Time for a New Focus on Energy in Canada

1. Time for a New Focus on Energy in Canada Energy Dialogue Group October 26, 2004

2. Who is the Energy Dialogue Group? • A growing coalition of 17 associations (see Annex) • Represents both supply and demand side perspectives • Focus is on energy policy – federal and provincial • Objective is to create a more effective industry-government dialogue on energy • Steering Group – Canadian Wind Energy Association (CanWEA), Canadian Association of Petroleum Producers (CAPP), Canadian Electricity Association (CEA), Canadian Gas Association (CGA)

3. Origins of the Initiative • Industry consensus view on stress points • Supply, demand, investment – system out of balance • Letter sent to all energy Ministers (Spring 2003) expressing our concern at the growing stress on energy systems • Argued that federal, provincial and territorial governments needed to act together to encourage investment in supply • Proposed the development of an energy dialogue involving governments and industry • Joint work program endorsed at Iqaluit, July 2004

4. The Nature of the Problem • Continued demand growth in world and North American markets • Investments in energy supply and infrastructure lagging • Higher energy prices – the new reality • Very large investment needs – for new and replacement capacity, new technology and environmental improvements

5. Energy intensity is declining The Commercial sectorsaw modest gains in efficiency Transportation: More efficient vehicles of all sizes, but more minivans and SUVs and more travel per car Residential: Better thermal envelopes of houses and higher-efficiency appliances and space and water heating equipment Industrial energyfell due to a shift in industries and efficiency gains Source: NRCan

6. But net demand growth is still around 1.5% /yr. NEB "Supply Push" Scenario Total Demand PJ 5000 RES 4500 COMM 4000 IND 3500 TRANS 3000 INDUSTRIAL 2500 RESIDENTIAL 2000 COMMERCIAL TRANSPORTATION 1500 1000 500 0 2000 2005 2010 2015 2020

7. Energy efficiency improvements can help • Utility DSM and government efficiency programs have moderated demand growth over the past twenty years. • From 1990 to 2002, Canada’s energy efficiency improved by 13%, saving $11.6 billion in 2002 and reducing annual greenhouse gas emissions by 49.9 megatonnes. (Source: NRCan) • The federal government and some provinces have active incentive programs. • Making further progress requires strong policy action and realistic expectations.

8. Aging power generation fleet adds to new capacity requirement TWh Canadian Electricity Demand Projection to 2020: TWh Energy Efficiency Measures 750 Demand Growth Plant Retirement 650 125 Generation Legacy 70 55 550 115 450 350 580 525 250 465 150 50 -35 -30 -50 2000 2010 2020 Source: CEA/GCSI 2001 Average of MARKAL, NRCAN 1999, and NEB 1999 Models

9. Over $10 billion required each year to ensure new Canadian oil supplies Forecast Actual Offshore Oil Sands Conventional Oil Both emerging oil sources require significant investment Source: CAPP * National Energy Board

10. Natural Gas: Facilitate New Supply BC Offshore Newfoundland North Nova Scotia Natural gas from coal Western Canada Sedimentary Basin • Sources of new supply • Northern • Unconventional • LNG • Need policy support to bring on all new sources Sources of New Supply Canadian Energy Research Institute

11. What about renewables? - current cost ranges Solar energy is not yet competitive in most applications. Conventional hydro, small hydro, wind andbiomassresources are all abundant in Canada

12. Natural gas delivery capacity needs to be enhanced North American Natural Gas Pipeline Flows Source: Adapted from the US EIA Proposed LNG Facilities

13. Electricity transmission capacity lags economic growth and market changes • An absence of regulatory mechanisms for cost recovery has led to under investment in some jurisdictions • Lack of transmission investment is resulting in economic penalties for rising losses and constraints against most economic generation • The cost of unreliability to industry is very high • Greater strains are being placed on the system due to demand and supply growth and diversity • Half of the projected investment in the OECD electricity sector over the next 30 years is for transmission and distribution

14. We have seen a step jump in crude oil prices

15. And natural gas prices are at historic highs

16. Global competition for Huge Capital Requirements 2001 – 2030 4.0 Total: Global $16.5 Trillion North America $3.2 Trillion 3.5 3.0 2.5 $US x Trillions 2.0 1.5 1.0 0.5 0.0 Coal Oil Gas Generation Renewables Refurbishment Transmission Distribution Source: International Energy Agency, World Energy Investment Outlook 2003 Global North America

17. A New Focus on Energy

18. Energy as a Strategic National Issue • Because energy is the essential underpinning to much of our economic prosperity • Because energy production and use is the biggest single source of environmental stress • Because federal, provincial and territorial governments all have extensive jurisdiction, all of it closely intertwined • Because energy needs to be managed as part of our strategic relationships in North America

19. Energy in the Public Interest • Security and reliability: the first priority of Canadians • Affordability: both for individual consumers and to support the industries on which they rely for jobs • Economic development: for many Canadian regions energy is a key economic opportunity • Environmental sustainability: not just greenhouse gas emissions but air quality and impacts on land, water and habitat

20. Canada Needs a New Energy Framework to Meet Today’s Needs • The need to ensure secure, reliable supply: • energy investment is not keeping up with demand growth or the need to replace aging delivery infrastructure • The need to adapt to higher prices: • driven by fast growing world demand and growing dependence on remote and unconventional sources • The need to meet growing environmental imperatives: • greenhouse gas emissions are only one part of a complex portfolio of environmental issues.

21. Taking the Energy Dialogue Forward • Ongoing federal/provincial/territorial dialogue through Council of Energy Ministers (CEM) • Federal government needs to form a view on energy and drive interdepartmental cooperation • Parliament needs to be engaged • Industry and other stakeholders need to be involved • Four initial priorities at CEM table • Investment in supply – smart regulation • Investment in demand – energy efficiency • Investment in the longer term – R and D • Investment in understanding - information

22. Annex: EDG Member Associations: Association of Power Producers of Ontario Canadian Association of Oilwell Drilling Contractors Canadian Association of Petroleum Producers Canadian Electricity Association Canadian Energy Efficiency Alliance Canadian Energy Pipeline Association Canadian Gas Association Canadian Hydropower Association Canadian Nuclear Association Canadian Petroleum Products Institute Canadian Wind Energy Association Coal Association of Canada Energy Council of Canada National Electricity Round Table Petroleum Services Association of Canada Propane Gas Association of Canada Inc Quebec Energy Efficiency Association