Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 27 - Evidence - April 23, 2015
OTTAWA, Thursday, April 23, 2015
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day, at 8:33 a.m., to continue its study on non-renewable and renewable energy development including energy storage, distribution, transmission, consumption and other emerging technologies in Canada's three northern territories.
Senator Paul J. Massicotte (Deputy Chair) in the chair.
[Translation]
The Deputy Chair: Welcome to the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Paul Massicotte. I represent the province of Quebec and I am the deputy chair of the committee. The chair, Senator Richard Neufeld, regrets that he is unable to attend today's meeting.
I want to welcome the 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 on the committee's website at sen.parl.gc.ca. You will find more information on the schedule of witnesses on the same website, under the heading "Senate Committees."
I would like to ask the senators to introduce themselves.
[English]
Senator Mitchell: Grant Mitchell, Alberta.
Senator Black: I'm Doug Black from Alberta.
[Translation]
Senator Boisvenu: I am Senator Pierre-Hugues Boisvenu from La Salle, Quebec.
[English]
Senator Patterson: Dennis Patterson, territory of Nunavut.
Senator Seidman: Judith Seidman, Montreal, Quebec.
[Translation]
The Deputy 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, from Natural Resources Canada: Dean Haslip, Director General, CanmetENERGY-Ottawa, Innovation and Energy Technology Sector; Laura Oleson, Director, Demand Policy and Analysis, Office of Energy Efficiency, Energy Sector; Drew Leyburne, Director General, Energy Policy Branch, Energy Sector; and Anoop Kapoor, Director, Renewable and Electrical Division.
I understand you have some opening remarks, after which we will go to questions and answers. Please proceed.
[English]
Drew Leyburne, Director General, Energy Policy Branch, Energy Sector, Natural Resources Canada: Thank you for the opportunity to speak with you today. My name is Drew Leyburne. I'm the Director General of the Energy Policy Branch at Natural Resources Canada. Having followed some of the testimony to date, I know that this committee has heard about a number of issues in the North, including new potential sources of renewable and non-renewable energy supply.
We have provided a deck, which I think you have copies of. I'm going to start directly at slide 3.
Today my colleagues and I are going to speak a bit more directly to issues of energy demand, in particular about energy efficiency and energy use. As requested, we will then provide an overview of the loan guarantee for the Lower Churchill projects in Eastern Canada as well.
[Translation]
Canadians are facing some unique challenges in terms of energy consumption. Generally speaking, Canada is a cold country with a geographically dispersed population. This is especially true in the North. That is why energy consumption per capita in the northern regions is almost twice as high as the Canadian average. On average, Canadians spend close to 11 per cent of the GDP on energy. Although the retail price varies, it is usually much more expensive to deliver energy to northern and remote communities than to other regions of Canada. Therefore, saving energy is certainly logical for all Canadians, but it is especially important for northerners.
[English]
The good news is that Canada is making significant progress on this front. In fact, Canadians saved $37 billion on energy in 2012 as a result of energy efficiency improvements made since 1990. But we know there is more to be done.
The International Energy Agency estimates that readily available technologies could reduce our energy demand even further. Furthermore, there is a $300 billion global market for energy efficiency products and services, creating opportunities for Canadian technologies.
The role of the federal government with regard to efficiency is to provide a platform of tools that the provinces and territories can shape to their specific needs, thereby fuelling energy supply savings in their jurisdictions. Our role derives from the Energy Efficiency Act, which allows for federal leadership to address market barriers that prevent Canadians from taking advantage of cost-saving opportunities; to provide national programming coverage to ensure fairness and avoid costly duplication between jurisdictions; to leverage private and public sector investment through initiatives based on federal tools; and to align actions with the U.S. and internationally to reduce costs to Canadian businesses and help to access global markets.
At this point, I'll turn to my colleague Laura Oleson, Director with the Office of Energy Efficiency at NRCan, who will provide further details on this role.
Laura Oleson, Director, Demand Policy and Analysis, Office of Energy Efficiency, Energy Sector, Natural Resources Canada: Thank you.
NRCan has been leading Canadians toward energy efficiency at home, work and on the road for 20 years. Our programs provide some of the most well-recognized energy tools for consumers in businesses in every sector of the economy. In 2016, current programs will save consumers about $1 billion on their energy bills and avoid 4 megatonnes of greenhouse gas emissions. This is equivalent to average emissions of approximately 1 million cars on the road. By 2020, the current programs will have had the second-largest impact on reducing greenhouse gas emissions behind light- duty vehicle federal regulations according to Environment Canada's Sixth National Communication to the UNFCCC.
In the residential sector, the EnerGuide label for homes shows exactly how energy efficient your home is. Under the current program, 749 homes have been labelled in Northern Canada. The ENERGY STAR labels that we manage recognize the most energy efficient products in over 65 categories. Consumers can save $125 a year by replacing three non-ENERGY STAR appliances.
In the transportation sector, 350,000 Canadians per year use the Fuel Consumption Guide for vehicle purchases and drivers can save up to 25 per cent in fuel bills by using NRCan's driving tips.
More specifically to Canada's North, we work closely with municipalities and territorial governments to offer energy and fuel saving options that best meet the needs of the population and its energy mix. Our ENERGY STAR building benchmarking tool helps commercial and institutional building professionals compare and track their energy use against industry norms in the Canadian climate. Our Dollars to $ents Energy Management Workshops provide energy saving tips to industrial, commercial and institutional organizations. These tips help companies reduce operating costs, reduce greenhouse gas emissions, and improve productivity and competitiveness.
Nunavut is using the Federal Buildings Initiative as a model to enter into contracts with qualified energy management firms who conduct feasibility studies on government buildings. These management firms then develop, finance and implement retrofit strategies for the government.
For consumers, partners in municipalities use our tools to help build more efficient homes and incent the purchase of energy efficient appliances and equipment.
At this point I'd like to pass to my colleague, who will speak to you about R&D in this area of Northern Canada.
Dean Haslip, Director General, CanmetENERGY-Ottawa, Innovation and Energy Technology Sector, Natural Resources Canada: Thank you very much.
What I would like to talk about today is energy innovation. In addition to the energy efficiency programming that's been described so far, energy innovation is an important part of the solution for Northern energy. Energy innovation is what allows us to continually raise our game, both with respect to the demand side, through energy efficiency improvements, but also on the supply side, through the introduction of renewables. I would like to highlight three areas of work that are relevant to northern energy and northern energy efficiency.
Moving on to the first slide in this section on northern housing, I would like to talk about our rapidly deployable northern housing prototype. This picture on the slide was taken at our CanmetENERGY laboratory here in Ottawa. We erected this prototype last June and are currently using it as a living laboratory.
Our goal in this project was to develop a housing solution that addressed known housing challenges in the North, while employing leading energy efficiency technologies. This 1,000 square-foot structure is completely modular. It arrived on our site flat-packed, just as if it had arrived from IKEA. It was assembled by four untrained labourers in four days, without fasteners, specialty tools or skilled tradespeople. At the same time, it employs, for example, vacuum insulated panels in the walls, which provide an R-value 20 times greater per inch than conventional foam insulation. It employs a novel modular radiant floor heating system to provide maximum comfort at minimum cost.
Moving on to the next slide, I would like to talk a little bit about smart microgrids. Essentially, this is the implementation of modern smart grid strategies and technologies to a microgrid servicing a remote community. This permits such strategies as load-levelling and peak-shaving through electrical or thermal storage or demand-response solutions. It allows more effective integration of renewables, and it allows improved diesel dispatch strategies.
This is actually an important point because remote communities typically employ multiple diesel generators, which may have different efficiencies, and those efficiencies can also vary as a function of electrical load. So knowing the efficiencies, as a function of load, for the different generators alone can help you decide when you want to turn on the various generators and it can give you significant fuel and cost savings.
The photo on this slide is a photo of Hartley Bay, a 170-person community in British Columbia. Admittedly, this is not a northern community, but the principles are the same. Our project here reduced diesel consumption by 20 per cent through demand-response and diesel-dispatch strategies alone.
The bottom line for this slide and the key message here is that solutions like this can yield substantial benefits, both with respect to energy use and cost, for minimal investment.
Moving on to the final slide in this section, I would like to talk about biomass gasification. Biomass is already the second-largest source of heat in the North, and the opportunity here is to use biomass gasification to turn the available biomass, including municipal solid waste, into a gaseous fuel that can be fed into existing diesel generators to produce heat and electricity.
There are several benefits of this, one of which, clearly, is the reduction of diesel use in northern communities. Also it has the potential to reduce the municipal waste problem in the North.
It has the potential to produce both heat and power, as I said. At any time that you're going to produce both heat and power, you will gain significant energy efficiency.
It uses the existing diesel infrastructure, which is important to mitigate risk. The important point is that you're not setting up a completely independent system. You're setting up a system that is going to feed the existing generators with an alternative fuel. In that way, the community can still rely on the diesel generators. They are not relying on a separate system to provide them with their energy needs.
The research and development activities that we are currently conducting at the laboratory and with our partners include increasing the reliability of operation, because turnkey, low-maintenance operation is clearly important in northern and remote communities; and understanding, measuring and dealing with the tars and trace contaminants that are produced by such a system. Biomass is different from methane, propane or gasoline that you would buy at a gas station. You don't always get the same thing, and it's important to understand the traces and the tars that might be produced because they can cause problems with the system down the road.
Finally, we are looking very hard at the effects of feedstock on the system operation. We feel that this is an area which has been understudied by the industry at large. So we'll be looking at the types of feedstock, the kinds of trees, the solid waste and so on, and also any pre-treatment and handling, because these things could affect, to a very great extent, for example, the moisture content in the fuel, which can affect the operation of the overall system.
This concludes the energy efficiency component of the presentation. I'll now hand it over to Anoop Kapoor. He is the senior director in the electricity resources branch at Natural Resources Canada, and he'll be talking about the Lower Churchill loan guarantee.
Anoop Kapoor, Director, Renewable and Electrical Division, Natural Resources Canada: Thank you. Today I will be providing an overview of the loan guarantee for the Lower Churchill projects. Before I do that, I would like to explain what a loan guarantee is and provide a general overview of the projects that were supported by this loan guarantee.
Generally speaking, a loan guarantee is a promise by one party, which is the guarantor in the case of a loan guarantee, to assume the debt obligation of a borrower — that is to say, make principal and interest payments — in the event that the borrower fails to pay or otherwise defaults under the terms of the loan agreements. Typically, the guarantor has a better credit rating than the borrower. This allows the borrower to secure a lower rate of interest, resulting in lower costs of borrowing, ultimately resulting in lower costs for the project.
The Lower Churchill projects consist of the 824-megawatt Muskrat Falls Generating Station near Happy Valley- Goose Bay in Labrador; the Labrador Transmission Assets that connect the Muskrat Falls generating facility to the existing Churchill Falls Generating Station; the Labrador-Island Link, which connects the Muskrat Falls Generating Station to the transmission infrastructure on the Avalon Peninsula in Newfoundland; and the Maritime Link, which connects the transmission infrastructure in central Newfoundland to Cape Breton, Nova Scotia, via the Cabot Strait.
Muskrat Falls, Labrador Transmission Assets, and the Labrador-Island Link are being developed by Nalcor Energy, a Newfoundland and Labrador Crown corporation. The Maritime Link is being developed by Emera Inc. under a suite of agreements between Nalcor and Emera. Also, Emera is a minority equity participant in the Labrador- Island Link. Emera is a publicly owned company.
In 2011, the Minister of Natural Resources signed a memorandum of agreement with the Governments of Newfoundland and Labrador and Nova Scotia, Nalcor Energy and Emera. This memorandum of agreement outlined the Government of Canada's commitment to provide a loan guarantee for the Lower Churchill projects. The memorandum of agreement recognized that the projects have regional and national significance, economic and financial merit, and would significantly reduce greenhouse gas emissions in Canada. Natural Resources Canada engaged the services of a financial adviser to undertake financial due diligence on the projects and to provide advice during negotiations of the terms of the loan guarantee.
Over the course of the next 15 months, the Government of Canada, Nalcor Energy, Emera, the Government of Newfoundland and Labrador and the Government of Nova Scotia negotiated key terms and conditions for the loan guarantee. The Government of Canada's objectives in negotiating these terms and conditions included achieving full credit substitution, thereby ensuring that the projects benefit from the lower interest rates achieved by Canada's Triple- A credit rating and, to the extent possible, protecting Canadian taxpayers against the risk of Canada having to make payments on the guarantees.
The negotiated terms were laid out in a term sheet that was signed by the Prime Minister, the Premiers of Newfoundland and Labrador and Nova Scotia, and the chief executive officers of Nalcor Energy and Emera on November 29, 2012. Upon execution of the term sheet, Natural Resources Canada officials worked with their financial adviser, the Department of Justice and its external legal counsel, and with the Department of Finance to undertake further financial and legal due diligence on the projects to negotiate the detailed formal agreements based on the terms and conditions as set out in the term sheet that was signed.
Furthermore, the project proponents and the provincial governments were required by the term sheet to address a number of conditions that had to be met before the loan guarantee was put in place. For example, the provincial governments were required to put in place regulatory regimes that would allow the projects to recover project costs from electricity ratepayers, thus servicing the debt that was guaranteed.
In addition, an independent engineer was engaged to provide independent technical advice and opinion on the engineering and construction plans, projected costs and schedule for the projects. This independent engineer is also providing independent technical oversight during the project construction and will continue to do so when the projects become operational.
In November and early December 2013, the formal agreements required to put in place the financing for the Nalcor- led projects were signed and executed. These included a loan guarantee agreement for each of the two Nalcor financings — Muskrat Falls and Labrador Transmission Assets together, and the Labrador-Island Link. The loan guarantees were put in place under the provisions of section 4 of the Oil Substitution and Conservation Act.
Apart from the actual loan guarantee agreements, additional agreements were entered into by the Minister of Natural Resources to put in place important safeguards to protect Canada's interests. These included intergovernmental agreements with the Governments of Newfoundland and Labrador and Nova Scotia in which the provinces indemnify Canada for any cost that Canada incurs under the loan guarantees resulting from legislative or regulatory changes that prevent the project entities from recovering costs and making debt payments and, in the case of Newfoundland and Labrador, any costs that are a result of the failure of the province to provide the necessary equity support to complete the construction of the Nalcor-led projects.
On December 13, 2013, Nalcor secured $5 billion in guaranteed debt financing through a number of public bond issuances at attractive interest rates. Subsequently, the remaining formal agreements required to allow debt financing for the Maritime Link to proceed were negotiated. In April 2014, Emera secured $1.3 billion in guaranteed debt through a public bond issuance. The benefit accruing to electricity ratepayers in Newfoundland and Labrador and Nova Scotia from the federal loan guarantee is estimated to be over $1 billion in net present value terms.
All of the Lower Churchill projects are currently under construction with commissioning expected for Nalcor projects in 2018 and for the Maritime Link in 2017. The projects are subject to a degree of oversight and monitoring by an independent engineer and the collateral agent, who assists Canada in monitoring and administering the financing agreements of the projects, and Natural Resources Canada.
That concludes my remarks on the loan guarantee.
The Deputy Chair: Thank you. Are there any other comments?
Mr. Leyburne: No, we'll open it up to questions if that's okay.
Senator Seidman: Thank you for your presentations.
Mr. Haslip, you talked about CanmetENERGY. According to the NRC website, CanmetENERGY is the largest energy, science and technology organization working on clean energy research, development, demonstration and deployment in Canada. You talked about energy efficiency and alternative fuels. I'd like to hear from you something about the kind of relationships or partnerships that we might have internationally with other northern countries and the kinds of developments they have — perhaps the sharing of ideas, for example, on biomass. We know that Finland probably has the most consistent use of biomass technology. You talked about the use and development that is ongoing in the North.
That is a long-winded way of asking you to talk about the kind of sharing that can go on with other northern countries.
Mr. Haslip: It's an interesting and important question. We certainly value very much the collaborations we have both with academia, the private sector and other governments in Canada and internationally. I would say that the principal collaborations we have in this area internationally are not specifically with northern countries but in larger forums, such as the International Energy Agency, which is big for bioenergy and for the development of smartgrid standards that have applicability to the microgrids.
Our largest collaborator internationally is the United States through the U.S. Department of Energy. While we don't often think of the United States as a northern country, per se, they have a significant presence in Alaska, and northern energy is very much a concern for them. We have been working over the last few years to develop enhanced collaborations with the U.S., looking specifically at northern housing and northern energy solutions.
Mr. Leyburne: When U.S. Secretary of Energy Ernest Moniz visited Canada in September of last year, he signed an enhanced collaboration agreement with Minister Rickford. One of the 11 areas identified under that MOU was technology and clean energy solutions for northern and remote communities.
Senator Seidman: We've heard a lot in our hearings about the huge challenges in the North for so many reasons. What do you see in the work you're doing as the most promising areas for delivering alternative sustainable energy?
Mr. Haslip: There are a number of promising avenues. We're seeing now, with a decrease in the cost of solar energy, an opportunity in the North, obviously not year-round, which can be particularly effective during the summer months. A number of demonstration projects are taking place, probably some of which you've heard about during your hearings.
In addition, we are seeing a lot of interest and collaboration with northern communities and territorial governments when it comes to housing in the North and finding energy efficient solutions for housing.
These are some of the big opportunities that I see right now. I do not want to lose track of the fact that I also talked about the potential of biomass for both heat and power in the North. I think that is also very promising but possibly a little bit later in the development of technology solutions for the North.
Senator Seidman: Thank you.
Senator Mitchell: Thank you very much to each of you. I'm going to ask for the patience of the chair to piggyback my question on something that applies to all of Canada but certainly to the North to some extent, that is, taxi fleets.
Ms. Oleson, you talked about transportation and the efficiencies, driving tips and so on that your work has contributed to.
I travel a lot; we all do around this table. I'm in a lot of taxi cabs, and I'm always struck by the number that aren't hybrids. I'm often struck by the fact that cab drivers have no idea of the tremendous cost savings, not to mention emission savings efficiencies, in hybrids. They can save $5,000 to $7,000 a year on a 12-hour shift, which would more than pay for their car, but they don't understand the math of it. As to the maintenance of these cars, the brake maintenance is five times less expensive than for the brakes on a normal car.
Has your group done any work in communicating to cab companies and cab drivers the advantage of hybrids, or is there even the potential for beginning to establish fleet standards that would apply in the North as well for cab fleets and requiring them to lower their overall emissions?
Ms. Oleson: Thank you very much for the question.
When it comes to transportation, with respect to what we do, first of all, to promote energy efficient vehicles, broadly speaking, every year we recognize the most efficient vehicles on the market. We do make sure that we recognize both the hybrids, which are naturally more efficient, as well as regular transmission cars so that customers can understand, if they choose to go with the more traditional vehicle, what would be the most efficient in that class.
There is definitely further education that needs to occur in terms of working with partners to understand alternative fuels and how to better deploy them. Some of those issues also relate to working more closely with our partners to ensure that the infrastructure is available, whether it be for electric or for other alternative fuels like natural gas. It's certainly something that we have started to work on. We have a small program working on alternative fuels right now, where we work with the U.S. to ensure that we've got the same standard of codes and with our partners across the country to build the necessary infrastructure.
Certainly, though, Canada could do more to improve the penetration of hybrid vehicles, as well as natural gas vehicles, across Canada, and we're working towards that.
Senator Mitchell: Great. I'd really encourage folks in cab companies because I think there are tremendous benefits to the drivers in particular.
My next question is to Mr. Haslip. I'm very interested in your 20-times greater insulation per square inch in this prefab home. Is it 20 times greater than what would be in my home in Edmonton, and how do you do it?
Mr. Haslip: Thank you for the question. I was referring specifically to the insulation solution that we use in the walls of the rapidly deployable northern house. Inside the wall, instead of using a conventional foam or fiberglass insulation, we have used vacuum insulated panels. At the core of the wall, there is literally nothing there, and that prevents any kind of convective or conduction losses through the wall.
When you compare, per inch, the R-value of a vacuum insulated panel versus that of conventional foam or fiberglass insulation, such as would be in any of your walls, it is 20 times greater per inch. In a normal urban context, it allows you to have a wall that is just as efficient or more efficient than what you've got right now, but taking up less width. In a dense urban environment, that can be a very important thing because it saves valuable floor space for the builder.
In this particular situation, it allows you to package a highly efficient wall in a very compact form and, because the home is prefabricated, it allows you to deal with all of the what might be characterized as tricky aspects of implementing the vacuum insulation solution in a wall because all of the wall panels are assembled at a factory, under controlled conditions, where this can be done very well. You can protect the vacuum insulated panel and, therefore, it can be used in a situation like this.
Senator Mitchell: How much will it cost to build that home once it becomes a production model?
Mr. Haslip: The design goal for the project was to deliver housing at half the cost per square foot of existing housing in the North. So that 1,000-square-foot home that we delivered, even though it was at the prototype stage, we were able to do for $150,000. So that's $150 per square foot. The information we were working from indicated that typically with Northern housing you could be dealing with up to $300 per square foot.
Senator Mitchell: Thanks, that's great.
Senator Black: I want, first of all, to thank all of you for the work that you do. What you're doing is very important. I've always had a sense that it was, but through this hearing I've learned that the work is important. So thanks very much for that.
My questions are directed to Mr. Kapoor. Thank you very much for your presentation. I found it extremely helpful. It is obviously very complicated work. I have a couple of technical questions around your presentation and then a more general question.
As to the Churchill Falls project, is the energy generated intended only for export to the U.S., or is there an intended use in Newfoundland and Labrador and Nova Scotia?
Mr. Kapoor: The project is being developed for primarily meeting the electricity needs in Newfoundland and Labrador and Nova Scotia. If there's any surplus energy, it could be provided to other markets in Canada or in the U.S.
Senator Black: As a matter of interest, once the power gets to Nova Scotia, is Nova Scotia tied into the continental grid, or does it go through Hydro Quebec?
Mr. Kapoor: Nova Scotia is tied to the continental grid.
Senator Black: In terms of security for the guarantee that Canada has given, I want to understand that in the event of a default — and you did speak about some potential items of government intervention that would lead to a default — I would like to know the protection that Canada and Canadian shareholders have in the event of default, as you define it, please.
Mr. Kapoor: There are various defaults in the agreements, and some defaults can be cured with certain action and dialogue. There are certain defaults in which the borrowing entities have provided their assets as security for the guarantee. Canada has security against the shares of the companies, the physical assets. Those all have been provided as security for the guarantee.
Senator Black: Like a mortgage, we will say?
Mr. Kapoor: Simplistically, yes.
Senator Black: Does the government have full coverage for the extended amount of the guarantee?
Mr. Kapoor: Coverage in what sense?
Senator Black: That is to say, if there were an event of default, would the Government of Canada be able to realize on assets, enforce the mortgage to the full value of the guaranteed amounts?
Mr. Kapoor: Yes, it has rights under the agreements to have access to the assets and the shares.
Senator Black: Full coverage for the guaranteed amount? That's what I'm asking.
Mr. Kapoor: I'll have to get back to you. Full coverage meaning if the guarantee is for $5 billion? We will have access to all the assets of the borrowing entities that are developing the project.
Senator Black: I would like to know that, actually, if you could get back to us to confirm that point.
Mr. Kapoor: Sure.
Senator Black: I would appreciate that.
Is there any event that you are aware of where the guarantee would lapse?
Mr. Kapoor: Could you explain what you mean by "lapse?"
Senator Black: Of course. Is there any event in the agreements whereby an event, some kind of force majeure, could occur such that the Government of Canada's guarantee could fall away, or is it an unequivocal guarantee?
Mr. Kapoor: No, the guarantee is unconditional, unequivocal
Senator Black: I needed to understand those technical aspects to ask the question I really wanted to explore. Do you believe this guarantee could be a model for the development of electricity in the North?
Mr. Kapoor: This is a unique guarantee that the government provided. The guarantee was provided based on three aspects of the projects: projects are of national and regional significance; projects have financial and economic merit; and projects lead to a reduction in greenhouse gas emissions. Those were the key criteria against which the government provided the guarantee, the key characteristics of the project.
If the projects that demonstrate those characteristics are in the North, the companies that are developing the projects can talk to the various departments in the government and provincial governments and have a discussion around the best ways of developing those projects.
Senator Black: Do you see any potential model where the electrification of the North, generally speaking, could be guaranteed by the Government of Canada?
Mr. Kapoor: That's a broad policy question.
Senator Black: I thought I would try. That's fair enough. Thank you very much.
Senator Patterson: Maybe I can pursue that a bit further. I'm sure you're aware that Nunavut is 100 per cent dependent on fossil fuels for the generation of electricity. I found the presentation on the Muskrat Falls guarantee to be very helpful and enlightening in that there is a statute, the Oil Substitution and Conservation Act, which specifically encourages Canada to participate in projects that would reduce dependence on fossil fuels.
Are you aware, in this connection, of a memorandum of understanding between Manitoba and Nunavut in terms of extending the Manitoba grid north from Churchill into Nunavut?
Mr. Kapoor: Yes, I have read about it, but I'm not familiar in any great detail about that.
Senator Patterson: You said that provinces, territories and companies could benefit. In this case there is a mining company that could benefit from electricity from the North American grid. As we know, mining companies generate a great proportion of the electricity in the territories. You said that the way to move these initiatives forward is to have discussions with the federal government. Is your department of Natural Resources Canada the lead department in such initiatives?
Mr. Kapoor: Given the portfolio of electricity and renewable energy in general, we deal with these issues. We would be interested, if there was a desire, to have conversations with the province or with the companies that are looking at these projects, along with other federal partners that we have, like CanNOR, AANDC and others that would have an interest in such an initiative.
Senator Patterson: But it was your Minister of Natural Resources that signed the MOU.
Mr. Kapoor: Yes.
Senator Patterson: That leads me to believe that you would be the lead department.
Mr. Kapoor: We did lead on the Lower Churchill loan guarantee project. I think our department would be open to discussions. There was uniqueness in the Lower Churchill project. I think each project is unique, so it brings various stakeholders or various other federal departments that have a stake.
Senator Patterson: I'd like to turn to the rapidly deployable northern house prototype. This is of great interest to me. Nunavut public housing costs can reach $500 per square foot. This prototype sounds like it's very valuable. I'd like to know whether CanmetENERGY has engaged with the Nunavut Housing Corporation — or, for that matter, territorial housing corporations which are dealing with high costs and extremely cold climates — and also whether you have engaged with Aboriginal Affairs and Northern Development, which also is responsible for significant deployment of social housing in remote northern communities.
Mr. Haslip: That is an excellent question and a timely one. I want to give you a bit of context.
As I said, this house is currently sitting at our CanmetENERGY site. We are using it as an office space, so it's in daily use by a team of people. It allows us to try out the utilities container on the front, using a diesel generator and/or a biomass boiler to generate heat for the radiant floor heating system and also the electricity. We'll be trying out additional technologies in the months and years to come to develop the concept further.
More to your question specifically, we assembled the house as a demonstration on site last June. As I said, it was assembled in four days. For the last nine months we have been using it as a living laboratory, finding out what the strengths and weaknesses of the prototype are and introducing and developing technological solutions to those.
At the same time, we have been exploring options to do version two. Obviously, we have no interest whatsoever in putting an untried, untested solution in a real northern housing situation and putting families at risk. That's not at all our interest. We have been working with colleagues within the Department of Natural Resources who have a presence in the North, for example, the Geological Survey of Canada. It would give us an opportunity to try this in an actual northern climate and not just in Ottawa. We have been in discussion with Aboriginal Affairs and Northern Development.
We have had several groups of people from Aboriginal Affairs, including some discussions with the Canadian High Arctic Research Station. We are talking about having a section of the Canadian High Arctic Research Station set aside as a demonstration site for a next version of the northern house. As I say, we have welcomed several groups from Aboriginal Affairs to our site so they can have a look at the house and talk about what the next steps might be.
We would suggest, for example, that not necessarily a house is the next step but perhaps some sort of community building where the risk of failure is less. We are talking with a number of them.
You did ask about the Nunavut Housing Corporation. At this point, we have not. We have good relationships based on other components of our housing and buildings program with northern housing corporations, so we would be looking in the future to have discussions with any of the northern housing corporations about the northern house and about the potential of our northern house in northern housing.
Senator Patterson: Thank you.
Senator Sibbeston: I'd like to follow up on the matter of this house that you've built. I appreciate that you've built it for the harsh conditions in the North and making it very efficient, but have you thought about the people who possibly might use that in the North?
Also, I suspect you're designing it for people like yourselves, who might go to the North and do studies, like scientists and so forth. Do you keep in mind the people of the North?
One of the things about housing in the North is that you have to remember the Inuit have just come off the land, so they need a lot of air. So if you have a house that is air tight and you have a machine that brings in air, a lot of people say they don't like the noise, so they shut off the HRV. I wonder if you keep that in mind and think of designing it in a way that's very simple and practical, such as holes in the wall to let air in and simple machines that don't require a scientist or a mechanic in Ottawa to fix it.
Mr. Haslip: It is another excellent question and a very important consideration for sure. I would like to stay that the design of the house is not for the use of Ottawa-based scientists or bureaucrats to use on trips. We were very much thinking of the use of this house in a real housing situation with genuine inhabitants of the North.
The comments from Senator Sibbeston are very much appreciated. In fact, the prototype, as it stands right now, does not have an HRV system. We recognize there are a lot of problems with those systems in the North, so we are currently investigating that right now. In fact, what we do right now, as a living lab, is the house is sealed up and once a day we open it all up for 15 minutes, which allow us to air it all out. We still reap the energy savings, while allowing us to use fresh air on a regular basis.
If I could make another point, as I said in my introductory remarks, we recognize there are a number of challenges with Northern housing, not the least of which is the way that the houses are used, which may not be the same as how the house would be used in the South and we're trying to recognize that. There is, for example, no plumbing in the walls of the house. We recognize this is often a problem. A house may go unoccupied and unheated for a period of time. This is when pipes burst and insulation inside the walls can become damp. This is when you end up with very serious problems in the walls with compromised insulation.
One of the things we've been trying to do through the modular solution is to eliminate those factors which are very common in southern construction but which may present a problem in northern construction in the way the houses are used.
I very much appreciate the question, which is a very important design consideration and one that has been on the minds of our own scientists and engineers and those of the private sector partners we've been working with. It will continue to be a concern.
Senator Sibbeston: Thank you.
I appreciate you're probably just starting this process. This is just like a trailer. I'm sure that in time you would make it esthetically beautiful to fit into the environment in the North, wouldn't you? I suppose, down the road, if it's ever going to be used in the North, you would make it so it's beautiful, instead of just a little box.
Do you cooperate at all with the cold climate research people in Whitehorse that do similar types of studies related to cold?
Mr. Haslip: That's a good question. Certainly on this project we do not have a relationship with the cold climate research people that you refer to.
With respect to your question about the esthetics of the building, we would obviously be open to any esthetic improvements in the future, but we try to avoid those considerations for a demonstration project at the lab.
[Translation]
The Deputy Chair: The North is facing some significant challenges: it is cold, the population is small, and it is spread out over a very large territory. What are your objectives, and what responsibilities do we have as a country? What are you trying to achieve? Are you simply looking to reduce energy costs in order to be competitive or to make reasonable efforts and accept the current challenges? What is the starting point? What are we trying to accomplish by participating and by investing in all those tools?
[English]
Mr. Leyburne: I think you've heard this morning that a number of different objectives are driving some of these investments that we're making across various areas. One of them is cost reduction for consumers, for businesses as well, but particularly in the North, for consumers recognizing the significantly higher costs.
There is the bonus consideration of GHG reductions when moving off diesel or fossil fuels towards other forms of energy.
There's a third one that we don't talk about in Canada as frequently in the South, but there is the issue of energy security. If you're a community completely reliant on shipped-in fossil fuels and for whatever reason, as we've seen in recent years, the tanker on the way up encounters problems or the ice roads aren't on the same schedule that they might be, then you're facing unique challenges that don't exist anywhere else in the country.
These are three main pillars for why this is such an important area of focus for us at Natural Resources Canada.
[Translation]
The Deputy Chair: When we look at energy efficiency and costs, is the goal to reduce costs to bring them in line with those paid by people in the South? Have any specific objectives been set, or are you just trying to improve the situation?
[English]
Mr. Leyburne: In terms of reducing energy use itself, yes, when we talk about saving costs for consumers, it's through the efficiency of these projects. As Laura pointed to, this is an area of focus across the country, trying to reduce energy use in order to drive consumer and business savings.
But as I said, there are these knock-on effects that are incredibly important as well, which are environment impacts, reducing the environmental footprint of energy use, but also this energy security angle. When we talk about efficiency, we view it as achieving all three of those things. It's the closest thing we have to that panacea when it comes to energy.
[Translation]
The Deputy Chair: When it comes to the environment and the CO2 levels, we are dealing with 100,000 individuals spread over a large territory. Is that impact really important, or would efficiency and cost reduction issues be much more important? Are any significant consequences related to the CO2?
[English]
Mr. Leyburne: When you're generally speaking about energy efficiency across the economy, it is one of the most significant mitigation opportunities that the government has and that governments generally have.
In the North because it is a lower population in terms of our overall profile for GHGs, no, the North is not a significant contributor to climate change when you look at it as a country, as a whole. Having said that, the same arguments for saving energy in the South apply in the North, if not more so. In order to achieve our GHG ambitions, every region of the country will need to be engaged.
[Translation]
The Deputy Chair: Mr. Haslip, you are an expert in terms of knowledge. This is a major challenge. The committee has been considering the matter for a few months, and we have heard from a variety of experts. We are trying to find a solution, but as you like to remind us, there are a number of solutions and not just one. What do you project the situation will be in 10 years' time, considering the technology and the decreasing cost of solar energy? How will energy evolve and what will the consequences be for northerners?
[English]
Mr. Haslip: Mr. Chair, that's a difficult question to answer. Obviously it's calling for speculation, which is probably beyond my abilities.
What I would say is that we are seeing increasing penetration of renewables in the North. There is also the possibility that we will be seeing increasing penetration of liquid natural gas and compressed natural gas in the North. I do believe that we'll see increasing introductions of smart grids or smart microgrids that allow for increased penetration of renewables and bring energy-efficiency savings. As well, we've seen a number of trends over the last decade in bioheat, and I am optimistic that we would see those trends continue, possibly bringing in bioheat and power. That would be my view of where the energy situation in the North is going.
I wonder if I could also provide a different flavour to your previous question. I am the person responsible in Natural Resources Canada for the clean electricity portfolio for the program on energy research and development. Starting this year for the first time, we have a specific focus on northern and remote energy systems. When we're talking specifically about the research program for northern and remote energy systems, the reduction of diesel consumption is our principal goal. As Drew said, that brings along a number of other benefits, such as greenhouse gas reductions, cost savings in general, and energy security. All of the things that Drew talked about come along, but the single point of departure for the research program is the reduction of diesel consumption in northern and remote communities.
[Translation]
The Deputy Chair: I am fully aware that the future cannot always be predicted. Nevertheless, the federal government and your department must play a fairly critical leadership role. In everyday life, we have to take risks and show leadership. After all, you are an expert on the matter. However, we have not discussed wind energy, perhaps because it is not one of the four or five solutions you listed. Is that method not being considered because of the cold?
[English]
Mr. Haslip: That's an excellent question. Wind energy is seeing a great deal of penetration in the South. I'm fairly certain that you have heard from the people at the Diavik Mine, where there is a significant wind component.
We have seen in our work over the years on the research and development side, at the very least, that large wind, the use of large wind turbines such as you might see in the South, can be an effective solution in the North. One of the trends that you will have noticed if you are looking at any part of the country is from smaller turbines to larger turbines. This brings along economies of scale and increased reliability. If in the North you can find a situation where a large wind turbine is appropriate, such as at a northern mining location, then this can be a very effective solution.
We have not seen the same kinds of gains with respect to small wind turbines. At this point in the research program, we are not looking at small wind turbines as being necessarily a significant or cost-effective solution for northern communities. It's probably fair to say that the wind industry has concentrated their efforts on large wind turbines because that's where the market is, and smaller turbines do not have yet what we would consider sufficient reliability and cost effectiveness to be used on a routine basis in the North.
[Translation]
The Deputy Chair: Mr. Kapoor, I have a few questions for you regarding Churchill Falls. If I understand correctly, the federal guarantee also applies to Newfoundland and Nova Scotia. Is that right?
[English]
Mr. Kapoor: There is strong support for the project from the Government of Newfoundland and Labrador and the Government of Nova Scotia. They have provided a strong regulatory environment for this project. In the case of Newfoundland and Labrador, the government has made a commitment to ensure that all equity required to complete the project will be provided by the government. There are guarantees from the Government of Canada, but there is strong support from the two provinces for the project.
The Deputy Chair: Strong support is useful, but let me be more precise. Are there joint and several guarantees by the provinces, including Nova Scotia, relative to any risks or costs incurred by the federal government?
Mr. Kapoor: The Government of Nova Scotia has entered into an intergovernmental agreement with Canada in which they have indicated that there will be a stable regulatory regime for projects to recover their costs from the ratepayers. If the Government of Nova Scotia takes any actions or changes the existing regulatory regime for the project, and if Canada suffers a loss under the guarantee, then Canada will be indemnified for that loss.
The Deputy Chair: Therefore, Nova Scotia basically said there's a system in place that allows for cost recovery by the consumers of Nova Scotia.
Mr. Kapoor: Yes.
The Deputy Chair: They promise not to amend that or they'd be in default.
Mr. Kapoor: Yes.
The Deputy Chair: The cost recovery of what portion of the total project is covered by the consumers of Nova Scotia?
Mr. Kapoor: The cost of the project for building the Maritime Link.
The Deputy Chair: Building what?
Mr. Kapoor: For building the transmission line that comes from Newfoundland and Labrador to Nova Scotia.
The Deputy Chair: Is any portion to the main hydro generation facility included?
Mr. Kapoor: Nalcor and Emera have entered into a number of commercial agreements in which Emera is paying for 20 per cent of the cost of the project. I think that amounts have been specified and the regulator in Nova Scotia has approved the project costs that have to be put into the rate base.
The Deputy Chair: Is there any presumption of what the kilowatt-per-hour cost will be for Nova Scotia in that imputed guarantee?
Mr. Kapoor: Yes, an analysis has been done by Emera that projects the cents-per-kilowatt-hour cost. I just don't recall now what they are.
The Deputy Chair: When they did the bond issue with the guarantee of the federal government, what was the interest rate compared to, say, the interest rate applicable to the federal government at that point in time?
Mr. Kapoor: There was some difference in the interest rate. The bonds were rated Triple A, as Canada's bonds, but the interest rate on the bonds was a little higher than Canada's because the bond is issued by a company that is guaranteed by Canada. It is not a Canada bond. There was a slight spread.
The Deputy Chair: What was that? What were the two coupon rates? What was the difference?
Mr. Kapoor: I don't have the rates with me for the Maritime Link.
The Deputy Chair: Was it a very minor difference?
Mr. Kapoor: There was some difference. For example, the rates for the Nalcor financing ranged from 3.5 per cent to about 3.8 per cent.
The Deputy Chair: In your presentation you said that consumers saved $1 billion, use-for-life, which suggests you made an assumption about what the rate would have been without the guarantee. What difference would that rate be?
Mr. Kapoor: I don't recall the difference. Our financial adviser did those estimations between the difference in the rates. They discounted and brought it back, and the result was slightly over $1 billion.
Senator Patterson: Looking at the clean energy research mandate of Natural Resources Canada, in particular CanmetENERGY, I wonder if you have looked at small nuclear. We received a presentation from a company called Dunedin Energy Solutions, and the proponent talked about operating facilities in the Soviet Union. More recently, he talked about floating nuclear power plants that are being built by a Russian firm called OKBM. We also know that this idea is not entirely new. The U.S. army deployed a 10-megawatt nuclear generator on a barge in the Panama Canal in the 1960s. Canada has leading capability in the nuclear area. Is this something, particularly the nuclear battery concept, that we should be considering as a possible application in Northern Canada?
Mr. Haslip: I have a passing familiarity with the system that you talk about. Senator Seidman earlier talked about what CanmetENERGY was, and you just talked about them being the source for clean energy research and development. What is often left off of that description is that we are the source for non-nuclear clean energy research and development in Canada, so we do not have any programs on nuclear batteries or small nuclear reactors or anything of that ilk. Whether we ought to be considering nuclear solutions for the North is a policy question that's beyond my ken.
Senator Patterson: On the biomass gasification initiative that you spoke about, we have lots of solid waste in the North, and generally there's no place to put it and no use for it. Iqaluit had a famous dump — "dumpcano, it was called. A huge fire last summer at our dump produced a tremendous amount of energy, I think, into the atmosphere and was extinguished at great cost. In your work, maybe like the prototype house that you described, have you developed a concept of a prototype for gasification that will utilize solid waste that will be user friendly for small communities to maintain and operate? How far along are you in that research?
Mr. Haslip: I think the important thing to point out is that we are conducting this research, but there are also private sector entities, many of them in the forest products area like Nexterra and Kruger. Enerkem is also one that works in this area. There are a number of players.
At the CanmetENERGY laboratory in Ottawa, we have a biomass gasification pilot plant. We have been doing experiments in the last year looking at the performance of the system using pelletized biomass, including pelletized municipal solid waste, so we are developing a greater understanding of the performance of the system with a variety of fuels of different sorts, including waste fuels.
We are also making progress towards the point at which this would be a low maintenance turnkey operation. We have developed, for example, a hardened tar and trace contaminant system that avoids the use of glassware so that it's not vulnerable to breakage. It's all stainless steel components. This allows us, on an ongoing basis, to have a greater and greater understanding of the performance of the system and gets us towards the point in the future where we have a low-maintenance turnkey operation.
Senator Patterson: Just one quick comment, if I may: I'm delighted to hear the focus that you described on northern and remote energy systems. I think this might have been something we might have recommended had you not undertaken it. Can you tell me how this happened? Is this a policy initiative of the minister? What gave rise to this and how is it formalized?
Mr. Haslip: The Program of Energy Research and Development is the main A-based program through which Natural Resources Canada funds both CanmetENERGY researchers but also other researchers in the department and other government departments on a wide variety of energy research and development topics. Not as a result of ministerial guidance but internally, just to try to find efficiencies and improve the state of the overall research and development program, we've been making changes in the governance of that program.
One of the changes is that we have brought together all of our clean electricity activities in one. In fiscal year 2014- 15, we conducted our strategic planning process to define our priorities for the next four years and select the projects that we were going to be concentrating on.
Through that process, we looked at the state of play, and then our portfolio steering committee, chaired by myself, came to the conclusion that a number of the technology areas and a number of the interests and projects that we had prosecuted in the past were leading us inevitably towards a focus on northern and remote energy systems, so we made the decision to set aside a component and designate a component of that portfolio towards a northern and remote energy systems program.
Senator Patterson: Thank you.
The Deputy Chair: Senator Sibbeston, I think you have a polite way to make the housing less ugly? Go ahead.
Senator Sibbeston: One of the things you see in the North, particularly in the wintertime, is just a vast amount of smoke and heat that rises from the power plants, wherever they are, and also throughout towns' various buildings. It always occurred to me that it's such a waste of power and heat. Somehow or another maybe this could be used to heat water and have a system where you can heat other buildings in the community. But power corporations just seem to be focused on running their power plants and nothing has ever been done about doing that.
I'm just wondering, in your capacity, is that something you could do? People in the North don't like federal people very much, but at the same time, if you can come with a good solution and show them how things can be improved in this area, is that something that you could do?
Secondly, we had a witness here from Fort Providence, Mr. Phillipp, a number of weeks ago. Providence is a little town of about 600 to 800. They have a restaurant and a hotel, and they have a little power plant themselves. They also use the waste heat and provide all of the heat to all their buildings. It's very unique and successful, and they do it at half the cost of what a power corporation is able to provide in town. He said that they could do this approach with bigger machines to provide power and heat to a whole community. Is that something that you could look at from your federal perspective and see whether that approach can be used in other communities in the North? It would also be using trees, and so forth, for heat. Is that something that you could do? Anything you do in this regard would be a real benefit to the North. I appreciate the task involves getting information and then also advising the power corps or the government. That will be a challenge in itself. Have you thought of anything like that, or would you consider doing something like that?
Mr. Haslip: It's another excellent question. In general with regard to waste heat minimization, waste heat utilization, cogeneration, if you are in a situation where your primary objective is to produce heat and you would like to produce some power with the waste heat, or whether your primary objective is to produce electricity and you want to do something with the heat that's left over after producing electricity, whether you're doing one or the other, all of these things are part of the overall solution set, I would say, not just for the North but also for the South. There are people both at the CanmetENERGY laboratory in Ottawa and in Varennes, just outside of Montreal, that specialize in the modelling and implementation of solutions — often in an industrial setting but it could also be in a residential setting — for the effective utilization and minimization of waste heat.
The question was perceptive in that it talked about the need-to-know specifics, and that is clearly very important. The solution that gets implemented in a given situation is very much dependent on the source of the heat in the first place. Is it a power plant that is producing some waste heat? Well, then that has a particular set of solutions which can be used. Is it a mining operation where there's a requirement for a different scale of power generation or there is heat required in a smelting operation or something? In those cases, that's a different story as well.
Our experience has often been that it's important to attack these on a case-by-case basis, and that's something that we've done with a number of industry players, although not, I think, in the North at this point.
[Translation]
The Deputy Chair: I have one last question. We are obviously learning a lot on the topic. There are many technologies, many changes, and it is important to keep informed. However, the solution can often be simpler. We have to look at what is happening in other countries, such as Greenland, Norway, Sweden and other cold countries. What are they doing? What kind of progress have they made in developing green renewable energy? What can we learn from them in terms of technology?
[English]
Mr. Haslip: I completely agree. As I indicated earlier, we have a number of active collaborations through the International Energy Agency. Oftentimes the goal of these collaborations is information sharing so that we have at all times a good appreciation of what is going on in other jurisdictions and the technology breakthroughs that are taking place. Oftentimes a component of our research program, particularly in the built environment, housing and buildings, is looking at solutions that have been introduced in other jurisdictions and seeing how they can be used in a Canadian context and what some of the challenges and obstacles might be and how we could help to eliminate those.
[Translation]
The Deputy Chair: You recognize the importance of this, but is it being done? Are you learning anything?
[English]
Mr. Haslip: Absolutely, we are learning. I would be hard pressed at this exact moment to talk about specific learnings that we have taken from other countries, but we maintain active involvement in a number of communities through the International Energy Agency.
Mr. Leyburne: One thing I might just add is that under the auspices of the Arctic Council there is, of course, a dialogue with other Arctic and Nordic nations where issues like clean energy and technology are often discussed. There's an opportunity for lessons learned to be shared between countries party to that forum.
[Translation]
The Deputy Chair: I want to thank our witnesses for sharing their knowledge with us. It will help us a lot. I also want to thank my colleagues.
(The committee adjourned.)