:
Thank you, Mr. Chairman. It's a pleasure to be here.
We have provided committee members with a deck called “Electricity Supply and Consumption in Canada”. We thought it might be helpful to the committee to provide a bit of context for the electricity sector in Canada: responsibilities of the provincial and federal governments; some of the challenges facing the electricity sector in Canada; and some federal government support programs for meeting one of those challenges, which is ensuring a more sustainable, environmentally benign electricity supply.
Carol Buckley will be able to give the last half of the presentation, which will drill down further into electricity consumption patterns and some of the potential for energy efficiency in Canada and some of the NRCan programs directed at bringing that about, if that would be helpful.
I'll speak then to the first half of the deck. In terms of electricity supply, Canada is fortunate in that our electricity supply is among the most diverse in the world. We also have a very high percentage of energy that is produced by virtually emission-free sources. You can see in slide 3 that 59% of our electricity comes from hydro and an additional 15% from nuclear. It's quite a bit different in the United States, for example, where 72% of their electricity comes from fossil fuel generation. We rank a surprising seventh in the world in terms of total electricity generation. For a relatively small country like Canada, that's fairly significant. I think it speaks to our electricity needs, but also the potential we have in this country for generating electricity economically.
Provincial governments, of course, determine their generation sources, and the mix across Canada differs significantly and very much reflects the resource endowments of the respective provinces. You can see on slide 5 that four of our provinces--British Columbia, Manitoba, Quebec, and Newfoundland--are really dominant hydro producers. Saskatchewan and Alberta generate most of their electricity from fossil fuel sources, as well as Nova Scotia. Ontario and New Brunswick have a more mixed supply, with nuclear, coal, and hydro contributing to the mix.
The trade patterns of electricity are quite interesting and are shown on slide 6. The bulk of trade and electricity is north-south as opposed to east-west. British Columbia, Manitoba, Ontario, and Quebec are major exporters and on occasion importers of electricity. The flows of electricity north and south tend to be very much higher than the flows of electricity east-west, reflecting in part the long distances between provinces in Canada and the population being essentially strung out along the border. An exception with respect to interprovincial trade--and I know you're going up to Churchill Falls--is that about 60% of the total electricity traded from one province to another is accounted for by electricity sales from Newfoundland to Quebec from Churchill Falls.
Here are a quick couple of slides on responsibilities. Of course, provinces are really responsible for the development, pricing, generation, transmission, and distribution systems. The federal government really plays a more complementary role. We're responsible for international and designated interprovincial power lines. The National Energy Board regulates electricity exports. The Canadian Nuclear Safety Commission regulates nuclear safety. A number of federal agencies undertake research and development, including NRCan, AECL, and the National Research Council. The environmental impacts of electricity generation are very much an agenda item of Environment Canada and Natural Resources Canada.
Four big challenges facing the Canadian electricity sector are: ensuring an adequate supply; ensuring a reliable supply that operates 24 hours a day; ensuring electricity prices that are acceptable to consumers and allow for economic growth; and ensuring the environmental sustainability of electricity generation.
In terms of adequate supply, the Canadian electricity sector is increasingly facing challenges, as shown in chart 10. For the last 15 years or so, we have seen a steady increase in peak demand for electricity while generation has not really kept pace. As a result, the reserve margin, the surplus of generating capacity over peak demand, has declined on a national basis to about 15%, which is getting pretty tight.
In terms of reliable supply, of course, the seminal event was the 2003 blackout. Since then, there's been quite a restructuring of the system for managing reliability in North America. Canada and the U.S. have established an international electric reliability organization, and the system has moved from one where electricity standards were voluntary to one where they're mandatory. This has been a fairly major occupation within my branch. We've been working with the provinces through the Council of Energy Ministers to ensure that, on the Canadian side, we have the capacity to have mandatory reliability standards here. And we're pleased to see that all of the provinces have committed to taking the steps necessary to do that.
Canada is fortunate. Because of our resource endowment, we have relatively low electricity prices relative to the rest of the world. You can see that in slide 12. Canada and Norway, because of our vast hydroelectric potential, are well-positioned, particularly vis-à-vis countries in Europe, or Japan, where the electricity prices facing consumers are considerably higher.
The prices, however, vary quite a bit across the country, depending on resource endowment. As you can see on chart 13, the provinces that are the major hydro producers generally have the lowest electricity rates in Canada. You can see Vancouver, Winnipeg, Quebec. Generally, electricity prices are considerably lower than in those provinces that rely more on fossil fuel generation. But you can see, vis-à-vis the United States--that's our principal trading partner--that even the higher-cost jurisdictions in Canada are still relatively competitive with the United States, and many of them are quite a bit lower.
There are, however, a number of factors putting upward pressure on prices. Of course, high and rising fossil fuel prices are a big factor. As we move up the supply curve for hydro, resources become more and more expensive. Some jurisdictions have faced very significant electricity price increases as a result of these pressures.
The fourth challenge is really environmental sustainability. Although 75% of our power is generated from zero or low emissions sources, it's responsible for more than 15% of Canada's greenhouse gas emissions, 27% of sulfur dioxide, and 37% of mercury. Coal-fired generation is the largest contributor to these emissions.
On the final slide, before I turn it over to Carol, of course, the federal government has recently put in force an array of initiatives to support the cleaner sources of power. The eco-energy for renewable power program provides a one-cent-per-kilowatt-hour subsidy for the low-impact renewable energy sources, wind, small hydro, biomass, etc.; an eco-energy technology initiative, which provides support for research development and demonstration; the eco-trust for clean air and climate change, which provides a fund divided among the provinces; and most recently we have announced, with Alberta, a CO2 capture and storage task force, mandated to provide recommendations on a large implementation plan for large-scale CO2 capture and storage in Canada.
I hope that gives you a bit of a sense of the tree tops, I guess, of electricity consumption in Canada.
With your permission, I'll turn it over to Carol to get a little bit more detail on consumption.
From the supply and some of the issues facing us there, I'm going to talk about demand, the use of electricity, and what we can do about that.
We will be starting on slide 18, which is a picture of electricity consumption in Canada by sector. We see that electricity use has risen 22% over the past decade and a bit. There has been a 25% increase in the number of households in Canada over that period, a 24% increase in commercial and institutional office space, and a 45% increase in industrial GDP, so as the economy rolls along, so does our demand for electricity.
On the next slide, we give a snapshot in 2004 of what the different sectors rely on electricity for. In the residential sector, we see that space heating, water heating, and appliances are the lion's share of our demand for electricity. In the commercial and institutional sectors, motors, the plug-in load--such as computers and other equipment that gets plugged into the wall--and lighting make up the lion's share of the uses of electricity. At the bottom of that slide is a list of the different industrial sectors and their share of industrial electricity use. Of course, we could go into even more detail and look at the breakdown of motors and lighting and other uses for electricity within each of those sectors, but I held it at this level of detail.
On the next page we say that managing electricity use through conservation activities and efficiency activities brings great benefits. It's through other activities as well, but I'll concentrate on those two.
Obviously, to the extent that you don't use an energy form that's based on a carbon form of generation and supply, such as electricity, you're going to improve your environmental impact, because energy is responsible for so many emissions; managing your electricity use has a strong impact on environmental protection, which is a strong objective of the Government of Canada. It's also a strong objective of many of our colleagues in the provincial and territorial governments.
Energy security is also a reason that governments, including the federal government, are interested in energy efficiency and managing electricity use to conserve our supplies of electricity and other sources. This is particularly resonant in provinces like Ontario, for example.
For consumers, the benefits of saving electricity revolve around saving money in the economy. In 2004, we estimate $14 billion was saved in energy, a portion of which--probably about half--was electricity savings, so there are lots of reasons to manage electricity use.
Slide 21 shows us that across the world, in very diverse economies, managing energy use--not just electricity, but managing energy use--is often about half the strategy to managing climate change. In independent research in very different economies, energy efficiency--managing energy use--is shown to make up about half of the identified savings. Of course, managing electricity demand is part of managing energy use, depending on how much of your energy comes from electricity and on how much of your energy comes from carbon-based electricity.
The next slide breaks it down in Canada. There are a number of studies I can quote here. I stuck to one that we did in conjunction with some of our colleagues who are in this room today--the Canadian Gas Association, for example. In this study we looked at the potential through energy efficiency and energy conservation. They found that these measures, if implemented by governments across Canada, could reduce the growth in energy demand by half, and about half of that would come from electricity savings.
The slide breaks it down by the different sectors. In the residential sector, for example, electricity savings of up to 27% were possible. A study like this is very useful to us and to the government because we want to plan and develop our policies and programs and see what kind of potential we should be addressing with our programs.
On the next slide, we've broken down a more technical look at the source of electricity savings when you manage electricity use. We see that major appliances, the standard appliances we use in our homes for washing and drying and cooking and so forth, have improved in their efficiency so much that absolute electricity use has declined by 12% over the past decade. The bad news is that all the other things we plug into the wall that use electricity have had an electricity growth of 71%. So while we're doing really well in some things, a whole new platform of goods that are using an awful lot of electricity have grown up, and we have to get a handle on that.
Some of the other improvements in efficiency over the past decade or so are noted on the slide.
So what can we do about managing electricity use? Governments have a wide array of instruments available to them. Some are open to all levels of government. Some are open to one order or the other--for example, regulations. The federal government has the authority to regulate the import of energy-using equipment and the shipment of those products across borders, but the provinces have the jurisdiction to regulate the sale within a province. Any jurisdiction, obviously, has the authority to put in place technical, training, and financial incentives, research and development. Building codes are under provincial jurisdiction, which has an impact on electricity use, and then there's labelling, taxes, and so forth.
Moving now to the recently announced new programs in energy efficiency, these are colleague or sister or brother programs to the ones that Tom Wallace just mentioned, the eco-energy efficiency programs partnering up with the eco-energy renewable programs. We have a home retrofit program that is intended to cover 140,000 homes over the next four years, and we expect about 23% of the savings that home owners will put into place will be electricity savings. We're offering incentives to small and medium business--that's both industrial businesses and commercial businesses--as well as small institutions. We'll cover up to about 800 of those, and about 40% of their savings will be from electricity.
On the next slide we have other programs we offer that don't have a financial incentive associated with them, but they will also result in electricity savings. We're working on better training for builders so that they build homes that are at a higher level of efficiency, home retrofit information, and for industry, technology transfer on more energy-efficient technologies, including electricity-using technologies. We estimate about 60% of the savings in the industrial sector will come from electricity savings.
The last slide I have deals with regulations. I just wanted to wrap up with one minute on regulations, because these are electricity-using products, and we have a significant regulatory agenda here in Canada. We regulate more products, according to an APEC study, than any other country in the world. Canada regulates 47 products. The United States regulates 39, followed at some distance by China and Korea and then Europe, way down the list. We are also a leader, in many cases, in terms of the stringency of the performance of our standards.
We have the intention to bring in 30 new standards or improve the rating requirement of products in the coming four years under the eco-energy regulations, and we were looking for changes to the Energy Efficiency Act under the Clean Air Act in order to broaden our powers, but we can still proceed with 28 of the 30 of those regulations regardless of the changes to the Clean Air Act.
That concludes my description of electricity demand management.
There's a remaining slide, for your information, that lists some of the products we're intending to regulate over the next four years.
Tom and I would be happy to take your questions.
:
Thank you, Mr. Chairman.
[English]
Thank you for the invitation.
I will make my remarks in English, and I'd be happy to take questions in either language.
The Canadian Electricity Association is, as many of you know, the national voice of the electricity sector in Canada. Our members represent the full value chain from production through to delivery to the customer.
On behalf of the association's membership, we appreciate the opportunity to meet with the committee and explore how the industry is taking action today to help us meet the challenges of tomorrow.
At the Canadian Electricity Association, we believe electricity is a critical enabler of the economy and of Canadians' expectations for an enhanced quality of life. We share the standing committee's interest in a sustainable electricity future, and our members--the companies that deliver electricity to Canadians--work every day to ensure that we meet that goal.
We are committed to a sustainable, safe, secure, reliable, and competitively priced supply of electricity as being essential to Canada's prosperity tomorrow just as it is today.
Electricity is a vital component of our quality of life and the foundation of a sustainable and thriving economy. Twenty-four hours a day, 365 days of the year, Canadian utilities must plan to match production from generating plants with customer demand, while maintaining reliability, meeting environmental targets, and keeping operating costs low.
The result is a highly complex and developed system that optimizes generation, transmission, and distribution technologies in an effort to provide reliable and competitively priced electricity to meet demanding consumer expectations. The comparative advantage of electricity services in Canada is a key driver that underpins and enables growth in other sectors of the Canadian economy while contributing significantly to Canada's export revenues.
Electric utility programs for energy efficiency in Canada have been emulated in jurisdictions around the world. Nevertheless, there are opportunities for greater action through renewed and accelerated cooperation between governments and industry. Energy efficiency is an effective strategy to help mitigate demand, moderate the impact of rising electricity prices, reduce energy use and emissions, and improve economic competitiveness.
Governments and industry must focus on energy efficiency as a strategic energy policy that is supported by a long-term and sustained commitment to energy efficiency programs and incentives. There is considerable potential for energy efficiency in Canada, and through collaboration between government and industry, action is being taken. However, more needs to be done.
Notwithstanding steady progress through end-use energy efficiency improvements, electricity demand continues to grow, as you heard from the earlier witnesses. Based on the results of a study sponsored jointly last year by CEA, CGA, and NRCan's Office of Energy Efficiency--which, again, was referred to earlier--overall energy demand is expected to grow across all sectors by 22% from 2000 to 2025. This is an annual average growth rate of about .85%.
For the electricity sector, demand is expected to grow on an annual basis of about .75% or three-quarters of a percent in the commercial sector, a little over 1% in the residential sector, and about one-half of one percent in the industrial sector. Other projections that we have from different sources indicate that demand for electricity could be considerably greater.
Concerning energy efficiency potential, the same study that provided an overview of expected consumption trends also looked at the potential for energy efficiency. I believe you must have that data, because it was referred to in the earlier testimony. That was the Marbek and Jaccard study, which found that energy efficiency measures implemented would result in a 3% to 10% reduction in total energy demand by 2025. Of course, the high end of that would represent about a 50% reduction in demand growth.
The growth in housing and building stock, larger homes, market penetration of more energy-using devices in homes and in commercial enterprises, and industrial production growth offsets the effects of energy efficiency improvements.
As an example, a recent study by the Consumer Electronics Association in the United States noted that residential consumer electronics, excluding DTV, accounts for 11% of household electricity use in the U.S. and 4% of total U.S. electricity consumption. Further, in 1975 the average number of consumer electronics devices per U.S. household was 1.3, compared to 25 in 2005.
Electric utilities have successfully delivered programs to help their customers better manage their energy use for over a decade. Utilities continue to enhance their program offerings and increase their funding commitments. Across Canada, to a greater or lesser degree, utilities are augmenting, ramping up, or reconstituting energy efficiency programs.
Utilities have an established relationship with consumers and are an effective delivery channel for programs. In fact, our research has shown that consumers place a high value on receiving information to help them manage their electricity consumption, and further, they look to their electric utility to provide energy efficiency programs and information. For example, to the end of 2005-06, Manitoba Hydro's Power Smart efforts have achieved estimated electricity demand and energy savings of 434 megawatts, and Manitoba Hydro's 2006 Power Smart plan entails a detailed plan to achieve electricity savings of 616 megawatts.
Lighting is responsible for a significant portion of the electricity consumed by buildings: 18,000 gigawatt hours annually of residential electricity in Canada, or 4% of total use, and almost 40,000 gigawatt hours annually, or 14% of total use, for the commercial sector. CEA member companies are partnering with federal and provincial governments, standards bodies, and others to transform the lighting market in Canada to high-efficiency alternatives. Activities include standards, data acquisition, regulation, influencing product design, code changes, and information gathering and deployment to be undertaken on a collective basis.
Toronto Hydro's summer challenge program rewarded eligible customers with a 10% rebate if they used 10% less electricity between July 15 and September 15 based on weather-normalized data from their 2005 electricity bill. During the summer challenge, energy reduction was almost 80 million kilowatt hours, equal to taking 80,000 homes off the electricity grid for an entire month. Greenhouse gas emissions were also significantly reduced, with a CO2-emissions reduction in Toronto of 43,000 tonnes, equivalent to taking 56,000 cars off the road for two months.
At the conclusion of the summer challenge, 153,000 Toronto Hydro customers, or more than one in four eligible customers, had earned rebates totalling $3.1 million by reaching the 10% target. Interestingly, 51,000 of those customers had succeeded in reducing their electricity use by 25% or more. The average rebate for residential customers was $17. It doesn't sound like much, but you can see what was achieved.
Although progress is being made in reducing the demand for electricity, the take-up on energy efficiency is often lower than expected due to market barriers. These include lack of awareness about energy efficiency opportunities, benefits, and products. There are many simple actions that can yield significant results, and yet CEA research shows that almost 30% of Canadian households do not have even one compact fluorescent light bulb, and 19% of households report that they have not taken any energy efficient actions over the past year. The primary reason for this inaction seems to be that “it won't make a difference”. High first costs for energy efficiency equipment combined with lack of access to appropriate financing is another barrier. The levels of effort and challenge to become informed, select products, choose contractors, and install equipment is yet another.
The individual who pays for the energy efficiency measure may not be the individual who will benefit from it, an example being low-income housing residents or, in other settings, apartment residents who are not responsible for their electricity bills.
Program churn, the turnover of programs, can become confusing to individuals.
Finally, there's a need for improved rates of return on utility investment in energy efficiency programs, especially when programs exceed expectations, i.e., there should be a good business case to be made for energy efficiency.
We have a number of recommendations that we think could help. By addressing these fundamental market barriers, public policy and programs can influence the adoption of greater energy efficiency in the economy.
The first is a long-term and sustained commitment to funding for energy efficiency programs, commensurate with renewable energy and other supply options. The Government of Canada, with provincial, territorial, and utility partners, should ensure that energy efficiency programs are funded on a long-term basis in order to reap the full benefits of these programs.
The second is a greater emphasis on outreach and providing information to Canadians concerning energy efficiency opportunities and benefits.
The third is programs to benefit those who are least able to invest in their own efficiency.
Fourth, the Government of Canada should also establish a federal energy efficiency grant program in order to fund energy efficiency programs. One example of some initiatives to be funded would be support for programs that yield significant energy savings but are not yet cost-effective to deploy on an individual utility or regional basis. There are a number of possibilities there, such as insulation programs and equipment efficiency. There are various regional programs for which a one-size-fits-all national approach may not be appropriate.
The government should also provide additional resources where individual organizations cannot provide incentives and resources of sufficient significance to influence the market or where a national focus on improved energy efficiency is needed to complement regional efforts to significantly increase market impact. For example, programs for low-income Canadians or first nations would fall into this category.
Multi-year support is needed for housing and equipment standards and labelling to reflect the timeframes required to put regulations in place. As you heard earlier, NRCan is working on codes, standards, and labelling, but funding traditionally has been on an annual basis, whereas the process to put codes and standards in place takes many years.
Programs for commercial facilities such as ice rinks and community centres might be a useful target.
Tax incentives, such as a rebate program for residential, commercial, and institutional markets, are required to encourage widespread upgrading to Energy Star appliances, such as dishwashers, stoves, and refrigerators.
In summary, the experience of the Canadian electricity industry in responding to customer needs for energy efficiency information and support has produced significant results, and it promises to deliver more in the future. Canadians look to their energy providers for such support. With appropriate regulatory decisions regarding cost recovery and transparent market signals through the price mechanism, many of the barriers to achieving even better results can be overcome.
Finally, governments have a role in helping to support code and standard development; in raising the performance bar for broad classes of energy-consuming equipment; and in ensuring that social goals are met, particularly with respect to the special needs of low-income Canadians and first nations.
I thank you for the opportunity to share our views. I look forward to your questions.
I'll try to step through this reasonably quickly, because I'm aware of the time.
On page 2, there are a couple of points worth noting.
I want to start by congratulating the committee on your choice of this subject. There's been a lot of time spent in the last year or so looking at the energy production system and industrial energy use and what we do about greenhouse gases in particular. That's important work that needs to be done.
There's another half of the important work that needs to be done, and that's looking at energy in our communities. There are some very good reasons for doing that. One is that it really amounts to about 50% of the energy we use. If we are looking to the kind of fundamental transformation implied by a 60% or 80% reduction in greenhouse gases, one of the things we are going to have to do is completely restructure the way we use energy in those communities, as well as the way we produce it and the way we use it in our industry sector.
The other side of that coin, though, is that there are some very quick gains to be had. The kinds of things we can do in our communities through energy efficiency and other choices can be achieved relatively quickly with a lot of small investments and things we can get on with right now.
Finally, through self-generation--in other words, by improving the energy autonomy of our communities--we can also make very big environmental gains and improve the reliability of the system.
On page 3 I'm talking about some of the things the gas industry has done directly. This, per se, does not relate to electricity, because what we're talking about here is reducing natural gas used directly for hot water and heat, primarily. Like the electricity industry, we have been investing in these sorts of programs, working with our regulators, and indeed, working with Natural Resources Canada as well, and we've made some pretty good progress--about one million tonnes of greenhouse gas equivalent through about $100 million in investment since 1995. That's ramping up steadily, and I think what we're going to see as we move into the future is a significant increase in those numbers. But it's a start.
As Mr. Konow said, one of the things that is important here is the role of the utility as the connection to the customer. We know our customers. We work with them directly, we understand their needs, and we are, if you will, the retail end of energy efficiency programming. Natural Resources Canada is the wholesale end, and we work closely together.
On the next page, “Beyond DSM”--demand side management--“The Integrated Energy System”, there are a couple of points to make. One is that energy forms are not all created equal. Electricity is the highest and most valuable form of energy. We should be using it wisely, and we should be using it where it makes the most sense. Mr. Bevington, I believe you spoke earlier about whether there are places where we're using electricity where we could find other ways of getting those same energy services. I think the answer to that is yes, because electricity demand is going to grow for those high-end applications.
The other three points are simply arguments for why we need to have a more integrated perspective. Energy forms do compete, and they're going to compete more and more in the future, whether that's gas, electric, or on-site renewables. They complement each other. Increasingly, we're going to see hybrids--hybrid electric renewable, hybrid gas renewable--as ways of improving efficiency, improving environmental performance, and improving reliability.
Finally, there is the interconnect, and the most obvious one is the role of natural gas, again, in distributed power generation in combined heat and power applications. For those reasons, it's important to see the whole puzzle in one picture.
The next page, very briefly, highlights residential use. You can see how much is used for space heat and for water. Over half of that space and water heat energy is from electricity. There is an argument that you could significantly improve your energy efficiency simply by using the right fuel in the right place at the right time. That could be natural gas, but over time it will increasingly be on-site-generated renewable.
My point here is that there is a quick win to be had that will take us through the next couple of decades by making the most effective use of our natural gas system in conjunction with the electricity system. One estimate in Ontario is that we could get about three million tonnes of greenhouse gas reductions at the end of five years. By comparison, that's three times as much as the million tonnes that we've achieved over the past 10 years. So there's lots to do.
Moving to commercial and institutional, I think the big story on commercial and institutional is the potential for combined heat and power systems. That's also true at the residential scale. I think you're going to see those starting to roll out in the near future. But commercial and institutional is better because they're bigger systems, and you have energy managers and so on who can make sure it's working properly. There's a lot to be achieved in terms of improved energy efficiency simply by the way we deliver energy in our buildings as well as in how we actually use it.
We have some suggestions for what we call a “framework for greening”, with three strategies. One is energy productivity. Call it energy efficiency; call it energy conservation. It is productivity, and it's something we can do a lot to improve. We need to make sure we're getting the same or better energy services, but doing it with less energy--in other words, not asking people to sacrifice, just being smarter in the way we go about it. And look at the integrated energy system, in other words, the community level, which includes not only the buildings but also the energy systems that are used to deliver that energy.
The second is renewables. Here I'm talking about on-site renewables--in other words, not the grid renewables such as wind or hydro, but rather ground source and solar. In partnering with the utilities, partnering with electricity and natural gas, there are a lot of opportunities to improve, again, the efficiency of the energy system overall and to significantly improve its environmental performance, largely through hybrids, basically using the existing grid as a basis on which we start to move more renewables into the picture.
Finally, there's energy technology. That's where there's a role for government to invest in demonstration, for the most part, of new energy technologies.
Mr. Chairman, I'll just wrap this up. On page 8 we have the same three strategies, but the fundamental point I want to make here is that these are all areas where both gas and electricity utilities are partners with government, partners with local government, and partners with consumers in trying to put these strategies in place.
I'll leave it there and turn it back to you.
:
Thank you for your question.
[English]
I think my answer is very similar to Mr. Cleland's. Every lost electron represents money; therefore, the companies are extremely focused on being efficient in terms of the transmission, the generation, and the distribution of electricity.
That is not to say that the systems, the transmission systems and the distribution systems, are as efficient as they can be made. They must be upgraded. Most of the research and development in this area is done globally. The companies who supply equipment tend to be big multinational companies with very large research budgets. The utilities have some capacity to do research in this area, and Hydro-Québec is the leading example of that. So they add their know-how to the mix in optimizing how systems operate.
What we find is that there is a balance at some point between connecting very large areas to ever more remote generation sites, between the losses that are unavoidable even with increasingly efficient generation and transmission systems and the benefits of having this wider interconnection that will allow you to optimize the overall generation resources within a large interconnected system.
To give you an example of that, Quebec is a prime storage medium for northeastern North America, by storing water at night and bringing in power from other sources at night, at very, very low cost, and then returning that power during the day for the benefit of all participants within that market area.
A second benefit is the reserve margins that you heard about earlier. If you have a relatively large interconnected area, 15% reserve margins are adequate because the contingencies that you have to deal with, with one plant going out somewhere, are spread over a larger set of resources. So you can run the system and optimize it more efficiently at lower levels of reserves in a large interconnected market than you could if you were a small market, where if one plant went out suddenly you'd have a big problem.
So there's a complex balancing, and as someone who's only had 25 years in this business, I still don't fully understand how the engineering and the sophistication of all this is done, but it's a remarkable real-time machine that keeps the lights on 24 hours a day.
I hope I've answered your question, but I'm happy to take a supplementary.
:
As I mentioned earlier, I certainly believe that codes and standards are the way to drive substantial step-wise change into consuming products.
Lighting is an area that our industry has made a key focus. The previous witnesses testified to the lighting initiative that the federal government, together with the provinces, territories, and industry are working aggressively to move forward on. Particularly in areas such as public lighting and commercial lighting, there are tremendous opportunities that respond pretty quickly to the economics.
The residential lighting, I have to tell you, is a bit more of a challenge. It's partly because customer choice is there. People are used to buying those cheap little incandescent light bulbs and putting them in their lamps. The lamp shades fit, and it's all very simple, so it's sometimes tough to get people to change.
In Australia, they have made it a policy to outlaw incandescent lights. I don't recall the exact date, but they've set a certain date in the future when you won't be able to buy them on the market. That is one way to go about it, but that's a political decision. If you decide to do it, there's no problem from our end, and we can deal with it, but whether you want to do it or not, I don't know.
On the broader topic of bold initiatives, I would caution about wishful thinking. There have been many people, from Amory Lovins on, who have talked about how easy it is to get 50%, 60%, or 70% reductions from energy efficiency, and in theory it's all true. It can be done in specific settings, using specific technologies, but driving it through society is a far more complex business, and we've been at it a long time.
We have found all sorts of surprising barriers that you have to overcome, beginning with how houses are sold. If you work with builders and you say “Upgrade to the highest level of insulation and energy stock”, at times they will come back to us and say it puts another $15,000 or $10,000 or whatever on the house. We'll say “That doesn't sound like an awful lot, given that the house is $150,000 or $200,000.” They'll say, “You're not buying the house; it's my customers. When they come in the door and they look at the guy who has the housing tract next to me and it's $20,000 cheaper over there, they're buying his house, not my house.”
We worked for years to build the brand recognition of what an energy efficient house can do for you if you buy it, and it is getting traction. Today an energy efficient product has far more traction than it had 10 years ago. But my point is simply that we think the numbers you saw referenced in the study by me and the previous individuals represent a very accurate reality. We have a challenge in front of us to drive energy efficiency forward, and if we could get anywhere close to that 50% of growth being offset by energy efficiency, that in my view would be a terrific result—not a low-bar result; it would be a very good result.
I'll leave it at that, and maybe my colleague has a comment.