists of 63 per cent of our electricity being tied to natural gas and 17 per cent being tied to nuclear. Our utility here in Prince Edward Island, Maritime Electric, is a partner in the Point Lepreau Generating Station, PLGS, refurbishment project. We do have some concerns about that refurbishment. We believe that Atomic Energy of Canada Limited, AECL, which is a federal Crown corporation, promised that this facility would be back up and running in 18 months. We do not mind a minor delay, but we think a delay of an additional 18 months is unacceptable. We are not looking for anything outside of any other normal contracting procedures. If you were building a house and the builder told you that you could move in in November and then delayed it for a month, you could live with that. However, if he told you that you could not be in until November three years later, you would be a little concerned and you would be after that contractor to at least pay for some of your inconveniences. We believe we have a legitimate contracting concern that should be addressed.
The Chair: Sir, if you do not mind me interrupting you, I have to admit that personally — and I cannot speak for my colleagues on this — I was not aware that P.E.I. was tied into the Point Lepreau project. Could you give us more detail on that?
Mr. Brown: Our utility can also give you details, and I stand to be corrected. We always argue over numbers. I understand it is about a 4.7 per cent participation contract. That contract basically says, "We will pay for operations and maintenance, O & M, and fuel, and we will take 4.7 per cent.''
The Chair: Is that a percentage of the electricity generated?
Mr. Brown: Yes, the electricity the plant generates. When the plant is up and running, it is a very good plant. It has been great for Prince Edward Island in terms of base-load power. It allows us low-cost power relative to other powers, and it is one of those things that levels the playing field for us. It is a great project. We want to see it completed and that nuclear power plant back up and running again. I believe in nuclear power. I think it is a great source of energy. I think it is something that we should encourage more in Canada. The Americans are encouraging it more. I stand to be corrected, but NB Power's financial statements showed $140 million in fuel costs. The financial statements show that when PLGS was up and running, the total fuel cost for that facility is approximately $140 million to produce a lot of power at a relatively cheap cost. Environmentally, it is better than some of the other sources of power out there.
The Chair: Is the production 750 megawatts?
Mr. Brown: Yes.
The Chair: That is the total needs of all of New Brunswick, all of P.E.I. and then some.
Mr. Brown: Yes, it is a great base-load plant. You just get it up and running and you leave it running for 30 years, basically. You have to come down once in awhile; the utility can explain that further when they appear today.
Canada is also a supplier of energy to the U.S. We export a tremendous amount of our energy to the U.S., and under the free trade agreement, we are obligated to keep those percentages, which is fine. We are a trading nation, and I believe our sister country, the U.S., is a great trading partner with us. However, that does not mean that we cannot have a Canada-first policy at the same time. We should not focus on shipping as much as we can to the U.S. when our sister provinces are in need of that power. As I said, in the past, Canada is a nation that was built. The national railroad was built to join Canada together. The national highway system and the St. Lawrence Seaway were both built. These joined Canadians together, and I think some sort of infrastructure for electricity will further build Canadian sovereignty and Canadian ability.
In 2009, more than 10 per cent of our electric production was sent to our southern neighbours under favourable pricing agreements. In the meantime, P.E.I. struggles with high energy rates. Islanders pay some of the highest electricity rates in Canada. We pay the highest, Nova Scotia is second and Alberta might be third for electricity rates in our sister provinces. We believe that with a national system or national cooperation here, we can bring those powers. We are not asking for anything, Senators; we are not asking for any preferential treatment. By a Canada-first policy, I mean that if we are selling electricity to the U.S., we do not want a lower price, we want the same price that the Americans are paying for their electricity coming out of any generator in Canada.
Sometime around 1983-84, Maritime Electric challenged our sister province to the National Energy Board, NEB, on pricing in this area. We won the case, and they had to lower their prices back down to the same as they were selling to the U.S. That was good for both Prince Edward Island and for Canada. Why would we sell it to our competing country at a lower rate than we are willing to sell it to our sister provinces? I think that is unfair. We have to strengthen that law. We have to strengthen the cooperation of the National Energy Board and be able to tell the utilities across the country that this power is available and find ways to get this power to our sister provinces at the same rate as we are sending it South.
On the slide, you can see the oil and natural gas pipelines in North America. Many of them are in the United States, but there are still many of them going east-west, which is good. On the next slide, you can see the national energy grid for electricity; much of it is heading south. I am looking for basically the same thing as the national pipeline but for a national energy grid here.
The next slide shows the differences between what the provinces are exporting to the U.S., how much we are getting back from the U.S. and how much interprovincial trade is happening. You can see from the slide that we are a north- south system when it comes to electricity, and I want to change that around to it being an east-west system.
The Chair: Is that feasible?
Mr. Brown: A Canada-first policy is something we definitely have to look at. I was at a meeting with energy ministers, and someone was talking about a grid system to the coal states, the western states of the U.S., and someone commented on it being an $18-billion project. The Americans just shrugged their shoulders and said, "So what? It is a great project. It brings us power. It keeps U.S. jobs in the U.S.'' We should be saying that about our utilities also, keeping Canadian jobs in Canada instead of exporting them away.
If we can keep our energy costs down, that gives us a competing edge against countries that have lower wages. In some countries with low wages, no wage protection and no occupational health and safety, they can produce things cheaper. However, if our electric costs are cheaper than theirs, we can keep our jobs in Canada. I am a firm believer of that.
Also I am here today to say that we have to beef up the National Energy Board. I know that my friends and colleagues from Alberta remember those terrible days of the National Energy Program, NEP. However, they are gone; it is over. Let it go. Let us get back to thinking of Canada. In the past when I would go to federal-provincial meetings, the talk was all about the NEP in the 1970s and early 1980s brought in by Trudeau, how terrible it was and how we must never do that again.
That was a long time ago. Let us get over that issue and move on. I know we are having a rough time, and federal ministers in the federal government are saying "We do not want a national energy policy because that was what was done in the 1970s, and that gets people mad. We will call it a national framework.'' However, we still need the same thing. We need a national energy policy in this country, a policy that puts Canadians and Canadian provinces first.
I know I might be being a little blunt, but I have heard it said too many times about the NEP and how we stole your energy and how it will never happen again. Let us get over that. We are Canada; we are a nation. Let us move on from that. That is one of the reasons I am here today to say let us beef up the National Energy Board.
I have been around 20 years now, and I have been through the Open Access Transmission Service, OATS, in Canada. It is sad to say, and I always say it to my colleagues, that the only reason — and I stand to be corrected here, but I am a firm believer in it — that we have OATS in Canada is because the U.S. forces us to have it. If we want to sell to the Americans, we have to abide by the rules of their Federal Energy Regulatory Commission, FERC. They tell us that if we want to sell to the U.S., we have to have OATS into our provinces. If they did not force us to do that, I do not think we would have that in Canada today. It is a sad state of affairs that another country has to force us into cooperation. We should be doing it ourselves. That is one of the reasons that I am saying to you today that the National Energy Board Act should be changed.
Senators, you should go back and write a report, but also write a piece of legislation. You can write the legislation and send it on to the House of Commons if you want, changing the National Energy Board Act to have two fundamental principles. Basically, those principles should match, which is sad to state, those of FERC in the United States. It is in my presentation. They have a national energy plan.
Our act should be changed, and I know you will receive criticism saying that electricity is a provincial responsibility, but it does not limit the Senate from putting forth a bill to change the National Energy Board Act to include the following provisions: Ensure that rates, terms, conditions are just, reasonable and not unduly discriminatory or preferential — and I am not talking about within a province, rather between provinces — to promote the development of safe, reliable, efficient energy infrastructure that serves Canadian public interest. If you go back and change the National Energy Board Act to make it a more proactive body instead of just a regulatory body that licenses pipelines and licenses international sale of electricity of energy, if you say, "Look, we want to broaden your mandate to promote cooperation in Canada, energy efficiency and a national transmission system,'' then I think that would be a great thing to have come out of this Senate committee. I know that you will produce a report, but I would like to also see a piece of legislation changing the National Energy Board Act.
They will tell you that sections in the act say that the minister can do this or that. It then becomes political if a minister has to make a decision because they will weigh the interests of their political capital in each province. You senators are appointed on a nation-wide basis, on a regional basis, on sober second thought, and I think it would be a great piece of legislation coming out of the Senate.
Moving on to the House of Commons in terms of we want to better promote Canadian electricity in Canada; we want our National Energy Board to take on that role and promote it, and that we do not have to depend on American law.
The Chair: I think it is a fascinating suggestion, and we have interacted quite a bit with Gaétan Caron, the head of the National Energy Board, and they have been before us at least twice recently. When you say that, Mr. Minister, are your colleagues, the other provincial energy ministers, of like mind? Would we have unanimous support from the provincial ministers for what you have just suggested, or is this a P.E.I. position?
Mr. Brown: I would find it hard to believe that another Canadian minister would say, "No, I would rather deal with the U.S. than with my sister provinces.'' I promote it each time I go to an energy ministers' meeting. When I was in business development, it was at the time of the Alberta issue with the National Energy Policy, and I said then that we should get over that and work together. I think there is an opportunity here for the Senate to take some leadership, to move that agenda and at least have the debate. What is the problem with this? What is the problem with having a Canada-first policy when it comes to electricity? What is the problem with helping our sister provinces or distributing the wealth? You will distribute it one way or the other. You can distribute it through economic means or through equalization. If you help us level the playing field and help Canadians by lowering their power rates and those of Canadian companies or distributing it properly, I think that would be a great thing.
One other issue I want to talk about today is that I think seven out of ten utilities in Canada are publicly owned: Hydro-Québec, Hydro One, NB Power, Manitoba Hydro, SaskPower and I think BC Hydro is still. I would like the Senate committee to go back and level the playing field. We used to have a piece of legislation called the Public Utilities Income Tax Transfer Act. That was abolished in 1994, I believe. That piece of legislation should be reinstated. Our utility in Prince Edward Island is provincially created; we have two basic utilities, Maritime Electric and the City of Summerside Electric Utility. However, Maritime Electric is given a legislative franchise to be the sole provider of electricity on Prince Edward Island outside of the City of Summerside. If that legislation gives one or two utilities, if it is a legislated monopoly, then that set-up should be tax-free the same as a Crown corporation. I believe a legislated monopoly or a legislated utility here is the same as a Crown corporation in any other province Crown corporation. I am a firm believer that the Senate committee should go back and say, "Prince Edward Island pays corporate income tax. It is a legislated monopoly. It is a Crown corporation, but privately run. They deserve the same treatment as every other province in this country.''
The Chair: Are you and Nova Scotia the only ones that are private? Is Alberta as well?
Mr. Brown: Alberta is, yes.
You talk about fairness in Canada. That is an unfair situation. It was recognized since the 1950s; probably right after the war, it was recognized right up until 1994, and the money was sent back just to equalize it out.
Those are the two things I would like to see. Beef up the National Energy Board. Let us have a true National Energy Board that says, "Not only we are here to regulate, but we are here to bring this country together through an electric grid. How can we make it better for all Canadians?'' Let us put Canadians first this time around.
The Chair: Thank you very much.
Was Mr. MacQuarrie going to make some comments?
Mr. Brown: No.
The Chair: Senator Mitchell from Alberta, our deputy chair, is our first questioner.
Senator Mitchell: Thank you, Mr. Minister, gentlemen. I think it is fair to say that in all the hearings that we have had over about 18 to 20 months now, we have never had as many specific recommendations written on our behalf by a witness or suggested on our behalf by a witness. Thank you for that. They are very specific, powerful points.
Clearly in your scheme of your vision, which is very compelling, of an east-west power grid, the Lower Churchill Project has to be important and the links between and amongst the Atlantic provinces have to be important. What is your take on the likelihood of that project occurring, and how significant in that mix is the need for a federal loan guarantee?
Mr. Brown: I personally think that the Lower Churchill Project is a fantastic project for Canada. Ninety-five per cent of our electricity in Canada can be produced by hydro, or a substantial amount of it can be. We could be the best country in the world for hydroelectricity — green, renewable, non-emitting electricity. We have a fantastic resource in these rivers, and we can provide Canada with a great source of energy. It is a great project.
If they can get the power lines out of Lower Churchill and loop them around through Nova Scotia, then there is an agreement between Nova Scotia and Newfoundland to basically tie into the Lower Churchill Project and bring that power from Newfoundland into Nova Scotia. There is an agreement between Nova Scotia and New Brunswick for the inter-tie between those two provinces to bring that power through Nova Scotia through to New Brunswick. That is one of the reasons we are asking for our cable to be included. We have submitted a project to the Green Infrastructure Fund, GIF, to have our cable link into those inter-ties.
I can see a set-up where we are getting hydro power out of Lower Churchill, and we are providing wind — wind blows 40 per cent of the time. The best load balancer for wind, I understand, is hydro. They can stop the turbines or slow the turbines down. I was in the Lower Churchill plant, and I think they have about seven turbines. They could close one of those turbines when the wind is blowing. We could take our energy off the wind when it is not blowing and get it from the river system. It is a fantastic project in terms of non-emitting carbon. We would be emitting zero carbon, I would argue, and with load balancing the nuclear power plant on a baseload basis, I think it is a great project.
I have no problem with loan guarantees from the federal government. I have no problems getting funding for the cable between Nova Scotia and New Brunswick. It is a nation-building project, and I think the Senate committee should be endorsing it also.
Senator Mitchell: You have made tremendous strides with wind energy, probably as good as, but I expect better than, almost every other province in the country. We always hear this argument that wind energy simply is not commercial, it is too expensive. However, you have achieved a very competitive price. Is that not the case?
Mr. Brown: Yes. With the wind farms in Prince Edward Island, there is one private wind farm that sells its power in the export market, but all the publicly owned wind farms sells their power to the utility, Maritime Electric, who distributes it through the province. We currently have about 54 megawatts of wind power on Prince Edward Island. We have a total load of up to 225 megawatts — correct me if I am wrong. We have 54 to 60 megawatts of power under wind now. Another 30 megawatts will be developed and put into the grid system.
One of the nice things about our sister province, New Brunswick, is that they came up with a good price. We have a long-term contract with them. They are agreeable to saying, "As much wind as you can produce and as much wind as you can put into your system, you will not be penalized for that in any way, shape or form. We will load balance you for a price, but it is a good price.'' It is working quite well. Once we get our next wind farm in production, and WEICan will be building 12 megawatts of wind also, and put that on the grid, over 50 per cent of the homes in P.E.I. could be powered by wind.
Senator Mitchell: That would be on average.
Mr. Brown: Yes, on average, but if you take the industrial load and everything, we will be about 33 per cent. I hear Islanders asking every day, "Why are we not using our own resources? Why are we not using more wind?'' We explain that there is a load-balancing factor that we have to take into consideration, and that is another reason we are saying that we need the cable for security.
We are in a North American grid system that is controlled by the North American Electric Reliability Corporation, NERC, again, another U.S. federal agency that says. "Reliability will be done this way and each utility will have to operate this way; you must have so much capacity and so much reserve on.'' Again, this is controlled by the U.S. in Canada. I do not mean that in a bad way. They are the biggest users of electricity, and they want to be assured of their imports, that they have electricity when they need electricity. I understand that, but that does not preclude us from doing our own here in Canada also.
Senator Mitchell: We met with Seaforth Energy Inc. They produce wind turbines here in the Atlantic provinces. Do you use their equipment?
Mr. Brown: No. We were into the wind game very early on and used Vestas Wind Systems A/S, which is a company from Denmark. We were close to Alberta's Pincher Creek in getting a wind farm up and running in the early 1980s. The technology is there now with the bigger turbines. They can produce reliable power. I would like to say one more thing about the North American grid system, and I stand to be corrected — I say that a lot.
Senator Mitchell: All those people are looking over your shoulder.
Mr. Brown: Those are all these utilities behind me.
The Chair: You speak with great conviction.
Mr. Brown: Those are the power companies sitting behind me here.
Senator Mitchell: They are nodding their heads, though.
Mr. Brown: The other thing I see with wind and hydro is that, under the North American grid system you need a baseload. Countries, provinces and consumers want to be assured that when they flick that switch, the power is there. We have had two major blackouts in the last couple of years, and the Americans and Canadians get very concerned about cities being blacked out for any amount of time.
If we had a national system of some sort or national cooperation, we could build one wind farm on one end of the Island and another wind farm on the other part of the Island so that when the wind blows through, we catch it first at one wind farm and then catch it another time at another wind farm. I am convinced that if we have a national grid system, a national balancing system here, much of this wind could be registered as baseload. Then we would not have to build more electric plants for baseload. We would be able to say that we have a national grid, a load-balancing grid, that we have a system here that is 4,000 megawatts of power, and wind is on the system. Register 2,000 of that as baseload power because at any point in time, 2,000 megawatts is guaranteed from the wind farm from wind that is blowing in Canada.
That would save us a substantial amount of money in not having to build another big power plant to keep that baseload up. With the NEB working on a national grid instead of building another $5-billion plant and if we use the wind, we can go to the North American grid system and say, "Look, we have a technology that we can load balance everything and guarantee 2,000 megawatts out of our 4,000 megawatts of a system we have in Canada.'' I think that is achievable. That would save a substantial amount of money in having the power plants just sitting around doing nothing.
Senator Mitchell: If we could just spread out the grid far enough, we could capture enough wind at any given time to have, in your example, a guaranteed 2,000 megawatts of power.
Mr. Brown: Yes. I have to thank the federal government because they contributed through one of their funding programs. In Atlantic Canada, we have a system ongoing here and Maritime Electric, Nova Scotia and Saint John Energy, we are looking at the Maritime provinces customer load, control demonstration, wind integration project proposal. That is being done in Atlantic Canada. It is a smart grid system that shows how we can work together to integrate as much wind as we can into the system and to make that baseload. I think it is great, and I commend the federal government for putting forward that money; it is a good investment, I believe.
The Chair: You are aware that they already have this load balancing between the hydro and the wind in Quebec. I think it is working very well. We met with the people at Hydro-Québec, and they explained that the two, as you say, are a natural fit.
I was wondering if these Danish folk have set up here. Are they building the blades and things here? I think at one point they did set up a manufacturing facility in Gaspé and then closed it down. Would that not make sense for you to have them over here?
Mr. Brown: We were the first in North America to buy the B90 from Vestas.
The Chair: Yes, you were.
Mr. Brown: We are a new government. The last government should have bought it.
The Chair: They should have said, "We will buy your stuff. Let's build it here.''
Mr. Brown: If I would have been there, I would have said, "We will buy your first turbine in North America. We want some economic spin-offs on that too, so either you set up something in our province or something in Canada because we will break you into the North American market.'' That was not done, and it was a mistake.
The Chair: Ontario was all excited about wind, started going great guns and then ran head-on into this NIMBY factor — not in my back yard. You mentioned that you have nuclear happening, which I had not realized, and big time wind. Is the NIMBY factor prevalent in P.E.I.?
Mr. Brown: We see that a bit on the wind farms. Where we see it the most is with transmission. There is a tremendous amount of debate around transmission, around the power lines in front of people's houses and the effect it has on people's health. There has been a tremendous amount of studies done in this area. It is not considered dangerous — I guess if you jump on the wire, it is. We believe that it is not a health hazard. However, we do try to avoid any interference with the residents. Transmission will be a challenge; it is a challenge anywhere, especially when you are going through neighbourhoods and so on.
Senator Brown: We were talking at breakfast, and I thought you told me that you had upwards of 500 megawatts of potential wind power if you were able to use all of it. I just wanted to get that on the record, if that is correct.
Mr. Brown: Yes. We have a 10-point plan. I will leave you a copy. It shows our wind strategy. We have done an analysis of P.E.I. We believe that we have the capacity to produce 500 megawatts of wind power.
We are a coastal province; we have a tremendous wind regime. Our load factors could be upwards of 40 per cent, which is pretty good. When you talk 500 megawatts of wind in production, if you can draw a 40 per cent power factor out of it as opposed to 35 per cent or 38 per cent, there is a substantial amount of revenue there.
Currently, we have two cables to the mainland with 200 megawatts. If we had the additional cable, we could produce another 300 megawatts of wind power that we would put into the grid system in Canada. Imagine putting an additional 300 megawatts into the system; that would save a lot of carbon going into the air. Again, we could load balance it with great hydro.
The Chair: Is that what the $340 million was for that was asked for from one of the funds in Ottawa?
Mr. Brown: The $340 million is for the cable between Nova Scotia and Newfoundland.
We have asked for $45 million.
Senator Brown: We have been told that P.E.I. is the ideal place for wind turbines. Is it possible that you have wind blowing somewhere on the Island just about all the time? Is that fair to say that?
Mr. Brown: Yes.
Senator Brown: We know it is variable, but I am asking whether you have wind blowing pretty much in different places on the Island all the time. There is always wind somewhere in P.E.I.
Mr. Brown: Yes.
I was going to say when the legislature is open, there is lots of wind. I am going to get it for that one.
Senator Brown: We keep hearing about Point Lepreau Generating Station. You said that 18 months delay was doubled to 36 months. What is the reason for that? Are they not working 24 hours a day, seven days a week on that, or are we unionized and that is not allowing that to be finished quicker than it is?
Mr. Brown: I would hope that maybe you would have AECL here to explain what is happening, why all the delays. As I understand it, the nuclear reactor is like a big boiler. They throw the uranium in these tubes, which heat up, which then heat the water around it generating steam, and it turns the turbine, which generates electricity. They have to do this work with robotics.
Senator Brown: Yes, I know.
Mr. Brown: You just do not open up the big doors of this reactor and send in 600 people to start welding and tearing out tubes. It all has to be done by robotics.
They are developing the technology to re-tube these facilities, as I understand it, with this technology. Robotics will go in, take the tube out, polish it, put the new tube in and weld it back into place. It is all done, I would assume, like the shuttle. It will all be done by robotics. AECL has to develop the robotics in order to do this. They develop a piece of technology, try it, and if it does not work, they have to go back to the drawing board.
We are the first plant being refurbished. When that is accomplished, and they have the mechanisms and robotics in place to do it, they can do that at the next reactor at a much cheaper rate. We are the first one for this process. Should we have been the first one? In hindsight, maybe not, but we did take on that challenge. AECL has promised they would do this within a time frame. All we are asking for is basically to pay for the ongoing maintenance cost of that plant while it is down. Thinking back, we should have just given the plant to AECL and said, "You own the plant. It is yours. We will take it back for $1 billion when you are done. We are not asking for anything free here. Do what you have to do with it, and we will buy it back from you the day after you get it up and running.'' That is what we should have done. They would have still been fully responsible for it at this point in time. However, it was a partnership agreement with AECL at the time.
Senator Brown: I was curious because Bruce Power is redoing a couple of reactors now. They are planning to do all of them over a period of time, and I just wondered why PLGS is taking so long. Maybe it is just AECL itself.
Senator Lang: I will put all my questions together for you, and then you can go ahead and answer them because we are short on time.
First, with your recommendation for the additional authority to the National Energy Board, is that a position that your government will take forward to the first ministers' meeting here in the summer to see whether or not there is agreement across the country for added authority to the NEB?
Second, on your question of the east-west electrical grid, we talk about that, and it sounds great. It is a vision, and perhaps there is something there. However, it will all cost money. For that additional cost that would have to be expended over and above what the ratepayers are paying, would you as a province and provinces be prepared to cost- share in such a venture?
My third question has to do with environmental assessments. I noticed you have not mentioned those. We have heard, on a number of occasions, that the duplications that the two processes bring in during the course of the development of these projects costs time and money. I would like to hear if you have any comments about perhaps changes to the way we do our environmental assessment processes so that we can get to a conclusion in a more expedient period of time, plus looking at the costs.
Mr. Brown: With the National Energy Board, when I go to my ministers' meetings, I bring it up all the time. It is a challenge. I think many provinces look at utilities in their own interest. Maybe that is because in seven out of ten provinces, the provincial government owns the utility. Therefore, it is like you are encroaching upon their business. I bet if they were all privately held utilities, it would be a different story. However, as a minister of energy in some other province that owns the utility, you might see it as us looking at taking away your business or lowering your margins a bit or something similar.
That is a challenge, and that is why I am asking this Senate committee to consider maybe expanding the National Energy Board's mandate. That way they would review this and say, "Here are ways we can work together, share the benefits, but no utility will lose at the end of the day.''
For the east-west grid, I would say that when our founding fathers got together, I bet there were a few founding fathers, maybe many founding fathers, who said, "This railroad is a pretty expensive project. We could just take a rail down to the United States, go across the Western United States and come back up to any other province.'' If that thought had ruled at the end of the day, I do not think we would have our Canada today.
Sometimes you have to go a little further to make something great. I know it is not all about money all the time; it is about nation building. If our founding fathers had decided that we could go down to catch a railroad in the United States to go out to the West Coast, would we have a national government today? I doubt we would.
That is why I am suggesting expanding the mandate of the National Energy Board to promote a national grid, to see what we can do. If it is an economical benefit, let us look at how we can bring this project together. If the Americans put their system to the Midwest, then perhaps we will have Canadians saying that we should just tie into that. However, again, we are a country.
In Prince Edward Island, we work quite closely with our environmental federal and provincial counterparts. When assessments are being done, either we designate the feds to be the lead or they designate us to be the lead. It is working quite well. It could be a bit more streamlined. However, there are particular environmental needs in each area. The Yukon would have a unique set of environmental concerns as opposed to P.E.I., for example. I found that the provincial and the federal environment departments work quite well together. There is a spirit of cooperation, of doing the right thing. Sometimes it is easy to blame each other when a project is not moving fast enough. It is easy to say, "If it was not for the federal environmental agency or the provincial environmental agency, we would have this off and running at a much quicker pace.'' I am a firm believer in taking an extra day or an extra year to do something right and answering the questions up front. The experts who come to the panels do not have all the answers. Some of the best questions come from a person just walking in off the street saying, "Did you think of this?'' Sometimes that is the best way to do it. That is why we have a great democracy.
Senator Neufeld: I sit on the Standing Senate Committee on National Finance. The last fiscal year, AECL asked the federal government for $1 billion; this year, it will probably be a little in excess of $1 billion. I do not know how much exactly — and I cannot and will not say that here — but a lot of that money is for Point Lepreau for many of the reasons that you talked about. When you talk about nation building, that is the rest of Canada. When you talk about CANDU reactors, that was all of Canada that actually funded that. Do you think that AECL should be privatized?
Mr. Brown: I could give you the political answer; however, I will not do that.
Senator Neufeld: Give me the straight answer.
Mr. Brown: Yes, I will give you the straight answer. I think an analysis should be done, and if it should be privatized, then it should be privatized. I am a firm believer that the incentive has to be there; and if it was privatized, I think there would be a much better incentive to get it up and running.
Another example is that when John F. Kennedy said that we would be going to the moon, I bet many people said that it was foolishness, and why would we waste money at that. However, going to the moon produced the phenomenal amount of technology that we have today. We would not have computers today, nor T-Fal non-stick pans. Sometimes the goal might cost a little more, but the benefits far outweigh the process of getting to that point.
Senator Neufeld: On the question of the electricity grid, British Columbia has been a net importer of electricity from the U.S. and Alberta for approximately eight of the last ten years. I hear about a national grid frequently, but you also have to think about transporting electricity and how much you lose and how much you send. Technology is working toward fixing that problem, but as I understand, it is quite a way off yet. You have to take into account the economics of putting a transmission line clean across Canada.
The economics were north-south; the Columbia River Treaty in British Columbia happened because it was north- south, and there was a purchaser south of the border. We now consume all of that electricity. In fact, we need some from south of the border to keep our lights on. It is not always just because we just want to deal with the U.S. However, we should be happy about dealing with the U.S. because about 75 per cent or 80 per cent of our trade is with the United States. We had better hope that they make it okay.
That was just a statement — the chair gets after me about that.
I have one last question. I notice that you did not put Quebec rates in your presentation — at least I cannot see it.
Mr. Brown: No.
Senator Neufeld: If you had the amount of electricity generation and the excess that Quebec has in P.E.I., would you use that as an economic driver to locate aluminum plants, for instance, in the province of P.E.I., or you would say, "No, this is nation building. We should actually all work on our own, and we should actually have a transmission line that delivers that west of us so that other people can enjoy the same low rates that we have''? What would you say then, because that is turning it around?
Mr. Brown: Yes. Let us turn it around. I would say simply that I will go to my sister province first with a power deal and ask if they want this power before we ship it out of the country. If that province said that they will take it at that rate, then I would be okay with that. However, to say that I will go to the U.S. and block a province from getting it, that is wrong.
Senator Neufeld: I guess it comes back to economics. If the rate was right for P.E.I., you would be okay with that.
Mr. Brown: Yes.
Senator Neufeld: That means that you will make some money, right?
Mr. Brown: Yes. I am not asking any province for any special deal. I am not asking for anything. All I am asking is that you give us the same deal that you offer the U.S. If we had a transmission system in place to make that happen, it would be much easier.
Let us face it; the U.S. is telling us that we must have OATS in our country. We would not have that system in this country today if it was not for that. We would all be silos. Each province would be producing its own power and trying to contain it within that province or have a transmission line here or a transmission line there or charge this guy this rate and charge this guy a different rate, whereas OATS dictates that you have to be fair, open and non-discriminatory — and it is working.
I am not asking for any province to give us any special deal. I am not asking any province to sell their power to us any cheaper than they would sell it to anyone else. All I am asking is for NEB to investigate, to have some authority to build upon that and say that if the utilities can get together and work on a transmission system, it is better for that province and better for the other provinces receiving that power.
Senator Neufeld: Any excess that we have is on-peak because we have a large hydro system also. Alberta does not want to purchase our on-peak power because it is pretty expensive compared to the off-peak power. That is the market that you just talked about and the fairness and all of those things. You have to take all that into consideration. I know should have, could have, would have and all these things, but when you shuffle something from the pepper, there has to be some economics that make sense for everyone.
Mr. Brown: That is why I am saying increase the mandate of the National Energy Board to take a look at that and not to just be a regulator on new transmissions and regulate exports. We need a national body to say, "Look provinces, look utilities, if you work together, these are some of economics here.'' Sometimes we may not want to work together because of that, senator.
All I am saying is increase the mandate of the National Energy Board, and I know the National Energy Board will say, "Well we could study this, and we could study that based on a ministerial directive.'' No; give them the legislative mandate. That is all I am saying, senator. I am not saying let us tear the system apart and do it.
Anyway, this is a great discussion with you. I wish we could be here all day.
The Chair: Thank you, Mr. Minister. You have been just a tremendous witness, a great minister. You have given us some very interesting and concrete proposals and a spirited interchange with a former minister who had the same portfolio as you. We hope we will see more of you. Good luck to you and Mr. MacQuarrie and all you are doing on the Island.
Mr. Brown: Thank you very much.
The Chair: Before we hear from the panel of witnesses, senators, I asked you for a motion yesterday for a photographer from the local media to take pictures without being unduly disruptive. I would like a motion that would continue so that we do not have to do this every day. Do I have such a motion?
Hon. Senators: Agreed.
The Chair: Thank you, colleagues.
Without further ado, we have had some reference to you gentlemen, and we have had breakfast with your premier. He was very complimentary about you folks. The minister is also deferential to the good work you do.
Representing the Maritime Electric Company Limited is Fred O'Brien, President and CEO; Robert Younker, Director, Strategic and Corporate Planning; and John Gaudet, Vice President, Corporate Planning and Energy Supply.
Welcome to the committee. I think you were in the room when we introduced ourselves earlier, but if you have any questions about what we are trying to do, feel free to ask. We are interested in hearing what is happening in P.E.I. and any messages you would like carried to the rest of Canada. I am sure they can learn something from you. We are looking forward to hearing how the power company works here on the Island.
Fred O'Brien, President and Chief Executive Officer, Maritime Electric Company Limited: Thank you very much. We certainly do appreciate the opportunity to give Maritime Electric's perspective on this topic. The three of us being here is more for the question and answer period. These are generally the two experts in our area for energy supply in particular and supply planning, which I think is the primary topic today.
The Chair: Tell us about the company itself and the ownership thereof.
Mr. O'Brien: I will talk a bit about slide 2, and Mr. Younker actually will carry the bulk of the presentation beyond that point. I will just basically do the introduction.
We are the electric utility for about 90 per cent of the province. We have been in business for over 90 years, providing that service. We are a regulated, investor-owned utility. We are owned by Fortis Inc., which is a holding company that has utilities in five provinces across Canada. We have other assets in other areas, a little in the U.S. and in the Caribbean area.
The Chair: We understand that Nova Scotia, P.E.I., Alberta and the Yukon are private. I was not quite sure I understood Minister Brown, but in getting the franchise, if you will, to be the power company, private or non-private, is there a guarantee against other people coming and competing with you? Are you told to go ahead and do your thing, make your money and God bless you, and by the way, you are protected? We have heard about the tax; you have to pay tax like any other business operating in the province, unless we can get this act back in force. What is the situation?
Mr. O'Brien: We operate under the provisions of two provincial acts. There is the Electric Power Act, which essentially does what you are suggesting. It basically states our franchise, what territory we serve. However, it does provide the obligation to serve. In our case, that is two pieces: the obligation to connect and the obligation to supply. The reason I break it out is because not all utilities, mainly through deregulation, have those two responsibilities. We are what I would say is a traditionally regulated utility. Our regulator is the Island Regulatory and Appeals Commission, IRAC. We are a cost-of-service type regulation, which again is the more traditional, historic form, if you will. We have gone through trying other ways to approach providing utility service here in P.E.I. over the last 20 years. About seven years ago, it was changed through the Electric Power Act to be cost of service once again.
The Chair: Just to put it in a commercial perspective, you have these obligations under your deal, but in turn you have the franchise.
Mr. O'Brien: That is correct.
The Chair: Let us say that suddenly there is a blackout. If the government owned the power company, it would not sue itself. However, can you be sued for non-performance, or are you immune from that?
Mr. O'Brien: It would essentially be a factor of what caused the outage.
The Chair: Well, obviously. I mean assuming through some fault or negligence of you people.
Mr. O'Brien: Essentially we are protected from that, but it has to be supported with good utility practice; being able to prove that we provide diligence in providing the service, things of that nature. There are other restrictions around how we operate here on P.E.I. with respect to the returns the company earns, the provisions of the second act, which is the Renewable Energy Act that governs the renewable energy portfolio. We have supplied that portion predominantly with wind energy. There are things of that nature. We are a highly regulated and legislated business.
We are basically on a net-income cap. We cannot exceed a certain level. Obviously, there is no bottom to that. We can lose, but we are restricted on how much we can earn. That is managed through the regulator like the gas industry is, the pipeline industry and so on.
I want to talk about two things on that topic. Of course, we work very closely with the provinces, as was demonstrated this morning. We talk and communicate. We work very closely with PEI Energy Corporation, which owns, I believe, North Cape Wind Farm and Eastern Kings Wind Farm. In addition, we contract through them for another one of the four wind farms from which we purchase. Therefore, it is a very close working relationship, and that is important. We have the same goal. We are in a high-cost jurisdiction for the energy supply that we purchase, the bulk of our supply. We need to work closely, both the province and the utility, in trying to manage that to the lowest cost possible within the other provisions, the environmental and renewable portfolio and so on.
The Chair: Fortis Inc. is like Emera Inc, is it not?
Mr. O'Brien: That is correct.
The Chair: In the sense that it is the holding company and maybe has other businesses, and any net revenues that you make flow up to the shareholders of Fortis.
Mr. O'Brien: Yes, a portion does. There is no guarantee we will always issue a dividend. It depends on the year that we have had. Traditionally, 50 per cent to 60 per cent is the dividend. The balance of those earnings is reinvested in the company and in P.E.I. We use that for capital investment for building power lines and keeping the power on. It is not totally a flow up.
Here are some basic facts. We have 72,000 customers. Again, we are one of two utilities. The City of Summerside has a municipal utility. It is fair to say that we are the provincial utility. We have responsibilities, as I said, for connection as well as supply. We provide transmission service, not only for the benefit of our own customers, but, for example, the West Cape Wind Farm that exports power and sells power elsewhere. We have the Open Access Transmission Tariff, OATT, that we put in place a number of years ago to enable that.
We manage the flow of energy on the inter-tie between ourselves and the mainland. With that, because we are connected with the grid, although we are a small utility by comparison, we still have the responsibility to the Northeast Power Coordinating Council, NPCC. There are some responsibilities to FERC. Because we are connected to New Brunswick, we have responsibilities to New Brunswick System Operator, NBSO.
We work very closely with NB Power. Over the many years that we have been buying power, which is since the cables were installed to the mainland in 1977, they have been by far our primary source of supply. Right now we are essentially tied to them in a long-term contract with Point Lepreau, which was mentioned earlier, in a five-year contract. They are the principal supplier and have been a good partner with us. However, it is a business relationship.
At this point, unless you have questions with respect to our structure, et cetera, I would like to turn it over to Mr. Younker, who will lead you through the meat of the presentation. The three of us are obviously available for questions following.
The Chair: That will be great. I think you can take it that we will have questions on the relationship with PLGS.
Robert Younker, Director, Strategic and Corporate Planning, Maritime Electric Company Limited: I am starting at slide 3 of our presentation, which shows a few numbers on annual energy usage in P.E.I. The number for gasoline usage and furnace oil, I will be referring to later on in my presentation. The electricity number of 1,239 million kilowatt hours is the same as 1,239 gigawatt hours or alternatively 1.2 terawatt hours.
To put the size of P.E.I. into perspective with some of the other provinces, Quebec uses about 170 terawatt hours of electricity, so about 150 times the electricity usage of P.E.I. We are a small province.
P.E.I. has a large dependency on petroleum products — I think the highest in Canada. The only natural resource we have in the province for generating electricity is the wind. P.E.I. has no access to natural gas; none is produced within the province, and we do not have any pipeline connection to the main line in New Brunswick and Nova Scotia.
Most of the space heating in P.E.I. is done with furnace oil, and 75 per cent of the domestic water heating is done with furnace oil.
The Chair: Where does all the oil come from?
Mr. Younker: We have two refineries on the East Coast, one in Saint John and the other in Dartmouth, and my understanding is that that is the source of most of the oil used in P.E.I. The supply to those refineries, I am guessing, comes from the Hibernia oil field. Before Hibernia, traditionally most of the oil, certainly for the refinery in Dartmouth, came from Venezuela. In recent years, with Hibernia and others, the supply source has shifted to them.
For the electricity sector, there has been a shift in recent years so that the electricity sector is now largely off oil. The oil-fired generating units in P.E.I. are used mainly in a standby and peaking mode, so actually very little oil is burned in them over the run of a year. Last year in 2010, wind accounted for about 20 per cent of P.E.I.'s electricity supply, and by 2013, we are looking at that going up to about 30 per cent.
The pricing for most of the energy that we purchase from the mainland is based on natural gas-fired pricing. About 10 years ago, there was a large build-out of natural gas-fired generation in New England, and since then the pricing in the New England spot market is largely based on natural gas-fired units. That is what is typically on the margin and setting the price. In our purchases mainly from New Brunswick, we have seen that the pricing has transitioned from oil-based pricing to natural gas pricing in the last 10 years. Now it is predominantly driven by natural gas pricing, and that is a reflection of natural gas being on the margin in New England.
From the point of view of negotiating a contract with NB Power, their alternative to selling to P.E.I. is to sell into New England. They are looking at a natural gas-based price. Our alternative to buying from NB Power is to buy from New England, again, a natural gas-based price. That is why our pricing is largely natural gas-based now. We are off oil in that sense. Certainly it has gone down, most recently as a reflection of the lower natural gas prices in North America, which in turn in the last couple of years have been driven by the large increase in supply of shale gas. Supply is ahead of demand generally in North America, and in a true market fashion, the price goes down.
We are off oil in P.E.I., but we are still largely dependent on supply from the mainland. I have shown a projection of what we expect to be the sources of electricity supply in 2013: 30 per cent from wind; 17 per cent from nuclear, from the 30-megawatt participation in PLGS; and the balance would be purchases from other off-Island sources.
The Chair: Is that hydro?
Mr. Younker: Normally these would be what are referred to as system purchases. We buy it from New Brunswick; the price is negotiated; but the source of the supply is not identified. We do not see behind the price to see where it actually comes from. New Brunswick supplies it as best they can from their own fleet or purchases that they could make from perhaps Quebec or New England.
The Chair: It could be that you would not know whether it is a non-renewable or a non-remitting source at all, is that correct?
Mr. Younker: That is correct. Yes, we can make a pretty good guess knowing what is on the system in New Brunswick and where they are buying from, but we do not know precisely.
The Chair: Potentially, 53 per cent is fossil fuels.
Mr. Younker: Yes, 53 per cent could be all fossil fuels. I would expect it would be largely natural gas, given the spread today between oil prices and natural gas prices.
I would like to speak briefly to four issues of the electricity sector in P.E.I. First, wind has become an important part of our supply, but there is a limit to how much of a load it can supply. Second, we need to increase our capacity of our interconnection with New Brunswick. Third, we see a significant potential for increase in load due to Islanders looking for an alternative to oil as their source of space heating. In the longer term, we think there is some potential for load increase due to penetration of electric vehicles.
Speaking first to wind as an intermittent resource, the reality of the wind is that it is not always there. Even in P.E.I., there are still a significant number of hours in the year where there is little or no wind, and current thinking suggests that about 30 per cent of the electricity load is the reasonable upper limit that we could expect to see supplied from wind.
I have a couple of charts next.
Mr. Chair: We have been doing our rounds, and they give us these little charts and say that wherever it is red, that is where it is good wind. The whole of P.E.I. is wind. In New Brunswick, you have those two tips at the end of Chaleur Bay and over to Cumberland. The carts show lots of places for wind in red, and all of the rest, nothing. Are these graphic illustrations on wind from installations that are already up and running or from remote gauges so that it is all wind even if it has not been tapped yet? Does that make sense? Do I make myself clear?
Mr. Younker: Do you mean this particular output?
The Chair: Yes, exactly.
Mr. Younker: This is an actual output for a month from the first phase of the North Cape Wind Farm.
I think it is from 2003, but this is the actual output for a month. The numbers along the horizontal axis are the hours of the month. I think it was the month of March, so there is 744 hours in the month. At that time, 5,000 kilowatts was installed at North Cape, in 2003. Just slightly over 5,000 kilowatts was the installed capacity. You will see that the bars go up just over 5,000 kilowatts at times, representing hours when the wind farm was producing its maximum.
Senator Lang: Mr. Chair, I just want to follow up on that to get this clear and try to get an idea of the Island. I am following on from Senator Brown's question. If the wind is blowing on one part of the Island, you are saying that it is not necessarily blowing at the other end of the Island? Is that correct? Can one balance out the other?
Mr. Younker: There is some diversity in the wind between one end of the province and the other, but it is not a large diversity. Geographically, the province is not big enough, so if you have a weather system of any significant size, most of the province is seeing the same weather at the same time.
The diversity we do see is typically if there is a weather system coming in from the west, you see the generation picking up at the North Cape Wind Farm, and three to four hours later at the other end of the Island you would see the impact of that weather system at the Eastern Kings Wind Farm. If it is a weather system that will have strong production for 24 hours, for most of those hours you have strong production at both ends of the Island. However, you would start out with three hours of production just at one end, and then it would taper off to three hours of production just at the other end. That is the kind of diversity we see. There is some, but it is not large.
The Chair: Interestingly, there is a strong analogy to Denmark, namely, the configuration of the Island and the fact that even though they get hyped as the great wind country, I think only 18 per cent or 19 per cent of their electricity is generated by the wind. You are up to 30 per cent, so that is pretty good, is it not?
Mr. Younker: We think it is very good. Minister Brown mentioned that it is in large part possible because the New Brunswick load is 15 times the size of the P.E.I. load, so in part of supplying the balance of our load, they are accommodating the swings in output. During the course of a month, you can see the kind of swings that are showing up on the graph. However, because their load is so much bigger than ours, they can accommodate that reasonably well because it is in the order of the fluctuations of their own load that they are already accommodating. To go back to that analogy, Denmark relies heavily on the ties with Sweden, Norway and Germany to balance their wind. They could not do it if they were isolated either.
Just one more point on this graph of the wind output, if you were to draw a line horizontally across just above the 5,000 kilowatt line, at the very top output, what you see, with the blue showing the wind output, represents about 40 per cent of the space under that horizontal line at 5,000 or so kilowatts. If the wind was capable of running at 5,000 kilowatts for every hour of the month, it would fill that space with blue. That would correspond to what is referred to as 100 per cent capacity factor. However, the reality is that 40 per cent of the space is shown in blue, so that is what we talk about as wind having a 40 per cent capacity factor. That is actually a slightly better-than-average month that is shown here.
The Chair: One of the things we have learned in our studies of the energy sector is that unfortunately, with the exception of hydro, energy generated cannot be stored. As the wind blows and you capture the power generated from it, you have to use it.
Mr. Younker: That is correct. Electricity travels at the speed of light from the generator to the loads, so yes, ongoing balancing is required.
The Chair: That is very tricky.
Mr. Younker: The next slide shows the P.E.I. electricity load for the same month.
The Chair: Is that this dark one?
Mr. Younker: Yes.
The Chair: I do not understand that one. Is that the same month back in 2003 or just any month?
Mr. Younker: No, it is the same month as for the wind output. The purpose of showing the load was to help demonstrate that this simply cannot supply all of that. That is what I am trying to show graphically.
On the next slide, the economies of scale of wind generation, there are significant economies of scale, and I have given examples for a 50-kilowatt turbine and a 3,000-kilowatt turbine to demonstrate those significant economies of scale. The cost of electricity from the small turbine would be expected to be in the order of 30 cents a kilowatt hour, and for the large 3,000-kilowatt machine, which is the utility size, I have shown an indicative price of 9 cents a kilowatt hour.
In P.E.I., when we look at the wind as being able to supply only a certain portion of the load — the load can only absorb so much — we look to having the larger size machines supplying that portion of the load and to provide the lowest cost to the consumer. The conclusion on economies of scale of wind generation is on the next slide.
John Gaudet, Vice-President, Corporate Planning and Energy Supply, Maritime Electric Company Limited: Maybe just a point on that end to circle back to a question the chair had asked earlier of Minister Brown. On that page that Mr. Younker referred to, 30 cents per kilowatt hour for a small turbine is obviously not competitive. Nine cents for the larger turbine is not competitive in some of the other jurisdictions in Canada, but here in Prince Edward Island, we acknowledge that we have one of the highest pricing regimes. Thus, 9 cents is competitive with our traditional supplies. That coupled with the great wind regime has enabled us to see the higher installation rates of wind on Prince Edward Island.
The Chair: This is a funny question. I see the word "rink'' on the chart on page 11. I have heard the term "wind farms'' before, but not "wind rinks.''
Mr. Younker: Over the last year or two, there has been discussion about a program to subsidize the installation of wind turbines of that 50-kilowatt size at some of the rinks in P.E.I.
The Chair: Do you mean skating rinks, literally?
Mr. Younker: Hockey rinks, yes; it is to try to help them offset some of their operating costs. That was the reference there. It is not a wind industry term.
Senator McCoy: Is this the energy price, or does that include the distribution? Are you factoring in all the operating costs of the system, or is that 30 cents a kilowatt hour just the energy portion?
Mr. Younker: That is just the energy supply portion.
Senator McCoy: Is that the same for the 9 cents?
Mr. Younker: It is just the energy supply portion. The 9 cents would be delivered to the input to the transmission system.
Senator McCoy: I do not know what your distribution and transmission costs are. Is it offset to some extent by the fact that it is distributed energy, and therefore you do not have to build the transportation system?
Mr. Younker: The rest of the cost that the consumer sees on his or her cents-per-kilowatt-hour charge on the bill is the 3 cents to 4 cents per kilowatt hour for the transmission system, distribution system and just the administration and operation of the utility. I think that was your first question.
On the second question, a small windmill that is out on the distribution system, the distributed generation-type concept, there is, I think, some savings in losses when it is running. However, there is no savings in the capital cost of the distribution system itself because the system still has to be able to supply the load when there is no wind, which does happen. There is a small saving in terms of system losses to having a turbine out on the distribution system.
Senator Neufeld: I was interested in the chart that Mr. Brown gave us, also. We heard from Mr. Brown earlier that they generated 4.7 cents and make a profit at that as a public utility. However, I have a chart that he supplied that says that to the consumer — and I assume this is residential — it is 16 cents. If it is 4 cents for distribution, transmission, O & M and everything, why does that add up to 16 cents? Help me with my arithmetic and let me know how that takes place.
Mr. Younker: The 16 cents would be a number from a couple of years ago that was reflecting the run-up in oil to natural gas prices back from three or so years ago. I think, as of today, the residential consumer is seeing just a little over 12 cents a kilowatt hour. The bill he or she receives starting next month will be looking at about 12 cents a kilowatt hour.
Senator Neufeld: I will use Mr. Brown's chart further. That is 12 cents. The chart says that Saskatchewan presently pays about 13 cents. Saskatchewan actually pays more for their electricity than P.E.I. does according to the numbers you are giving me. In fact, Halifax is about the same at around 12 cents. Would that be correct, or is this chart that out of date?
Mr. Younker: I cannot speak to it. I have not seen the numbers myself, so I can only say that I know certainly in P.E.I. over the last five years, we have seen quite a fluctuation in electricity price. My expectation is that the other provinces would not have seen those kinds of fluctuations.
In P.E.I., part of what drives our costs higher is that we are on the margin in terms of pricing. For example, in New Brunswick, they use their lowest cost sources to supply the New Brunswick load, which is as it should be. All their hydro, coal-fired generation and nuclear supplies go to their own load first, and then it is the natural gas-based sources of supply that are supplying their kilowatt hours on the margin, and that is what we are looking at in terms of pricing. Their cost structure has built into it all those hydro, nuclear and coal, which is much more stable in price, that shows up in the bills to their in-province customers. They have not seen the same fluctuations that we have seen.
Senator Neufeld: I understand the fluctuation, but I also understand the natural gas price. It is expected that the natural gas price will stay low for quite awhile in the future simply because of the advent of all the natural gas that now can be produced in all of North America. Those prices will stay pretty stable but will be lower than what Regina, Saskatchewan, is because I think most of Saskatchewan is coal and some natural gas. Their prices stay pretty stable, so P.E.I.'s prices will probably stay pretty stable, in fact lower than Regina if I use this chart that Mr. Brown gave me. That is not a bad thing to look forward to, right?
Mr. Younker: I agree.
Mr. Gaudet: If there were any guarantees in what natural gas pricing will be in the future, that is.
Senator Neufeld: I understand that.
Mr. Younker: I welcome the questions as we move through the presentation. This is very good.
I am turning now to the second issue on the slide that is headed "Need to Increase Interconnection Capacity.'' The existing interconnection between Prince Edward Island and New Brunswick consists of two submarine cables, each with a capacity of 100 megawatts, a combined capacity of 200 megawatts. That is in either direction.
Just as a bit of an aside, there was some discussion about the potential to develop 500 megawatts of wind power in P.E.I. If that were to be the case, most of that would be for export, and to accommodate that much wind generation, we would need additional cable capacity because the minimum load on P.E.I. in the middle of the night is approximately 100 megawatts, with 200 megawatts of capacity with the existing interconnection. That is a maximum of 300 megawatts of capacity of wind generation that we could now accommodate. To accommodate more would require more interconnection capacity. That is the context of one of the remarks by the minister.
The annual peak load on P.E.I. is now in the order of 225 megawatts. The existing submarine cables were installed in 1977, so they are 34 years old. The estimated cost for a third cable is $90 million, and we would be looking at a capacity increase or addition of approximately 200 megawatts or more with that.
The next slide shows an outline map of P.E.I. It shows the location of the existing submarine cables between Murray Corner, New Brunswick, and P.E.I.; and it shows in blue the existing 138,000-volt transmission lines on P.E.I. We also have 69,000-volt lines extending out from there, but they are not shown. It is just showing the higher voltage transmission. The six circular symbols in dark blue show the location of the existing six wind farms on P.E.I.
Senator McCoy: What are the green squares?
Mr. Younker: They represent the major substations. That was just to give you a geographical appreciation of where the submarine cables are located.
The next issue is the potential impact of a large-scale conversion to electric heat in Prince Edward Island. The current usage of electric heat is about 5 per cent of the households on P.E.I. Earlier in the presentation, there was the number of 156 million litres of furnace oil used on P.E.I. annually. If there was a wholesale conversion, if all of that was replaced with straight electric resistance-type heating, it would double P.E.I.'s electricity load. We see a potential for significant increase in load.
Senator Mitchell: Can I ask you what would be the differential in cost of power if that conversion were made? Would there be a reduction in the cost to the consumer or an increase?
Mr. Younker: There would be a definite need to increase the power supply and upgrade the transmission and distribution systems to some extent. We do not have a good estimate of what that would be.
Senator Mitchell: I am asking how much more the consumer would pay if they were to stop buying fuel oil and start buying electricity.
Mr. Younker: The next slide speaks to that. Today really the only alternatives the consumer has to oil heating are electricity and wood for space heating. The next slide has the answer to your question.
I have put in some indicative prices for furnace oil, electricity and wood pellets and applied some indicative conversion efficiencies to show what the relative costs are for heat delivered to the space as seen by the consumer.
Senator Neufeld: However, of course, it is the same to the consumer, and depending where the power came from, it would dramatically reduce carbon emissions overall. Would I have to convert my house? The price of the delivered heat cost does not factor in what it will cost me to convert my house.
Mr. Younker: That is correct.
The Chair: Mr. Flaherty might give you a tax credit.
Senator Neufeld: Yes, I know.
Mr. Younker: That is correct. The 12.5 cents a kilowatt hour is today's price. We simply do not know at this point in time whether that would go up to reflect what it would cost to supply a significant increase in load due to space heating.
Senator Neufeld: However, you would know what the capital would be for P.E.I. to increase the transmission and distribution and the subsea cables and those kinds of things. Is that factored into the 39 cents?
Mr. Younker: No, that is just based on today's rates.
Senator Neufeld: That is with the existing system.
Mr. Younker: It is an indicative price in terms of the pricing signal that I think the homeowner is seeing today. We have a significant amount of work to do to analyze the issue you talk about and to develop an appropriate response to customers when they come in saying, "I am thinking of electric heat. What do you think? What do you suggest?'' We have more work to do to develop a good response to those questions.
Mr. Younker: The potential impact of electric vehicles is significantly less, and we also think it is farther out in time. When we read and think about electric vehicles, plug-in electric vehicles in particular, and what that might look like in terms of actually making it happen, there is a public policy issue that we see that needs to be addressed. The example we have used here, for a pump price of $1 a litre of gasoline, we estimate that there is approximately 25 cents of what I refer to as road taxes, federal and provincial government excise taxes. Using two kilowatt hours to replace a litre of gasoline in terms of the kind of improved efficiency that we would expect with an electric vehicle, for governments to maintain the same level of revenues under a large-scale conversion to electric vehicles as they now recover through the price at the pump, they have to charge 12.5 cents a kilowatt hour of tax to do that.
As the utility, we are not sure that we want to be the people having to collect that. That would not be a happy prospect. We think that it is a public policy issue that needs to be discussed and resolved before it becomes a big issue, but there is time to do that.
I want to just touch on two currently funded federal initiatives in which Maritime Electric is actively participating, the PowerShift Atlantic and the Atlantic Energy Gateway. I am sure you have heard from others about those, so I will just leave it there for now. We are available to answer any questions you might have about those.
The Chair: We have not heard about them, other than that we will hear about the Atlantic Energy Gateway here this morning. I think there are folks from Atlantic Canada Opportunities Agency, ACOA, and Natural Resources Canada, NRCan, here.
Mr. Younker: Mr. Noseworthy is here.
The Chair: Yes, Mr. Noseworthy, in particular. We are looking forward to that. Are they good programs? Are they going well from your point of view?
Mr. Younker: We think they are both good initiatives, and as I said, we are active participants in both.
The Chair: Excellent.
Mr. Younker: I have a set of bullets here that you could call "asks'' that flow out of the initiatives. They are the issues that I identified for the electricity sector in P.E.I. Minister Brown, I think, already spoke to looking for federal assistance with a new cable interconnection with the mainland.
The Chair: Is that a $48-million counterpart?
Mr. Younker: The estimated cost is $90 million; 50 per cent funding would represent the $45 million that the minister mentioned.
The Chair: How does nuclear power from Point Lepreau get over here?
Mr. Younker: Through the interconnection with the existing submarine cables. Given the rise in oil prices relative to natural gas prices, we think it is time to revisit the possibility of a natural gas lateral pipeline to Prince Edward Island to make natural gas available.
When I think about a solar domestic hot water heater for my house, to me the missing piece is an easy monthly payment plan for the homeowner, something that would pay it over 10 years, but structured in a way that if the homeowner sells his house in five years, the responsibility for the payment is passed to the new owner. Thus, someone is not deterred from making a commitment with a long payback. I think there is an opportunity to make it easier for people to install solar domestic hot water.
The Chair: Are you talking panels on the roof?
Mr. Younker: Yes.
Finally, with wood being the other major alternative for space heating for Islanders, there is probably more room for promoting the usage of wood pellets, which we think is a significant improvement over round wood burning in terms of cleanliness and efficiency. There is more opportunity now for wood to play a role.
That is our presentation.
The Chair: Thank you. Do you have any facilities here on the Island for the production of wood pellets as a fuel source?
Mr. Younker: No.
Senator Mitchell: I am quite interested in the solar domestic hot water heating system; it looks like it works quite well in Halifax, Nova Scotia. They have a municipal-driven plan. What would the price or the cost per kilowatt hour be for that system compared to the 12 cents per kilowatt hour that is the average cost?
Mr. Younker: I am not talking about solar photovoltaic. This is just straight heat.
Senator Mitchell: Yes, but what would it cost to replace the equivalent amount, if you see what I mean?
Mr. Younker: I do not have a comparison similar to the one for space heating.
Senator Mitchell: In the Halifax program, they are making the case that it will cost you about $500 a year to do it, and it will save you about $500 a year to do it. It is about $8,000, so somehow it works out to be about 16 years to get it back. Do you have figures such as that?
Mr. Younker: No, not our own figures, but those sound like the right numbers.
If it was into a large-scale build-out where the installers were getting economies of scale in terms of purchasing equipment and efficiencies in making installations, I think the price could be lower and your saving of $500 a year would be enough to pay it off over 10 years.
In a more mature situation where there is a large number of installations being done, I think it is possible to reduce the pay-off to perhaps 10 years.
Senator Neufeld: That is a good point on slide 4 where you talk about domestic hot water heating being 75 per cent by oil. It seems to me — and maybe senators will correct me if I am wrong — the City of Halifax made it available to go on your tax base, so that is a way of transferring that cost until it is paid off. That is available now if in fact the city wanted to do it. They can do that and actually rid a whole bunch of GHGs and probably make it cheaper for homeowners to actually do it. What about geothermal? Is there any possibility that geothermal could be used for home heating?
Mr. Younker: I think there are a few installations. Most of them are the open type of technology where you have two water wells, and you take water from one, extract some heat from the water, cool it down and inject it into the second well. It is still early days, but I have heard some concern expressed about the fact that in P.E.I. all of our water comes from groundwater, and if we went to geothermal on a large scale, it could interfere perhaps with the groundwater supply. That is not a complete answer, but that is what our understanding is at the moment.
Senator Neufeld: You have made a very fulsome presentation. My last question is about how much wind energy you can put into your system now as a percentage. Is it about 30 per cent?
Mr. Younker: Yes.
Senator Neufeld: It has always been my understanding that that is really the top end of what technology allows today.
Mr. Younker: That is correct, just because of wind's intermittency. We think that is about the upper end.
Senator Lang: I have a number of questions. One has to do with the interconnection and what you are proposing for the $90 million investment that would go there.
I would like to know two things. First, I thought I heard that one of the reasons for this interconnection was because the existing cable might be at the end of its life. Is that part of the reason for doing this, or is it an addition to what we already have there? What is the life of the existing cable?
Second, your energy costs are significant here, obviously, and it is per residence. Are you finding that because of the cost, homeowners are doing retrofits, and their actual annual average consumption is decreasing because they are doing certain things to their homes to alleviate the actual energy consumption? Are you finding that as a trend?
I have heard the word "export'' a number of times. Am I correct that the private windmills are actually exporting the electricity that they are generating? Perhaps you could comment on that. With the interconnection then, you will be looking at exports, obviously, with expanding your wind farms. Will that pay for your interconnection or your part of it?
Mr. Younker: The largest wind farm produces 99 megawatts, and they sell 9 megawatts of that to the City of Summerside, and the remaining 90 megawatts are built for sale off-Island. They are built as a merchant wind farm.
Senator Lang: Do they use the interconnection?
Mr. Younker: Yes, they use the interconnection and then the OATT in P.E.I. and New Brunswick to be able to sell into New England.
As part of using the P.E.I. system, they pay charges under OATT. Those charges offset some of the costs of operating and owning a transmission system, and hence the Island ratepayers pay a little less. To the extent that a cost of a new submarine cable or a new cable interconnection was included in the rates to ratepayers in P.E.I., it would also be included in the wheeling out-charges, and additional wind generation for export would pay toward the cost of that interconnection expansion. It would be through the OATT charges that that would happen.
You talked about reduced electricity use by homeowners. In P.E.I., we have seen people using the compact fluorescent light bulbs; they are starting to use LED lighting. There is a little more incentive in P.E.I. for people to do that because the prices are higher. I think we are seeing what is happening.
Senator Lang: Has consumption gone down?
Mr. Younker: No, actually the average consumption per household is still rising. In the meantime, you have added two or three computers to your house and a big screen plasma television. The savings due to more efficient lighting products are being offset by additional uses.
Your first question was about the life of the existing cables. Our experience to date suggests that it would be reasonable to expect that they would last for 50 years, but they are 34 years old, and we are very dependent on them. I think as a prudent plan going forward, we would like to add an additional cable. Then down the road in another 10 years we would like to begin the process of an orderly replacement of the existing cables. The third cable is the first step in a long-term plan to renew and upgrade that for us, which is a very critical piece of infrastructure.
Mr. O'Brien: If we were to lose one of those cables, our back-up supply, beyond the wind of course, is oil, diesel oil and bunker C. There is a direct offset there as well.
The Chair: Those cables were put in, as you say, 34 years ago. Who paid for them at that time? That would be in 1977.
Mr. Younker: They were paid 50 per cent by a grant from the federal government, 25 per cent by a loan from the federal government to the province, and the remaining 25 per cent by the province securing its own funding.
Senator Peterson: What impact will the Muskrat Falls project have on forward planning for P.E.I.?
Mr. Younker: We would like to think that we would have an opportunity to purchase a small portion of the output of that. In general, the Muskrat Falls site is rated at 824 megawatts, which, in my view personally is a good fit for what could be absorbed in Newfoundland, Nova Scotia, New Brunswick and P.E.I. It would be nicely absorbed in the four Atlantic provinces.
The other site on the Lower Churchill is Gull Island at about 2,200 megawatts. Again, my own personal view is that the sensible way to develop that would be to transmit it through Quebec, over land transmission lines, overhead. The cost of a cable is quite expensive.
Senator Peterson: On a yearly basis, what capacity factor do you use for the wind?
Mr. Younker: We use about 36 per cent or 37 per cent. That is what we are seeing. In the first year of the first phase of the North Cape Wind Farm, the first 5 megawatts installed in 2001, we saw a 42 per cent capacity factor in 2002, and I thought that was amazing. It has been a little less than since. It is more like 36 per cent or 37 per cent. That is consistent with the wind farms that have been developed subsequent to that.
Senator McCoy: Where is your power system operator located? Who does all this dispatch and balancing and so forth?
Mr. Younker: Maritime Electric has an energy control centre located here in Charlottetown that is manned 24 hours a day. The operator is responsible for maintaining the voltages on the transmission system, for scheduling the hourly purchases from New Brunswick and also for coordinating maintenance on the distribution system.
Senator McCoy: If the Maritimes were fully interconnected, would you be looking to consolidating the system operator function?
Mr. Younker: That is one of the possibilities being talked about under the Atlantic Energy Gateway study. What is the opportunity for increased integration of operation of the systems of the Maritime provinces and Atlantic provinces down the road?
Part of that, certainly on the energy-production side, the scheduling of which generators will run for the next hour to supply the load, I could see being done possibly on a regional basis. That certainly can be centralized. At the other end of the spectrum you have the distribution system operation for the day-to-day maintenance and also response to outage calls. I am not so sure what the potential is to integrate all of that. There may be potential there as well, or you still may have local operating centers dealing with more distribution-related issues.
Senator McCoy: Slide 16 has to do with the illustration for the potential for space heating by electricity. Are your conversion efficiency factors the end point? My assumption is that your conversion efficiency factors of 80 per cent for oil, 100 per cent for electricity and 75 per cent for wood pellets are at the final combustion point.
Mr. O'Brien: The burner tip.
Senator McCoy: The burner tip, yes, exactly. That does not take into account all the conversions that have taken place to get the fuel source to the home or to the business.
Mr. Younker: That is correct.
Senator McCoy: We do not have a systemic look at comparative pricing then?
Mr. Younker: That is correct. This is as seen by the homeowner, and our suggestion is that what the homeowner will see is what will tend to drive his or her decisions. The price signal and efficiencies that they see will drive their decisions. No, you are quite right. This is strictly at the residence.
Mr. O'Brien: A good portion of that may be captured in the price, such as the dollar per litre. We are at 97.6 cents now per litre for furnace oil. That is the delivered price. A portion of that would be captured in that.
It was well raised that this does not include the increase in our infrastructure. That is actually our fear. This is the current decision point that might precipitate then increases in rates because we have to increase our infrastructure. I just want to leave that point. The point of this meeting is to say that this is what worries us.
The Chair: Gentlemen, thank you very much. This brings us to the end of your presentation and our questions. I gather you will be available if we need further information. We can get in touch with you. Your suggestions have been very helpful, and your brief will clearly have our ongoing attention.
Mr. Younker: Thank you for the opportunity.
Mr. O'Brien: Thank you.
The Chair: We have one last panel of witnesses. Scott Harper is CEO of the Wind Energy Institute of Canada, WEICan; and Carl Brothers is President of Frontier Power Systems Inc.
We heard earlier from CanWEA. Are you affiliated with that group?
Scott Harper, Chief Executive Officer, Wind Energy Institute of Canada (WEICan): No. CanWEA is the industry association. We are a research institute, but CanWEA has a representative on our board. I believe it is Sean Whittaker.
The Chair: Yes, exactly. Mr. Whittaker appeared before us and gave us very good evidence. We all thought it was a total no-brainer and everything was perfect, and three days later, we had 3,000 emails from the NIMBY factor.
Over to you, Mr. Harper. Thank you for being here.
Mr. Harper: Thank you.
I will give a brief presentation. I have prepared notes, but I will be skipping over some of the slides. You will see that some of them are photos, so those will be easy to skip over.
The Wind Energy Institute of Canada has actually been around since 1981, so we will be 30 years old this year. We originally formed as the Atlantic Wind Test Site, and there is a photo there. That was a really nice photo when it filled an entire page; it was shrunk down a bit. However, it is just to show that back in 1982 when that photo was taken, we basically, as of then, had no infrastructure. You will see later in the presentation that we have built on our infrastructure over the years.
The Chair: North Cape is up over the northwest end of the Island, correct?
Mr. Harper: That is at the northwest end.
The Chair: Is that past Summerside?
Mr. Harper: That is right. I had a 140-kilometre drive here this morning, so we are about as far as you can get from Charlottetown on Prince Edward Island.
The Chair: That was in a 90-kilometre wind, was it?
Mr. Harper: Well, it is up around 70 kilometres there right now.
Through the 1980s and 1990s, the Atlantic Wind Test Site led Canada's research activities in wind energy and in the 1990s began working with P.E.I. government on plans to develop a commercial wind farm. I believe Minister Brown talked to you about those experiences.
Carl Brothers, to my right here, was actually the manager of the Atlantic Wind Test Site through many of those years, so he can speak to specifics about those earlier days.
Through 2001 and 2003, P.E.I. became an active player in the wind game at a commercial scale. As you saw from Minster Brown's presentation and remarks, as well as those of Maritimes Electric's, wind is a very real and active piece of the energy mix, and it is also a piece of the mix that economically works. It is viable because of our resource because of the other electrical inputs. As Mr. Younker mentioned, we now have 20 per cent of our electricity coming from wind. I think one of the senators mentioned Denmark as a comparable zone; and we agree with that. One of our board members is from Denmark, from Risø DTU National Laboratory for Sustainable Energy, the research institute in Denmark. We often talk about the similarities, where Prince Edward Island is and where it needs to go.
In and around 2003 discussions began on expanding on the Atlantic Wind Test Site's role. Some conceptual planning was done, and capital funding was accessed through partners of ACOA, with NRCan and with our government here in Prince Edward Island. We broadened our mandate and our brand by becoming the Wind Energy Institute of Canada. Although Atlantic Wind Test Site did have a national role and national presence, we wanted to bring the country's name to the forefront. We have seen an expansion of our services over the last number of years. We have clients basically across the country now. We have a couple of very strong clients from areas such as Saskatchewan, so I think that has helped.
The Chair: Is your institute a federal government agency?
Mr. Harper: We are a non-profit agency. We receive some core funding from the federal government through NRCan, through ACOA and some support here through the provincial government. We also have fee-for-service programs and so on to contribute to our core operation.
WEICan's mission statement is advanced development of wind energy across Canada through research testing, training and collaboration; and that is quite broad purposely. We like to think that if it is good for wind, it is good for us. If we can play a role in there and have skills and abilities in that area, we will get involved.
We have four areas of strategic focus. We talk about research, development and demonstration. I believe Ms. Gordon passed around some more examples of the type of work we have done and also an article that was in The Globe and Mail recently talking about the innovation challenges in wind, and the role that WEICan can play. You can read that at your leisure.
We also are involved in testing, leading to certification, and this is what we would call a maturity, particularly in the small wind game. Mr. Younker talked about the difference of economies of scale in large wind turbines and small wind turbines. We are actively involved with small wind turbines, first, certifying their performance. An independent body will say that if you put this turbine in such-and-such a wind regime, this is what it should produce. Therefore, it is the equivalent of what the automakers do when they tell you what your mileage will be for your vehicle. We play that role, and it is becoming a large part of our business as the small wind turbine industry matures and consumers are demanding more in terms of knowledge of the history and performance.
We also do some training outreach in public education. We host many visitors to our site. By all means, if any of you find yourself in Prince Edward Island on business or on vacation, we can show you our site. We have many inbound trade missions through trade and investment activities. We have, obviously, visits from clients and other types of special interest groups who want to see a bit of the history of wind and what Canada's role has been and some of the ongoing research activities that we have undertaken.
The Chair: Just to be clear, this is not just a Prince Edward Island orientated organization in any sense. It is based here, of course, as you have described. However, if I am from Saskatchewan and want to have benefit of some of your research, it is available on a fee-for-service basis, is that correct?
Mr. Harper: That is correct. It is equally available — same rate, same activities. Obviously, with Canada being a big country, sometimes it is easier for companies who are nearby. For our clients from Saskatchewan, for example, it is a bit of an effort to come and see their technology firsthand. However, that said, we collect data, and data is very easily transferable. With Internet and telephone service, it is basically just as though they are there. We have clients where we install webcams and things of that nature to provide real-time listings of the performance of their turbines, so they are quite satisfied.
We bring them a very strong wind resource, so they can basically do duration testing at our site in by a much better means than in a less windy zone. For years, we have had small wind clients, and when they ask how will they know that our turbine will survive, I say, "Well, there is one up at North Cape at WEICan. Talk to them, and they will tell you about availability and performance, et cetera.''
We also do technical consultation and assistance, which is the more traditional consulting engineering type of work. As a non-profit, we try not to compete with private entities in these areas, so generally our client base tends to be government or NGOs who are looking for a very independent view of performance of turbines.
We just recently finished some work with the Saskatchewan Research Council, SRC, as an example. The government and SaskPower put an incentive program in place to put small wind turbines up primarily at farms. We worked with SRC to put a data collection program in place and did an analysis on the availability and the performance of those turbines. The results of that are in an internal peer review right now.
The Chair: This could be a total wild card, but we have a senator who could not join us on this part of our trip from Halifax — Senator Fred Dixon — and he was telling me that in the mechanism of the blades of these wind turbines, there is something to do with rare earth as part of putting it all together, and there is some glitch. I kept after him as to what it was, and he said, "No, it is definitely in the wind thing, and it is a red herring.'' Do you know anything about that? Is there an aspect of rare earth used in the building of these machines?
Carl Brothers, President, Frontier Power Systems Inc.: Yes, there is, but the concern that would have been raised was because they are supplied primarily from China, and the question of security of supply is an issue.
The rare earth is used in the generators, which is in the rear, the last section of the wind turbines. It is not in the blades or the gearbox; it is in the generator. These rare earth magnets allow generators to increase efficiency slightly by a couple of per cent. They are really not even that commonly deployed, but the expectation is that the use of rare earth will increase. Therefore, it is a factor, but it is not a very intimidating factor for the wind industry.
Mr. Harper: In the next slide, I talk about some areas of interest that I am bringing forward for consideration.
We are involved with an organization called Wind Energy Strategic Network, WESNet, an association of 16 universities across the country, with 21 researchers who have begun to get quite active in research in wind. We think that has been a very valuable effort. It is funded by the Natural Sciences and Engineering Research Council of Canada, NSERC, and it is an area where we are starting to see some research and development coming here in Canada.
As I think you are probably aware — I am sure you are through your hearings to date — much of the development of this technology came via Europe. It came via Europe because the market was there in Europe. Their electricity is much more expensive than ours, and wind became a viable market alternative earlier.
Leading through this, the industry did a technology road map exercise where we asked where do we need to go as a wind industry in this country, and where are there opportunities for Canadian business. Small wind turbines is one area that is very near to our hearts at WEICan as an opportunity for Canadian content. We have some companies in Canada that are quite active in building and developing small wind turbines.
Again, having been lucky enough to be here in time for Maritimes Electric's presentation, they talked about the economies of scale. One of the reasons the economies of scale of small wind is not as good as large wind is economies of scale; it is a smaller turbine. However, also, large wind turbines were not always in the 9-cent range. As markets developed, technology improved. The rink project, which was referenced in Maritime Electric's presentation, is actually a project that we are managing.
The goals behind that project are two-fold. The first is to start to build a market for these small turbines and actually hold the turbine manufactures to account and promote the effectiveness of the installation and the economics of the install. The supports that were put in place were not a requirement of the utility to pay 30 cents a kilowatt; it was a capital support to make that investment attractive for the ice hockey arenas. We did an analysis of the ice hockey arenas that had the best wind resource and a location that was appropriate for a small wind turbine. We did not want to put these things on top of neighbouring homes, for example. The installs are actually taking place this spring, so we are interested to see the results and speak about the results and hope that the industry takes those results and improves their products accordingly.
I am not sure where Mr. Brothers is going with his presentation, but he will likely be talking about distributed energy systems in remote locations; and Mr. Younker talked about 30 cents a kilowatt hour. With small wind turbines, if you go to Canada's North or non-grid-tied communities across this country that are supplied primarily by diesel fuel, 30 cents is a pretty good deal. When you add carbon emission factor, when your whole mix is diesel fuel, even without putting a price on it, I think we can start to see where some of those benefits might go.
Those are areas that we believe are of interest and that should be considered from a Canadian content point of view that are not as often brought up when you talk to people who are in the wind industry.
The next couple of slides are just some aerial photos of our site. Again, when I printed this presentation four to a slide, I thought I was doing something for the environment, but I realized I lost some of the appeal in the photos. The second photo is probably more of interest and shows the uniqueness of our site. This is the northwestern tip of Prince Edward Island, and with it, we have 300 degrees of exposure to the water. The predominant winds are coming from the west to the northwest, and as they come onto our site, it is a clean wind. It is coming across water. There are no disturbances. There is very low turbulence, which makes it an ideal setting for a test site because turbulence causes problems and issues that bring your data into question. Therefore, we have a bit of an issue with our cliff, but our cliff is not that high. However, we take that into account, and if keep away from the cliff a little, we can keep our data quite clean.
The one aerial view of WEICan is coming from the ocean down on the tip.
The Chair: The lower right-hand corner on page 3, is that correct?
Mr. Harper: Yes, exactly.
The Chair: That is the northwest tip of the Island.
Mr. Harper: You can see the wind turbines that are in the background. Those would be the PEI Energy Corporation's wind turbines that were installed in 2001 and 2003; Minster Brown probably spoke of them.
The Chair: Summerside would be where?
Mr. Harper: Summerside is 90 kilometres closer.
The next slide is a project that we are now undertaking and of which we are quite proud. We were a successful applicant under NRCan's Clean Energy Fund, and through it, we are building a 10-megawatt research park. In it will be an energy storage system; and this ties in again to some of the comments of Maritime Electric. We see relevance for this project. Under the Clean Energy Fund they are looking for demonstrated projects to bring innovation to grid integration of energy across the country. That is all energy, not just electricity.
With Prince Edward Island now seeing 20 per cent of its electricity coming from wind, we are seeing integration issues. It has been a challenge to the utility, but we have faith in the utility. They are smart people; they understand this industry; and they understand how to deal with intermittent resources. However, we think storage can be a tool. It is not the be-all, nor is it the end-all.
If you look at the next slide — and this is sort of in support of what Mr. Younker presented that talked about the variability of wind — we did a prediction for our 10-megawatt wind plant using an unusually variable day, and we show that there is wind in the overnight hours around 3 a.m. and 4 a.m. when production goes up to 8 megawatts or 9 megawatts, but there is not a large demand for that wind at 4 a.m. Then the wind dies at 9 a.m. People are going to work, getting equipment, machinery is coming on and our winds have dropped. One of the things that we will be looking to demonstrate is the ability to use storage to help with that intermittency. It will not help everything.
Storage has a way to go. Expense is associated with it and efficiencies need to improve. However, increasingly across the country, we are seeing interest from utilities, system operators, wind-farm owners and others. They are really interested in seeing our results, the efficiencies, the effect of — if it is a battery — cycling through the battery and what that does to the efficiency and the life cycle of it, but most importantly, the true economics of this. As an independent, non-profit, we will bare our books and show what that impact has been. If we try it in some certain area, and it basically loses money in that particular regard, we will lay that out so that a utility somewhere else in this country can say, "Well, our variables are different, and if we plug those numbers in our model, we think this might work.'' Then we will hopefully see where that can go.
Again, storage will not make wind be able to supply 70 per cent of Canada's energy, but if we can even make a small difference, it will help. It is also probably somewhat site-specific. In this particular area of Prince Edward Island, where both Mr. Brothers and I live, we are now seeing, on the substation that we connect to, 33 megawatts of wind for an area that has an average demand of 8 megawatts to 10 megawatts — I think it peaks at 12 megawatts. Therefore, we have a lot of energy that can come into that substation, and that puts strains on transmission and distribution networks and so on. Having a storage project available can help the utility and help the system operator try different things, be that for time shifting of energy for voltage control or other auxiliary services.
We feel that is part of our mandate, and we are excited about this project. As I mentioned, we are in planning now and will be constructing through summer and fall, with the idea of being commissioned by Christmas and the storage being in place by the spring of 2012.
The Chair: That is very interesting, especially having said earlier that you cannot store energy other than hydro.
Mr. Brothers, please make your presentation.
Mr. Brothers: Thank you. I appreciate the opportunity to speak to you. I am speaking to you from the perspective of one of the old guys in wind. I have been in the wind energy business in Canada for just over 25 years.
As Mr. Harper said, the first 20 years were at North Cape managing the Atlantic Wind Test Site, and for the last five years, my group of engineers and I have been doing consulting work for wind construction and projects across the country.
I would like to make two points today. The first one is related to the wind in P.E.I. and how I think Canada can learn from the example that P.E.I. has shown. The second point is to provide the perspective of an old engineer on wind energy's potential. I know that there are many misunderstandings about wind. Sometimes, I think, wind energy is the Rodney Dangerfield of the energy sources. If we sit back and take a balanced look at it — and I will discuss a few examples of that today — I think we can see the perspective that I have reached, namely, that wind can be a very significant player in our future energy supplies.
As far as P.E.I. is concerned, as Maritime Electric said, we will be getting 30 per cent of our electricity from wind energy in two years' time. If you compare the world leaders in kilowatts per capita of installed capacity, Denmark is the leader. Denmark has 657 kilowatts per capita. Canada is in eleventh place with 107 kilowatts per capita. P.E.I. has 1289 kilowatts per capita, almost twice as much as Denmark. In the last 10 years, P.E.I. has really shown leadership in making this wind work. It has happened because we have high energy costs and a stellar wind resource, but I think that the rest of the country can learn much from how P.E.I. has managed its growth and has shown some leadership in that.
The second point, as Mr. Harper mentioned, is activity at North Cape. Prince Edward Island has seen 30 years of activity in wind energy research and development, and we have done a lot of work not only in utility scale systems but on the community wind systems and the wind diesel systems that fill up remote parts of Canada.
Our company, Frontier Power Systems, has built the first wind diesel project in Canada on a small island in the Atlantic Ocean off Newfoundland. We are just finishing up a project funded entirely by the provincial government for a wind hydrogen project that we have demonstrated at North Cape. We are now engaged with Quilliq Energy Corporation, QEC, from Nunavut to try to launch a demonstration project into a small community in Northern Canada because we realize that in Northern Canada these communities will be there in 50 years' time, and we are not sure that it is will be feasible, either environmentally or economically, to truck these huge volumes of oil into these communities.
We have been pioneers in public ownership. Minister Brown spoke this morning. I did not hear him, but I am sure he was crowing about the ownership of Prince Edward Island of these wind plants. There is a great deal of pride when you go around the province and ask, "Do you know that you own that wind plant?'' People will say, "Yes, I know I own that wind plant.''
The province has committed now to build 30 megawatts of additional capacity at 7.8 cents a kilowatt hour, and by any measure that is economic supply. When you are fixing in the price of electricity for the next 20 years at 7.8 cents with a small escalator, then that is inexpensive electricity.
On the community wind energy side, you mentioned earlier, senator, about the push back from NIMBYs on how you combat this. One of the problems of the rationale of the NIMBYs' position is that they do not see the public ownership.
I spoke to a number of groups as I toured through New Brunswick last year, and one of the common themes was, "Why do rich investors from Europe or Toronto come here, build these wind turbines and make a 10 per cent to 12 per cent return on their equity when my RRSP is making 3 per cent?'' That does not make sense. One of the options is to try to develop these community wind projects where the community can actually take ownership of that. The City of Summerside has been the first one in Canada to do that. When you are standing at the Sobeys parking lot in Summerside, you can see four 3-megawatt turbines that provide a significant amount of their electricity. Every time one of the turbines stops the mayor receives a call to say that one of the turbines is down. The community there takes ownership in that.
In Prince Edward Island, we have been able to do it with public ownership on the large scale for utility generation, bulk generation, but we have been exploring that on the community side as well.
From those four elements — research, public ownership, community wind ownership and amount of installed wind capacity — I think Canada can learn much from our little province.
The Chair: On the NIMBYs, because we have watched it in Ontario, it is partly how you sell it and how you go about it. You are saying that doing it collectively as a community is a way of neutralizing the NIMBYs.
Mr. Brothers: You need to understand the NIMBYs concerns. Some of them are rational but misinformed. Many people are saying that there are health effects, such as getting cancer from the high voltage transmission lines, yet there is no founding for that.
The Chair: They talk about noise and visual issues.
Mr. Brothers: There is talk about the infrasound noise.
It is a nuisance to some people who do not want the wind turbines. However, in many cases, it is driven by people who are simply jealous because their neighbour has a wind turbine on his property and making $10,000 a year on it. Therefore, you need to sort through what the actual objections to these developments are and make a rational decision on them. Sometimes that does not carry through.
The second point is from the perspective of an engineer who is enthused with wind energy. I will be bold enough to say that Canada should undertake an initiative to strive to build a zero-emissions electricity system, and I think we can do that. We can do it, in large part, because of the existing hydro system that we have, which provides 60 per cent of our electricity. We must improve efficiency, and we have a long way to go because we consume far more electricity and energy than is necessary.
The Chair: You are talking nationally now, right?
Mr. Brothers: I am talking nationally.
The Chair: Do you operate from the basis that, as we do, that we are already 75 per cent there?
Mr. Brothers: That is right. Actually, the average capacity factor of hydro plants in Canada last year was close to 50 per cent.
With conservation and the existing hydro base, which will grow, there are still some economical hydro developments to take place. Hydro-Québec is doing the Romaine development, and there are a couple large hydro developments that will come. However, wind is standing in the wings ready to come in and play a big role. I think that because it is increasingly economic at 7.8 cents a kilowatt hour in Prince Edward Island; not every place can do that. Ontario does not have the wind resource that Prince Edward Island does, and they have opted for private ownership, which means that the investors need a return on equity, so their costs are higher. However, in many parts of the country, the wind blows just as well as it does here in Prince Edward Island. Economics are becoming much more favourable for wind.
The Chair: You are saying that the cost of 7.8 cents — which the premier and his energy minister have talked to us about — is sort of a differential of maybe half a per cent from the private, right? You are saying that the incentive should be to do it publically as part of a non-profit.
Mr. Brothers: That is right. I think you can make the argument that if you will build roads with zero profit and build schools with zero profit, maybe you should supply environmentally clean energy at zero profit. That is the option I suggest we should consider. I do not think that will get much traction across the rest of Canada, but that is what has worked in Prince Edward Island and is a model worth considering.
I want to talk very briefly about the four myths of wind energy on a national scale.
I come here not understanding exactly what your perspectives are on wind energy because when you listen to the media, you always get these negative ideas about wind; you get the notion that wind creates health problems. While I am not a health expert, and I do not suggest to speak to the health issues, I can state professionally that I have looked at this closely and see nothing to suggest that these turbines cause health problems. The concerns that have been raised deserve study, and everyone needs to be respected, but nothing about the electromagnetic force, EMF, or noise or anything suggests that these turbines cause health problems. People claim that the electromagnetic force from the high- voltage transmission lines is problematic.
The other myth is that wind energy is too expensive. The option that the province has chosen here suggests that 7.8 cents per kilowatt hour over 20 years with zero environmental risk and zero fuel price risk is a compelling argument to say that this is worth considering.
I find that wind does not get any respect because it is always said that you cannot really generate much energy with wind; wind does not blow all the time, so you cannot really use it to a large degree. That is where the national system comes in.
To provide some reference points to that, I have looked at — and I have drawn there — La Grande Complex in Northern Quebec. This is the biggest hydroelectricity facility in Canada. It has 16,000 megawatts, eight generating stations and has been operating for many years. That facility generates between 12 per cent and 15 per cent of Canada's electricity; it is one massive facility. The interesting point about that facility is that it has huge headponds, reservoirs that store enormous amounts of water. Those headponds cover 14,000 square kilometres, which is a huge area. It represents about 0.14 per cent of Canada's land base.
The Chair: Ask any Aboriginal band in Northern Quebec, and they will tell you.
Mr. Brothers: That is right. If you will allocate 14,000 square kilometres in Northern Quebec to generate 12 per cent of Canada's electricity, what would happen if you allocated an equivalent amount to wind power?
I have done that analysis by looking at the project in Saskatchewan, the Centennial Wind Power Project, which has a 100-megawatt wind plant that covers an area of 30 square kilometres. The turbine in the Centennial Wind Power Facility is about a 10-year old technology, the V80 technology that has been supplanted by the V90-1.8 MW now, which would generate about 20 per cent more electricity. That facility generates about a 40 per cent capacity factor on an annual basis. If you took that 14,000 square kilometres of land and allocated it to the land density at the level of the Centennial Wind Power Facility, you can install 70,000 megawatts with an annual capacity factor of 40 per cent; you would generate 40 per cent of Canada's electricity. That area, which seems massive, is really only 120 kilometres by 120 kilometres. You could put that into a small corner of Saskatchewan. Therefore, the areas that are available for wind development in Canada are enormous. With the economy and the environmental attractions, I do not understand why we are not embracing wind in a really big way.
To embrace it from a federal perspective addresses the final concern with wind, which is what happens when the wind does not blow. If you put this 70,000-megawatt facility — and that will not happen, but the area is there in Southern Saskatchewan alone to do this —- in Southern Saskatchewan, when the wind blows you have all this energy. However, when the wind does not blow, what do you do? You do what we are doing across Canada; you put turbines into British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, right across the country. When you look at the wind blowing across Canada, it is never not blowing; it blows somewhere all the time.
Whenever we try to build a nation, I would think that we need to play to our strength, and our strength is our geography. The strength that we have with hydro is evident now. We are getting 60 per cent of our electricity from hydro. If we take a similar initiative with wind, we can get enormous amounts of wind stabilized with the geographic dispersion.
I took the calculation with James Bay one step further. With the 14,000 square kilometres, the average head in those ponds is a little over 100 metres. If you allowed the levels in those ponds to fall from 105 metres to 104 metres over that 14,000 square kilometres, you could take enough energy to provide all of Canada's electricity for nearly two days. There is huge capacity in those reservoirs if you just let them level. Those reservoirs in Northern Quebec are huge, but they have them in British Columbia, Manitoba, Ontario and Newfoundland. If we take the continental approach or the national approach and ask how we build a system here that minimizes impact, then hydro plus wind plus efficiency will give us what we need. All we need to do is tweak the electrical systems on the hydro side to adjust the power-energy storage, the power-energy ratio to optimize that system to give us a system with which no one in the world can compete. That way all of our fossil fuel that is developed becomes export money.
In my view, it is something that you really should give some serious thought because Canada's wind resource is massive, economic, compatible with hydro and clean, and it will be here for a long time.
The implications of such an initiative are not insignificant, and I do not pretend to trivialize what is needed here. There needs to be some repowering of existing hydro to provide more power whenever the wind is not blowing, so they will let the reservoirs fluctuate a little. It implies increased interprovincial electrical trade, which is problematic given the provincial jurisdiction, but that is really where the federal government comes in to play a role in working that out.
Some investments will be required in east-west transmission, probably in high-voltage direct current, HVDC, but that is not a bad thing. I am sure you are hearing, as you go through your hearings, that we really need to work as a country not a bunch of north-south channels. The primary point is that we have to be driven here by an interest to say, yes, we want to get to a sustainable system. If we just want to look at the least cost, let us burn coal. If we want to get to a position where we can say that we have a sustainable electricity system in Canada — probably the only one in the world, with the exception perhaps of Norway —- we can do it, but we need to embrace all of the options and look at them widely.
We need political vision. I reread a book last month that I have not read for 20 years, Power from the North by Robert Bourassa. Have you read that book? He took a lot of flack when he wrote it, but he was suggesting that the rivers of Northern Quebec could be dammed to provide economic and long-term energy security to the United States and provide jobs and benefits to Quebec. It has come to pass. If we have that sort of vision now that looks at what we have and tries to bring wind into the mix, I think we are moving forward in way that will make our grandchildren will be proud.
The fundamental question that I would really hope to get from your group is whether we want to get to a sustainable electricity system. If we do not, let us burn coal. If we do, wind can play an enormous role in it.
The Chair: Sir, it is always refreshing to see an engineer with such passion and enthusiasm. This is good stuff.
Senator Lang: Looking ahead — and you are obviously leaders in your field — we have seen prices as high as 30 cents per kilowatt hour, and now we are down to 7.8 cents per kilowatt hour. Knowing the world, the way it is going and the need for more energy around the world — not just around Canada — and knowing that wind is becoming a major investment for many countries to offset their energy requirements, do you eventually see the price going down because of further demand in the wind industry?
Mr. Brothers: In the last 20 years, the wind industry has gone down the learning curve quite a way. Presently wind is one of the biggest users of steel in the world. What you are seeing now is that wind energy is starting to reach a plateau, where the economics are pretty well where they will be. Twenty years ago, the cost of wind was 20 cents a kilowatt hour, and now it is 7 cents to 8 cents in an aggressive environment, depending on the circumstances. The 30 cents a kilowatt hour applies to the smaller turbines only, and to a lesser degree in areas where there is no wind. However, if you are being prudent about this, why would you not put your biggest, most economical turbines in the windiest places you can find? Why would you not develop it in a way that provides long-term best interest?
Hydro-Québec has been working on the Romaine hydro project, and estimates of the cost of the electricity, net, were 9.6 cents a kilowatt hour. They have since recalculated it, and it has come down now to 6.4 cents, I am told. They have done that by reducing their return on equity to zero. You can have a zero return on equity and still provide benefits, so it can happen with wind.
You will not see 3 cents a kilowatt hour with wind — you certainly will not see it too cheap to measure — but at 7 cents to 8 cents to 10 cents, even if you do it with developers, when you consider the environmental benefits and the reduced risk from fuel costs escalation, it is a good deal.
Senator Lang: You touched on the possibilities in the North, and you referred to Nunavut specifically. There is also Northwest Territories, and in our case, a number of communities that might benefit from it as well, depending on the wind capabilities of the areas. Do you know of any other communities in the North that are doing some experimenting with this?
Mr. Brothers: Yes. My company is involved in doing the advanced design in Tuktoyaktuk. A three-turbine project will be installed there. They are still awaiting capital approval, but it is serious enough that they have actually paid us to do the detailed design on the electrical and control interconnection. Therefore, that project is underway.
Senator Lang: Are you satisfied with the effects of the winters and the severities of the winters? I think a factor has come into play in the North because of the freezing and the ice. Have you been able to overcome that?
Mr. Brothers: That is usually not a problem with the proper design. Icing occurs at elevations rather than in the North. It is not a critical problem. The cold is a serious problem. If you operate in the North, you really need to operate down to minus 40 degrees Celsius. In this part of the world, we can operate down to minus 20 degrees Celsius. If you operate in Saskatchewan, you need to operate down to minus 30 degrees Celsius. The turbines have to be designed for the environment in which they are installed.
Solving the problem will really be the selection of the technology. For instance, in Tuktoyaktuk, we are putting in fairly small turbines that are much more expensive to displace some electricity. The thermal heat load in this community is huge. They require five times as much energy up there for heat as they do for electricity. Maybe we should be looking at doing the engineering to be able to take these big economic wind plant wind turbines and make a big dent in the energy consumption. The study that we have been working on with Nunavut is to use hydrogen to store that wind energy. You generate hydrogen with the surplus electricity when the wind is blowing, and then you use the hydrogen to generate electricity when the wind is not blowing. It has been very difficult to get any traction on that because the resources for doing these projects are pretty limited.
Senator Mitchell: We had a great presentation from the Canadian Wind Energy Association, one of the best that we have had. Yours definitely reaches that bar. It is quite interesting to see. This is really the first place where we really see it working. We have not been all across the country yet, but it is quite invigorating actually.
I just want to make a statement. We seem to get uptight these days about government assistance for this kind of alternative energy. I am from Alberta. We tout the oil sands. The oils sands would not be anywhere near where they are today but for government intervention and assistance. Just consider that the government took an equity position in Syncrude Canada Ltd. at the outset. Consider the billions of dollars that they put into research to enhance the productivity, efficiency and commercialization of that resource. However, we seem to get cold feet about doing it for alternative sources of energy.
Also, consider that I was up there in the early 1990s. Eric Newell, the CEO was showing me, and he was very proud, as he should have been, and we should be. However, the fact is that at that point it was $15 a barrel to produce without considering capital costs, and they were getting $10 a barrel for it. They were losing huge amounts of money to produce that.
That brings me to my first question. How much government assistance have you had to do what you are doing, for example, feed-in tariffs and any other kind of assistance? Is it enough? What do you need, or is this pure and utter capitalism without government intervention?
Mr. Brothers: It is not pure and simple capitalism without government intervention. If it was pure and simple capitalism, we would be burning coal.
The problem that this committee has, if you will forgive me for my boldness, is to try to find a way of integrating social values and environmental issues into the equation. It does not count now. Everyone says yes, we should be clean, but you have to come along with a number and say that that is the value of it, and a number of studies have been done on that. However, wind energy is not more expensive than coal energy when you consider the health effects and the impact on the environment. It is not even close to being as expensive.
The same thing can be said about natural gas. We talk about this huge influx of natural gas because of the shale gas finds —- and that has been significant and encouraging — but at the end of the day, it still emits fossil fuel, and there still may be some environmental ramifications that we have not figured out yet.
The point is that we have an obligation, and I feel a little sheepish about my generation, our generation, and the leadership we have shown here because we really have been squandering our resources. We have been sucking the oil out of the ground as if we have to use it before we are gone. We really need to find some way of socially valuing what we have. The value of a barrel of oil is not zero when it is in the ground; we can leave that for our grandchildren. This notion that we have to liquidate our assets in that manner is something that is a pure capitalistic way. However, finding a way to bring the environmental and social implications in is something that must happen. When it does happen, I think wind will be there in spades. When that happens, then you can turn it over to a capitalistic system, but there are benefits.
Senator Mitchell: Thank you; well said.
On La Grande Complex, I just want to get the figures right. I can see that 5 megawatts per square kilometre times 14,000 gives you 70,000 megawatts. I can see that 40 per cent times that would be roughly 280 terawatts — but you have 245, so that is the factor there — 40 per cent of that would be consistent. What is the plus 13,000 kilometres?
Mr. Brothers: Thank you. I skipped over that.
La Grande Complex, which is 14,000 square kilometres of reservoir, is all flooded. It is good for fishing, maybe. However, if you put a wind plant up there that covers 14,000 square kilometres, 95 per cent of the area can still be used. If you put them in Saskatchewan, the farmers can farm right up to the base of them.
Senator Mitchell: You could grow trees around them.
Mr. Brothers: You can grow trees around them. You can do all kinds of things.
Senator Mitchell: Good thinking. Whatever number of turbines you would actually need would use about 1,000 square kilometres, but they have to be spaced, so there is all that space between them.
Mr. Brothers: That is right. Turbines are normally 200 metres to 400 metres apart. They take a footprint of about 10 metres by 10 metres, so they do not take up much space.
The new Vestas V112 3-megawatt technology that is just coming out this year sweeps one hectare of the vertical plane, so that is a true wind farm. It is a one hectare farm, but it is farming the vertical plane.
Senator Mitchell: You mentioned storage. It is the first time that we have heard of this as being even remotely possible or practical. What is the technology? How much can it store and for how long?
Mr. Harper: It will likely be a battery technology. We have talked to a number of suppliers, and we are looking for companies that are market-ready.
Under the Clean Energy Fund, four projects across the country have received some level of support involving storage. We have talked to those companies as well, and we would like to see a diversity of technologies as we go across the country so that we can compare notes on what has worked and what has not.
The U.S. is also doing a number of projects under some of their stimulus package funds as well. Lead acid batteries are a possibility. There are flow batteries, sulphur, lithium-ion. Refurbished vehicle batteries is a growing market. Some interesting technologies are coming in Ontario, looking at refurbished batteries in which the car companies are interested. We think there is a dual market driver in that the battery goes through a life cycle in a plug-in vehicle, and once it is about 70 per cent to 80 per cent depleted, they have to be replaced. What do you do with them? Refurbishing them and tying them into grid storage seems to be a real opportunity.
For the size of our project, we are likely looking at 5 megawatt to 10 megawatt hours of energy storage. When we planned out the project, we asked the utility — Maritime Electric, as well as the New Brunswick System Operator — where do we have to get to to be relevant. That was about the size that we really needed to get to, so we needed to make the economics of the project work as well.
As to your question around the support — and I am glad that you mention it because I usually raise that as well and get many eyes rolling. You really need to have your facts straight when you get into the supports that are provided to other energy sources. However, you are right; every energy source originally was supported.
Our institute presently gets about $650,000 a year to support our research program at Ottawa through two various agencies. This particular project is a $24.5-million project, and we are getting $12 million from the Clean Energy Fund to help with the infrastructure and defray the research and development costs primarily associated around the storage.
Senator Neufeld: I am glad Senator Mitchell asked about storage because I was interested in that too. I am familiar with storage but in the form of water. On that technology with batteries, there are some things about the environment and batteries that do not go well together. I think you would agree with me. That technology is likely a way off. I appreciate that you are trying it because if you do not try it, you are never going to get there. However, would you agree with me that it is quite a way off?
Mr. Harper: It depends on the application. I believe you are from British Columbia, correct?
Senator Neufeld: Yes.
Mr. Harper: Your utility is looking at transmission and distribution deferrals. The ability to have that storage system that can be taken across your province to basically assist in those areas is quite interesting.
The battery technology is well understood. We have batteries all around us. Containment systems and environmental management plans are well developed and have been peer reviewed. Good regulatory processes are in place to tell you what you can and cannot do with these systems. It is an economic issue, and if the market develops, the technology will develop. It is the same thing that happened in wind. It is the same thing that happened in the oil sand and other places. We need to develop the market.
In battery technology, in some cases lithium-ion has developed and advanced a bit faster because of the electronics industry and also the onslaught of interest in plug-in electric vehicles. The other technologies can develop to meet those needs as well, as long as there is a market, and the market for it needs to be established.
Senator Neufeld: We have some wind in British Columbia. I am a firm believer that wind is part of the problem. As the premier said to us a while ago, it is not the silver bullet but rather the silver buckshot. All kinds of generation can be employed that are actually clean and green. Wind is one of those and is actually very useful.
On page 14 of your presentation, Mr. Harper, the peak hours are part of the problem. Dealing with storage from wind energy will help that a bit. However, if you drew a line across there as to when the power is actually consumed at peak, both in the morning and in the evening, you find that that is when the least power comes from wind generation. Therefore, what has to happen in the utilities is that they have to have enough energy and a percentage more than what peak is as base. Will batteries actually bring us to that point where you can call wind actual base included into your base or not?
Mr. Harper: The economics would have to change quite drastically, I think, to get there. From a storage perspective, we are a little careful. One of the guys who used to work with us referred to storage as a bit of a red herring. Therefore, let us be careful that someone does not grab this and think that it needs to be the be-all and end-all.
Again, back to the Maritime Electric presentation, even in a very small province such as Prince Edward Island, the balancing has created a positive impact from one end of the Island to the other, which as the crow flies is approximately 250 kilometres.
Senator Neufeld: Yes, that is pretty close. I am talking about our province.
Mr. Harper: It is basically next door.
These electrons can move, and there are transmission losses, but our transmission system has managed that quite well. If you move more toward better interconnect and a national grid with a country as immense as Canada, there is a bigger impact for baseloading, and I do not think the storage through a battery can even becomes a play in there.
It really comes back, as I mentioned, to economics. The senator from the Yukon mentioned where the economics really need to go. At the end of Maritime Electric's presentation, you referenced some of the figures from Minister Brown's presentation. We have seen the volatility of energy prices just in a couple of years. Wind is fixed. You can lock that in; you sign a power purchase agreement, PPA, for 20 years. When I am a utility doing my planning and know that it is fixed, and I have historical information that tells me, I will deal with the peaks and valleys.
Senator Neufeld: Yes, hydro and biomass and all of those deal with that.
Mr. Harper: As I said, they are smart guys when you give them adversity.
Senator Neufeld: With 75 per cent of our electricity generated now from clean sources — and actually if you took all the generation in Canada, we probably generate enough in Canada that we could meet all our needs if it could be distributed — is there a way of looking at that other 25 per cent using wind or other sources of electricity to generate to bring us to 100 per cent clean?
I get that because I hear about Denmark. Denmark, I think, generates today about 40 per cent with coal. That is because they have to. They do not have alternatives. They do not have a Hydro-Québec or BC Hydro or Manitoba Hydro, and neither does Prince Edward Island have that ability.
Is there a way that we can look at the system that we already have and maybe just augment it a bit rather than talking about transmission lines from one side of Canada to the other? HVDC, I know that is expensive, but it is an option, for example.
Mr. Brothers: I think whenever you make the jurisdiction smaller, your options become more limited, and that is the case Prince Edward Island finds itself in now. Prince Edward Island might be able to access some of the fluctuations and storage capacity in Quebec to stabilize their energy; I think that will come about eventually.
The Atlantic Energy Gateway, which people will talk about later, really is an initiative to try to make the entire Atlantic region a single trading entity so that we are a group, a unit, rather than four separated groups. Putting a transmission line across the country is not an absolute prerequisite to moving forward on this. You need to look at it from a jurisdiction-by-jurisdiction basis.
Senator Neufeld: Thank you. That is the answer I actually wanted to hear.
If Prince Edward Island had the same opportunity to tap large rivers to produce energy for its own use, would it have moved forward with wind, or would it have actually built hydro generation?
You said that you have 25 years in the wind industry.
Mr. Brothers: Yes. This was politically driven; the initial initiative to install wind capacity was taken by a politician who said, "I think we should use wind,'' and there is no question that the decision would have been flavoured by the fact that there are not many alternatives. We do not have the terrain here that brings us a lot of hydro. I think if we had the option of cheap hydro or not as cheap wind, I think we would have taken cheap hydro.
We are pragmatic people, I think. At the end of the day though, I think where we end up is that the initiative that they took 10 years ago to put their first project in, combined with the evolution of the technology to bring cost down, has put us in a position now where they are investing in wind for economic reasons alone.
Senator Neufeld: That is a good answer.
The last question I have, because I know we are pushed for time, concerns the health issue.
I was a minister in British Columbia for eight years. People always told me that they wanted wind until all of a sudden we decided to build some towers in some different places across the province, and then everything broke loose. We heard, "I do not want it in my yard''; "I do not want to pay more money for electricity'' — and that is not an argument because you have to generate it somehow — "The health effects are terrible''; "My animals will be affected.'' There are not a lot of places we could go for help.
It is the same thing with EMFs. I faced huge problems with that, with building transmission lines through communities where people lived. Where do we go to get this expertise? I would rather have you on the stage getting hit with arrows than me at that particular point in time. Let me tell you, it was not fun to go out there and argue. However, the wind industry itself kind of disappeared when the flack came.
Mr. Brothers: I think the wind industry has to buck up and say, "Yes, we did not play that right.''
At the end of the day, these are issues that, when you start dealing with people on an emotional level, it is very difficult to take things too far.
I will give you an example here on Prince Edward Island. There was a transmission line, a 69,000-volt transmission line, put to the east end of the Island for a wind project. Then there was group in Prince Edward Island who said that they are against wind and started raising these EMF issues. They actually had one single mother in the eastern part of Prince Edward Island so scared that she would not let her kids play in the backyard.
You just need to step back and say, "Let us be rational here. I think that these health effects are overstated, and I do not think that they will show to be significant in the final analysis.'' However, you rile people based on emotion, and they are not informed enough to make any informed decision. At the same time, they are seeing these wind turbines go up to no benefit to them, which I think is a justification for really pushing these community notions that we are all in this together. Canadians generally think that electricity comes out of the wall.
The attitude is that I would much rather have a nuclear power plant over there that I do not see, or a coal plant that does not affect me directly, than looking at those damn things because I bought this vista; I am retired here, and I do not want anything to do with it. I do not care if it makes that farmer $10,000.
It is all an educational issue that takes time; and the resources are there. I am not at all in favour of brushing this under the carpet. We need to make some tough decision if we want to build this country and provide a sustainable electricity system. No country in the world is as well positioned as Canada.
Senator Neufeld: I do not disagree with you. However, there needs to be a lot of work done also with wind energy associations to help with those processes. I do not care whether it is Saskatchewan or wherever. It does not matter, at least it did not in British Columbia, where you were putting the wind tower. Whether the public owned it or not, we heard, "I do not want it there.'' Then they conjure up all the health issues possible. We need to be able to go back to folks such as yourself and Mr. Harper and help those utilities to actually site wind towers.
It is a tough thing to do. That is one thing I would leave with you.
Mr. Brothers: I agree. Yes, I appreciate that.
Senator McCoy: I had intended to ask questions about storage, but our colleague asked about that, so I will keep it brief.
We talked about hydro as being green power. You are pleased to do that. What environmental impacts are included with developing hydro power on the large scale? You are probably in a good position to answer that question, Mr. Brothers.
Mr. Brothers: I would not presume to be an expert in hydro, but there are certainly some push-backs. You are taking this La Grande Complex, 14,000 square kilometres out of production. Now, part of that would have been in the river basin.
Senator McCoy: That is flooded boreal forest.
Mr. Brothers: That is right. It is carbon sinks that are largely taken out of the mix. To pretend there is no impact is naive. There is definitely an impact. Quantifying the impact is a bit of a tedious process —- and I certainly do not have the expertise — but at the end of the day, they are there, and I do not see any reasonable expectation that we will drain that. I think that we are stuck with those reservoirs, full and impacted as they are. I think getting additional reservoirs will get challenged more from the environmental side.
Senator McCoy: I will leave it at that because time is running on. Thank you very much.
The Chair: That concludes our morning hearing.
Mr. Harper, we will be clearly sending your message to your namesake up in Ottawa.
We are delighted to learn more from the research point of view, from both of you, about wind. I think the national vision is right up our street. Premier Charest was just announcing in his big inaugural address last Thursday about the new northern initiative in Quebec, which I am sure that this fits in with beautifully.
Thank you very much for appearing and teaching us about your subject matter.
(The committee adjourned.)