Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 28 - Evidence - May 5, 2015
OTTAWA, Tuesday, May 5, 2015
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:38 p.m. to study non-renewable and renewable energy development including energy storage, distribution, transmission, consumption and other emerging technologies in Canada's three northern territories.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld, I represent the province of British Columbia in the Senate and I'm chair of this committee.
I would like to welcome honourable senators, any members of the public with us in the room and viewers all across the country who are watching on television. As a reminder to those watching, these committee hearings are open to the public and also available via the webcast on the sen.parl.gc.ca website. You may also find more information on the schedule of witnesses on the website under "Senate Committees."
I would now ask senators around the table to introduce themselves and I will begin by introducing the deputy chair, Senator Paul Massicotte from Quebec.
Senator Seidman: Senator Judith Seidman from Montreal, Quebec.
Senator Black: Doug Black, Alberta.
Senator Mitchell: Grant Mitchell from Alberta.
The Chair: I would also like to introduce our staff, beginning with the clerk, Lynn Gordon, and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
On March 4, 2014, the Senate authorized our committee to undertake a study on non-renewable and renewable energy development including energy storage, distribution, transmission, consumption, and other emerging technologies in Canada's three northern territories.
Today I am pleased to welcome witnesses from Alaska Energy Authority, appearing before us by video conference from Anchorage, Alaska. We have Sara Fisher-Goad, Executive Director and Sean Skaling, Director, Energy Programs and Evaluations.
Thank you for being with us today. I'm sorry we are starting a little bit late, but there were some long-winded senators in the Senate today and we couldn't get out at our usual time. We had to wait until everything finished and it recessed.
We're ready for your presentation. Once you are done we will have some questions. The floor is yours, folks.
Sara Fisher-Goad, Executive Director, Alaska Energy Authority: Thank you, Mr. Chairman. For the record, my name is Sara Fisher-Goad, I'm the Executive Director of the Alaska Energy Authority. I have with me Sean Skaling, Director of Energy Programs and Evaluation. Mr. Skaling heads up our renewable energy program and Emerging Energy Technology Fund.
We will both be presenting the presentation to you today.
Mr. Chairman and members of the committee, please accept our sincere condolences over the passing of Speaker Nolin.
On behalf of the Alaska Energy Authority, we are honoured to provide this presentation to the Standing Senate Committee on Energy, the Environment and Natural Resources. Alaska does have many similarities to our Canadian territory neighbours and we enjoy positive relationships and partnerships with them.
We share many of the challenges and opportunities as we work to serve small communities, with small energy loads and long distances between those communities, with high energy costs.
The Alaska Energy Authority works closely with Natural Resources Canada and is collaborating on the Renewables in Remote Microgrids Conference in Yellowknife that will be happening in September. Additional collaborations include the Yukon-Southeast Alaska Economic Development Corridor project for electrical generation transmission and telecommunications. Mr. Gene Therriault, another director at the Alaska Energy Authority, is in Whitehorse today, en route to meet with officials to continue our collaboration on that project. The Alaska Energy Authority is an independent corporation of the state of Alaska. Our mission is to reduce the cost of energy in Alaska, and this presentation is organized to provide a high level overview of our current energy situation in our state, the state's energy policy, and the Alaska Energy Authority's role in implementing the strategies to achieve the goals of that policy.
Our policy was born out of necessity. A large majority of Alaska communities are dependent on diesel fuel to supply both heat and electrical energy. In 2008, the cost of oil skyrocketed in the state and our communities were facing economic challenges as they struggled to keep up with these rising energy costs. The Alaska legislature passed energy policy legislation that empowered AEA to implement a series of programs and projects to provide stable and affordable energy across the state.
In our presentation — I understand you have it as a paper copy in front of you — I'm moving on to page 2, which lists our population and household income by region. Due to the size and diversity of Alaska, we have divided the state into regions. This helps with our energy planning and it's also recognition that oftentimes as we look for energy strategies, there is not a one-size-fits all energy project for Alaska. We have a series of programs and projects to address these issues.
The Railbelt region is the state's most populated area and that's within the centre of the state. With Anchorage as the centre, it traverses from Fairbanks to the north to the Kenai Peninsula to the south to Homer, Alaska. The regions of the state with the most similarities to the three Canadian territories included in your study would be the last five regions listed on this table. The populations in these regions consist of many small Alaska native subsistence-based communities, and many of the communities in these regions have less than 400 people per community.
Moving on to slide 3, we wanted to show the cost of household income that's used for heat and electricity by region. This also helps demonstrate the challenges that many Alaska residents face. Again, we have a lot of small loads, long distances between communities that often result in very high energy costs.
On page 4, we provided the electricity generation by region of the state again. In comparing some of the regions of the state, we did look up and compare with the Northwest Territories, the Yukon and Nunavut, and 150,000 megawatt hours appears to be the annual generation of Nunavut with 350,000 megawatt hours for the Yukon, and Northwest Territories by comparison is very large with 700,000 megawatt hours.
Moving on to slide 5, one thing that the Alaska Energy Authority has done is conduct an assessment of our existing resources and their use for electricity and heat in our state. In our least populated areas of the state, in the northwest and southwest regions, we find limited access to renewables and currently no access to natural gas. Southeast Alaska does use hydro power for electricity.
Similarly on slide 6, in the heat assessment, you can see there is less diversity for heat, and the natural gas availability is really located in the Anchorage area in south central Alaska. We are working on a project that would truck LNG to the Fairbanks area. We have been working on the project for the last couple of years. Much of the rest of the state will continue to be dependent upon diesel fuel for heat. Again, in southeast Alaska with mature hydroelectricity and a much milder climate, it is feasible to use electricity for heat.
Moving on to slide 7, this is a snapshot of the electricity prices of communities in Alaska and the heating costs. Again, there is a bit of a comparison of the small, rural community of Nome, Alaska to Anchorage, which has natural gas for heating.
On slide 8 we start talking a bit about our energy policy, and in 2010, when the legislature passed the policy, it was the intent of the legislature that the state of Alaska maintain its position as a leader in petroleum and natural gas production, and also diversify the energy resources used in the state to become a leader in renewable and alternative energy development. This policy was also accompanied by an omnibus energy bill that established several of the programs that we manage.
Slide 9 is a continuation of the energy policy guiding the state of Alaska to look toward providing more affordable and reliable energy. The emphasis has always been to look at the reduction of the cost, or providing affordable energy, regardless of whether it is a renewable resource or a fossil fuel resource.
On slide 10, we start to talk about AEA's role in this effort. We are the lead energy agency and we're the state energy office for the state of Alaska. We work and coordinate with other agencies that have energy programs. The state was really looking at us to make sure that we provide a coordination role for a lot of the governmental functions and energy programs.
On page 11 is a discussion on AEA's mission to reduce the cost of energy in Alaska. We are an independent corporation of the state of Alaska and have been in existence for almost 40 years.
We own and operate power projects and manage many state-wide programs. As a state-wide agency, we work toward balancing the funding and assistance between the more populated areas of the state where you can build energy infrastructure, and we also provide assistance in funding in the less-populated areas of the state.
Moving on to slide 12. Alaska Energy Authority has really tried to make sure that we continue to focus on communities, and that we provide assistance that is consistent with the state energy policy and goals. We provide the technical assistance. We have helped lead efforts in regional planning and project management. We help small communities and even larger communities look for synergy between these planning projects and funding sources.
Again, we try to provide that balance from infrastructure development in the more populated areas to providing other assistance in other parts of the state in providing sustainable energy futures.
On slide 13, one of the programs that has been a backbone for our rural communities has been bulk fuel upgrades and rural power system upgrades. We have many communities that need to provide a year-long supply of fuel for their community, and that oftentimes is diesel fuel for transportation, heating and electricity uses. We have assisted the communities and have taken the lead to build many of these tank farms that are in our small, rural communities. We also help construct power systems that are the backbone to providing safe, reliable electricity for the rural communities.
The power system upgrades have primarily been grant funded through a federal program and a federal agency called the Denali Commission. Most recently, the State of Alaska has been in a position to be able to provide funding directly to us to upgrade those projects. This is not a loan program at this point. We provide these as upgrades that are essentially grant-funded assets to the communities.
What we have done — on slide 14 — is look at what it would cost if there was a loan system and what that would do to rates in the small communities if they had to debt finance part of those projects. As you can see, with some of the smaller projects, it would be a significant cost. On average, these small rural communities that have high energy costs in general would see an increase of about 19 cents per kilowatt hour in order to manage and pay for the debt associated with those power systems.
The power houses are usually a bank of three to four diesel-run generators that provide the electricity for an entire community.
On slide 15, the Power Cost Equalization program is an economic assistance program and a subsidy program that has actually been developed and has been managed in the State of Alaska for 30 years. At the time when the State of Alaska was building hydro projects in some of the more populated areas of the state, the Power Cost Equalization program was developed because the State of Alaska couldn't necessarily build economically viable projects for small-load areas, but they wanted to provide the financial assistance to help reduce the cost of energy in those communities. So the small communities that do not have the same opportunity for energy infrastructure are provided some assistance through this direct subsidy program. Again, it's one way to provide that balance between our more populated areas of the state to some of our smaller, rural communities that are and will continue to be reliant upon diesel systems for electricity generation.
On slide 16, we mention two specific goals of the energy policy that have been very important to the State of Alaska, and meant significant implementation for the Alaska Energy Authority. The state has adopted a policy to achieve 50 per cent of its electrical generation from renewable and alternative sources by 2025 and a 15-per-cent increase in energy efficiency on a per-capita basis from 2010 to 2020.
With that, Mr. Chairman, I'll turn to Mr. Skaling to talk about some of the programs that he manages at the Alaska Energy Authority.
Sean Skaling, Director, Energy Programs and Evaluations, Alaska Energy Authority: To continue the transition from the policies of Alaska to the programs, I'll start with one of our bigger ones, the Renewable Energy Fund. That's on slide 17.
It is one of our major programs. It was a grant program started about eight years ago. So far, it has given about 275 projects funding to study the renewable energy resource and to, ultimately, build the resource. About 45 projects have been completed and are providing energy to Alaska, and many more projects are slated to get to completion by the end of this year.
The next slide on page 18 has more about the Renewable Energy Fund. It's a competitive program. The applicants are communities, utilities, local governments and independent power producers. It has a strong technical and economic evaluation program that goes along with it, so that we're recommending to the legislature the top-producing renewable energy projects that are proposed to the program. It's really focused on the mature technologies at this point that are sure to produce energy cost effectively.
This third slide on renewable energy fund on page 19 shows the diesel fuel savings equivalent by year since the program started. You can see the first few years took a little while to start producing a lot of energy because the program is funded in phases. That will fund feasibility and resource assessments early on, then ultimately funding final design and then construction.
Starting in 2013, the rubber really hit the road and a lot of diesel savings equivalent was saved. It's not all diesel savings, though most of it is, but we translated it into diesel savings equivalent. Since the slide was produced, we have an update on the 2014 numbers, which are slightly higher. So we are over 15 million gallons of fuel saved per year through this program.
I will mention one more thing: The overall program benefit cost is about 2.8. So for the first projects that were completed, about $100 million of the fund was used about $200 million in matching funds for about $300 million in project costs that are netting just under $900 million in net present value benefits. We have been really amazed and awestruck by the amount the fund has generated in the state, from the resource agencies, utilities and the constructors of the projects.
The next slide on page 20 is about our energy efficiency programs. We have the goal that was mentioned earlier of 15-per-cent energy reductions due to energy efficiency measures.
The Alaska Energy Authority's focus is on three major areas. One is outreach and education, just to educate people what they can do themselves. A second very popular program is called the Village Energy Efficiency Program. That funds both energy audits in the small, mostly native villages across Alaska and the ultimate implementation of the cost-effective energy efficiency measures that are found.
The third energy efficiency program is a commercial energy audit program whereby the state helps to fund the energy audits for commercial buildings, again with a strong emphasis on rural Alaska. Ultimately, the improvements would be made and funded by the building owner. We partner strongly with Alaska Housing Finance Corporation, another state corporation, that has really strong residential programs to weatherize and improve energy efficiency in homes.
Slide 21 is just another part of the portfolio of programs we have. We offer loans to support the programs.
I'll jump quickly to slide 22, which is also about the power project loan fund, which is Alaska Energy Authority's main loan program that can help develop these energy projects that range from energy efficiency to diesel genset replacements to hydro projects, renewables, storage transmission, et cetera. Most common is diesel replacements and hydro.
Again, as part of our portfolio, we provide training to local residents to help them better manage and sustain the energy systems that they have within their communities. On slide 24 are four bullet points that talk about those training opportunities. The main ones are training for bulk fuel operators, power plant operator training, advanced power operator training and power cost equalization training to help the communities take advantage of that power cost equalization program.
On slide 25, this is the Emerging Energy Technology Fund. I heard the chairman mention emerging energy in the introduction, so this may be of interest. This is a fund that is set up to help develop and support emerging energy technologies that are not yet commercially viable but that have a strong likelihood of being commercially viable within five years. This has run the gamut of energy projects from energy storage to hydrokinetic development, and integration of renewables into small, remote grids is another area of focus.
Ms. Fisher-Goad: To wrap up, Mr. Chairman, we just wanted to touch also on our ongoing Alaska energy plan opportunities. We have conducted and led significant regional planning for the southeast part of the state, the southeast Alaska integrated resource plan, and we've also completed plans in the Railbelt area. We continue to be funded to work with regional development organizations to look at plans and develop on a regional basis and to provide technical support for plans throughout the state. This map shows the different energy regions and the plans we're looking at. Again, one of the reasons we've looked at this on a regional basis and not on a full, state-wide basis is there really is not a strategy or structure that is really one-size-fits-all for the diversity of the state of Alaska. What may be good for the north slope region or the northwest Arctic region is not something that will work for southeast Alaska or the Aleutians area of the state. We continue to work with other regions of the state by providing an advisory role for these plans. We meet quarterly with these regional leaders to help put a planning infrastructure in place to make sure projects that are vetted and evaluated are potentially funded.
In addition to the regional plans, we also have the Alaska affordable energy strategy. Last year, the State of Alaska passed legislation to continue working with the oil producers of this state to help develop a large diameter natural gas pipeline for the state of Alaska, primarily to generate revenue and to bring to market large reserves of natural gas from the North Slope. Part of that legislation included a section for the Alaska Energy Authority to lead a planning structure to look at affordable energy for areas of the state of Alaska that would not necessarily have direct access to a North Slope natural gas pipeline. This recognizes that, although natural gas plays a very important part in low-cost energy, it's not available to all the residents of the state of Alaska. We're looking at a planning structure and the development of potential projects that could be instrumental in continuing to reduce the cost in the state of Alaska and not necessarily provide natural gas to all parts of the state of Alaska.
With that, Mr. Chairman, we're done with our presentation, and we are, of course, available for questions. Thank you.
The Chair: Thank you to both of you, and we will begin with questions.
Senator Massicotte: Thank you to both of you for being with us today. You have significant experience to share with us. We appreciate it.
Just to start with a big question, if you were the president of our northern countryside and you had to start talking about affordable energy, how would you organize yourselves? What lessons have you learned that you would highly recommend we follow to get to the same objective? What have you learned? What lessons can you share with us?
Ms. Fisher-Goad: Thank you. Senator, I think the biggest lesson is that there is a desire and a need for diversity, but there's also a realistic aspect, and one thing for small communities that we've seen in Alaska is that it's very important to have that community base, to make sure that there is a good backbone energy infrastructure. For our communities, it has been the energy-efficient diesel power house system and an environmentally safe and cold-compliant bulk fuel system in order to have that annual delivery of fuel. Those will continue to be the backbone for a lot of our small communities.
We want to integrate renewables where possible, but renewables may not be the most economical way for some of these communities. We also have to look at the human aspect, which is making sure that the local, small communities take ownership of the operation and maintenance of these systems. We want to make sure that they don't get too complicated.
Senator Massicotte: Thank you. I think today approximately 70 per cent of your energy sourcing is from diesel, and you want to reduce it by 15 per cent. Am I correct in saying that?
Ms. Fisher-Goad: Yes, we have a significant amount of fossil fuel usage in the state. For electricity purpose, our goal has been to reduce that by the introduction of more renewables to get us to 50 per cent. Approximately 20 to 22 per cent of our electrical generation is coming from renewables, primarily hydroelectric resources right now. Essentially, the legislature has asked us to double the renewable resources used for electricity.
Senator Massicotte: When you consider those projects, how do you measure what's good? You can justify anything if you have unlimited money and unlimited subsidy, and it's easy to get affordable energy if you subsidize by 80 per cent. How do you measure it? In fact, on your conservation side, you're getting a payback six times in six years, which is good. How about new projects? I notice you are projecting a significant increase in wind, landfill gas. How do you measure what makes sense and what doesn't make sense for those projects?
Mr. Skaling: We have a strong evaluation program for renewable energy programs, so we look at the base case of what is existing right now, be it natural gas generation or diesel generation, and compare that against the modeling known for, say, if it's a wind project or hydro or biomass; what are the expected costs up front and the operational costs through the life cycle of the project. Most all of the projects funded by the fund beat the status quo scenario. In other words, it's cheaper than the cost of fuel is anticipated to be into the future.
What we do through the program is take a number of variables, the economics and the technical viability being a couple of them, and then make recommendations for which projects are funded, based on other things as well, such as making sure all parts of the state are reached.
Senator Black: Thanks to you both not only for being available but for doing such tremendous preparatory work. This is very helpful to us. There are a couple of things I would like to understand. Is it an accurate assessment to say that in the major cities of Alaska, that energy is generated either through electricity or provision of natural gas to homes and businesses? In the more rural areas it's principally diesel. Is that accurate?
Ms. Fisher-Goad: It is accurate. For rural communities, both electricity and heat are diesel dependent. In our more populated areas, there is a mix in the diversification of the portfolio. In Anchorage, for example, we have natural gas, which is the primary source for electricity. However, we do have a hydroelectric project that provides over 10 per cent of the electricity as a resource. It provides 10 per cent of that electricity for the entire Railbelt region.
For heat, the Railbelt is made up a little bit differently, where in the south central area around Anchorage, natural gas is the primary resource for heat. In the Railbelt that stretches to Fairbanks, where there is a little bit of a diversification. For heat, Fairbanks is very much diesel dependent at this point. They have a little bit of a different mix depending on whether it's electricity or heat in that community.
Senator Black: How do large businesses in Alaska, principally mining concerns that are obviously remotely located, generally provide their electricity, their energy?
Ms. Fisher-Goad: It is diesel generated for many of those communities. Now there are some mines in southeast Alaska that are serviced by hydroelectric power through Alaska Electric Light and Power, which is the utility in Juno.
Senator Black: What role does the U.S. federal government play in energy subsidization or policy in Alaska — principally money? Does your federal government provide money for transition and infrastructure?
Ms. Fisher-Goad: Yes, they do through the Denali Commission from 2000 until approximately 2008 or so. They continue to provide funding, but it was a significant amount of funding and was our major funding source for a lot of the rural infrastructure: the bulk fuel tank farms and the power houses. The federal government plays and had played a significant role in that. It's been a diminished role lately. There has been a little more state funding for those efforts than federal dollars. The federal government does provide some programs that we are able to match for forestry development in our biomass program. Recently there have been federal grants for wind development projects.
For energy efficiency, there is a State Energy Program development through the U.S. Department of Energy that provides a small amount of money that we share with our sister agency, the Alaska Housing Finance Corporation.
Senator Black: Do you consider the federal contribution material?
Ms. Fisher-Goad: I would believe that it is considered material.
Senator Black: What percentage of Alaskan communities is connected by either rail or road?
Ms. Fisher-Goad: The Railbelt area, that region centered around Anchorage going up to Fairbanks; and then down to Seward, Alaska. I would say that approximately, for population purposes, about 85 per cent would be considered road-connected. There are some communities that we consider rural that are road-connected, but are more rural in nature than some of the road-connected areas. They're still remote.
Senator Black: That's very helpful to me. Thank you.
Senator Seidman: Thank you for your presentations. Early in 2014, the Governments of Alaska and the Yukon jointly issued a request for proposal to assess the feasibility of developing electrical and telecommunications connections between southeast Alaska and the Yukon. Is the feasibility study currently under way. What would be the benefits in connecting the energy grids with the Yukon?
Ms. Fisher-Goad: That project is under way, and Mr. Gene Therriault, our director is actually en route to Whitehorse to meet with Canadian government officials and industry stakeholders tomorrow, to discuss the continued development of this project. It's a viability analysis of a Skagway to Whitehorse economic development corridor. In addition, there is a fiber optic telecommunications section of this project. Both of those projects are under way and under review. We're actually eager to hear Mr. Therriault's report on the meeting tomorrow with respect to the ongoing progress of that project.
Senator Seidman: Is the feasibility study actually under way now or is it just under discussion?
Ms. Fisher-Goad: I believe the feasibility study is under way. Both the Yukon government and the State of Alaska have each put in $150,000 for the development of that project. I believe what was submitted in February was a financial feasibility analysis of the project. The project is under way and the funds are being used for that effort.
Senator Seidman: Would you be able to tell us the concept behind the benefits in connecting energy grids between southeast Alaska and Yukon?
Ms. Fisher-Goad: My understanding was that there are two scenarios to be analyzed. Part of it was to develop the West Creek Hydro Project located near Skagway, which will export power to the Yukon during the winter and then allow the Yukon to transmit power to Skagway for the cruise ship industry in the summer.
They were looking at the financial feasibility and the viability of those transmission and energy corridors.
The telecommunications part of this project was originally linked, but my understanding is that it was determined that the two projects needed to be on separate timelines to move forward. It looks like the Yukon government is looking at the route to southeast Alaska, but is also looking at another route towards Inuvik in the Northwest Territories.
I think probably the best thing, since there is a meeting tomorrow, would be to do a write-up on the status of that project that we can submit to your committee's secretary, which will provide an update to this committee.
Senator Seidman: That would be really helpful. In our hearings we've heard about the enormous challenges of developing sustainable, reliable, efficient energy in the North. Since you obviously have much more experience than we do, have you looked to other northern countries for examples of things that could be implemented in the North? If that's the case, what were your best judgments from those examples?
Ms. Fisher-Goad: That's a very good question. With the United States taking over the Arctic Council Chairmanship this month, we've been looking at those issues. The Alaska Energy Authority has been participating with an organization called the Institute of the North, which has been developing and working on an Arctic Energy Summit. It's an international event that will be in Fairbanks, Alaska, this fall. I believe it's a two- or three-day summit and workshop to look at trading information with other northern communities with respect to some of these issues specifically.
We have enjoyed the conversations and relationships we've developed with many folks at Natural Resources Canada with respect to comparing information. I have a very nice report from them. They were at a conference in Anchorage several months ago that both Mr. Skaling and I attended. We're really pleased that representatives from Natural Resources Canada were able to come to our building and meet with us. We were able to exchange a significant amount of information. We learned quite a bit from our closest neighbour, being Canada, of course.
Senator Mitchell: Thanks to both of you. Not only are we your closest neighbour but you actually sound like us, which is a good thing; or we sound like you.
I want to follow up on Senator Black's question about the degree of federal funding. Maybe I'm not clear on the various sources or pools of funds. You said there's a $247 million Renewable Energy Grant Fund. Would some of that money come from the federal level? Would you know what portion?
Ms. Fisher-Goad: That is all State of Alaska funding sources. None of that comes from the federal government. However, I will say that through our relationship with the Denali Commission, which is a federal agency, a lot of our early efforts prior to that program being codified in state statute, we were able to develop a template to develop our program. That's what happened with the Emerging Energy Technology Fund. There was a pairing and partnership with the federal government to provide funding, and then the State of Alaska provided additional funds on top of what the federal government provided in the first place.
With respect to your comment, although funding sources have tapered off recently, federal agencies still play a very significant role in the development of our programs and funding sources. It has been a bit more on a managing basis or a high-cost energy grant program for some of our smaller rural communities. Specifically, the Office of Indian Energy Policy and Programs of the Department of Energy has played a much more significant role. The funding is not project-specific, but they provide a significant amount of technical assistance for many of our villages throughout the state of Alaska.
Senator Mitchell: It seems clear that much of your initiative is driven by economic imperative — looking for cheaper ways to deliver power. Is it also true that there's a concern with climate change driving the initiative?
Ms. Fisher-Goad: I would suggest that our main driver has always been the cost of energy. Alaska has been very fortunate to have renewable projects that reduce greenhouse gas emissions as a benefit. However, the cost of energy, in my opinion, has always been the most significant driver for the policies. It happens that a lot of our renewable projects on a long-term basis can provide that diesel displacement and low-cost power with the additional benefit of having fewer carbon emissions.
Senator Mitchell: Mr. Skaling, I believe you said that part of the success you're having is that these renewables are cost competitive. Is that without subsidy? Is that just straight-up cost competitive?
Mr. Skaling: Yes. Those are straight-up comparisons. When we do the economics, we don't look at the fund source. We determine how much it will cost to build, say, a wind project. That's pre-subsidy. Ultimately, the program provides the grant money for the infrastructure building, though. Matching funds really range, depending on the community and the grantee, sometimes nearly 100 per cent grant-funded. Others are 50 per cent or less grant-funded.
Senator Mitchell: In your presentation, there's a picture of what looks like a river flow with a turbine, the ORPC turbine in the Kvichak River. Is that experimental? How does that work cost-wise?
Mr. Skaling: That is a hydrokinetic device made by Ocean Renewable Power Company, ORPC. It's part of the Emerging Energy Technology Fund. The purpose of the fund is to take non-commercial concepts to commercial viability. That's a picture from last summer in the water. They did deploy it. It ultimately sinks to the bottom and rests on the bottom to generate the power. They produced power last summer. They pulled it out of the water for the winter and have retooled it to go back into the water this year.
We still consider that an emerging technology. While it is technically capable of making energy, the economics probably aren't there quite yet. They're going through some developments as we speak.
Senator Mitchell: On slide 19, there's a very interesting graph. You mention two things that sound something like geothermal energy, and you mention that geothermal is one of the things you are pursuing. Are heat recovery and heat pumps related in some way to geothermal energy?
Mr. Skaling: They are slightly different. Heat recovery is from the diesel power houses generally which produce a lot of heat as they produce electricity. We want to try and capture that heat and take it to heat a nearby building to offset diesel fuel heating. That's what the program is about.
The heat pumps are ground-source heat pumps, which essentially take the latent heat in the ground, raise the heat value and use it for buildings. It uses electricity but much more efficiently than just using electricity to heat directly.
Senator MacDonald: There are so many questions, so I will try to keep it to a couple.
I am interested in the use of hot springs to produce energy. You have one 730 kilowatt power plant that's been operating since 2006 — almost a decade. I notice there aren't any more plants generating power in this way. What's the 10-year assessment of this project? Is the power cheap? Why isn't it being replicated?
Mr. Skaling: The geothermal program presents its own unique challenges. We have one functioning program. We explored several other areas with the Renewable Energy Fund and other funding sources. The main challenge is locating the geothermal source close to a community. Once you have to transmit it very far, the economics start to crumble. We also found it very expensive to do the exploration for geothermal.
While we have looked at it and there are other potentials out there, that's the only one so far producing energy. A couple of others are still active, though, and we're hopeful that they will someday produce power to be used in the local communities.
Senator MacDonald: Is the energy they're producing inexpensive or expensive? Is it high maintenance?
Mr. Skaling: I think you're referring to Chena Hot Springs.
Senator MacDonald: Yes.
Mr. Skaling: They are competing against high energy costs and I frankly don't know the value they place on the energy that they produce.
Senator MacDonald: Can you share with us the problems or the limitations that you've experienced in Alaska with trying to produce wind power? Do you see it as a long-term viable solution in the North?
Mr. Skaling: We have a number of wind projects around the state and, if you look at a map of what renewables are in place, they're location specific. You'll see all across the west coast of Alaska and the Aleutians, where there are good wind sources, that wind power has been developed effectively and cost-effectively.
The issue, as you probably understand, is that wind is intermittent so it's not going to blow all the time. We're always talking about some sort of wind integration with some other system, most typically a diesel system, and they actually work pretty well together.
We have one shining example of a wind/hydro combination on the Island of Kodiak, where they're producing 99.6 percent of their energy since the beginning of last year from hydro/wind, and they have a small battery storage component as well to bridge the gap. When the wind stops blowing it takes them about a minute to get the hydro ramped up and the battery fills the gap. They've had a really successful deployment and have gotten to 100 per cent renewables nearly.
In the more typical rural communities, though, it is a matter of integrating with the diesel powerhouse. If you have a good wind resource the economics get better the bigger you get up to a certain size, but once you get to higher penetration systems the economics generally start to crumble. That's the territory we've been exploring, trying to do better, but also realizing that the more infrastructures you put in may end up wasting some of that wind that goes by because the community can't accept that energy at the time, and that there does seem to be a limit.
There's one kind of private development in a rural island setting, where they have gone to 100 per cent wind with diesels off, but they're also able to tolerate more outages. We, through our Emerging Energy Technology Fund, have a couple of grantees who are trying some batteries and some electric heaters in homes to again try to use that excess wind energy.
It's a great question and it's a place we spend a significant amount of time and concern to make sure that we're getting it right.
Senator MacDonald: It's a work in progress, to be continued.
Mr. Skaling: Yes, to be continued. It's probably fair to say that several of these are solid projects displacing diesel very cost-effectively. As you push that margin, that's where we get to the "to be continued."
Senator MacDonald: Thank you.
Senator Massicotte: Regarding the wind turbines, are they very big? What are your icing conditions; do you have any problems there? What's the density of your population in that area?
Mr. Skaling: Senator, that varies by community. Our largest wind turbines are just over one megawatt, right outside of Anchorage, and on Kodiak they're 1.5 megawatt machines. On Kodiak there are six of them. Here in Anchorage there are 11 of them. That's atypical though. Most typical is more like 100-kilowatt machine. Northwind 100 is popular around Alaska. Oftentimes there will be a series of those in a community — maybe two to five or six of them.
We also have seen several 900-kilowatt machines that are being installed cost-effectively in other areas, and there are more technologies coming in between that 100 kilowatt and 1 megawatt range that we're seeing coming on the market and being deployed.
The Chair: As I understand, your agency is an independent agency of government but funded by government; is that correct?
Ms. Fisher-Goad: That's correct, Mr. Chairman.
The Chair: I thought I heard you say 70 per cent of the electricity generated in Alaska is from diesel. Did you mean straight diesel or hydrocarbons, which include natural gas?
Ms. Fisher-Goad: Mr. Chairman, it's actually hydrocarbons. Most of that would actually be natural gas because that's where most of the load is. We also use coal. The Golden Valley Electric Association that serves the Fairbanks region has a significant part of their energy load served by coal.
The Chair: Do you use independent power producers, the private sector, to build generation plants instead of a Crown agency?
Ms. Fisher-Goad: Mr. Chairman, we're very much an electrical cooperative agency. We have some municipally owned utilities. Most of them are actually vertically integrated. We have a few independent power producers that are producing and selling energy. The Fire Island Wind Project is actually an Alaska native corporation led effort. It is an independent power producer and they sell to one of the local cooperatives for energy. Independent power producers are making headway into the State of Alaska and we're seeing more of them trying to develop projects.
Legislation has actually been introduced to address some of the policy concerns and the issues. There is some tension between the cooperatives and the utilities versus the independent power producers. Again, they are seeing some headway but we don't have many independent power producers in the state.
The Chair: You estimate that about 85 per cent of the communities in Alaska are connected by road. When you say that do you mean all-weather road or is there some winter road included? Could you tell me what that difference is? I'll give you an example.
Nunavut is a huge area, with a small population and many remote villages. I think there is only about maybe 10 miles of road and that's right around Iqaluit. The rest is serviced by sea during the summer. Do you have a lot of that?
Ms. Fisher-Goad: Mr. Chairman, actually the 85 per cent connected isn't the number of communities, it's actually the population would be approximately connected by road. Most of that would be in the Railbelt area.
In southeast Alaska we have a unique situation where we have the marine highway system that connects a lot of our southeast communities. They are not connected by road but they are connected by ferries. There is a little bit of a difference there. However, most of our road system is located around that Railbelt area.
The Chair: In the really remote areas where there are no roads and are accessible only by sea, do any of those communities have wind generation?
Ms. Fisher-Goad: Yes, in southwest Alaska, in Bethel, for example, in the Kuskokwim region, we have wind systems. Another community also has wind and they are not road connected in the Railbelt area. They are connected through Canada to the rest of the United States. There are some small local roads but they are not connected to the Railbelt system.
The Chair: Are those areas serviced by the sea 12 months of the year?
Ms. Fisher-Goad: Often there is barge service through rivers in the summertime, and that's when the annual supply of fuel is usually delivered to many of the communities. Then, there are some systems that are accessible, like a road on a frozen river, between communities. There are some seasonal transportation options, and, of course, from the industrial part of the North Slope, with our oil and gas fields, there is a road that services and is connected into the Railbelt system.
The Chair: You stated that it is the intent of the legislature that the state receive 50 per cent of its electrical generation from renewable or alternative sources by 2025. That's in 10 years.
Is that going to be a hard goal to actually achieve, or is that something that you've studied and know you can achieve?
Ms. Fisher-Goad: Actually, because of the nature of most of the electricity generated in the Railbelt, it's our opinion that, in order to achieve that, we would really need a large hydroelectric project, for example, that would service the Railbelt region. We have, in the past, been funded to look at that, and we continue to look at the Susitna-Watana project as a potential project that could service the Railbelt area. The State of Alaska, right now, is in a bit of a budget situation with the downturn in oil prices. With most of the state funding coming from oil revenue, we are seeing a significant downturn in the revenue of the state. That project has been delayed. We had been looking at that project to meet that goal by 2025. There is still potential for that project. However, we are not in a position to file a licence with our federal energy regulatory commission at this time. But without a large project in the Railbelt, we don't think that we can meet that 50 per cent by 2025.
The Chair: I think you have 29 per cent from renewable, if my numbers are correct, so that means you're going to have to increase it by 21 per cent. How many megawatts would that be?
Ms. Fisher-Goad: Mr. Chair, I'll have to get back to you on the megawatts. I think the entire state is almost 900 megawatts of capacity. For capacity purposes, the Susitna-Watana project was listed at 2,800 gigawatt hours of annual electric generation increase. So it's a little hard to go from capacity to energy generated, but that one project would meet that goal.
The Chair: Thank you very much to both of you. Thank you for taking our questions. There were some good questions and some very good answers.
Mr. Skaling: Thank you.
Ms. Fisher-Goad: Thank you very much.
The Chair: We are continuing our study on non-renewable and renewable energy development in Canada's three northern territories.
During this second portion of our meeting today, it is my pleasure to welcome His Worship Floyd Roland, Mayor of the town of Inuvik, Northwest Territories. Mayor Roland, thank you for being with us by video conference today. We apologize for being a little bit late, but the Senate went longer than normal, There's nothing we can do about it.
Sir, the floor is yours. I believe you have a short presentation, and then we'll go to some questions and answers, if that's okay.
Floyd Roland, Mayor, Town of Inuvik, Northwest Territories: Yes, it is. Thank you Mr. Chair, we're just getting a couple of things straightened out here. I want to thank the Senate committee for reaching out to us Northerners, who are the key stakeholders here. Many times in my past political life I've spoken about the Arctic being the back door to Canada, but it's become the front door as we look at what is happening in the Arctic.
When we looked at the environment and the energy sectors, in fact, our community laid out a strategy for economic growth in our community of Inuvik, and it includes natural resources, Northern sciences, tourism and, of course, arts and crafts and local food and small businesses and entrepreneurship.
Our challenge, being such a remote area — and I think it's a challenge in all remote areas, especially in the three territories — is the cost of doing business and the cost of maintaining business and trying to get some development occurring.
Many times, we find ourselves in a scenario in which, when it comes to governments — and I'm speaking mainly of the territorial governments as they are the larger providers when it comes to working with communities here in the Far North — the challenge for businesses is trying to come up with new ways of doing business and meeting the requirements that are being asked of them in the sense of providing the level of services that we would hope to have here in the Northwest Territories. Of course, in the area of natural resources, we look at and have been involved in the oil and gas field in this the Beaufort Delta region. Of course, the mineral side has been in large part in the southern Northwest Territories, diamonds being a large factor in the economy there these days. But we've seen throughout that scenario, being reliant on non-renewable resources and large projects, that there is a very big impact on us when the economy slows down.
From our days of the MacKenzie Valley gas pipeline, which many of us were supporters of, to now we have had to look to other resources and other opportunities to try to grow our economy for the Northwest Territories and our communities.
I find myself now looking toward what can be done for the remote areas in Canada and in the Arctic, knowing that there's a lot of interest in the Arctic and the issues we face around melting sea ice and opportunities that continue to be provided through some of those changes in our climate.
Clearly, the resources are still here. Through what was called, at the time, INAC, which is now Aboriginal Affairs and Northern Development Canada, reports were tabled through a number of sources. For example, a March 2009 report talks about, in this region alone, from the Beaufort Sea and the MacKenzie Delta, the ultimate recoverable potential for oil and gas. Just for the Beaufort Sea they talk about almost 4 million barrels of oil; 1.2 million barrels in the MacKenzie Delta; natural gas in billions of cubic feet; for the Beaufort Delta, 23 billion cubic feet; for the MacKenzie Delta, 21.9 billion cubic feet of natural gas available.
There has been a lot of work done, and it continues in the GNWT through its evolution, looking at furthering their programs and the reports required for companies to look at doing development in the North. That is work that needs to be done, for sure, but I think the focus needs to now shift to what I have been calling — through a number of conferences that I have attended, both with the GNWT and, for example, the Canada-U.S. oil and gas forum that was held in Yellowknife in late 2014, " the rightsizing projects for remote communities."
Being at the centre of a lot of discussion around the megaprojects like the Mackenzie gas pipeline, the challenge we continue to face is that if we're always reliant on the multinational companies to make a decision as to whether or not they should proceed. When it comes to decisions on projects like Mackenzie gas or an LNG facility or building a port, Northern communities are really not at the table for the discussions about what is possible.
In my discussions with rightsizing projects, with the technology that is available today — and I'll speak specifically to gas-to-liquids technology — previously it was the big players, like SAS Oil and Shell-Oil, that had that technology and did projects that are in the 50,000-barrel-a-day range, which again would equate to a Mackenzie Gas Project. A project that large would take us out of the possibility of getting things done because, once again, we would not be players at the table. What we would be is a side discussion about some of the benefits.
For example, the Government of the Northwest Territories, through its socio-economic discussions with proponents of the Mackenzie gas pipeline, set up a process whereby, if the pipeline went by your community, you were able to tap into that pipeline and bring natural gas to your community.
One of the things that has forced our hand here is that we've been already supplied natural gas through a local source, 50 kilometres outside our community. That source is now watered out, and we are bringing propane all the way up from Alberta to be mixed with air — it's called synthetic natural gas — to now supply our heating source.
That has also driven the power corporation — which the shareholder is the Government of the Northwest Territories — to look at alternatives. They went back to diesel for a while, and now they're offsetting or supplementing that with LNG that's delivered from FortisBC. With that scenario, we continue to see the benefactors of any of that development going to those businesses that have already built infrastructure. That's the challenge that we will continue to face until we begin to actually tap into the technology that's available to us now, hence my wanting to focus on gas-to-liquids.
With the discussion on gas-to-liquids, the ability for smaller communities and the costs become much more manageable. Instead of, for example, the Mackenzie gas pipeline being at $16 billion, from some of the numbers people in the industry have talked about for a facility that would be operable in this region, that would supply fuel from the sources we have already shown, the cost would be anywhere from $100 million to $400 million. That is from some of the earlier checks and discussions I have had on gas-to-liquid possibilities.
Instead of transporting diesel fuel, which the government will continue to use in our most remote communities because LNG and SNG and those types of products will just be out of reach and unaffordable in an already expensive environment, I think that as the Senate and as governments begin to look at what's possible, we need to look at some of the technology that's available. We need to look at what projects could be done if we were to rightsize our views of what is possible within the Arctic, within the communities, and with technology that's being developed and continues to be refined by industry.
I'll leave it at that. I have a lot more information, of course, that I can get into. But in trying to have our discussion, I'll pass it back to you, Mr. Chairman. Thank you.
The Chair: Thank you, your worship. We'll go to questions.
Senator Massicotte: Thank you for being with us today. It's much appreciated.
If I were to summarize the message I think I'm hearing from you, what you are saying is that technology has moved significantly. The way we measured projects in the past is now obsolete, and we should reconsider and review at all these projects to find something more feasible, because what we have done in the past is not relevant now. Is that a good summary?
Mr. Roland: I would say that while some of those older projects, with the older technology, are still viable. With the climate that we find ourselves in around the oil and gas industry, though, for example, the Mackenzie Delta, 21 billion cubic feet of natural gas, their decision is not favourable for such a remote area as ours. In the meantime, trying to hold on to sustainable communities, Arctic sovereignty and building a viable future, the resources that we continue to tap into are remote to ourselves and continue to benefit businesses that don't leave much for growth in the Arctic.
The new technology that's available today lends itself more to rightsizing projects for remote areas like the Arctic, like the region I'm in. For example, instead of having to look at a project that delivers 50,000 barrels a day, which is well beyond our capacity, a 1,000- to 3,000-barrels-a-day facility would be able to replace all of the diesel fuel products that come from Southern Canada, be manufactured here and lower, for example, greenhouse gases. If you compare greenhouse gas emissions with the gas-to-liquids program, it's a 40 per cent reduction compared to the diesel we continue to import from other places in Canada.
In a sense, the technology has moved ahead and the pricing has become much more favourable, to the point where we can build an actual economic platform that would work for Northerners and work for Canada as we talk about sustainability, especially in remote locations.
Senator Black: Your worship, thank you very much for being here. I certainly appreciate your commitment to what it is that you need to do. I want to drill right down, because I think you have some great ideas here, but I got a little bit lost in the narrative.
What do you propose we should do to assist the North with energy development and distribution. I'm not talking about exploration and production. Specifically, what do you propose?
Mr. Roland: Some of the discussions — for example, I co-chaired the Arctic Oil & Gas Symposium in Calgary in April of this year. I spoke to them about rightsizing projects and used gas-to-liquids as an example. The work has been done. The fields are here, good enough to attract the multinationals. For example, Imperial Oil and ConocoPhillips and Shell at the time proposed the pipeline. Those are much larger scale.
What I'm suggesting that would benefit the North would be, in a sense, allowing some of the fundamental work to be done and actually proving out the technology that could be viable in the Arctic.
For example, at a discussion I had in Montreal discussing Arctic possibilities, I brought up gas-to-liquids. I was immediately met after my discussion by a gentleman out of Calgary who is a Canadian partner in a firm in Houston or in the U.S. that looks at and deals with gas-to-liquid. They're looking at the possibility of putting a plant in the Arctic, or were at the time, about a 500-barrel-a-day facility. They say in the southern U.S. a 500-barrel-a-day facility could be $35 million, equating to about 32 cents a litre of diesel fuel. Now, in comparison, you would probably have to at least double that cost for Arctic development, just the sheer cost of transporting and the cost of labour and materials.
Senator Black: If I may interrupt, I got that point and want to move on. Where do you propose the gas would come from?
Mr. Roland: Well, in fact, in the Mackenzie Delta with the proven reserves we have, just outside of our community, there are trillions of cubic feet of gas.
Senator Black: Right, I understand that, but —
Mr. Roland: The one site I am looking at is actually not far off the highway that's being built right now between Inuvik and Tuk, and that is a sizable one that could be used for a project that could supply a gas-to-liquids plant as well as resupply natural gas. If we follow the scenario that Alberta has so wonderfully shown, from one well you can build an industry and strengthen that province as well as the country.
Senator Black: I want to go right back to the basics, though. I like this thought. It's great. It's creative, but the gas is owned by other people. The gas is under lease to ExxonMobil, ConocoPhillips and others. Tell me how we are going to get that gas unless they partner in projects.
Mr. Roland: In fact, I have made contact with the company that owns a well identified as M18. It's not the ConocoPhillips, Imperial or Shell groups. It's Devon. If you look at it, all of the assets in the Arctic are considered at this time stranded until there's a green field development put in. The company we've contacted is on Inuvialuit land, and I know the Inuvialuit to have been in discussions with Devon on the M18 site. That would be the first piece; to allow them to be the incubator, I guess, of a developing industry in gas-to-liquids and the development of that field would see further development as they begin to actually build off of that well site. That well site will be about a dozen kilometres off of the highway, which will allow year-round access and lower the cost of construction. We have to thank Canada for that, as that highway work is ongoing right now.
Senator Black: Thank you, your worship.
The Chair: I have a couple more questions in relation to Senator Black's. M18 owned by Devon, how far is that from Inuvik?
Mr. Roland: I won't have the specific kilometres, but it is about 18 to 20 kilometres out of Tuk. The road is approximately 130 kilometres if you were to follow the highway that's being built. In a sense, from our existing facility, it's called Ikhil, we have a 50-kilometre pipeline out to Ikhil. If you were to take the quick math on it, approximately 70 kilometres from that would be bringing us up to that site.
This is something from the Government of the Northwest Territories: It would not require a large layout of additional cash because the Government of the Northwest Territories, according to their numbers for this region, spends anywhere from $150 million to $200 million to supply a variety of fuel products for this region. The discussions I've had on a gas-to-liquids plant in the neighbourhood of 3,000 barrels a day, which would cost in the neighbourhood of $400 million — and if the government committed to buy this product, which would be produced cheaper and be a cleaner product than what they're purchasing today — it could be financed.
I wouldn't even say it's an industry in infancy at this point. It is at that point where governments are nervous to step into newer technology, although gas-to-liquids is decades old, it is newer in a sense that the plants are being modularized to a thousand barrels a day, or even to 500 barrels, as the one company that approached me is considering.
The Chair: I get the gas-to-liquids, and I know that's pretty new technology. Your one well watered out. I appreciate that. Why wouldn't you just be looking at getting natural gas to Inuvik instead of at gas-to-liquids, which is so new that to convince anybody do it that far north may be a little bit hard?
Mr. Roland: One of the reasons, as the well first watered out, the company that's still involved in bringing up the synthetic natural gas as it's called, and we still use Ikhil for a backup so there's still some gas there. They have looked at tapping into another well. The challenge is, if you were to look at just resupplying the natural gas component, the economics do not work out because we're such a small customer base. Without the Government of the Northwest Territories being on the system, it's difficult.
That's why when I look at the ability that gas-to-liquids provides, by replacing all of the fuels that are barged down the Mackenzie River with a product that can be developed up here with technologies that are being used in the U.S. and other countries right now, I believe we have the economies of scale that prove that it can be done; thereby developing an actual industry, putting in long-term sustainability and lowering the cost of living as well as meeting some of Canada's greenhouse targets by lowering our emissions.
The Chair: There are some good ideas that you have. We appreciate the time that you've spent with us and the information that you've given us. Thank you for your answers.
Mr. Roland: Thank you very much.
The Chair: We are going to adjourn.
(The committee adjourned.)