Natural Gas: A Strategic Piece of the Energy Puzzle Reduce Electric Heating
Encourage Fuel Switching
Natural Gas
Reduce Overall Electricity Demand
Improve Efficiency and Conservation
Submission to the New Brunswick Energy Commission February 2011 Enbridge Gas New Brunswick submission to the New Brunswick Energy Commission Executive Summary Enbridge Gas New Brunswick has been operating the New Brunswick natural gas distribution franchise for 10 years. It has invested over $400 million in the province for the development of the natural gas distribution system that currently serves nearly 11,000 customers in 9 communities. The development of the distribution system has helped New Brunswick homeowners and businesses save over $70 million in energy costs. This savings translates into greenhouse gas emission reductions equivalent to taking approximately 200,000 cars off the road. Natural gas is the cleanest burning fossil fuel and creates less greenhouse gas emissions than heating oil and electricity generated from other fossil fuels. As such, increasing the use of natural gas (and displacing electric heating) within the province will further reduce the province’s environmental impact. Electricity, on the other hand, is a highly inefficient heat source and has a much greater impact on the environment. While New Brunswick may have excess electric capacity today, it still faces challenges in meeting peak power demands that are driven extensively by the use of electricity for heating. When the overall lifecycle efficiency of electricity is considered, electric space heating is only about 30 per cent efficient. By comparison, today’s natural gas high efficiency systems typically provide efficiencies of over 90 per cent. In order to make effective use of existing electric capacity, alternatives that will encourage fuel switching should be considered. However, proper price signals are required to take full advantage of these alternatives. These include time of use rates or inclining block rate structures. Greater fuel flexibility should also be integrated into construction practices through the use of central heating systems. As a solution with benefits including less impact on the environment, increased energy efficiency and target savings compared to oil and electricity, natural gas has the ability play a significant role in addressing the challenges the province is facing on energy issues. While some of the realities of the New Brunswick marketplace, such as the existence of single end use franchises and low market penetration rates place pressure on natural gas distribution costs, natural gas still remains a lower cost energy solution that is readily available to nearly 30,000 residential and business consumers in New Brunswick. This provides a tremendous opportunity for creating an energy policy that promotes energy efficiency, conservation and reduced greenhouse gas emissions. Enbridge Gas New Brunswick remains committed to the province of New Brunswick and looks forward to an energy plan that will utilize the benefits of natural gas. 1 Enbridge Gas New Brunswick ‐ Delivering on our commitment Enbridge Gas New Brunswick is part of the Enbridge Inc. group of companies, an organization with over 160 years of natural gas distribution experience. It has been operating the New Brunswick natural gas distribution general franchise for 10 years. The utility’s investment of over $400 million in the province has resulted in the installation of over 780 kilometers of distribution pipeline, the direct employment of 130 highly skilled and professional people, and an indirect creation of over 400 jobs right here in New Brunswick. Through economic expansion, Enbridge Gas New Brunswick has built an extensive distribution network which delivers natural gas to nearly 11,000 customers in 9 New Brunswick communities: Moncton, Riverview, Dieppe, Saint John, Fredericton, Oromocto, St. Stephen, St. George, and Sackville. Given that New Brunswick is not a mature market for natural gas, results have been impressive. Customers have saved over $70 million in the last 10 years by using natural gas. Furthermore, by choosing natural gas, customers have reduced over 1,000,000 tonnes of greenhouse gas emissions in the province which is the equivalent of taking approximately 200,000 cars off the road. Enbridge Gas New Brunswick is proud to be in New Brunswick, and is committed to delivering a clean, versatile, efficient, and reliable fuel source. 2 How Natural Gas addresses the challenges identified by the Energy Commission Environmental Considerations – Natural Gas is environmentally friendly Today, natural gas provides almost 1/3 of all the energy used in Canada. In fact, six million Canadian customers use more than 3.2 trillion cubic feet of natural gas annually in homes, businesses and large industries1. Technologies using natural gas are highly efficient. In addition to being a domestically abundant and secure source of energy, the use of natural gas also offers a number of environmental benefits over other sources of energy, particularly other fossil fuels. Composed primarily of methane, the main products of the combustion of natural gas are carbon dioxide and water vapor, the same compounds we exhale when we breathe. As the cleanest‐burning fossil fuel, natural gas creates fewer greenhouse gas emissions than heating oil, or electricity generated from fossil fuels. Consequently, by burning natural gas in the place of other fossil fuels (and displacing electric heating that relies on fossil fuel generation) there are fewer harmful pollutants released into the atmosphere. Electricity Challenges – Natural Gas is an effective solution Electricity has been a dominant source of energy in New Brunswick for decades, and while there may be excess capacity today, future growth will drive an increase in demand that will have to be met. In order to balance our energy needs and the costs associated with those needs, New Brunswick requires an energy mix that meets the needs of a growing economy and population, while helping to ensure a lower carbon future. If New Brunswick is to achieve its energy and environmental objectives, natural gas must be recognized as a core strategic asset. Electricity is highly inefficient as a means of heating when you factor in the inefficiency of power generation and line losses. According to an ABB Inc.2 paper titled ‐ Energy Efficiency in the Power Grid3: ”The efficiency of generation varies widely with the technology used. In a traditional coal plant, for example, only about 30‐35% of the energy in the coal ends up as electricity on the other end of the generator. So‐called “supercritical” coal plants can reach efficiency levels in the mid‐40’s, and the latest coal technology, known as integrated gasification combined cycle or IGCC, is capable of efficiency levels above 60%. The most efficient gas‐fired generators achieve a similar level of efficiency. Obviously, though, even at 60% efficiency there is a tremendous amount of energy left behind in the generation process.” (pages 2‐3) The paper also touches on line losses through the transmission and distribution (“T&D”) system: 1
Source: Canadian Gas Association: http://www.cga.ca ABB is a global leader in power and automation technologies that enable utility and industry customers
to improve their performance while lowering environmental impact.
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http://www.abb.com/cawp/seitp202/64cee3203250d1b7c12572c8003b2b48.aspx
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3 “Just how much energy is taken up as losses in the T&D system depends greatly on the physical characteristics of the system in question as well as how it is operated. Generally speaking, T&D losses between 6% and 8% are considered normal.’’ (page 3) This inefficiency in the power grid has also been recognized by Efficiency New Brunswick4: “...electricity is one of the least efficient and least environmentally friendly heating options a homeowner can choose. Because of losses at the power plant and in power lines, electricity for space heating is only 30% efficient once delivered to a customer’s power meter.” By comparison, today’s high efficiency natural gas heating systems are typically over 90 per cent efficient, which produces a far more desirable outcome for the province. The proliferation of electric heat in New Brunswick is a significant challenge that needs to be recognized and addressed as the province looks to define its energy plan. Winter peak load is the most expensive power to generate and the most harmful to the environment as it is generated by expensive oil and coal burning power plants. In fact, this winter, NB Power asked people to turn down their thermostats to limit peak demand during a cold spell, a clear indication that there are costs and challenges associated with the dependence on electricity for heating. Enbridge Gas New Brunswick believes there are alternatives that are available to satisfy growth in demand that should be exploited before considering adding capacity to the electric system. These alternatives include reducing overall peak demand and taking advantage of more efficient forms of energy. Steps taken today to reduce the electricity demand will provide the opportunity to minimize the requirement to source new electricity in the future. Encouraging new residential, commercial and industrial construction to take advantage of cheaper more efficient forms of energy will provide tangible demand reduction benefits. Programs that encourage fuel switching are likely a more cost effective alternative than addressing peak power needs through incremental generating capacity and will deliver greater overall energy system efficiency within New Brunswick. To truly take advantage of the alternatives outlined above, proper price signals need to be provided to encourage consumers, designers and builders to choose alternative energy sources. When electricity is priced to reflect its true costs, consumers will seek more effective ways of managing their demand. Options that should be considered to provide these price signals are time of use rates and inclining block rates. “Time of use” strategies have some deployment cost challenges associated with metering equipment, however, they are likely the most effective method of curbing demand during peak hours. The cost of deployment should be weighed against the benefits arising from reduced peak demand. 4
http://www.efficiencynb.ca/residential/moving-away-from-electric-space-heating.html 4 An “inclining block structure” also has merits from the point of view of minimizing overall consumption as it attaches an incremental cost to higher electricity consumption. However, it is not as effective as time of use for addressing peak demand due to the price signal being based on total monthly consumption. Enbridge Gas New Brunswick acknowledges that providing these types of price signals may pose challenges for the multi‐unit dwelling and rental housing segment, especially those occupied by low income families. However, Enbridge Gas New Brunswick believes these challenges should be addressed through social programs, not energy rates that are applied to all consumers in the province. Energy Efficiency – We can go further, faster Energy efficiency is an important means of managing demand and there is a need to strengthen the policies and programs to support it. Consequently, Enbridge Gas New Brunswick believes that energy efficiency should play a significant role in the recommendations put forward by the Energy Commission. Electricity needs to be discouraged as a heating source due to its inherent inefficiency. Energy efficiency strategies such as fuel switching need to be encouraged to take advantage of more efficient forms of energy. However, to drive these types of solutions, energy efficiency needs to be looked at beyond the building envelope and include the total lifecycle efficiency of the energy being used. When looking at electricity, the total lifecycle efficiency includes electric generation efficiency and line losses. Education is another component to increasing the province’s energy efficiency. Consumers, designers and builders all need to be educated about energy efficient construction practices, and energy efficient heating systems. Constructing homes for fuel flexibility by having central heating systems installed as opposed to electric baseboard heating which ties a building to a single inefficient source of energy should be encouraged. The importance of central heating systems in planning an energy efficient home has been recognized by Efficiency New Brunswick: “The biggest advantage of a central heating system is that it can be easily converted from one fuel to another. This convertibility protects a homeowner from price swings by enabling a switch from one energy source to another if market conditions change. Convertibility also allows a homeowner to switch energy sources if a new fuel such as natural gas becomes available in their area.” 5 New Brunswick’s energy policy needs to recognize this reality and encourage the appropriate action by all industry stakeholders. Outside of achieving efficiency at the point of consumption, district energy systems and combined heat and power (CHP) solutions also offer interesting efficiency alternatives. While the desire is to make the most efficient use of energy at the point it is consumed, it is also important to achieve the greatest efficiency possible when power is generated and used. District energy and CHP both show improved efficiency over large scale generation. District energy systems provide the opportunity for efficiency gains, but really have to be designed into the community architecture, as it is more difficult to retrofit 5
http://www.efficiencynb.ca/residential/central-heating-systems.html 5 should other forms of end user energy be required. CHP also improves the efficiency of the fuel being used to generate power, but requires locating generating capacity where the waste heat can be used effectively. In spite of these challenges, the implementation of district energy and CHP should be contemplated as part of an energy plan to the extent that fuel switching cannot fully address the market challenges and overall electricity capacity needs. There are costs associated with driving energy efficiency, either to be borne by the consumer implementing the efficiency improvement or through the provision of funding programs that stimulate efficiency improvements. However, there are also benefits to the system from reduced peak demand. Funding for efficiency programs should be considered to come from the benefits that arise from the system. For example, the savings that are delivered through reduced peak power purchases required could be directed toward energy efficiency programs. Therefore, by linking the funding for energy efficiency programs with the benefits that are received, there is an opportunity to deliver programs without incremental costs to the overall system. Natural Gas in New Brunswick – Challenges and Opportunities The realities of the New Brunswick marketplace present challenges to natural gas distribution in the province. The amount of demand put on a natural gas distribution system is the main driver behind distribution rates. The more natural gas delivered through a system, the lower rates become for all users of the system. Growing natural gas utilization in an economical manner is essential to a strong natural gas system in the province. Enbridge Gas New Brunswick recognizes that some industrial users would like to have natural gas rates that are comparable to those in other jurisdictions. However, the New Brunswick natural gas distribution system operates under highly unusual conditions with the existence of single end use franchises that allow several large industrial users, representing more than 80 per cent of the natural gas consumed in the province, to entirely bypass the system. Virtually all natural gas distribution systems in North America have been developed without single end use franchises. Consequently, these large users have never contributed to the development of the distribution system which has had a profound effect on how the system has developed to date. This unique characteristic of the New Brunswick natural gas distribution system has two effects: it significantly lowers the overall costs of using natural gas for those industrial users that have a single end use franchise and it significantly reduces the amount of revenue that the operator of the system is able to access to offset construction and operating costs and move the system toward being more sustainable for all stakeholders. This market reality, combined with mature jurisdictions having development costs that were incurred decades ago and significantly higher customer penetration rates, will constrain the ability for natural gas delivery rates in New Brunswick to be competitive with those jurisdictions. As indicated earlier, increasing overall loads on the natural gas distribution system is critical and will support stable and predictable rates for the long term. The low customer density on the existing system 6 contributes to higher costs for all customers and the absence of appropriate price signals and other indicators regarding the negative consequences of a continued dependence on electric heating impacts Enbridge Gas New Brunswick’s ability to grow residential load. Given the challenges currently facing the electric industry related to peak demand, there is a real opportunity for the province to use natural gas as part of the solution. Natural gas is currently available to nearly 30,000 residential and business customers in New Brunswick. This represents a tremendous opportunity for enabling an energy policy that will encourage energy efficiency, conservation, fuel switching and electricity demand management. As a result, natural gas is the perfect transition fuel. The benefits of such a policy will not flow solely to customers through reduced energy costs, but the province as a whole by moving consumers off more expensive and inefficient electric heating and reducing the need for peak load power generation. While Enbridge Gas New Brunswick looks at increasing the use of natural gas, we do have to ensure that any expansion of the system in New Brunswick continues to be done where it is economic to do so. New Brunswick’s energy policy should look to exploit this underutilized resource. Energy and Economic Development‐ Just one piece of the puzzle Energy is an important tool when it comes to economic development but it is more important to recognize that it is just one piece of the puzzle in an effort to have an effective economic development strategy. Natural gas is already playing a significant role in supporting economic development in New Brunswick, by lowering the cost of energy for customers and providing access to a fuel that levels the playing field with fuel choices in other jurisdictions. Attracting investment in the energy sector will require a positive climate where investors have the confidence that the basis on which investments are made will be honoured. For a continued investment in this sector, the province must demonstrate that there is stability in the industry and that energy policy considers the interests of all stakeholders, including those investing in the energy sector. Regulation ‐ Efficient and Cost Effective In 2007, Energy and Utilities Board (EUB) was established as the regulatory body to oversee the regulation of the energy industry in New Brunswick, replacing its predecessor the Public Utilities Board. Enbridge Gas New Brunswick believes that the EUB plays a strong role in the energy and utilities sector, especially in the regulation of natural gas. The EUB provides significant oversight of Enbridge Gas New Brunswick’s operations and establishes the rules by which the natural gas industry in New Brunswick is to able to operate. However, Enbridge Gas New Brunswick believes there may be opportunities to strengthen the EUB with regard to regulation of NB Power. At this time, only one component of NB Power’s operations falls within the jurisdiction of the EUB, making it difficult (if not impossible) to reach any real conclusions on evidence that is brought forward to the EUB related to NB Power’s costs. 7 Additionally, the EUB has limited jurisdiction with regard to reviewing NB Power rate increases. Given that increases below a certain threshold can be implemented without approval of the EUB leaves electricity rates in New Brunswick subject to political influence and not necessarily reflecting the true cost of electricity in the province. The EUB should be provided the power to regulate all components of NB Power and any rate change proposed by NB Power should be subject to the review and approval of the EUB, similar to the natural gas industry. Regulatory costs are an area of concern for Enbridge Gas New Brunswick. These costs arise from the manner in which proceedings are conducted and the participation of the Public Intervenor. The Public Intervenor was first appointed to represent the public interest in 2007 and since that time, Enbridge Gas New Brunswick has incurred over $1.5 million in costs associated with the Public Intervenor’s role. These are costs that are ultimately borne by customers. Enbridge Gas New Brunswick supports the concept of a party being appointed to protect the interests of smaller consumer groups that would not have the means to defend their own interests in a regulatory proceeding, but believes a more efficient and cost effective approach could be taken. Careful governance needs to be applied to the costs incurred by Public Intervenor. Controls need to be in place to ensure consumers do not bear additional costs due to inefficient or unnecessary costs incurred by this publicly appointed advocate. Enbridge Gas New Brunswick believes that establishing fixed budgets and plans for the Public Intervenor, or similar role, for a given year would be a first step towards achieving this. Should additional funds be required, the publicly appointed advocate would be required to obtain funding approval from the proper authority, possibly the EUB or Attorney General. Enbridge Gas New Brunswick also believes the potential benefits associated with making this role a staff role within the Attorney General’s office, as opposed to an external lawyer, should be investigated to determine if cost savings could be achieved. Conclusion – Natural Gas will fuel the future of New Brunswick Enbridge Gas New Brunswick is proud to be part of our provincial energy community. We believe changes to New Brunswick’s energy mix will influence and shape how New Brunswickers choose to use energy sources within the next decade and beyond. Enbridge Gas New Brunswick sees natural gas as a central component to New Brunswick’s energy future. The capability is there now for this environmentally friendly, lower cost, more reliable energy to power an even larger number of homes and businesses in the future. It has a critical role to play in reducing electric heating and overall electricity demand, through fuel switching and supporting energy efficiency and conservation. Enbridge Gas New Brunswick remains committed to the growth of natural gas delivery within the province, and our business model reflects that commitment over the long term. Delivering natural gas to New Brunswickers is our unwavering purpose and the energy policy in the province should leverage that commitment. 8