Good afternoon, everybody. Happy Monday. Thank you for coming back after the weekend.
We're going to get under way. We have three witnesses in the first hour.
We have Mr. Marc Brouillette, principal consultant for Strategic Policy Economics. I also learned today that he lives in my riding, which I didn't know, but more importantly, he didn't know I was his MP—
Some hon. members: Oh, oh!
The Chair: I have some work to do, clearly.
Nicholas Martin is a policy analyst with Canada West Foundation, and Tom Adams, who is principal at Tom Adams Energy, is joining us by video conference.
Thank you, gentlemen, for taking the time to be here today.
If you don't know the process, we give each of you up to 10 minutes to make a presentation. You will all make your presentations, following which the floor will be open to members around the table to put questions to any or all of you. We run a tight clock here. It's up to 10 minutes and then the question periods are timed as well, so if you see me waving, that's my polite way of saying, “Please try to wrap it up”.
Without any further ado, I'll start with Mr. Brouillette.
On the overview, in making investment decisions on interties, the main consideration is whether electricity will flow through those interties and how much of the intertie capacity will get used. It's essentially a demand-and-supply question.
In the context of this committee, the demand question, I think, involves a lot of crystal-ball gazing to a future where we expect decarbonization and fuel switching to impact on electricity. The supply question is what kind of generation should or will get built, and more importantly for interties, where. I think the cost question is paramount in that.
The concept I'm bringing to the committee is that eastern Canada, which in my view includes Manitoba, has three distinct energy endowments. These endowments could represent a national competitive advantage for this country. Interties could augment this competitive advantage, and this opportunity is predicated on three factors.
The first is the demand and the associated impact on the economics of interties. Today, demand for electricity has a daily and a seasonal profile that inherently reduces the transmission and distribution asset utilization and hence their economic use. Today the interprovincial intertie investments are not warranted for Ontario. I've written about that. However, in the future, demand will not only grow but will also change the daily and seasonal load profile that is presented to those transmission assets and the requirements on new supply. That's factor number one.
Factor number two is the energy assets that eastern Canada has. That's hydro and natural gas storage, and it equates to electricity—in a minute, I'll explain—and they're both akin to grid-scale seasonal batteries. Ontario's nuclear advantage could be the generation that supplies the batteries and cost-effectively optimizes the development and/or leverage of those batteries with the interties.
The third factor is the U.S. Demand in the northeastern U.S. will rise with emission reduction, much as Ontario's will, and the U.S. has fewer supply options than what we have up here. Collectively viewing the requirements of new supply, the transmission asset optimization, and the U.S. need for clean energy could enable a unique low-cost source of electricity both for domestic use and for exporting electricity and gas-from-electricity to the U.S., if Canada is smart about it.
Now I'm going to talk about each of those factors in a little more detail. The nature of the existent demand and supply balance can dramatically shape whether an investment in interties makes economic sense. My study showed that after the next eight years, due to surpluses in both Ontario and Quebec, there was no domestic energy cost advantage for intertie development or even enhancing any trade agreements between those two provinces.
I agree with climate analysts that fuel switching will lead to electrification. My analysis shows meeting Ontario's 2030 targets will require 60% more electricity than it currently has, even while taking advantage of all the efficiencies that come out of innovation. Much of this demand is in winter.
Demand for electricity has two inherent characteristics that are counter to optimizing value-added interties. One is a daily demand. The IESO in Ontario has stated that because of the daily demand profile, the value of interties for emission reduction purposes is limited to only a few hours a day, and that is only 25% of that capacity of the interties productively used for GHG reduction. At such low utilization rates, that can add up to 60 bucks a megawatt hour, almost doubling the cost of power that will go across those interties. That's challenge number one.
Challenge number two is seasonal demand. In an electrified world, seasonal variation in demand for electricity is significant. In Quebec, where most buildings are electrically heated, you can see that the winter demand for electricity is approximately 65% higher than in the summer. The only clean electricity supply that matches this new winter heating, which will happen in Ontario at some point, is the large reservoir of hydro, which Quebec has. However, Quebec does not have enough capacity to supply the new winter heating that Ontario will require by 2030, so the issue is going to come down to who's going to build it. Are you going to build it in Quebec, where you need interties, or in Ontario, where you won't need interties?
The supply choices could hurt or help interties being a good idea, and whether interties make sense in the future depends on whether the new demand to the grid will justify the acceptable utilization of assets. If the grid demand says fill up the transmission pipes, it will be a good idea; otherwise, it might not be.
Two of the most talked about clean energy alternatives have opposing benefits with regard to interties. One is wind, and one is the solar-battery distributed energy concept you've heard about.
The intermittent supplies that have been and are being built are counter to the efficient use of an intertie because of their intermittency. Wind generation also needs a backup capacity. That backup capacity extends into the nature of the interties as well. The wind in Ontario has reduced the utilization of the interties between Ontario and Quebec by 15% to 20%, but it still needs the full size of the pipe.
Distributed energy resources alter the daily demand profile. That's a good thing. The most significant advantage of DERs is that they can be managed in concert with controllers from a local distribution company. That can peak shave. It can flatten the demand. It can smooth everything out and increase the utilization of all the transmission and distribution assets.
Most studies on decarbonization include a significant amount of new hydro and nuclear in the supply mix. I'm referring to the ones in Canada's mid-century report. The model in the Trottier report was around picking the lowest costs. Their model was built over the next 20 years: all the economically feasible hydro, and then following that up with nuclear. In their view, the nuclear was a bit more expensive. Whether hydro is a lower cost to nuclear remains to be seen. We have the Muskrat Falls, Site C, and Keeyask dam issues that have increased costs.
The public acceptance of nuclear in this country is an endowment. Canada's energy endowments of hydro and the natural gas storage systems all provide a potential competitive advantage to our economy.
In terms of hydro, it's well understood that potential remains for further development of hydro capacity in eastern Canada. Large hydro's ability to respond to both daily demand with fast ramping as well as the winter season peak makes it extremely highly desirable.
In terms of nuclear, Canada's nuclear advantage includes two significant factors. One that I've mentioned already is the public acceptance that allows us to build it out quickly, more quickly than other jurisdictions, and Canada's nuclear supply chain is large. It's actively engaged in a megaproject. It's a well-oiled machine today.
In terms of natural gas storage, which is less widely discussed, it is an important role that Ontario's natural gas capacity can play in decarbonization. The large storage caverns accumulate natural gas all year. We use it in the winter for heat. Those assets also feed Michigan, so we have an export channel for those natural gas assets. These storage assets can be used to collect renewable natural gas and/or hydrogen, both of which require electricity.
Combined, hydro, nuclear, and natural gas assets are a unique capability. Hydro is a battery that can provide daily and seasonal flexibility. Natural gas is a battery that can address the winter season. Nuclear could be the thing that charges them all up. When you have a future-flattened demand with distributed energy resources, you can flatten the system immensely and get the utilization of those interties up very high. That drives out to low cost.
The last factor is the U.S. I believe the topic that's most relevant to the intertie decision is whether there will be an export opportunity. The U.S. will be challenged to find supply options to meet the long-term emission reduction objectives that they're going to have.
The northeastern U.S. and the Great Lakes region have far fewer options at their disposal than has eastern Canada. Their options are mostly around wind, solar, and batteries. The high latitude makes the solar option far less economic in the northeastern U.S. than in the south. To meet their climate objectives, they're going to need some baseload solutions. Baseload solutions that fill up transmission pipes are a good idea.
Canada's hydro, nuclear, and gas advantage is likely a lower cost and perhaps even the only option for these U.S. jurisdictions. How Canada's assets get developed to provide a competitive advantage for us to export to them should be a key consideration in how you strategize around interties.
In closing, eastern Canada has a unique triad of energy endowments. If we plan in a holistic manner to optimize the demand on the grid, this can create an energy advantage to Canada both domestically and as an export of energy to the United States.
Thank you, Mr. Chairman, and members of the committee.
Federal electricity policy must be grounded in Canada's Constitution. Electricity is provincial jurisdiction, not federal. Historically, electricity policy oversteps of the federal government beyond its constitutional authority have almost always harmed our prosperity. I'll address an ongoing example, the federal loan guarantee subsidizing the Muskrat Falls project in Labrador, in a moment.
There are positive actions the federal government can and should take to enhance the long-term efficiency of electricity service to Canadians. The federal government ought to exercise its authority to promote interprovincial trade so that we can have free trade in electricity within Canada, with fair rules around transmission pricing and open access. The federal government ought to end the current discriminatory effect of the federal income tax rules that favour government-owned utilities over privately owned utilities by restoring something called the Public Utilities Income Tax Transfer Act repealed by the Chrétien government in its 1995 budget. The federal government should also commit to enhancing the availability, timeliness, and quality of economic data on the energy sector generally across Canada. This is an area where Canada lags badly behind the U.S. and the EU.
The committee asked for input on regional electricity independence. There's already significant regional electricity interdependence, mostly between provinces and the respective U.S. neighbouring states, but also between provinces where opportunities exist. Policies forcing increased east-west electricity exchange run the risk of reducing the efficiency of overall electricity trade. The major trends now in electricity generation technology are toward smaller-scale distributed generation. Power supply is naturally a local business. Where inter-regional power transmission is justified, it's mostly for reliability reasons.
Canada has massive transmission investments, but has experienced a long period of declining consumption. Canada's emphasis with respect to transmission should focus on extracting best value from existing assets. There is no need for the federal government to spend any money on transmission.
What about greenhouse gases? The overall greenhouse gas intensity of Canada's electricity sector is low by international comparison. Ontario's coal phase-out program, which turned out to be a much greater net economic penalty than expected, provides a cautionary tale. All of the major capital projects in the power sector in recent years, justified substantially on the basis of their green credentials—I'm talking of B.C.'s Site C, Manitoba's Keeyask Bipole III, Ontario's FIT and nuclear refurbishment programs, Alberta's off-coal program, and Newfoundland and Labrador's Muskrat Falls—will all have punishing impacts on consumers.
With Newfoundland and Labrador's Muskrat Falls there is much harm to be mitigated. Former prime minister Steven Harper's justification for offering the federal loan guarantee, without which this project could never have started, was largely tied to greenhouse gas reductions. Even if the project can be completed on its current officially estimated cost and schedule, the province will require a federal bailout, perhaps as much as forgiving the entire amount of the federal loan guarantee recently topped up by the Trudeau government to $7.9 billion. Without a federal bailout, Muskrat Falls will cause severe energy poverty in Newfoundland and Labrador, and all the social and economic consequences that entails.
In addition, the federal government should act quickly to broker a power storage agreement between Newfoundland and Labrador and Quebec, without which the Muskrat generator will be substantially inoperable. The longer Muskrat proceeds without an energy storage agreement, the greater the risk of interprovincial conflict.
What are the opportunities for aligning federal policy with the Canadian energy strategy issued by the premiers? The CES calls for more federal research. While well-targeted and well-managed basic research would be positive, notice how unsuccessful federal government spending on energy research has been in the last many decades. The largest federal energy research project was, for 50 years and many tens of billions of dollars, the CANDU program, a technology now at its dead end. A smaller example is research on wind power to serve remote users. Decades of research have produced little beyond the need for more research.
What about Canada-U.S. electricity trade? The Canadian federal government appears to be vulnerable to NAFTA suits initiated by U.S. owners of power plants near our border who are forced to compete against subsidized exports from Canadian provincial governments hell-bent on overproducing electricity. Defending such suits would put the federal government in the awkward position of aligning against the interests of Canadian consumers.
In conclusion, in matters related to electricity, the federal government should stick to its constitutional knitting. In addition, it should mitigate the harm it is causing to the future of the people of Newfoundland and Labrador.
Good afternoon, and thank you, Mr. Chair and members of the committee, for inviting me to appear before you here today.
I'm here on behalf of the Canada West Foundation, where I'm a policy analyst specializing in energy and electricity issues. The Canada West Foundation is an independent, non-partisan public-policy think tank that focuses on policies that shape the west, and by extension, Canada. Our CEO, Martha Hall Findlay, also sends her regards.
We at the Canada West Foundation recognize that climate change is a real and significant threat to Canada and the rest of the world and that the cost of inaction is unacceptable. We also know the action we do take needs to be taken in the most cost-effective way possible. For this reason we are supportive of the essential component of the pan-Canadian framework in clean growth and climate change: a price on carbon, which is the most practical and cost-effective way to reduce greenhouse gas emissions.
We're also happy that the committee is undertaking the study on strategic electric interties. The Canada West Foundation recognizes that pricing carbon is not a catch-all solution to achieving Canada's greenhouse gas goals in the most cost-effective manner possible. Complementary measures need to be taken to harness cost-effective emission reductions in instances where a price on carbon is not appropriate or practical. As the committee has heard from witnesses during these hearings already, a more integrated grid to increase strategic electricity interties can be a strong tool in harnessing cost-effective emission reductions by helping to integrate and share Canada's vast clean-energy resources. Yet a carbon price does not mean interties will be built, so it's appropriate this committee is looking at it more closely.
With that said, I think it's important to point out that the idea of investing in a more integrated grid is not new here in Canada, especially in western Canada. There have been many discussions on this for at least the last 40 to 50 years, which is roughly how long Canada West Foundation has been around. There's long been a sense that this would be a good idea, but the question remains, why hasn't it happened yet? Provincial electricity grids are still relatively independent of each other.
There are numerous reasons for why this idea has never gone anywhere, but in talking to folks who have been in this industry much longer than I have, I've learned that over the decades the western provinces have looked at the idea only to reject it time and again. Many of the reasons are related to provincial fears of losing influence over their own electricity grids. At times it was rejected because some provinces feared cheap coal power from Alberta would flood into their markets and harm their own utilities. At other times Alberta rejected the idea because of fears that cheap hydro would put their coal power plants out of business.
Now, with a final twist of irony, we're talking about it again because we have to reduce emissions and phase out coal power plants. This highlights the fact that the climate change imperative has injected new life into the idea of an integrated grid. It is very evident that we need to make big changes to the way we produce and consume electricity to achieve our climate goals.
As Bryson Robertson, from the University of Victoria, and many other witnesses have already said, improving the connectivity of our provincial grids is the key to taking advantage of the diverse energy resources we have across this country, and potentially, a very valuable tool in meeting our climate goals in a cost-effective way. This is particularly true in western Canada, where some of the country's best wind and solar resources reside between some of its best hydro resources—and we include Manitoba as the west for the Canada West Foundation,
For this reason the Canada West Foundation believes an integrated western grid should be pursued in the west, but as the past has shown, the provinces will need to work closely together if an integrated grid is to become a reality. A sustained conversation needs to be held between the provinces to figure out how to share the benefits that an integrated grid can offer. Fears that an integrated grid may wreak havoc on a province's electricity market will need to be addressed, and the full costs and benefits of increasing the trade of electricity will need to be understood and communicated.
The federal government has an important role to play in this. First, it can help provide valuable information in evaluating the costs and benefits of an integrated grid. While a more integrated grid can offer many benefits as Canada works to achieve its climate goals, these benefits are not guaranteed. Transmission infrastructure is expensive, and it gets more expensive over longer distances. Any investment in strategic interties should be made only if the benefits will outweigh the costs of building that infrastructure.
Natural Resources Canada and others are already working to address this information gap. We look forward to seeing the results of the regional electricity co-operation and strategic infrastructure initiative established by NRCan, which is evaluating the costs and benefits of a subset of infrastructure projects, including improved interties between the western provinces.
The second role government can play is with funding. Where strategic interties do make sense, the federal government may have a role in financially supporting the project to the extent the interconnection will drive greenhouse gas reductions. Such projects would be good candidates for the newly created Canada infrastructure bank, which seeks to leverage private and institutional capital to fund green infrastructure. Early indications from conversations I and others at the Canada West Foundation have had suggests there's a good degree of interest from private investors in strategic interties.
In conclusion, in conjunction with a price on carbon, strategic electricity interties and a more integrated grid can be a powerful tool to help achieve Canada's climate goals. The idea is not new, but the climate change imperative makes it all the more important now and the federal government has a key role to play.
With that I conclude my opening remarks. I thank you very much and look forward to your questions.
Historically, electricity has been a guarded fiefdom of the provinces. Where there have been opportunities for interties, we have exploited some and not others.
One example is the long, decades-old conversation around further Atlantic Canadian electricity integration. Following on the comments of Mr. Martin, I would say that a barrier that prevented the maritime provinces from further integrating their power systems was purely a protectionist notion. They were trying to avoid job losses, which means efficiency gains, within their own jurisdictions. As a consequence, although there is electricity trade among the maritime provinces, it is not nearly as beneficial as it could be if looked at from the perspective of the customer, rather than the interest groups that feed off the customer's money.
The federal government could go a long way in encouraging the provinces, where there are efficient opportunities, to put customers first and encourage the kind of integration that could reduce the inefficiency of power systems. I am thinking particularly of Atlantic Canada, and also the B.C.-Alberta interconnection.
In the case of the Ontario-Quebec interconnection, Quebec's best customer for electricity, historically, was the U.S., and that's certainly the case today. Ontario has very extensive electricity interties with Quebec, but they are mostly underutilized. They are utilized primarily for reliability purposes.
Yes. Thank you for the opportunity.
The Government of Newfoundland and Labrador is constructing a hydroelectric facility that has no storage capacity on the Lower Churchill at Muskrat Falls near Happy Valley-Goose Bay. The associated transmission links that Newfoundland is constructing from Labrador to the island and from the island to Cape Breton are insufficient to carry the peak generation capacity of the Muskrat Falls generator. If Newfoundland and Labrador cannot come to a storage agreement with Quebec around storage of energy, the Muskrat project is going to dump almost all of its production in the springtime, which is the one time of the year when it has a full flow of water, enabling full production.
Newfoundland proceeded with the construction of the Muskrat Falls project, notwithstanding the fact that, subject to the 1969 contract with them, Hydro-Québec owns and controls the assets at Upper Churchill. Newfoundland has always planned on using Upper Churchill generation in order to balance the seasonal flow problem of Muskrat Falls, but they don't have the contractual rights to do this.
The further Newfoundland goes into the project, spending billions after billions on a project they don't have the contractual rights to operate, the worse off Newfoundland's going to be. Very urgently, Newfoundland and Labrador need to make an agreement with Hydro-Québec. Since the federal government is so deeply responsible for causing the Muskrat Falls project in the first place, by virtue of its loan guarantees by first the Harper government and now the Trudeau government, the federal government needs to play a brokerage role. They need to bring these parties together, so that they can come to a fair and reasonable storage agreement for the excess production of Muskrat Falls in the springtime.
First, I'd like to thank you for inviting me to speak to you today. Greater integration, like provincial electricity markets, is an area I've been interested in for a long time.
I'm an adjunct professor in Simon Fraser's public policy school and I have been a consultant for many years. One of my first major assignments was to participate in a comprehensive study of the technical, economic, and contractual aspects of a western electric power grid. The study was undertaken in accordance with a 1980 agreement among the three prairie provinces to investigate the feasibility and desirability of a 1,000 megawatts sale of firm power from Manitoba to Alberta and 500 megawatts to Saskatchewan.
The study identified and assessed alternative intertie configurations. It analyzed economic impacts, benefits and costs, and pricing and ownership arrangements. The study did identify a preferred high voltage B.C. link. It studied the economic impacts that would be redistributed within the region and it did estimate the benefits and costs. Overall, the study concluded that there would be utility cost savings, and in terms of the social benefits and costs, there would be net benefits for the region as a whole.
Notwithstanding the finding of overall net benefits, as you know, the western electric power grid did not proceed. The different jurisdictions could not get beyond narrow provincial considerations. Manitoba Hydro was clearly focused on north-south trade and Alberta and Saskatchewan were interested in their own resources and power potential. Here we are 35 years later and I'm not sure how much has changed. There are significant opportunities in potential net benefits from stronger interprovincial ties, but the lesson from the western electric power grid is that it isn't enough to identify opportunities that offer economic and environmental benefits. It's essential to align narrow provincial with broader regional and national interests.
I'm in Vancouver at Simon Fraser University and I'm most familiar with the circumstances of British Columbia and Alberta right now, having left the prairie provinces some time ago. There have always been synergies and opportunities for mutually beneficial trade between the predominantly hydro system in British Columbia and the thermal system in Alberta. These opportunities have been explored to some degree but not to their full potential because of constraints in intertie capacity, planning criteria—and the self-sufficiency criteria in British Columbia stands out in this regard—and the dominance of provincial perspectives that give rise to divisive concerns about equitable access to markets and transmission in each other's jurisdiction.
With developments that have taken place and are planned in British Columbia, and the phase-out of coal and the emphasis on wind and renewables in Alberta, the opportunities are, if anything, much greater today.
As a result of reduced growth in requirements for electric-intensive industry, combined with the possible development of the Site C hydroelectric project, B.C. Hydro will have considerable surplus energy in the short to medium term that could serve to displace coal and other federal production in Alberta. More importantly, over the longer run, with the development or possible development of Site C, the addition of generating capacity at Revelstoke, and the refurbishment and upgrade of existing facilities, B.C. Hydro will have flexible capacity that could support and enhance the rapid expansion of wind energy in Alberta. It could provide the system backup that Alberta would most likely have to otherwise get from single-cycle gas turbines, with the economic costs and GHG emissions that would entail.
Displacement of thermal generation and the provision of hydro backup to support more wind production are two obvious opportunities that could be pursued with stronger ties and coordination. There are other opportunities as well. The thermal and other resources in Alberta could provide the backup energy capability that B.C.'s hydro system needs for low-water years, and generally it could enable British Columbia to ensure a reliable supply without the costly self-sufficiency criterion it currently has in place.
More intertie capacity and access to U.S. markets through British Columbia for surplus Alberta wind production could improve the economics and incentive to develop more wind in that province. It could mitigate the price collapse that otherwise can take place during wind events.
There is no shortage of opportunities. One way to think about all of the opportunities is to ask yourself the question: how would the systems develop without a border if it were one jurisdiction, one integrated or combined system? A politically unconstrained view of that hypothetical combined system would identify the opportunities, and with some analysis, identify the opportunity cost or what we’re foregoing by not pursuing them. The challenge would then be to consider how to get there institutionally, with a planned system in British Columbia, and politically, with the need for both provinces to perceive a fair sharing of the benefits that greater intertie capacity and coordination can provide.
The federal government, in my view, can play an important role in bringing the parties together to analyze the opportunities in the context of an integrated system, what that might look like, and to address the institutional and political constraints. The federal government has important interests here as well. More efficient development and operation of the electric systems will be increasingly important for competitiveness and efficiency in the national economy with the shift away from thermal production and the electrification trends in transport and other sectors that we can expect in the near term and certainly longer term. More rapid displacement of thermal production and reduced need for and reliance on thermal backup capacity for renewables will be important in meeting GHG reduction targets in the most cost-effective ways.
Finally, and not insignificantly I believe, strengthening east-west trade in electricity can reduce the dependence on U.S. markets and the energy trade surpluses that, for political reasons in the United States, may be used to limit economic trade in manufacturing and other areas.
Excellent. I'll speak to that. Secondly, I'll make a public service announcement. The various organizations with which I've spent time have asked me to make sure that you understand that these are my views, and not necessarily the views of Hydro One or the Independent Electricity System Operator in Ontario.
With that out of the way, I really just have two quick points to make.
The first is in relation to the map. When you ask an electricity person how they see the world, this is how we see the world. There are three big pieces: the eastern interconnect, which includes Quebec; Texas; and the western interconnect. This is what North America looks like to us. It probably looks strange to you because, really, our system is interconnected on the eastern interconnect between Attawapiskat in the north and Key West in the south. Since electrons travel at the speed of light, anything that happens on the way through, whether it's some squirrel getting into a generator in Miami or whether it's a snow event up in Canada's far north, will be instantly seen by a whole bunch of control room operators as it happens. They may not find out what happened for another three months. It's really quite a marvel of engineering.
In that view of the world—eastern interconnect, western interconnect, and Texas—you'll notice the geographic boundaries that you're used to seeing for political geography, the states, the provinces, and that. Electricity is carried over those boundaries by interties. Just a fundamental principle is that most of these systems are built to be self-sufficient within a sovereign entity, but are interconnected through interties.
I thought today part of the discussion that you wanted to have was about the value of the interties. I'm not going to drone on and on because there seemed to be a lot of different topics and a lot of different manifestations about that, but I will make two obvious points about this map. The first is that the eastern interconnect is not interconnected with the western interconnect, neither in the United States nor in Canada. That's a glaring observation. Marvin addressed it a little bit, but we've never really looked seriously as a country at interconnecting our own country.
That would have advantages for Canada. It would also be an interesting market play because if we interconnected, Canada that would be the only route of interconnection between the eastern and the western United States. Texas is down doing its own thing for a lot of interesting and amusing historical reasons, which we can get into in question period if you care, but it's kind of glaring. Maybe what I will do at this point is just stop with the map, and then if people have questions on it we can get into it.
Let me make a second point. The electrons themselves that move around at the speed of light and power our lights and power everything that we do are actually technology agnostic. They're technology neutral. They don't care whether they were made in a nuclear reactor, a photovoltaic cell, even a chemical interaction in a battery. The commodity is utterly fungible. I know of no other commodity that can be made so many different ways. Steel can't be made this many different ways. It's quite remarkable.
But the electrons themselves are technology neutral. We all have different endowments in our jurisdictions. We all have different biases in terms of public policy about the way those electrons are manufactured. Once that happens, the interties and the system don't care how they were manufactured. They flow at the speed of light over copper wire and end up where they're supposed to end up.
Most of the tension that happens between the political jurisdictions and the electrical countries that those jurisdictions live in, from a policy point of view, whether it's clean energy, whether it's wind, solar, thermal, coal, gas, biomass, hydraulic, whatever the technology that makes it is, happens within the sovereign realms of, oftentimes, provinces and states. In the United States, there is a more federal jurisdiction than there is in Canada, but all these things overlay on that. Fuel mix is really quite diverse even within these jurisdictions, but once an electron is made, it moves, and it moves over the interties.
Maybe, Mr. Chair, having made those two points, I'll just wait until question period.
Thank you, Mr. Chair, and members of the committee.
Thank you for inviting me here to speak to you as an individual Canadian, albeit one who has spent 40 years in the electricity sector, not only in Ontario but in Canada, North America, and globally.
For me, the overarching context for today's discussion is Canada's long-term targets for climate change mitigation, specifically 2050. Many studies and reports have been released in the past few years, all identifying the need to displace the combustion of fossil fuels with electricity and biofuels. The most rigorous modelling I am aware of was done in the Trottier energy futures project, whose report was released in April 2016. From my perspective, it has done the best job of recognizing the need for a reliable electricity system; that is, customers who expect the lights to go on when they flip the switch regardless of the outside weather conditions.
A key finding of Trottier is the resultant growth in electricity demand under a wide variety of decarbonization pathways. Currently, electricity provides about 22% of Canada's end-use energy demand. This is expected to grow to 60%, necessitating close to tripling the current electricity supply infrastructure over the next 30 to 40 years. We are not talking about tweaking the electricity sector, but a major transformation of the Canadian and global energy sector, and this is after factoring in aggressive energy conservation results.
In today's discussion on strategic electricity interties, I want to go back a bit in time, well over 100 years ago. We did not start out with an integrated electricity grid. We started out with microgrids in each major city. Over time, we started linking those microgrids to improve both reliability and economics.
Today, we have a strong North American grid. It is an eastern interconnect, western interconnect, and Texas. Although perhaps the orientation of those markets and interties is greater north-south than east-west, the driving force for these interties has always revolved around reliability and economics, which means it has been in the interest of the customer.
Each province has developed its electricity sector around the resources available in that province, whether it's coal and gas, hydroelectric, nuclear, or a combination of them. Recently, there has been expansion of hydroelectric and other renewables, such as wind and solar. The opportunities are different for each province, largely because resources are where they are. Decisions have also taken into consideration self-sufficiency, not being reliant on other provinces except on an emergency basis. Given the need to expand the electricity system with non-GHG-emitting generation, this notion of self-sufficiency needs to be critically challenged to decarbonize the economy over time at the lowest cost while keeping the lights on.
There is one example in the recent past of two provinces taking a different approach through the utilities in those provinces. I'm referring to Newfoundland and Labrador and Nova Scotia, and the development of Muskrat Falls and the maritime link project, which will connect the two provinces. When completed, it will not only facilitate large GHG emission reductions in Nova Scotia, but by connecting Newfoundland and Labrador to the North American grid, it will improve reliability in Newfoundland and Labrador. What was different about this approach was that it went forward more as a partnership than a traditional buy-sell relationship, with both parties having capital at risk. It was also supported by a federal loan guarantee that reduced borrowing costs, and those savings will be passed on to the customer.
Provinces working together as partners, with capital at risk, is key in my mind. It is not simple nor easy to do, but it needs to be the way forward.
It is also necessary to talk about who pays and how infrastructure is funded. The old regulated utility model was simple. The utility, regardless of ownership, got approval from an economic regulator, and based on the approval, raised financing, usually via debt and some equity. Recently merchant transmission lines have also been proposed and built, such as the Montana-Alberta tie-line. A merchant line has shippers wanting to access the market and sign contracts with the transmitter, who raises financing—again debt and equity—on the strength of the contracts. Both are valid models, although the merchant model typically has only been used in connecting jurisdictions with open electricity markets.
Beyond the issue of financing the building of infrastructure, there is the question of who ultimately pays for it. In the electricity sector, it has virtually always been the customer on a user-pay basis. In other words, the customer pays in accordance with how much they use.
Of course, there is also the possibility of a taxpayer-pay model either directly, in other words the government would provide a level of funding for the infrastructure, or by subsidies.
While the customer and taxpayer are usually the same person, where you start to blur the lines between the two and move away from a pure user-pay system is most notably in Ontario. Ontario provides another cautionary tale as we go forward. The electricity sector is a very capital-intensive sector with long-lived assets, but the math is very simple. Make large investments over a relatively short time and electricity prices rise rapidly as those investments are made and the costs start to flow to the customer. This fact must be understood with each capital decision being made. There will also be local impacts from all these decisions, whether it is large hydroelectric, wind, solar farms, transmission, urban densification, public transit, and so forth.
Lastly, there is Canada-U.S. trade. While over the course of the year the flow is biased from Canada to the U.S., there are times when the flow has been northwards. The relationship between Canada and the U.S. markets has been positive and beneficial on both sides of the border. Notwithstanding the current U.S. administration's position on climate action, there continues to be very positive signals from many U.S. states to increase trade, particularly with respect to non-GHG-emitting supply.
I spoke earlier of developing the interprovincial partnerships with respect to infrastructure. Enhanced sales of clean electricity in the U.S. market is another developing opportunity for interprovincial partnerships.
That concludes my remarks and I look forward to your questions.
In the sense that this has been looked at a lot of different times, I think the most recent iteration of a full east-west tie was back in 2005. TransCanada had done a study and was trying to rally some support for a full trans-Canada tie. We're not that far away.
Ontario is interconnected with a 115-kilovolt line into Manitoba, and I believe Alberta is interconnected up north with Saskatchewan. In theory, it's not difficult to create one. The question is how big the thing should be if you want to do a trans-Canada tie. I think to meaningfully affect the electrical flows, it would have to be quite big. The other gentlemen will have a valid opinion. I'd throw a number of 4,000 megawatts on it. The opportunity for us to do things interprovincially as opposed to doing them north-south, like we've been doing, is to try to follow our peak load across the country as dinnertime moves across the country, because that's when our electrical peak is.
I'll assume that there are no ringers in the room there, but the systems really do expand and contract depending on the time of day. I'll speak to the Ontario system because I know it the best. At night we're consuming about 10,000 megawatts. On a hot air conditioner day this past summer, we were at 21,000 megawatts. That pulse of doubling our effective capacity every single day continues all the way through the seasons. In Quebec it's even more dramatic because in the middle of winter they have most of their heating on baseboards, so their electrical peak is very high. I don't know the characteristics of the western system as well as I should. Certainly Marvin would be able to tell us what goes on in B.C.
I think the opportunity, if we're going to do it, has to be a significant opportunity to move it east-west. We know our interconnection is north-south, both in the western part of the country and the eastern part of the country, which are very big, and we know we have generally a ready market for our electrons down in the United States. The question would be, is it worth interconnecting in a meaningful way east-west?
No, I can't. I'm not aware of the details of whether storage would impact the ability to flow.
It was my understanding that the surplus to Newfoundland's needs, beyond what's committed to Nova Scotia Power and Emera, would probably find its way into the U.S. market. I don't know if there's a time at which the supply at Muskrat Falls would exceed the capability of the maritime link, which I think is 500 megawatts.
I think there are still some, how should I put this, complexities of the issues between Newfoundland and Labrador and Quebec when it comes to management of an almost common resource of water where it starts. If you're in Newfoundland and Labrador, I think it will get resolved in 2041.
To one of your earlier questions, though, something that has not been mentioned yet but that I need to stress is that if we're really considering further enhancement of ties between provinces and where they'd likely be, it needs the early engagement of first nations and aboriginal communities. It involves their territories, whether it's development of hydro resources or the transmission itself. These are conversations with Canadians that really need to start now.
I don't think there's really an understanding. Everyone might endorse the idea of enhancing east-west trade, but when they think of the transmission towers near their backyards, they get upset. These conversations need to start now on how it ties into our long-term climate objectives, which, as I said at the beginning, is the overarching objective here.
That's a very good question. In doing what I do—and perhaps unlike Jim—I have to be technology agnostic, because my job is to make sure people's lights go on. I can't fall in love with any particular flavour of the way these things are made. I have a very “technical system operator” point of view on the variety of different sources. The general answer I'm going to give you is completely evasive, but it's true. Every form of power generation has advantages, and every form of power generation has disadvantages.
There I will stop, although perhaps not for the rest of this meeting, as I would like to revisit a couple of things.
Perhaps first is the question on Quebec. Ontario and Quebec get along extremely well. We are heavily interconnected. Quebec is generally an exporter of electrons. They use their own transmission system to do so through the United States. They use our transmission system. It's open. They're free to do that. We have a number of bilateral deals with Quebec on particular power usage things, including a swap with them at their winter peak versus a swap with us at our summer peak. We make emergency arrangements with each other to support each other's systems in times of bad weather events and other things. Ontario and Quebec are perhaps the least of the worries here. We do a tremendous amount of business with them, and the systems are heavily interconnected.
I would like to cycle back to the question that was asked previously and that might pertain to this too.
There are three glaring holes in the map right now.
The first glaring hole in the map is western. Alberta is not directly connected to the western interties. In order to connect to the western interties, Alberta has to go through B.C., and that is a source that's probably worth half an hour of the committee's time at some point in order to understand the electrical issues behind that, and the friction. It means that Alberta is hostage, to some extent, in its ability to get electrons from the western intertie to whatever is going on in B.C.
There's a whole bunch of other initiatives that are currently under way. I won't comment on them, but the other glaring gap is that Ontario and Manitoba are not really interconnected very well. There's tremendous hydraulic potential in Manitoba. Manitoba is spending a whole pile of money on transmission enhancement up and down either side of Lake Winnipeg in order to enable new generation to come online, and really, there's largely an extension cord that exists between Jim's old stomping grounds in the northwest and Manitoba. It's a 115-kilovolt tie-line. In the long-term energy plan that we're about to release, Ontario has been gradually enhancing its ability on the transmission system to Thunder Bay and west. I would expect to see that enhanced in a couple of weeks when this plan comes out.
The third glaring one on this map is that, in fact, Saskatchewan is not really interconnected with anybody. Again, my third major observation would be that, other than work that's already under way, there are no real interconnections of any significance between Saskatchewan and anybody else.
In terms of thinking about how your committee can make a difference and how the federal government can make a difference, I would focus on the three areas where work is not being done, and those are the three areas.