Renewable Energy Workshopgy pAfrican Utility WeekCape Town International Convention Centre Cape Town, South AfricaMay 19, 2009

Green Energy, Distributed Generation and Smart Grid/ Smart Meter Strategies

Ontario, Canada – A Case Study

Shane T. PospisilDirector andPrincipal, Windspire Partners

Who are we?

As one of Canada’s most prestigious universities, Queen’s has a long-standing tradition and reputation for providing sound, pragmatic public policy analysis and advice to governments across Canada.

The Queen’s Institute for Energy and Environmental Policy is part of this rich heritage. It serves as an independent resource for policy-makers who are increasingly focused on the inherent and often complex inter-relationships between energy, the economy and the environment. The Institute also aimsbetween energy, the economy and the environment. The Institute also aims to provide a platform for researchers whose findings deserve the attention of government, industry and other key stakeholders, including the public.

The Institute encourages multi-disciplinary collaboration so that scientific,The Institute encourages multi disciplinary collaboration so that scientific, technological, social, legal, philisophical and economic research capabilities are brought to bear on the crucial public policy issues of the day. Once again, the overriding goal is to better inform the development and implementation of public policy across Canada.implementation of public policy across Canada.

Multi-Disciplinary “Green Energy” Research Expertise?

Biomass, Biogas, Biofuels

Solar

Wind

Fuel Cells

Advanced Metering Infrastructure, Smart Meters

Conservation, Energy Efficiency, Related Pricing Mechanisms

Province of Ontario, Canada

Land mass almost equal to that of the UK, France and Germany combined, with an environmentally-conscious population approaching 13 million. popu at o app oac g 3 o

Currently, one of the most energy-intensive jurisdictions in the world (2008 generation output = 158 4 TWh)(2008 generation output = 158.4 TWh).

Toronto Population: 5,300,000 (CMA) Note: Average Toronto homeowner guses about 900-1,000 kWh/month.

Ontario is Embedded in the North AmericanIndustrial Heartland

U.S. StatesU.S. Statesincluded in thisregion represent:

44% of U S population44% of U.S. population (135 million consumers within 800 miles of Toronto)

47% of U S GDP47% of U.S. GDP

48% of U.S. Personal Income (US$2.7 trillion)

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The Ontario ContextIndustrial structure a potential strength or weakness?p g

Relatively high employment levels in manufacturing, natural resources extraction/processing and financial and business services.

Over 50% of Canadian manufacturing shipments (past decade).

Ontario leads all G7 nations in exports as a share of GDP (65%, compared with Germany at 40% and the U.S. at 10%).

Job losses and continuing restructuring in the manufacturing sector since 2003, with the auto assembly and parts industries particularly vulnerable to more downsizing in the months ahead.

An “energy-consumer” jurisdiction, with an industrial structure historically supported by high levels of energy use and intensity.

Opening Questions and Discussion – “Game Changers”

Global Recession? Credit Crunch?

Climate Change? Mitigation? Adaptation?

Green Economy? First-Mover Advantage?

Renewable Energy? Distributed Generation? Smart Grid?

Role of Government? Investor or Facilitator?

Shifting Competitive Fundamentals? New Prosperity Matrix?g p p y

A Looming Energy Supply Crunch? Conservation and Energy Efficiency?

Proactive or Reactive Leadership? Managing Risks/Expectations?Proactive or Reactive Leadership? Managing Risks/Expectations?

Energy, the Economy and the EnvironmentFinding the Right BalanceFinding the Right Balance

ENERGY POLICY“CALL TOACTION”DRIVERS

ENERGY POLICY

INDUSTRIAL STRATEGY

SOCIAL/CULTURALOUTCOMES:

SUSTAINABILITYDRIVERS________

PUBLIC POLICY

STRATEGY

ENVIRONMENTAL POLICY

-SUSTAINABILITY-STANDARD OF LIVING

-QUALITY OF LIFE

POLICY POLICY

Issues, Challenges and Opportunities – Unique to Ontario, Canada?

Technology, Innovation and the Ability to Commercialize on New and Emerging Business Development Opportunities – How do we better leverage this core economic competency?

The Role of Government – How does business partner with government and other key stakeholders in “engineering” a new, green competitive advantage? Is government ready for the challenge and, if not, where are the public policy, regulatory or institutional gaps?

Ontario Energy SectorWhat are the big issues currently on the radar screen?

Green Energy Act – the pervasive nature of the proposed legislation is clearly recognized, as are the opportunities, challenges and potential risks

continued growth in renewable energy supply and the emerging wires constraint – enabler lines and Distributed Generation solutions will be costly and raise the fundamental question of who pays?

industrial competitiveness and the need for more integrated planning across the energy, environment and economic/industrial development policy silos

recessionary drop in industrial baseload demand (electricity) – significant uncertainty over future load growth projections

regulatory and institutional uncertainty – a general sense of ongoing project delays, together with a growing cost structure/burden that is ultimately being passed on to Ontario consumerspassed on to Ontario consumers

Ontario Energy SectorWhat are the big issues currently on the radar screen?

ongoing project finance challenges and ROE – the recent volatility in global capital markets has shifted the overall perception of risk and, more specifically, risk management strategies relating to project finance and execution

environmental footprint and more informed, demanding consumers – still, no great willingness for consumers to pay significantly more!

continuing uncertainty over the specific direction, timing and operational impacts/costs of climate change policies in Ontario, Canada and the U.S.

project development uncertainties involving the proximity of some projects to Aboriginal communities and/or the potential interface with Aboriginal interests

NIMBYism and associated project delays

prices and affordability? impact on lower income energy consumers?prices and affordability? … impact on lower income energy consumers?

Ontario Energy SectorWhat are the big issues currently on the radar screen?

an aging workforce and tighter labour markets for technical and skilled workers?

timing and logistics surrounding the McGuinty Government’s coal phase-outtiming and logistics surrounding the McGuinty Government s coal phase out commitment

nuclear refurbishment/new-build – managing the construction and execution g grisks, “confronting the myths” and maintaining supportive public opinion levels

conservation and energy efficiency – achieving results that are cost-effective and both economically and environmentally prudent

province-wide rollout of Smart Meters and Time-of-Use pricing

Smart Grid – how to better leverage information technology to enhance reliability, the efficient use of infrastructure, and to promote cost-effective renewable generation (Distributed Generation) and demand management?

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renewable generation (Distributed Generation) and demand management?

Estimated Costs of New Generation – North America, 2008Capital Costs Levelized Cost ofCapital Costs Levelized Cost of(US$ per kW) Electricity (US$ per MWh)

Nuclear 4,750 – 8,000 100 – 115

Conventional Coal 1,750 – 4,000 70 – 75

Super Critical Pulverized 2,750 – 3,250 75 – 85Coal (SCPC)

Integrated Gasification 3,000 – 5,500 85 – 100Combined Cycle (IGCC) Coal

Combined Cycle 1,000 – 1,750 70 – 110 Gas Turbine (CCGT)

Wind 1,200 – 2,500 100 – 115

Geothermal 2 500 3 500 NAGeothermal 2,500 – 3,500 NA

Concentrated Solar 3,000 – 5,000 NA

Source: Compiled from various public and private (with permission) sources Cost estimates exclude GHGSource: Compiled from various public and private (with permission) sources. Cost estimates exclude GHGemission charges, such as carbon capture and sequestration costs, and production tax incentivesfor nuclear and wind.

Regulatory Delays Have Not Been Cost Neutral!

Gl b l R i t Miti t R t P j t C t E l ti ?Global Recession to Mitigate Recent Project Cost Escalation?

North American ElectricityNorth American Electricity Generation/Transmission Capital Costs

t Ind

expital Cos

EPC costs are estimated to have increased by between 8% and 10% annually over the

2003 2004 2005 2006 2007 2008

Ca

y ypast few years. Source: Various public and private (with permission) sources.

2003 2004 2005 2006 2007 2008

What’s top of mind with the Ontario public?

multi-client survey/focus groups (22) completed in January 2009

real sense of “vulnerability” and “concern” regarding the economy and the economic outlook for Ontario and Canada, with the majority feeling the eco o c out oo o O ta o a d Ca ada, t t e ajo ty ee g t erecession would last until 2010, be “severe” and that most of the lost jobs would not return

60% felt that the economy/unemployment was the most important issue facing60% felt that the economy/unemployment was the most important issue facing Ontario (up from 18% in June 2008), compared with 15% for social services/health/education (14% in June 2008) and only 9% for the environment (down from 23% in June 2008)

this represents an unprecedented shift in public opinion on the key economy/environment question – the development of a “Green Economy” strategy is clearly seen as a way to embrace both trends and the concept, although not yet well-defined, had over 80% support (strong/moderate)

lack of informed opinion or even general awareness of a wide range of energy issues, personal options, information sources, conservation tips, etc. remains widespread

Global Energy Intensity Benchmarks

Canada and the U.S. account for about 5% of the world’s population, but together consume almost 25% of the world’s primary energy supply.

Both countries are among the most energy-intensive in the world:Both countries are among the most energy-intensive in the world:

relatively high levels of personal disposable income

relatively low prices (for some sources of energy supply) and affordability (for most)

energy-intensive capital stock/capital mix

strong consumer culture and mindset

industrial competitiveness pressures

geography

climate

International Comparisons of Energy Intensity – Total PrimaryEnergy Supply (TPES)* and Electricity Consumption

TPES/GDP (PPP) Electricity Consumption/(toe/000 2000US$ PPP) Population (kWh/capita)

2006 20062006 2006

World 0.20 2,659Australia 0.19 11,309C d 0 27 16 766Canada 0.27 16,766China 0.22 2,040France 0.16 7,585Germany 0.15 7,175I di 0 15 503India 0.15 503Japan 0.15 8,220Sweden 0.18 15,230United Kingdom 0.13 6,192United States 0 21 13 515United States 0.21 13,515

*Includes coal, oil, natural gas, nuclear, hydro, combustible renewablesand waste, geothermal, solar, wind, heat, etc.

16Source: International Energy Agency, Energy Indicators, 2008.

The Global ContextClimate Change – “Current energy trends

are patently unsustainable ”are patently unsustainable…

“Current energy trends are patently unsustainable – socially, environmentally and economically. To avoid abrupt and irreversible climate h d j d b i ti f th ld’ tchange we need a major decarbonization of the world’s energy system:

Copenhagen must deliver a credible post-2012 climate regime;

limiting temperature rise to 2 degrees Celsius will require significant emission reductions in all regions and technological breakthroughs; and

mitigating climate change will substantially improve energy security.

The present economic worries do not excuse back-tracking or delays in t ki ti t dd h ll ”taking action to address energy challenges.”

International Energy Agency, World Energy Outlook 2008 Update, November 12, 2008

The Global ContextClimate Change – “Current energy trends

are patently unsustainable ”are patently unsustainable…

In November 2008, the International Energy Agency (IEA) forecast that primary energy demand would increase by 45% between now and 2030. This amounts to an average rate of increase of 1.6% per year.

Although the Ontario Government remains committed to phasing out all coal-fired electricity generation in the province by 2014 the IEA’s “baseline scenario”fired electricity generation in the province by 2014, the IEAs baseline scenario forecasts that coal will account for more than a third of the overall increase in global primary energy demand over the period 2008-2030.

Whil h l f bl ill i i l b llWhile the role of renewable energy sources will continue to increase globally, the overriding conclusion is that if we are to effectively address the issue of climate change, reducing the GHG emissions associated with hydrocarbon production and consumption will be crucial.

Note: Canada, with 0.5% of the world’s population, currently contributes about 2% of global GHG emissions.

GHG Emissions Reduction Channels

Carbon Removal/Sequestration

Zero/Low Emissions Generation (Renewables Nuclear)Zero/Low-Emissions Generation (Renewables, Nuclear)

Bio-Fueled Generation (Biomass, Biogas)

Natural GHG Offsets

Energy Conservation/EfficiencyEnergy Conservation/Efficiency

Demand Destruction

Market-Based/Regulatory Incentives(Multiple Cross-Economy Channels)

Governments Need to Evolve from theSilo-Based Policy Approaches of the PastSilo-Based Policy Approaches of the Past

A k l d th I t R l ti hi /B fit f T ki I t t d Pl i A h

ENERGY ECONOMY ENVIRONMENT SOCIAL/CULTURAL OUTCOMES

Acknowledge the Inter-Relationships/Benefits of Taking an Integrated Planning Approach – Sustainability Key Across All Public Policy Goals and Deliverables!

Obama Administration Appears Ready to Embrace this Paradigm Shift:Green Energy StrategyGreen Energy StrategyGreen Industrial and “Economic Stimulus” StrategyEnergy and Energy Independence as Fundamental Pillars of National SecurityCap and Trade as a Response to the New Carbon-Constrained DynamicA Renewed Commitment to Constructive Multilateral Engagement on the ClimateA Renewed Commitment to Constructive Multilateral Engagement on the Climate Change File (COP-15 in Copenhagen)

The Canadian Context

Canada’s energy sector is highly diverse, with significant upstream oil, gas and uranium production, downstream power generation based on hydro and other renewables, hydrocarbons, nuclear power and biomass.

On the demand management side of the equation, our capacity to encourage and facilitate conservation and energy efficiency is also an increasingly important part of Canada’s energy sector. po ta t pa t o Ca ada s e e gy secto

The ability to innovate, adapt and adjust within a higher energy price environment is fast-becoming the new competitive advantage in many sectors g g yand industries. We must proactively and strategically embrace this challenge and move quickly to reposition ourselves for success!

The provinces have a significant role (and in a number of areas, the key responsibility) in formulating and implementing energy policy within their respective jurisdictions. This is not to diminish the broader role of the federal government but is essential to understanding the political dynamics often at

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government, but is essential to understanding the political dynamics often at play – historically, now and in the future.

The Canadian Context

A few comments on the Canadian upstream oil and gas sector (traditionally based in the Western Canadian Sedimentary Basin and Province of Alberta):

C d h ti t d 179 billi b l f t bli h d d il lCanada has an estimated 179 billion barrels of established crude oil reserves; only Saudi Arabia has larger reserves. Canada currently produces more than 2.5 million barrels of crude oil a day, and exports about 1.4 million barrels a day. Oil sands production now exceeds one million barrels a day, and is still forecast to exceed 3.5 million barrels a day by 2020. Canada is the world’s third largest producer of natural gas, behind only Russia and the U Sthe U.S. Canada currently produces more than 17 billion cubic feet per day of natural gas, and exports about 10 billion cubic feet a day. Last year, 365,000 people were employed directly or indirectly in Canada’s oil and

tgas sector. The sector is a key engine of economic growth in the Canadian economy, among the largest contributors to the various tax bases of governments across Canada and, lately, the main contributor in supporting Canada’s external trade balance and overall terms of trade.

The Canadian Context

C d ’ il d t i itt d t ibl d l tCanada’s oil and gas sector is committed to responsible resource development and has made significant progress in addressing environmental challenges, but knows it needs to do more.

New technologies and process innovations remain the focus and will present a wide range and large number of challenging, rewarding career opportunities in the years to come:

further mitigating GHG emissions, other air, water and land impactsCarbon Capture and Storage (CCS)In-Situ Recovery (ISR)i i ti l d i ffi i iimproving operational and processing efficiencies

A Cautionary Note or Personal Bias? Energy-related benefits accruing to a particular province or region should not be viewed as part of some “zero sumparticular province or region should not be viewed as part of some zero-sum game.” These benefits often accrue across the Canadian economy as a whole and/or, indirectly, through the federal government’s broader fiscal mandate.

Ontario’s Renewable Energy Strategy

Where are we starting from?

What are the impediments to doing more?

How do we efficiently and cost-effectively transition to a greener electricity system?

Centralized Generation versus Distributed Generation?transmission/distribution reconfiguration and/or enhancements?Smart Grid?Smart Grid?Smart Meters? NIMBYism?who pays?p yaffordability and willingness to pay more?cost/benefit analysis? return on investment? externalities and social benefits?

Distributed Generation and Smart Grid

“A more sustainable, diverse and variable supply mix requires a more flexible and innovative approach to operating the electricity system. A new model for system operations is emerging – one that responds to production and

ti ti it l l l l d th t t i iconsumption activity on a local level and then moves to meet remaining provincial electricity needs.”

“A Smart Grid can mean many things As a whole it refers to a power systemA Smart Grid can mean many things. As a whole, it refers to a power system that uses information technologies to automate the flow of information back and forth between consumers and producers and then uses that information to support more efficient production, delivery and consumption decisions.”

“This ability to flow information to and from consumers and suppliers is critical for the development of Ontario’s new supply mix.”

Independent Electricity System Operator, The Ontario Reliability Outlook, December 2008

Electricity Generation Capacity and OutputOntario – 2008

Capacity: 33,045 MW Output: 158.4 TWh

Wind 2 1% Wind 0 9%Biomass/Landfill

Oil/Gas 7.8%Wind 2.1% Wind 0.9%Gas 0.2%

Oil/Gas 20.1%

Coal14.7%

Coal19.5%

Nuclear 34.6%Nuclear 52.8%

Hydroelectric 23.8%

Hydroelectric 23.5%

26Source: Independent Electricity System Operator and Ontario Ministry of Energy and Infrastructure, January 2009.

Ontario’s Green Energy ActStrategic Framework

jjLeader in Renewable

Energy

Leader in Conservation/ Demand Management

Eliminate Impediments:

Regulatory Streamlining

Promote/Procure Renewable

Energye a d a age e t

Leader in Climate

g

Project Facilitation

Promote Change Mitigation

Leader in New Green Economy:

Create Incentives:

Feed-In TariffSocialize Connection

Promote Conservation/

Demand Management

Economy:

Jobs/Investment

New Prosperity Matrix

Socialize Connection CostsEmpower LDCs

Ontario’s Green Energy Act – Jobs and Investment

“Th i t t d l b l t t bli h th li i tt t th i t t“There exists today a global race to establish the policies, attract the investment and build the foundation for the green economy that is sure to sustain future prosperity and progress.”

“It is a race Ontario is determined to win. This proposed legislation* would help Ontario become the preferred destination for green jobs, green investment and green energy.”y

Honourable George SmithermanDeputy Premier and Minister of Energy and InfrastructureGovernment of OntarioGovernment of OntarioFebruary 23, 2009

*Received Royal Assent on May 14, 2009.

Ontario’s Green Energy Act – Key Deliverables

The most profound shift in Ontario’s energy policy and direction in the past decade? Good energy policy? Good industrial policy? Good environmental policy? Good politics? Or, all of the above?

Aggressive Strategy to Promote and Procure Renewable Energy – Project Finance Still Remains a Problem However

Renewable Energy Facilitation Office

Streamlined Approvals Process

Planning Act ExemptionsPlanning Act Exemptions

Feed-In Tariff Program

Ontario’s Green Energy Act – Key Deliverables

E dit d C ti f R bl E P j tExpedited Connections for Renewable Energy Projects

Transmission and Distribution Expansion

A Smart Grid Framework for Ontario

LDCs Permitted to Pursue Generation

Participation by Aboriginal PeoplesParticipation by Aboriginal Peoples

Centralized Promotion of Conservation and Demand Management –Opportunities and New Accountabilities for LDCs?Opportunities and New Accountabilities for LDCs?

Building Code Amendments

Ontario’s Green Energy Act – Key Deliverables

Energy Efficiency Requirements

Ontario Energy Board Mandate (expanded but fundamentally different)Ontario Energy Board Mandate (expanded, but fundamentally different)

Paying for Renewable Energy and Conservation Programs

Turbo-Charging Renewable Energy and Conservation through a More Centralized and Turbo-Charged Directives MandateCentralized and Turbo Charged Directives Mandate

First-Mover Advantage – Ontario Premier Dalton McGuinty and Energy and I f t t Mi i t G S ith C itt d t th Vi i dInfrastructure Minister George Smitherman are Committed to the Vision and Continue to Provide the Necessary Political Leadership

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Proposed Feed-In Tariff Pricesfor Renewable Energy Projects in Ontario

Technology Proposed Size Proposed¢/kWh (CDN$)

Adjustments

Biomass* Any Size 12.2

Biogas* ≤ 5 MW 14.7

> 5 MW 10 4> 5 MW 10.4

Waterpower* ≤ 50 MW 12.9

Community- ≤ 2 MW 13.4Based or

Aboriginal

Landfill Gas* ≤ 5 MW 11.1

*On/off peak pricing applies: 35% higher from 11:00 am to 7:00 pm on business days,% ff

> 5 MW 10.3

and a 10% lower price during off-peak hours.Source: Ontario Power Authority, March 12, 2009.

Proposed Feed-In Tariff Pricesfor Renewable Energy Projects in Ontario

Technology Proposed Size Proposed¢/kWh (CDN$)

Adjustments

Solar PVRooftop ≤ 10 kW 80.2

10 – 100 kW 71.3100 – 500 kW 63.5> 500 kW 53.9

Ground-Mounted

≤ 10 MW 44.3 9% price reduction t i d htriggered when 100 MW contracted

WindOnshore Any Size 13.5Offshore Any Size 19.0

Community- ≤ 10 MW 14.4yBased or

Aboriginal

Ontario’s Approach to Conservation and Energy Efficiency

T iti t T C t P i iTransition to True-Cost Pricing

Empower Consumers to Better Manage Their Energy Bills

Province-Wide Rollout of Smart Meters and Time-of-Use Pricing

Extensive Conservation/Energy Efficiency Programming and Incentivesgy y g g

smart meters represent a key building block in Ontario’s approach to repositioning itself within a higher energy price environment

together with Time-of-Use pricing and increased consumer education and awareness, all consumers will be “empowered” to act individually to better manage their electricity bills

empowerment is the operative word, as those customers who conserve or load shift will be better off, and those who continue their current consumption patterns will pay the true costs for peak-time consumption and volumes

Ontario’s Approach to Conservation and Energy Efficiency

Addi i l S Wid B fi d Effi i i A il blAdditional System-Wide Benefits and Efficiencies Available

avoided capital costs of new generation, transmission and distribution infrastructureinfrastructure

key downstream component in the development/evolution of a Smart Grid in Ontario

innovation drives a new competitive advantage – Ontario’s ability to adapt and adjust to higher energy prices better than our regional/global competitors

Ontario’s Conservation Goals are Ambitious and Aggressive

the Ontario Government earlier committed to a reduction in peak demand of p6,300 MW by 2025, almost equal to the supply capacity of the province’s existing coal-fired generation plants (which the government has committed to shutting down by the end of 2014)

Ontario’s Green Energy Act – Final Comments

What is it?

Targeted OutcomesGeneration MixGeneration Mix Distributed Generation Conservation/Demand ManagementEnvironmental/Economic

First-Mover Advantage

Engineering a New, Green Competitive Advantage

Building Capacity, Critical Mass and a New Prosperity Matrix

Potential Risks?Emerging Competitors g g pAffordability Comparative Renewables Potential (Wind, Solar, Capacity Factors, etc.)

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Any Questions?

Please Don’t Hesitate to Ask!

Shane T. PospisilResearch Fellow, Queen’s Institute for Energy and Environmental Policygy y

andPrincipal, Windspire Partners

Telephone: (416) 786-1100Email: Shane@WindspirePartners.com