Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No.10 - Evidence - June 2, 2016
OTTAWA, Thursday, June 2, 2016
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8 a.m. to study the effects of transitioning to a low carbon economy.
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 and I am 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 are also available via webcast on the sen.parl.gc.ca website. You may also find more information about the schedule of witnesses on the website under "Senate Committees.''
I would now ask senators around the table to introduce themselves, and I'll begin by introducing my colleague to the right, the deputy chair, Senator Paul Massicotte, from Quebec.
Senator Massicotte: Good morning.
[Translation]
Senator Ringuette: Good morning. My name is Pierrette Ringuette, and I am a senator from New Brunswick.
[English]
Senator Black: Good morning. Doug Black from Alberta.
Senator Seidman: Good morning. Judith Seidman from Montreal, Quebec.
Senator Mockler: Percy Mockler, New Brunswick.
The Chair: I would like to also introduce our staff, beginning with the clerk on my left, Marcy Zlotnick, and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
Today marks our thirteenth meeting for the study on the effects of transitioning to a low-carbon economy as required to meet the Government of Canada's announced targets for greenhouse gas emission reductions.
Today we are focusing on the electricity sector. We are pleased to welcome, from Ontario Power Generation, Jeff Lyash, President and Chief Executive Officer; and from New Brunswick Power, Neil Larlee, Director, Strategic Planning.
Welcome to both of our witnesses. Thank you for joining us. We will get both of you to proceed with your opening remarks, and then we'll go to some questions. Perhaps, Mr. Lyash, you could start.
Jeff Lyash, President and Chief Executive Officer, Ontario Power Generation: Thank you, senator. Good morning to all. Thank you for inviting me here today. It's quite an honour.
I'm honoured to be here today to speak to you about Ontario Power Generation's role in helping achieve Canada's climate change goals, as well as our ongoing contribution to the sustainability and well-being of Ontarians and Canadians.
Ontario Power Generation, or OPG, is heir to a strong tradition of generating electricity. It's a tradition marked by service to the people of Ontario and commitment to the principle of generating power with purpose. Our predecessor companies established this tradition. Through an array of productive and reliable generating assets, they have safely provided Ontarians with electricity for almost 100 years.
In the first half of the 20th century, these assets were virtually all hydroelectric, the product of an enormous acquisition and building program that laid the foundation for Ontario's and Canada's future greatness as an economy and a society. In the 1950s and 1960s, fossil plants were added to the portfolio to further meet the province's growing energy needs. Nuclear stations were brought into the mix in the 1970s and the 1990s.
As a result of this legacy, OPG has one of the world's great power systems, noted for the diversity of its generating facilities and its excellent record of safety and reliability.
Over the last five years, we completed a significant transition. We are now once again clean, having burned our last piece of coal to make power in 2014. This remains North America's single largest action to combat climate change to date. We are very proud of this achievement because it had the immediate benefit of cleaner air for Ontario and the ongoing benefit of helping address global climate change and Canada's commitment to greenhouse gas emissions reductions.
Today, OPG supplies half of Ontario's electricity. We converted two of our coal stations in northwest Ontario to renewable biomass, a move that has saved jobs and helped spur local economic development. Our diverse fleet includes 65 hydroelectric stations and 10 nuclear units. OPG's power is now free of smog and greenhouse gas emissions, and we produce this power at a cost that is about 40 per cent lower than other generators in the province of Ontario.
OPG is a different company today; we're smaller, more efficient and more customer-focused. We rely more on partnerships and strong community relationships to deliver our mandate. This includes a commitment to building and growing mutually beneficial working relationships with indigenous communities near our current and future operations.
We put in place a formal framework to assess and resolve historic past grievances, and since 1992, OPG has reached 23 grievance settlements with 21 First Nations communities, closing out all of our historic grievances. Those efforts laid the groundwork for a series of successful generation development partnerships.
The Lower Mattagami River Project, a $2.6 billion hydroelectric re-development partnership with the Moose Cree First Nation, was completed last year, ahead of time and on budget. Two hundred and fifty local indigenous people worked on the project, which employed a total of 1,800 people during peak construction. An equity partner, the Moose Cree First Nation will see benefits from this clean hydropower for years to come, as will the Lac Seul First Nation, who partnered with OPG to build a hydro generating station in northwestern Ontario.
Last year, in partnership with the Taykwa Tagamou First Nation, OPG started building the Peter Sutherland Sr. Generating Station on New Post Creek in northeastern Ontario. The $300 million project is expected to employ 220 workers at peak and start operating in 2018.
Just last month, we announced a partnership with the Six Nations Development Corporation to build solar generation at Nanticoke Generating Station on Lake Erie. This was formerly a coal-fuelled power station that we retired.
I'd like to extend an invitation to members of the committee to visit one of these development projects to see first- hand how we can, and we have, built big things on time and on budget, with strong public support, and we can do this only if we work in partnership with local communities.
Before I speak about our nuclear generation, I'd like to mention a little known event I became aware of very early in my engineering career, and it's one that has remained with me.
Admiral Hyman Rickover was the father of the United States Nuclear Navy; he was also a great leader and a real character. In 1957, Admiral Rickover delivered a speech entitled "Energy Resources and Our Future, 1957.'' It was about how energy and its effective application drive civilization. He went on to observe that 100 years prior, in 1850, 95 per cent of the energy consumed came directly from humans and animals and only 5 per cent from fossil fuel. A century later, when he gave the speech in 1957, that number was completely reversed; 95 per cent of the energy driving life came from fossil fuels and less than 5 per cent from humans and animals. That's an incredible change in just 100 years.
He questioned at that time what the next 100 years would hold, 1950 to 2050. He observed that, in his opinion, historians would someday call this the fossil fuel age, the golden age of fossil fuels. But he posited that the future would be increasingly more energy-intensive, driving the economy and quality of life, and that we would see a wave of renewable and nuclear energy deployment ending the fossil fuel age. That was a pretty remarkable observation, I think, for 1957.
If achieved, Canada's carbon reduction goal for 2050, as he predicted, will effectively end the use of fossil fuel or, at a minimum, substantially reduce it and change its role significantly in our economy.
Ontario's electricity sector is already well down this path. Currently, it represents less than 7 per cent of the total greenhouse gas emissions economy-wide. The transportation sector is about 35 per cent; industrial process is 30 per cent; and building heat is about 20 per cent.
As these sectors reduce their carbon intensity, there will be more dependence on clean electricity. That means a decarbonized electricity system is not just an environmental achievement. Clean power is the foundation for future competitiveness; clean power paves the way for a cleaner transportation sector and the electrification of cars and trains; and homemade clean power drives homemade innovation and supports industries beyond the energy sector in communities across the province.
Sixty-two per cent of the terawatt hours in Ontario come from Darlington, Pickering and Bruce nuclear stations. The long-term value of this low-intensity carbon electricity portfolio is enormous. Nuclear power helped Ontario move off coal, and nuclear power makes intermittent renewable integration into the system possible.
Looking forward, as Canada considers how to move towards a lower carbon economy, we would suggest a balanced approach — one that maximizes the role of all low-carbon technologies. That includes nuclear, and it also includes hydro, solar, wind and biomass. These can be leveraged through electrification to lower greenhouse gas emissions economy-wide.
A significant part of our success in helping the ongoing decarbonization of our economy lies in preserving and expanding the nuclear production we have. That's why we're refurbishing the Darlington units and Bruce Power is refurbishing the Bruce units. The Darlington Nuclear Generating Station is one of OPG's most important assets. Since the early 1990s, it has produced about 20 per cent of all of Ontario's electricity. After years of reliable generation, this clean-power workhorse requires a mid-life refurbishment. Replacing reactor components will allow Darlington to provide 30 more years of safe, reliable baseload power.
Earlier this year, the Ontario government announced its decision to invest in refurbishing the first of four units at Darlington. The total cost of all four units is $12.8 billion for this refurbishment; 96 per cent of that money spent is spent with Ontario-based businesses. In return for this investment, Ontarians will see about $14.9 billion in economic benefits, an average of 8,800 jobs annually; an $8.5 billion increase in household revenues, about $5.4 billion in revenues for all three levels of government; and $94 million in exports. Over the extended 30-plus-year operating life that this produces, Darlington will contribute an additional $50 billion in economic benefits to the province. That does not include the low cost of the electricity after the refurbishment, a cost that will be predictable and stable for another generation.
Our plan is to successfully complete the refurbishment of the first Darlington unit before Bruce Power begins their effort. We will do this on time and on budget, setting the standard for megaproject execution. To ensure Ontario has access to safe, clean, low-cost electricity during this refurbishment, OPG is looking at plans to extend the life of our Pickering nuclear plant to 2024. Doing so saves Ontario electricity customers up to $660 million. It avoids 8 million tonnes of greenhouse gas emissions during that four-year period, and it protects 4,500 jobs in the Durham region.
Given the ongoing importance of nuclear power to our provincial and national well-being, OPG is committed to the safe, responsible management of nuclear waste, a controversial issue. As we now face the unaddressed accumulation of CO2 waste deposited in the atmosphere by generations of fossil fuel use, we also have an obligation to future generations to dispose of nuclear-related waste safely and responsibly, where it cannot pose a threat to the public or to the environment.
The Nuclear Waste Management Organization continues efforts to implement Canada's plan for the safe, long-term management of used nuclear fuel. At the same time, OPG has been working on a safe, permanent solution to manage low- and intermediate-level waste, which we've transported and managed safely for 40 years. We believe a safe, permanent storage place for this waste is one more step in protecting our environment today and far into the future.
Given the challenge of dramatically reducing CO2 emissions, addressing the waste issue also preserves the operation of the existing nuclear fleet and enables consideration of advanced nuclear generation options in the future.
In closing, I want to leave you with one final thought about OPG based on my observations as a relative newcomer, just about a year, to OPG and to Canada.
Last year, I left the private sector in the U.S. to join Ontario Power Generation. This was my first executive job with a publicly-owned generator after 35 years with investor-owned companies. I expected differences, but I was surprised by what those differences turned out to be. OPG is a company committed to achieving efficiencies, close to $1 billion in savings since 2011. It's committed to the highest standards of industrial and public safety, and it's committed to providing power at the lowest achievable cost. But there's a greater purpose that underpins everything OPG does. OPG strives to deliver value beyond the bottom line. It strives to make a difference in the communities where we operate. It strives to make a difference for customers, and it strives to make a difference for the province. We call this "power with purpose.'' The key to generating power with purpose is recognizing that relationships and people and communities matter.
Thank you for the opportunity. I'll be happy to answer any questions that you have.
Neil Larlee, Director, Strategic Planning, NB Power: Good morning, Mr. Chairman and honourable senators. Thank you for the opportunity to appear before you today.
NB Power is a publicly-owned electric utility that safely and reliably serves New Brunswick's residential, commercial, industrial and municipal customers.
I'd like to touch on four areas of consideration regarding a managed transition to a low-carbon economy: first, an overview of NB Power and the impact that competitive rates have on New Brunswick's economy; second, NB Power's infrastructure renewal and commitment to reducing and shifting demand; third, the integration of renewables; and fourth, the role NB Power plays in the Atlantic region.
Currently, the main contributors to greenhouse gas emissions in New Brunswick are largely split between three sectors: electricity at 30 per cent; large industrial emitters at 29 per cent; and transportation at 27 per cent.
NB Power is well positioned, based on its generation mix, to provide customers with electricity generated with a low carbon footprint. External purchases, largely hydro, help to supplement this mixture, resulting in over 70 per cent of the current in-province energy requirements being supplied by non-emitting sources. By 2020, the generation mix will achieve 75 per cent non-emitting.
When considering greenhouse gas emissions, NB Power is approximately 52 per cent below the 2005 levels. Attachment A in our handout provides a graphic of NB Power's system.
As a result of the preponderance of electricity-intensive industries in New Brunswick, such as pulp and paper, mining and petroleum refining, New Brunswick has one of the most electricity-intensive economies in the world. Attachment B in our handout illustrates this. An adequate, secure and reliable supply is paramount to sustaining economic growth in New Brunswick because of this electricity-intensive nature of the economy.
In addition, New Brunswick's economy is also one of the most export-dependent compared to other provinces in Canada. It is, therefore, important that NB Power maintains or improves the competitiveness of its electricity rates with other North American jurisdictions. It is critical that a managed transition to a low-carbon economy occur to avoid undue hardship.
The next area I'd like to discuss is infrastructure renewal.
A cornerstone to NB Power's ability to provide reliable and competitively priced electricity with limited indigenous energy resources is its diverse portfolio of generation assets and a highly interconnected transmission grid. This diverse generation mix, supplemented by external purchases, largely hydro again, results in over 70 per cent of the current in- province energy requirements being supplied by non-emitting, and, as I mentioned earlier, that mix will go to 75 per cent in 2020.
As we contemplate how to transition to a low-carbon economy and electricity supply, it's important to recognize the need to maintain and increase baseload generation from non-emitting sources. Hydro will be an important contributor; there's no doubt. As well, there will also be a need for nuclear generation. Ensuring Canada maintains and expands its nuclear program is a cornerstone to achieving a low-carbon economy.
Further, the timely retirement of thermal assets is critical to avoid rate shock to our customers. For example, New Brunswick's only coal station, Belledune Generating Station, is scheduled to retire in 2043 under federal regulations. Should it be required to shut down early, say 2030, this would result in a rate increase of approximately 39 per cent, in addition to planned rate increases, and would have a devastating impact on NB Power's customers and the New Brunswick economy.
NB Power believes that infrastructure renewal also includes investments in technologies to modernize utilities. We are currently integrating demand-side management into our utilities system in a fiscally responsible way and are focusing on energy efficiency as part of our Reduce and Shift Demand initiative, or RASD, as we call it. Fundamentally, RASD is a holistic strategy that includes education; energy efficiency programs; the utility leading by example; changes to policies, standards and codes; and technology to realize peak demand reductions.
The RASD initiative can be broken down into the following two significant streams of activity. The first area includes energy efficiency programs that impact electricity consumption decisions that are made by our customers. This is a well-established demand-side approach, and I won't elaborate any further.
The second significant area of RASD is non-obtrusive load-shifting performed by the utility in cooperation with our customers. This can only be achieved through significant investment in information and communication technology. NB Power is leading the industry with its partnership with Siemens. Siemens has established a smart grid centre of competence in New Brunswick.
As a result of this focus to reduce and shift demand, we are moving forward with the following initiatives: advanced metring infrastructure to support two-way communication with the metre; customer demand response programs whereby the utility incentivizes customers to reduce or shift load; exploring innovative rates, such as time-varying rates, to send the proper price signals to customers; and, finally, customer load and storage management, where the customer's space heating and water heating are adapted to energy thermal storage. This technology will enable customers to have the ability to become electricity producers, using environmentally sustainable sources such as wind and solar.
This leads us to the issue of the integration of renewables. In a modern utility, it will be important to optimize our ability to integrate renewables on our system. NB Power currently has approximately 300 megawatts of wind capacity under contract through power purchase agreements. An additional 80 megawatts of renewable energy will be added from First Nations and local communities by 2020.
To support these capabilities, NB Power, with Siemens as our partner, has implemented load-management software that operates like a virtual power plant. This enables a more dynamic relationship between consumption and renewable generation, and will enable greater integration of renewables on the system. Our leadership, in partnership with Siemens to implement the virtual power plant, is critical to integrating more renewables effectively and reliably.
Finally, I'd like to touch on regional cooperation. It is key to a managed transition to a low-carbon economy. The Maritime utilities, Quebec and New England have a long history of over 50 years of collaboration through the purchase and sale of energy and capacity, and in the operation of the power system to benefit customers in the respective provinces or states.
Transmission interconnections are the key enabler to allow regional collaboration to occur. As robust as New Brunswick's transmission system is, it is anticipated that investment will be required at the Quebec, P.E.I. and Nova Scotia interfaces, and within New Brunswick's transmission system itself, to maintain and enable non-emitting energy to flow across those interfaces. Attachment C in our handout includes an interconnection map of the system to illustrate this.
In summary, when reviewing Canada's electricity sector today and looking to the future to achieve a low-carbon economy, it is important to give consideration to the following items for the electricity sector.
First, each province or region in Canada is different. The result of changes in regulations affecting electricity pricing and how it impacts the provincial economies is different for each region and must be well understood.
Next, the infrastructure renewal at the right time and the right resource, supported by our RASD initiative, which includes energy efficiency and demand-side management programs, will achieve better results. Regulatory certainty, coupled with efficient project delivery, will encourage renewal. Well-thought-out plans to modernize utilities will result in better environmental outcomes and better customer satisfaction. A managed transition to a low-carbon economy is critical.
Finally, regional collaboration has proven to be very beneficial in the past and is a key ingredient to a more efficient, cleaner electricity sector in the future. It is important that regional collaboration be based on sound business principles to create a win-win result.
Thank you, Mr. Chair. That concludes my opening remarks.
The Chair: Thank you, gentlemen. We'll begin questions with the deputy chair.
Senator Massicotte: Thank you to both of you for being with us this morning. We're quite privileged to be given your immense experience in a variety of sectors in producing energy, so it should be very informative for us. Thank you for sharing your thoughts and expertise.
Mr. Lyash, I'll start with you. As you know, the government has produced a plan that, in 15 years, CO2 has to be down 30 or 40 per cent. Give me a handle on timing. In other words, if you started the hydro, wind, solar and nuclear projects, and we agree this morning that we're going to produce a significant amount of energy from those four sectors, give me a sense in each case what the delay is to plan it, engineer it and so on? What are the delays for approvals, and what is the timing for construction, from cradle to grave, until you start producing energy? Can you give me a quick sense of those four and what the delays are?
Mr. Lyash: It can vary quite a bit. In general, a good rule of thumb is that if you're going to develop, build or commission a wind or solar project, it's about a two-year time horizon. For a hydro project, it can be anywhere between three and eight years, depending on the size and complexity of the project. We've completed some in less than three years, and we've had some that have taken longer than that. For new nuclear construction, it's about 10 years. If you have made a decision on the technology and are well down the path of development as opposed to an early-stage development project — to license, engineer, construct and commission, it's about a decade.
Senator Massicotte: All those plans — the engineering plans and all of it — are all-inclusive?
Mr. Lyash: Yes.
Senator Massicotte: I read in the paper sometimes that it sometimes takes five years to get approved. Obviously that's not the case, because with wind and solar, you're saying two years from start from scratch through to planning and approvals to get it done?
Mr. Lyash: Yes. For example, with our Nanticoke solar project, which we're developing right now, we were awarded that bid earlier this year, and it's about a two-year process to prepare the site, engineer, procure, construct and commission.
Senator Massicotte: You made a bid, which means your plans were already prepared. You obviously submitted a plan, so you actually knew what you wanted to do before. That took how long?
Mr. Lyash: About six months.
Senator Massicotte: Both of you have significant experience in nuclear, which is an interesting topic. Part of the world, maybe influenced by Japan — look how Germany responded — is concerned with nuclear. It had a bad reputation, if you wish. Therefore, a lot of countries have gone away from it. But a lot of countries, like China and Russia, are doing just the opposite.
What are your thoughts? Put it in perspective. None of you have had a significant incident throughout the life of your plants for 40 or 50 years; in Canada, we've never had incidents. Are we misplacing our fears? Is it too costly? Give me a sense what nuclear is about.
Mr. Lyash: I'd share this view with you. My personal view is that the right solution here is balanced in nature, with nuclear as a part — nuclear can't be the entirety of the answer — and it has to have a regional flavour, because different regions have different resources, cultures and objectives.
Having said that, with regard to nuclear specifically, there are 75 nuclear power plants under construction around the world as we sit here, with plans for several hundred more. The U.S. has four units under construction now that will be commissioned over the next three years, and they actually had their first criticality on the first new unit in 20 years at Watts Bar last week.
It is true that Germany has made a decision to move away from nuclear power. This creates quite a challenge for Germany in that their CO2 emissions, as they shut down their nuclear units, are trending upward, and they're actually constructing coal to backfill some of that.
The Japanese are in the process of restarting their units as they come out of their process for dealing with Fukushima.
If I think about nuclear globally, nuclear is still in the early stages of what is a wave of construction for generation III plants, and there is a tremendous amount of development under way to field the generation IV plant, which includes plants like small modular reactors. I think this is important, because while nuclear may not be a part of the solution in every region, I think it will continue to be an important part of the solution for many regions around the globe.
Senator Massicotte: Mr. Larlee, do you have any comments?
Mr. Larlee: I would agree with Mr. Lyash on that. We see, as I mentioned in my comments, that there will be a need for nuclear to fill that baseload requirement in the future as our baseload fossil fuel plants are retired. At this point, there doesn't appear to be a renewable resource in our region that could fill that gap, so in our planning going forward, we will definitely be looking at the possibility of nuclear to fill that gap.
Senator Massicotte: Mr. Lyash, given your thoughts on that, why are you planning to decommission Pickering 20 years from now?
Mr. Lyash: The Pickering units were an early version of this generation of reactor design. They are small by the larger nuclear standards, and they are fundamentally reaching the end of their first lifetime for those reactor components. We face a decision on Pickering: make a very large capital investment to refurbish it and extend its life, as we're doing with the Darlington units, or retire them.
Our economics on Pickering tell us that it is not a wise investment to refurbish them because of their early design and the size of the units. The same economic case that exists for Darlington, which will put it in a position to produce 7 to 8 cent per kilowatt power for 30 years, doesn't exist for Pickering. We would be better off, from an economics point of view, building new to replace Pickering rather than refurbishing the existing, a different case than exists at Darlington and Bruce.
Senator Black: I want to continue on the conversation respecting nuclear energy, please. Let me start by saying I very much appreciate the informed presentations that you have both given us today; they have been very helpful to our conversations.
Now, I want to have a discussion around what I think is termed as small nuclear. How do you define that?
Mr. Lyash: The term that's most typically used is small modular reactors, and I think about those two words separately and together, "small'' and "modular.''
Small can mean anything from 50 to 250 megawatts. A traditional generation II reactor is about 1,000 megawatts.
Modular is perhaps the more important word in that the concept is by keeping those reactors small, 50 to 250 megawatts, the design can be modularized. It can be essentially factory-built as opposed to being constructed in the field, and it can be delivered to a prepared site for installation.
The advantages of small modular reactors in concept are that they are smaller, so they require less capital commitment in a single bite; they can be manufactured under controlled circumstances to make the schedule for construction and the initial quality more certain; and because of their small size, they can be more easily integrated into a transition system. Where a much larger reactor may require more substantial transmission upgrades to integrate it, small modular reactors would tend to be less so.
Senator Black: The community of Fort McMurray in northeastern Alberta is the source of the Canadian oil sands developments. Conceptually, can you see a circumstance where small nuclear could have a role specific to that community and specific to those projects?
Mr. Lyash: Yes, certainly. First of all, nuclear plays a very important role when combined with renewables. There is a real synergistic effect of having intermittent resources like renewables paired with high-capacity factor resources like hydro or nuclear. So there's a benefit in that case.
For a community like Fort McMurray, I'm not familiar with the area, but what I know about it, it would seem to me that a small modular reactor and nuclear power could benefit not just with electricity, but there are designs that can be the direct producers of heat, which might be a source to support industry and those oil sands operations that isn't carbon-reliant.
Senator Black: Thank you very much. Switching gears, I'd like to talk about the export of power, in theory, across Canada. Have you any views in that regard? You're closer to my home province of Alberta obviously than you are. The concept of having energy delivered to Alberta, whether from British Columbia or Manitoba or Ontario, on transmission lines, which currently do not exist, is often discussed. Have you a view on that?
Mr. Lyash: I would share two views. I believe there is a strong case as you build a power system to have a heavy weight of resources in the region being served. There are inherent issues with long-distance transmission of power in terms of stability and reliability and the economic imbalance that it can create. You need to be mindful of those factors.
Having said that, as I look forward at a lower carbon future, I see heavy electrification of the economy as one of several success paths to get there. If that is the case, then a more robust transmission system that enables a larger degree of moving power between the provinces in Canada, and frankly export from Canada into the U.S. as they try to solve what is a very large problem with dependence on coal in the U.S., is a very important part of this.
My caution in this is that while a more robust transmission system and more free-flowing power transmission are important, just like the others, it's not the entirety of the solution. Each of these things have balance, is my personal view.
Senator Black: But you would suggest that we give consideration to a national grid? I think that's what you were saying.
Mr. Lyash: In order to do that, my view is that it doesn't necessarily need to be a broad and sort of generically spread effort, but I think if we focus on this as we lay out concrete plans for how the power system has to change if electrification is required for deep decarbonization, there will be constraints in the transmission system, specific constraints that can be identified, where if those are focused on the investment, it will pay dividends.
Senator Black: Thank you.
Senator Seidman: Mr. Larlee, my questions are about your presentation to us, specifically on energy and efficiency, reducing and shifting demand, that section, and the smart grid. That's something we've talked a lot about on this committee and heard hopes, aspirations and dreams about. Clearly you have real experience with this and, as you say, I believe your province is quite unique in your partnership with Siemens. How are you adapting this smart grid differently from the other provinces, perhaps as a result of this particular relationship? How have consumers accepted and seen this, to start?
Mr. Larlee: Thank you. First off, what makes us different from the get-go was that in establishing our relationship with Siemens, we took a planned approach. They brought to the table their worldwide experience working with electric utilities. We essentially developed a 10-year plan to logically and systematically modernize the grid. In doing so, we created new capabilities within the organization, new business capabilities, and new products and services for our customers. The first aspect of it is that it all comes from a plan.
As far as how our customers are reacting, the issue of getting customers engaged is probably a bigger challenge than the technology itself. The technology is there, and issues can be managed, but engaging customers is a different matter. That's why our focus has been, up till about a year or so ago, almost entirely on energy efficiency in order to develop that engagement with customers and to start that energy conversation with customers.
I guess "in the basement'' we've been working on the technology. Now we're at a point, working with Siemens and the National Research Council, of working on technologies and getting ready to start doing our pilot deployment. I mentioned water heating and space heating and connecting those loads to our virtual power plant and bringing that smart grid technology to consumers.
Senator Seidman: You say that it's been very difficult perhaps getting consumers to understand and be open and willing and actually use the technology that you're offering. This is the biggest part of the challenge, in many respects. Why do you think that is?
Mr. Larlee: Well, it's industry-wide. That is what all other utilities are experiencing as well. To a lot of customers, energy just isn't top of mind. Their interaction with their utility is once a month when they see their power bill. That requires a certain amount of thought on their part, which probably is minutes, and then that's it. That's the amount of thought that goes towards energy.
Engaging customers and getting them to pay more attention, be more interested and more interactive is going to be an evolving process. We started that conversation with customers through energy efficiency programs, and we'll continue to evolve it.
Senator Seidman: Do you think that future generations, more comfortable with interactive technology, are going to be more receptive to the kind of approach that your company and other companies across the country might be taking in the future? I come from Quebec, so I know that Hydro-Québec is also trying to be more interactive with their customers. But it's a question of behaviour. Obviously, this is dependent on Canadians changing their behaviour and understanding that they need to be interactive and not just look at their bills once a month. Is this going to be a generational change, do you think?
Mr. Larlee: I think the newer generations will adapt much more quickly. I hate to generalize, of course, but, obviously, they are used to the technology. They are used to having handheld devices and, in some cases, can't imagine not having them. They're used to that frequent interaction it through social media, and of course social media will be a big part of customer engagement. There are many successful programs out there now using that type of technology. There's no question that, for those of us who are familiar with the technology and are prepared to use it, it will enable us to have that conversation with customers.
Senator Ringuette: I have questions for both of our guests. The first one is for New Brunswick.
As a New Brunswicker, first of all, I'm surprised that, in your strategic planning, Mr. Larlee, there's no mention of further nuclear initiatives. I'm also very surprised to see that 35 per cent of the electricity generated in New Brunswick or consumed in New Brunswick, notwithstanding the coal in the northern part of New Brunswick, is generated by fuel or diesel. That's quite a lot, especially with the study that we are undertaking right now. How do you propose to move from that 35 per cent of fossil fuel, notwithstanding coal because you did indicate what your plan is for the coal unit? How do you plan to move NB Power from this 35 per cent of fossil fuel production?
Mr. Larlee: I believe my presentation was that we're 70 per cent non-emitting, so 30 per cent would be fossil fuel, so 30 per cent would be primarily from coal and natural gas. Our consumption of heavy fuel oil is quite limited.
The theme of our presentation really is a managed transition. Our view is that we would move away from fossil fuels — let's use coal as an example because it's the largest contributor, the Belledune power plant — in sync with the retirement of those assets. The plant is scheduled to retire around 2043, so at that time we would be largely, if not entirely, fossil free.
Senator Ringuette: But how?
Mr. Larlee: How?
Senator Ringuette: Yes.
Mr. Larlee: Well, as I indicated, we believe through a mix of renewables, integrating large amounts of renewables using our Reduce and Shift Demand initiative, and nuclear to fill in that baseload.
Senator Ringuette: Mr. Larlee, I have done some research. I know, and probably so would NB Power, that the Saint John River Valley is a prime location for windmills because of the constant wind generating of the valley. That being said, I also know of many windmill projects in the northwest area that have been proposed to NB Power in the last eight years, and NB Power has said no to them.
Given the future requirement of electricity with fewer greenhouse gas emissions for a New Brunswick customer, how can we accept your past action with regard to potential windmills for the northwest of New Brunswick? How can we be certain that you will review these projects and make sure that they are a component of electricity generating for New Brunswick with non-gas emissions? You've already denied these projects in the last seven or eight years.
I'm a concerned New Brunswicker in regard to the future. I know that very good projects have been submitted, and yet they have been refused by your entity. How will you review these projects so that they can be included in the transition from fossil fuels for New Brunswick?
Mr. Larlee: NB Power has a requirement under provincial legislation to put forward to our regulator every year a long-term plan that has to be redone and renewed every three years. In 2017, we will be putting forward a new integrated resource plan, as we call it, that essentially looks at the needs of electricity supply for New Brunswickers and the most economic and environmentally sustainable solutions to fill that need.
Since 2005, we have signed power purchase agreements with several wind farms, including wind farms in the northeast. But at this point in time, NB Power doesn't need new generation to meet our requirements. Looking forward, we will be looking at wind and other renewables to meet those requirements.
There are two things that we have to look at when we're looking at resources to meet our requirements. One is, how do they fit into the system? In other words, are the requirements very peaky and do we only need them during the coldest days of the winter, or are the requirements flat and we need them year-round? And do the resources fit that? We all know wind is variable, and the generation is only there when the wind blows, so you need other generation to back it up, so you could, in fact, be building gas plants to support those wind farms if the fit is incorrect.
The other aspect of it, of course, is the cost: Is it the least expensive resource to fill the need? Those are the things that we'll be looking at going forward.
Senator Ringuette: So then I have your commitment that you will review the wind farm projects in the northwest in order for them to be part of your planned submission for 2017?
Mr. Larlee: In our integrated resource plan, we don't look at specific or individual projects. We look at the cost of that particular type of generation as a whole. If that particular resource comes in as a potential and is selected in the plan, then we would go out and look for specific projects. Certainly, if it's selected as a resource, we would be looking at projects from anywhere in the province and looking for the best projects.
Senator Ringuette: I can certainly ascertain from the information I have that it's certainly a worthwhile project. Maybe because it's in the northwest, it doesn't get the attention that it warrants from NB Power.
May I ask a quick second question?
The Chair: I can put you on second round, too, but go ahead with your question.
Senator Ringuette: Mr. Lyash, the nuclear waste issue is important. When you talk about the small modular units, would they be able to reuse the nuclear waste? We know that current nuclear waste can be reused — I'm not a scientist — in the new nuclear units. Would they be able to reuse the current nuclear waste as a second generation of use?
Mr. Lyash: The answer to your question is "yes'' and "no,'' depending on the technology you select. Let me just amplify it for a moment.
When it's discharged, you've really only used about a third of the available energy in the fuel that's used in this generation of reactor. From a physics or geometry point of view, it can no longer be used in that reactor design. That fuel can be safely stored for very long periods of time after it's discharged from the reactor. If you're curious, I'd be happy to take you to Darlington, and I can show you our used fuel and how we store it.
It can also be safely disposed of in a deep geological repository, if that repository is safely designed. That's what the Nuclear Waste Management Organization is doing for the country of Canada. It's headed down the path of creating that kind of disposal facility.
There are generation IV reactor designs that are designed to take that fuel, reprocess it and reuse it in those designs as a way to extract additional energy and, in the end, to make that residual waste less in volume and less in radiotoxicity — dramatically. The current small, modular reactor designs are not designed to do that. They use a similar fuel to the current reactor generation. There is another set of reactors under design that are designed specifically to reprocess.
Senator Ringuette: By whom?
Mr. Lyash: There are several, including a firm here in Canada called TerraPower. Terrestrial Energy is a Bill Gates- sponsored design.
Other countries in the world are looking very closely at those designs. China, in particular, has built their nuclear program to use a series of different reactor types to close that fuel circle. So, perhaps, the first of these gen-IVs will be built by a partnership between Terrestrial Energy and the China Nuclear Investment Company in China. That's on the drawing boards now.
Senator Mockler: When I look at our order of reference, it is like the chair has said: to identify and report on impacts of transition to a low-carbon economy. Yes, I agree that everybody has a role to play. I want to touch on an avenue that hasn't been touched on, and that is the carbon economy in meeting Canada's emission targets. We all have a role to play. We go to identify areas of concern so we can make necessary recommendations to the federal government, and I think you can rest assured that our chair and deputy chair will deliver that report. New Brunswick is one area. I agree with Senator Ringuette that projects that have been put on the shelf should be revisited.
I have two little questions, and I want to explore the jet stream avenue. There's a cost to that. Coming from the Midwest U.S. — all that carbon that's produced there comes to Eastern Canada. We also have, Mr. Lyash, with the jet stream, some of your emissions coming toward Eastern Canada and I'll say New Brunswick, because I'm a senator from New Brunswick.
Senator Massicotte: How much money do you want?
Senator Mockler: We are a rural province, and carbon will impact on rural areas across Canada. There was a question asked, but I'll stick to New Brunswick: Could we not revisit, like Senator Black has said, a smaller nuclear operation so that we can be in a position to finally say that we have a program to reduce emissions?
I would like to have both of your opinions: How can we cost what's coming from the U.S. and Ontario toward us in Eastern Canada? Because there will be a cost, and it will either go to the consumer or it will close industries.
I'll start with Mr. Larlee. What is the approach we have for nuclear and/or, as Senator Ringuette has said ±
[Translation]
— wind, and perhaps even for the Rivière-Verte project?
[English]
Mr. Larlee: Any move to decarbonize in New Brunswick, once our existing fossil assets have retired, at this point, will require nuclear investment in two ways: It will require either the replacement or the re-refurbishment of Point Lepreau and new generation to replace the fossil fuel generation that will retire in 2040. Unless there are other significant technological advances that we don't know of, it certainly appears, at this point, that new advanced nuclear would be part of the solution.
Advancing the closure of our fossil facilities, particularly Belledune, would come at a cost. The cost would be twofold: one, that power would have to be replaced. One would think we would want it replaced with non-emitting generation, obviously. Likely, the lowest cost replacement would be for NB Power to import that energy. That's not a particularly good long-term solution in that our system and most electric systems are built to be self-supplying. In other words, imports and exports are only done on an economic basis, but, if need be, you can always meet your own needs internally. There are requirements within the industry to actually be able to do that. We have not only the cost of replacing the energy but then the cost of building generation to replace the capacity to meet our needs.
As I mentioned in my presentation, we've just put forward an example. If Belledune were to be closed 10 years earlier to reduce our carbon footprint, in 2030, the rates in New Brunswick would have to go up an additional 39 per cent. There is an impact. In New Brunswick, with our electricity-intensive economy because of the industries that we have, it could have devastating impacts. This is the information that we wanted to bring to this committee.
Senator Mockler: We need a formula. Somebody has to pay. We need to put in place a mechanism so that we have an even and fair approach to carbon emissions. I am for a program that can reduce it, but somebody has to pay. I look at carbon coming from the U.S., some from Ontario, because of the jet stream. It's not your fault; it's because of the jet stream. Somebody will have to pay. If not, we are going to lose our manufacturing industries in New Brunswick and in Atlantic Canada. Tell me, Mr. Lyash, with your experience in Canada and the U.S., how we can put a formula in place so that we can price carbon coming from elsewhere?
Mr. Lyash: Thank you for the question, and it's quite a difficult question to answer. I'd start out by just drawing a couple of physical distinctions.
I believe we have to start thinking about greenhouse gas emissions, CO2 and climate change issues in a very different way than we've thought about other environmental issues. As an example, issues with NOx and SOx, smog and haze sort of pollutants in the air that we've reduced over a number of years, those are regional pollutants. They're emitted in an area. They have an effect on the environment in that area, and they can be transported to adjacent areas and have that impact.
The contrast to CO2 is it's not a visible regional impact; it's a global impact. Tthe carbon disperses around the atmosphere and in the oceans, and it doesn't really matter where it's emitted. It has a global impact as opposed to the regional and visible impact that smog and haze have. That makes it a different issue to treat.
The second distinction I draw is that, with NOx and SOx and those haze issues, if you stop emitting, you immediately see a fairly significant decline in those constituents in the atmosphere, and the situation improves quite rapidly. If you lived in Toronto, you would visibly see the difference in a very short period of time after the retirement of the coal. CO2 is not that way. A carbon molecule, once emitted, stays in the atmosphere or the ocean for a very long time. Ceasing emissions doesn't result in a reversal of CO2 levels in the atmosphere for a very long time, so the imperative on lowering emissions is to keep that from building up. Having said that, I don't think the issue is regional in nature or how CO2 is transported. It's the global volume of CO2 emitted.
Now to the economic impact. That does not alleviate the problem you point to, which is: How do you pay for the cost of emission of whatever carbon you're emitting? Because if you're going to create that type of a price and level that impact, you must have a mechanism to do that.
The two that are in use are a carbon tax and a cap and trade. But those become more meaningful the broader the footprint that they're applied to because, if you apply it to too small a footprint, you get this disparate economic impact. This is the subject of much economic debate, and several provinces in Canada have either gone to a carbon tax or are going to a cap and trade. They each have merit.
Tto address the issue you discuss, that kind of a financial mechanism would have to develop and be applied at a very broad level to equalize the impact. I can't give you the answer to that problem. That is an economist and a political and social debate. As an engineer, I'm not qualified to do that.
I would say, to your question on nuclear, that I believe that if the objective is to reduce carbon in the end and reducing carbon emissions is the outcome we want, then the highest impact is to decarbonize the electric generating sector. That has a financial burden, absolutely, but it is the most cost-effective sector to decarbonize. You do that by building nuclear, hydro, perhaps fossil with carbon capture and sequestration, if it's available, and the right penetration, or renewables in storage. That, then, must be used and levered to decarbonize the transportation, home heating and industrial sectors. If we're to undertake that, as was pointed out earlier, these are decisions that need to be considered today because the lead times for some of this are quite long.
Senator Patterson: I'd like to ask Mr. Lyash about the Thunder Bay coal generating station. You had mentioned that conversion to biomass is a move that has saved jobs and helped to spur local economic development. You would be familiar with the report of the Auditor General of Ontario, which basically concluded that the conversion in Thunder Bay was not cost-effective, that the facility cost was 25 times higher than the average cost at other biomass stations in Ontario, and that the facility imports biomass from outside of Canada, although the plant was initially touted as a means to create local jobs in the forest industry.
I'm wondering if you could tell us if there's something to learn from this experience. Why were the costs so high at Thunder Bay? Did it create any local jobs in the forestry sector, as had been hoped?
Mr. Lyash: Yes, I'm familiar with the Attorney General's report. The Attorney General's report compared the cost of a unit of energy produced by Thunder Bay or Atikokan, which are the two biomass plants in western Ontario, to the cost of a unit of energy produced by other sources — nuclear, natural-gas-fired generation. The conclusion is accurate: It is substantially more per unit of energy to produce.
I think what the Attorney General perhaps didn't weight as heavily is that there's a second value of a generating station: the capacity. In that case, you're paying not for the lumens coming out of that light but for the surety that when you turn the switch, the light will come on. The Thunder Bay and Atikokan plants were basically preserved, from a system point of view, for the capacity. The transmission east to west is very restricted, and a loss of that capacity in the West would cause reliability issues on peak days.
The fair way to think about the price is not to compare it to a nuclear megawatt hour but to compare it to what it would have cost to replace that capacity with new capacity in that geographic area. When you do the comparison that way, Atikokan and Thunder Bay are reasonable. I cannot claim that they would be the lowest-cost approach to that, but they are reasonable approaches. While I think the Attorney General's report is certainly accurate from a technical point of view, I would say it's not a complete perspective on this issue.
In terms of the jobs, the Atikokan facility uses biofuels generated and processed locally, so there clearly is a job impact from that facility because we use local forest product to fuel it.
With the Thunder Bay facility, we elected to use what's called advanced biomass, for which there is no domestic source, so it's correct that we import that fuel. We chose that because we could convert Thunder Bay to that fuel with virtually no capital cost, so there was no substantial investment required in the plant itself in order to burn that fuel, whereas there was a substantial investment at Atikokan. We were concerned at the time with gaining experience and seeing how this performed. Without sinking capital costs, it might be stranded.
I would say that if biomass becomes the preferred source, and it scales up, then we have a line of sight on how to attract and locate an advanced biomass manufacturing facility that would provide multiple stations of this type. But that's not an investment you want to make until the future trajectory of biomass, which is tied to a climate-change action plan, is clearer.
Hopefully, that answers your question.
Senator Patterson: I don't want to dwell on the Auditor General's report, but it did talk about the investment Ontario has made in conservation between 2006 and 2014 as being over $2.3 billion. The Auditor General felt that the investment didn't mean cost savings, necessarily, for the province, because it seems to contribute to periods of unwanted oversupply of electricity and that that surplus must then be exported, typically at prices below what generators are paid, or it must be curtailed, and curtailed generators are still paid even when they're not producing energy.
If the Auditor General is correct — and I'd like your views on that — this seems to be a perverse way. It costs money for residents to improve their energy efficiency. Would you agree with that analysis, and can it be corrected?
Mr. Lyash: I view the Auditor General's findings as having two parts. One is the observation that there are periods where there is surplus generation in Ontario. This is true. The surplus tends to be driven by the intermittency of renewables. Oftentimes, wind and solar produce the most energy out of cycle with when the most energy is being consumed, and that creates a surplus.
When you're faced with a surplus, there are only really three choices: One is to store that, which takes storage capacity, and I think this is a technology that will develop over the next 10 years; the second is to curtail it; and the third is to sell that power off system at a salvage value. The latter is generally the approach that's taken.
The nature of building a high penetration of renewables is that you then have to deal with their intermittency over a period of time in terms of system planning. From a system planning point of view, hopefully in the long term, that will work its way through and you'll see less of that.
In terms of conservation, OPG does not run conservation programs, so I can only speak generally about them. They're run by the independent electric system operators. I think conservation programs are going to be important in the long term, if properly targeted at the areas that are the hardest to decarbonize. In other words, if you are going to have great difficulty driving the carbon out of a particular sector, efficiency and conservation are typically very cost- effective ways to do that.
The province has put a focus on building conservation programs. The Auditor General questions whether that's wise in the face of this surplus baseload generation, and that's a legitimate question. I would say that as you build conservation efficiency programs, they need to be done with the long term in mind. You're not just conserving to take out a unit of energy today, but you're building in that efficiency so that unit of energy is gone forever. The payback on those often comes in future years.
Senator Massicotte: This is an interesting discussion. I want to go back a little bit. Mr. Lyash, maybe as a starting point to the discussion, could you tell us the range of costs of a new plant — solar, wind, hydro, nuclear, biomass? What's the total all-in cost? Where is that at today?
Mr. Lyash: Wind and solar prices have come down substantially. As an example, the solar plant we're building currently will produce power at about 15.5 cents per kilowatt hour. We'll use that as a benchmark. That's down substantially. Wind is somewhat less than that, at 10 cents a kilowatt hour.
The qualifier with those resources, I must add, is that's those are energy prices. Their capacity value is limited because they're intermittent. You can't dispatch when you want them; you have to take them when they're there. The cost that's not in that number is whatever you have to do to create a back-stand for that intermittency. I must say that at the front end, because that will now make the prices I quote you for comparison somewhat apples and oranges.
Our average hydroelectric price is about 4.6 cents per kilowatt hour.
Senator Massicotte: If I could interrupt, that includes historical costs. If you have to build something today, how much will that cost?
Mr. Lyash: They can be between 10 and 20 cents per kilowatt hour. It could be more. It depends on the nature of the asset you're building. The next hydroelectric plant is always more expensive than the last.
Senator Massicotte: And nuclear and biomass?
Mr. Lyash: Nuclear runs about 6 to 7 cents, currently. After we refurbish the Darlington plants, because of the capital investment we put in them, it will be between 7 and 8 cents.
Senator Massicotte: Again, I would argue it's maybe unfair. You have historical costs there. How much will a new plant cost?
Mr. Lyash: Yes, that 7 to 8 cents is a very good number for the existing fleet. A new plant tends to run a bit more than that.
Senator Massicotte: How much?
Mr. Lyash: It is generally in the 8 to 10 cent range. It depends on the reactor type. I'm speculating a bi, because, for these generation-IV reactors, the pricing isn't final yet.
Senator Massicotte: Biomass?
Mr. Lyash: It's variable. I'm reluctant to put a price on it. It could be co-fired with other fuels or burned on its own. It depends on whether it's locally produced or —
Senator Massicotte: But based on your comments earlier, you seem to confirm the Auditor General's comment that there is generally a higher cost to alternate fuels.
Mr. Lyash: There is, yes. I would say biomass is anywhere from probably 15 to 35 cents.
Senator Massicotte: I particularly appreciate it, because I think it's the first time we have heard it here when people cite these numbers, and your nuclear number is much lower than international norms I've seen. What I really liked is that you did say that there's a need — some wind, solar — for backup. You can't just cite that number and say it's competitive because you have to produce it twice, if you wish, in case you need it.
Mr. Lyash: Yes.
Senator Massicotte: I think that's very important. Let me also go on to say —
Mr. Lyash: May I just say that the other consideration when you think about renewables — and I'm a renewables advocate, so please don't allow any of my comments to lead you to believe otherwise — is that there's a certain penetration that a system can take for renewables before you must begin to account for that back-stand capability. Once you pass that tipping point, if that back-stand capability is fossil fuel, natural gas, you won't be bringing your CO2 number down; you'll be bringing your CO2 number up. This is what has been seen in Germany.
Senator Massicotte: You also cite in your presentation that your competitive cost is 40 per cent lower than other producers in Ontario. I'm not surprised because, obviously, you have significant sunk costs, historical costs, that maybe your competitors don't. I'm from Quebec, but I've read a lot of articles about your previous four purchase contracts, particularly wind and solar, which is very expensive. There have been quite a few articles in the newspaper saying that your historical costs and commitment on those contracts makes your province uncompetitive relative to your industrial users. You're new to the job. This is not your decision. It's easy to look back but, when you look back, it looks like some bad decisions were made relative to your province, relative to your economic positioning. Do you want to comment on that?
Mr. Lyash: As you point out, these weren't things that I was in position for, but I think it's instructive to look at history. I have looked at it a bit to try to understand where we are.
When I look at the power prices in Ontario, what I see is that they were historically very low for a very long time. Since 2005, as coal was retired and as renewable feed-in tariff contracts were signed, as well as a number of other things, investment was needed in infrastructure. Transmission and distribution had become not unreliable but not acceptably reliable, so there was a wave of investment put into the system. This is not unusual in power systems. People tend to run them and then have a wave of either environmental investment or reliability-based infrastructure replacement.
Ontario moved fairly quickly up the price curve. The main problem there I see is the short period of time over which that investment was made and that price gap grew.
If I look at the absolute prices in Ontario, setting aside the fact that they've increased from what may have been artificially low prices with a pent-up demand, they are certainly not at the low end, but in North America, they are not dissimilar to what you see in the northeastern and mid-Atlantic states in the U.S. or what you see on the West Coast. They are certainly higher than the U.S. Southeast, which is heavily nuclear, and the Midwest, which is heavily coal dependent. I would suggest that power prices in Ontario certainly have risen. They've risen quickly as those investments were made, and they've put themselves about on par with a number of regions in the U.S. It does affect your competitiveness.
I would make one last observation in that I think Ontario has taken a number of actions that other jurisdictions are going to need to take. I expect that, when other regions begin to take those actions, you'll see that price gap close up.
Senator Massicotte: I suspect that it was that quick because you have some old costs, which are very competitive, like your nuclear costs, but I understand you have a lot of wind and maybe solar contracts north of $15 per kilowatt hour, and significantly north. Obviously, with the change in technology, new competitors will be much cheaper than that, which disadvantages you for a long time given the term of those contracts. You seem to agree with that.
Let me jump because my chairman will cut me off.
The Chair: I'm going to.
Senator Massicotte: One final question: On First Nations, congratulations. You have found a way to resolve a lot of issues with them in your province. As you know, this is a big issue in our country. Share your thoughts. What was the success there? I'm a business person. It's always very easy to do a deal if you give in on every issue. Some other provinces would probably say Ontario gave in too much and is a bad example. Can you put all that in perspective?
Mr. Lyash: I think our success with First Nations is simple. It is trust. This takes time, and it takes an organization that is committed to a long-term dialogue, a long-term relationship, to building trust and then to looking for every opportunity to partner, where it benefits the business. I will do nothing with First Nations that doesn't benefit my business, but everything I do with First Nations should benefit that community equally. So this is the approach. That was the approach in settling past grievances — acknowledging that our predecessor companies built dams, built hydro stations, changed river profiles and lake levels in ways that affected those communities, without their involvement or, at least, without adequate involvement, and working through a process where both parties come to an understanding that this wasn't right and should not be done again. I think it's only when both parties understand it and are convinced that you move on.
It creates a tremendous foundation, though, because these partnerships with First Nations I mentioned add tremendous value. We jointly identify projects. We begin a dialogue about whether the project is right, what its long- term impacts will be, how we can mitigate those impacts and what needs to be done to protect those territories for future generations. There is always enough common ground to reach a mutually beneficial final position.
Then, in the execution, we target, fundamentally, three things. We want First Nations to own a portion of the project so that they are co-owners with us, which means they have all the benefits that the company has: cash flow, net income, et cetera, over a period of time that they can rely on. We try deliver the same nature of the benefit that the company has.
The second is that we target First Nations businesses to provide the contract services during construction of those plants to the extent that they're able to do that, and we try to help them develop those businesses if they need some assistance. On this point, they must be cost competitive. We do not award overpriced contracts because it's a First Nation business. But what we've found is we don't need to do that. There are businesses that are capable of providing quality support. That creates that ripple effect in their community.
The third is we target First Nation members to hire on with contractors and with OPG during construction of the project. The objective here is to leave behind a group of people who have now received education, experience and qualifications. I'm very proud of the fact that, on our Lower Mattagami Project, we had First Nations community members hire on as apprentices and exit that project as journeymen, with a card and a career that they can pursue however they would like.
Senator Seidman: I'd like to come back to the issues of regional collaboration, if I might. I think you've both discussed it. Mr. Larlee, you have emphasized the importance of it. Being from Quebec, which is one of your regions in partnership with New Brunswick, I also understand the importance of it. We know that it's related to infrastructure issues and interprovincial trade, so it gets rather complex. We also know, as you both attested, that there's a much greater relationship north-south than there is east-west.
Specifically in that context, I'd like to refer to something you said in your summary, Mr. Larlee. You said that regional collaboration has proven to be very beneficial in the past and is a key ingredient for a more efficient and cleaner electricity sector in the future. It is important that regional collaboration be based on sound business principles to create a win-win result. The win-win result has to be business and consumer, I presume. If you could elaborate on that for us, it would be helpful. Mr. Lyash, you might have something to say about that as well.
Mr. Larlee: In New Brunswick, our geographical position allows us to buy and sell energy in literally any direction, whether west to east or north or south. We are as interconnected as we can be. In the future, it won't be about interconnecting to new regions for us but about expanding our existing interconnections.
We have the advantage that when our generation is priced competitively, we can sell it to the northeast, and when it's not priced competitively, we can buy from Hydro-Québec. We have a good customer in Prince Edward Island and supply all of their needs not supplied by their indigenous wind resources. We're working at expanding our relationship with Nova Scotia in a joint dispatch pilot where we would actually look at our resources together as a single resource and dispatch them accordingly.
The future holds great potential, largely because of the need for renewables in the Northeastern United States. There's work going on there where very large amounts of renewable resources will be required to meet their commitments. In partnership with our regional partners, we feel that we can be a significant player in meeting their needs. That will require significant infrastructure development, it will increase regional collaboration and it will benefit New Brunswickers through a return on investment in those facilities and the energy sold.
Our history shows that the trade with Quebec and New England has contributed significantly to New Brunswick's low electricity rates, which are the lowest in the region. It's just part of our DNA to pursue those regional opportunities.
Senator Seidman: Mr. Lyash?
Mr. Lyash: OPG trades both capacity and energy into the Midwest and Northeast U.S. We are members of each of those independent system operators, so we look for opportunities there. We are interconnected in trade east and west in Canada. We buy and sell capacity with Quebec. Because of the winter versus summer peaks that we have, a mutually beneficial trade occurs on an annual basis to fill those troughs for each of us, so we'll continue that.
My sense is that additional investment in opening up some of those constraints and expanding trade regionally, interprovincially as well as to the U.S., is inevitable in the long term, particularly if there is a real focus on driving down carbon and you back into the practical implications of that.
As I said, I think those solutions for how to best drive down carbon are going to be regional in nature, based on what resources a region has. Quebec has fantastic hydro. The Midwest U.S. does not. In that circumstance, as we map out those solutions, it will make apparent where infrastructure has to be built to expand what you consider a region to integrate a broader set of resources. My sense is that those opportunities will become clear over time as the impacts of a climate change action plan are digested and system planning follows.
Senator Seidman: We've heard mixed reviews from previous witnesses about the impact of building out the infrastructure and how daunting that can be in our country. I'd like to hear from you how you would see that happening, as you're clearly saying that it's important. For example, what could the federal government do to ensure that that kind of infrastructure development is maximized, in particular as it could have a positive impact on the consumer?
Mr. Lyash: Major infrastructure builds are always daunting. I'm not sure which is more daunting: building a nuclear plant or a high-voltage transmission line. Perhaps the nuclear plant may be easier.
What can the government do? My sense is that because infrastructure investments are complex, they involve risk and they impact communities and individuals, regardless. The government has to make clear the policy around, for example, a nuclear development program or a transmission integration program and why it is of value. The value is always over the long term, and people's focus is always the short term. Having a policy that clearly lays out the value of these things in the context of long-term price to consumers and the balance with the protection of the environment and support for the economy is very important.
Beyond that, to develop this kind of infrastructure takes a workforce that is trained, qualified and available to do this. My sense is that support for training, education and skills targeted at what is necessary to build out this sort of new infrastructure is a second area.
Perhaps a third area is to make sure we're striking the right balance in the assessment, permitting and approval process, not to suggest that there is a short cut because there isn't. The involvement of impacted parties needs to be robust, and points of view need to be heard in the process and the right mitigating actions taken. The balance is that the processes have to be built to make decisions and move on. If you don't have a process of that nature, you either lose the trust of the population on one hand or you don't make progress on the infrastructure on the other hand; and a lack of progress on a major project is the largest driver of increase in costs, right? Delay and interruption are the primary drivers of cost in very large projects.
The Chair: I want to ask a couple of questions. Our goal is to find out what it will cost the average consumer — Fred and Martha on the street — to meet these targets that the federal government has put in place.
I want to thank both of you for your presentations. They were both good and contained a lot of good information.
By 2030, by estimates that we have from government, we have to reduce 291 megatons from the atmosphere. I want to ask you, gentlemen, after your presentations, do you think that's achievable? Can you tell me what cost that might be? I've heard New Brunswick say that if they had to shut down their coal plant by 2030, it would up their rates by 39 per cent. I've heard you, Mr. Lyash, say that we could decarbonize the electricity sector. From the estimates, that only gives us 58 tonnes. Understanding where Mr. Larlee comes from, that means a big increase in rates.
Neither one of you lives in Saskatchewan or Alberta where there are not a lot of other opportunities to generate, and those regions are where most of the coal plants are. They generate with coal basically because they have a few hundred years of supply, and their historical plants had been built a long time ago. That was the easiest way they could generate their electricity.
I'll have some more questions, but do you think those targets can be met — about 300 megatons by 2030 — by doing some of the things you've talked about? I'd also like to know what you think the cost of electricity would be by 2030 if, in fact, you did decarbonize that.
And maybe I'll give you one other piece of information: The oil and gas industry is 242 megatons by 2030. That's an estimate. So you could wipe that totally out, which is pretty impossible, and you still won't meet the target.
Help me a little here so that Canadians — because that's what we want to do. Nobody's telling Canadians what it's going to cost.
Senator Mockler: That's right.
The Chair: Let me be frank: I'm not saying we shouldn't be doing things, but we want to find out what it's going to cost those consumers at the end of the day, because that's who pays. Either they lose their job or their rates go up or whatever. Help me a bit.
Mr. Lyash: Just let me clarify one thing: I didn't mean to imply that decarbonizing the electricity sector was easy. It's the easiest among a very difficult set of tasks.
The Chair: Tell Alberta that.
Mr. Lyash: And I mean that in a broad sense. As you point out, resources are different regionally, so how to do this is more or less daunting, depending on what chair you sit in.
Are they achievable? The honest answer is that I'm not sure, personally, and I don't think it's reasonable to expect that it be clear at this point. Turning our attention to it and undertaking the work that it takes to find the practical steps that can be taken — focusing on the ones that produce the biggest impact for the least amount of dollars — is a process.
My judgment is that the process is very early. At this stage of the process, I would be careful not to pick winners and losers, to keep all of the tools available on the table and to think of this, at one level, as broad, national and economy- wide actions that can be taken while recognizing that, in the end, there have to be regional solutions and industry- process-specific solutions, and that all will not come down that carbon curve at the same pace.
I apologize that I can't give you an answer on the cost, but my sense is that costs will begin to become clear as the practical actions become clear.
Do I believe you can make the 2030 and 2050 goals? I think it's possible from an engineering point of view. I'm not sure how likely it is from a social point of view. That remains to be seen.
The Chair: Mr. Larlee?
Mr. Larlee: The comment I'd have is that I don't believe we actually know that electricity should be first on the pecking order. We've started initiating some work with a research institute in the U.K., the University of New Brunswick and federal government agencies in New Brunswick to look at doing some detailed analysis on just that question: Where would we get the biggest bang from our buck in reducing CO2 in our region? It does require some pretty detailed analysis. We can obviously contribute greatly for the electricity sector but, in the other sectors, others will have to participate and provide their data.
A thorough economic analysis of what would be the impact of reducing the carbon footprint in all sectors of the economy would be a worthwhile analysis so that we do go after the cheapest tonne first. In our area, we can do the analysis. We know how much it would cost if we reduced a megatonne out of Belledune because we'd just replaced the power through imports. But that doesn't tell the whole story, and we are pursuing some efforts to try and complete that story.
The Chair: I appreciate those answers, because that's what we're trying to find out.
Maybe you gentlemen could do is put some thought to it and- help us a little bit. You don't have to give the answer today, but help us a little bit. Send a letter to the clerk. and that will get circulated to everyone on the committee. to let us know what you think would happen.
When you say "just import power to replace it,'' I appreciate you can do that because people in New Brunswick want to make sure they have enough power so that when they turn their lights on, they actually come on. So I understand all those things.
Mr. Lyash, I should have underlined it in your notes, but I think you said that we could meet the target by 2050 and be fossil-fuel free. I'm a little hesitant to believe that statement, to be perfectly honest, because of how much more fossil fuel is intertwined in our lives than just electricity. I hear enough "just build a windmill and build a solar plant and the world is fine,'' but that's electricity.
There are two totally separate energy sources. Whether natural gas or oil, they're intertwined in our lives in many ways that don't have anything to do with electricity.
Mr. Lyash: Yes.
The Chair: So when you say that we could be fossil-fuel free, what do you mean? You're an engineer, so maybe you can help me here. Can you make plastics out of electricity? I don't know. Maybe you can. Maybe all of these things that we produce now with petroleum products can be produced with electricity. You're an engineer. Maybe you could help me there a little bit.
Mr. Lyash: My statement was really confined to electricity.
The Chair: Okay.
Mr. Lyash: My statement was that I believe we'll see, if not an end to the use of fossil fuel for electric generation, at least a significant change in its role.
Just to amplify that, I'm not at all convinced, even in the electricity sector, that we will not continue to use fossil fuels. I believe we will. Its role will change significantly. It will be either used intermittently to back-stand capacity and emit some amount of carbon into the atmosphere, albeit reduced, or we will develop technology to capture and sequester the carbon off sources like natural gas and continue to use it to generate electricity.
I believe the elimination of fossil fuels in other sectors of the economy that emit CO2 is a very difficult task. Again, I certainly don't believe we will totally eliminate CO2-emitting use of fossil fuels; I think there will always be a significant role for those to play. The focus has to be: How do you make them progressively less carbon-intensive per unit of energy used?
As to the use of natural gas and petroleum in things like fertilizer, plastics and polymers, I don't see an alternative to that. But the question will be: How can you lower the life-cycle carbon impact of doing that? How can you lower the carbon-intensity of extraction and delivery and the manufacturing process in which they're used?
The Chair: Okay, thank you. I'm sorry that I misunderstood you when you made your presentation. I didn't hear you say electricity. I thought it was that we would be carbon-free. I'll read your notes again. Thank you very much.
We have just under 10 minutes. I've taken a little bit of time. The committee doesn't usually like me to do that, but I like to do it. And I got timed, so I know my time is up. I have two more questioners that each have a quick question, and then we have to break because there's another committee coming in here.
Senator Mockler: Mr. Chair, you will always have my support when you're asking the proper question for Martha and Fred.
I want to go into other uncharted waters here and benefit from the knowledge of you two. I do not agree, for example, that in reducing emissions, we have to close this and close that. I believe that when you have a nation-building project like Energy East —
Senator Massicotte: I was wondering why that hadn't come up yet.
Senator Mockler: We're moving from transportation on highways and especially on rail, thousands of cars on rails coming every 48 hours, to the biggest refinery in Canada, which is in Saint John, New Brunswick. And then we look at this pipeline. That infrastructure is a nation-building pipeline.
In your experience, can we find a formula in which everybody pays and in the long run we can still develop wealth, create jobs and be somewhat on target with what New Brunswick wants, what Canada wants and what all the provinces want? Is there a formula like that? I'll talk to the engineer first.
The Chair: Maybe you shouldn't have told us you're an engineer.
Mr. Lyash: I'm not a petroleum or natural gas engineer, nor am I in the business, so I'll apologize that I really can't add much insight on that topic.
Senator Mockler: Okay. Mr. Larlee, can you can give me a comment? I'm trying to avoid having our cost of electricity grow by 29 per cent.
Mr. Larlee: That's like most New Brunswickers would, I think.
Certainly, at NB Power, we are supportive of the Energy East project and are fully prepared to supply its electricity needs within New Brunswick when it's approved and when it's built.
I'm not a petroleum engineer either. I am an engineer, but I'm kind of glad I didn't bring it up until now.
The Chair: Well, we could take some more questions.
Mr. Larlee: But the project will go ahead assuming that there's a requirement for it in the industry, and we'll be there to support it if that happens.
Senator Patterson: Mr. Lyash, I was interested in your discussion about small nuclear — 50 megawatts and up — and how it's portable and can be moved to a prepared site. I understand there's some concept of having fuel cells that can be removed like batteries and recharged. I'm from a region where we're totally dependent on diesel for producing electricity, and there are some mines that are existing or planned that easily could burn 50 megawatts. How far advanced is this technology? Are there operating models that we can use? And where is that technology advanced?
Mr. Lyash: There are currently none of these in operation or under construction. There is a range of these designs well along in the development process and being considered for licensing by the United States Nuclear Regulatory Commission and the Canadian Nuclear Safety Commission. I think the first of those designs is scheduled to clear the licensing hurdle sometime in the next two years and then be targeted for the initial demonstration plants or deployments.
In the U.S., I'm aware that the two sites that are actively considering it are the Hanford Site in Washington State and the Oak Ridge National Laboratory in Tennessee — two government-owned nuclear installation sites that would host, perhaps, the first deployment of these small modular reactors. There are also fairly well advanced efforts in China to site the first wave of these.
It's difficult for me to say when you could tour an operating reactor of this type, but I would venture that we're probably looking at about 2025 to see the first of these in service.
Senator Patterson: Thank you.
Mr. Larlee, we all know about Labrador's Muskrat Falls project in Lower Churchill and how renewable electricity is going to flow into the Maritime Provinces, and you talked about the interregional links. Do you have an ability to access that power when it comes on stream with the current transmission link you have with Nova Scotia?
Mr. Larlee: Yes, we do. My understanding is that there will be excess energy available at that interface, and we would have access to it as Emera or Nova Scotia Power would have the ability, if there's transmission capacity, to use the transmission system within New Brunswick to get it to the market.
Senator Patterson: Thank you.
The Chair: Thank you, gentlemen and senators.
(The committee adjourned.)