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Energy Transformation: Focus on energy use as much as energy sources

Interview with Michael Cleland, Member of the QUEST Board of Directors

Takeaways:

 

1- We need to shift our focus towards energy demand and usage, since consumer behaviour will be a crucial aspect of Canada’s energy transformation. The energy industry is increasingly becoming a customer-facing business.

2- Heavy-handed regulation will not be able to lead the entire energy change process and policy that is technologically deterministic will fail. Government policies must set a direction, provide the signals (such as real prices), and provide the institutional support, but not a final destination.

3- A convergence of energy technologies, information technology and artificial intelligence will be a massive disruptive force in the energy industry.

Action:

 

Federal and provincial governments must increasingly engage and learn from local communities before forming energy policies or implementing energy projects, to ensure that they are the direct beneficiaries of any proposed projects and that they become sources of business opportunity – we need to build a new energy social contract in Canada.

 



In a talk titled “Demand Better”, you argued that Canada’s biggest green energy opportunities lie in cutting consumption and waste, instead of changing production sources. How will Canada become a zero-emission economy without phasing out fossil fuel production?

 

Changing our energy use is a necessary compliment to thinking about changing the sources of energy, not a substitute. But it is the place to start because that is where the most cost-effective opportunities lie, such as those in energy efficiency and local sources such as heat management and small-scale renewables. We need to be thinking about what customers need and what they will insist on, before building our new energy systems. The value proposition will rest on several attributes: functionality, safety, security, reliability, affordability, and minimal local environmental and social impact. A system based on distributed energy sources is going to work only if it is energy efficient.

If we really want to reach a zero emission economy, we will most likely need to largely phase out fossil fuels. The big question mark though, is what can be done with COcapture and disposal technology. I do not think we should rule out the possibility that some of those technologies will become practical and cost effective, and others will emerge. Whether we like it or not, fossil fuels do have a lot of advantages in terms of the sheer energy power that they contain in a very small space as well as their high reliability.

“Changing our energy use is a necessary
compliment to thinking about changing the sources of energy, not a substitute.” 

We need to put policies in place that drive change in the right direction but we should not make too many assumptions about what it is finally going to look like. The debate with respect to pricing carbon is strangely illiterate in some respects, especially from the conservative side because the alternative is for the most part government actions, which are either intrusive or inefficient. We are experiencing a lot of technological innovation that we cannot possibly predict. If we try to coerce the entire energy process through regulation, we will get it wrong and make it a lot more expensive than we need to. Alternatively, if we factor the costs associated with greenhouse gas emissions into energy prices, investment and consumption decision-makers will adapt.


 

How can the “hydro” and “hydrocarbon” provinces learn from each other and cooperate to push forward a valuable conversation on the future of Canada’s energy industry?

 

We always hope for cooperation and we get that from time to time. But it is not likely to extend to something as formal as a national energy strategy. However, there are a few common factors between the hydro and hydrocarbon provinces. First, all Canadians – whether Albertans or Quebecers or anyone else – are demanders of energy services, including lots of natural gas and petroleum products. Second, there is no such thing as cheap energy. Energy involves big impacts on the environment and local communities – one way or the other. The hydro and some of the wind projects that are being built right now are turning out to be pretty expensive in that regard. Third, all energy projects, renewable or otherwise, will require much more involvement of local communities and local authorities – notably Indigenous authorities – in the decision process. So going into the future, we are not going to see hydro evolving the way it did in British Columbia or Quebec back in the 1960s or the 1970s. It is going to face lots of challenges, as will other sources of energy. In that sense, there is a certain amount of convergence that might occur. If everybody steps back and starts being realistic about what the future might look like, there is a lot of potential for cooperation.

“There is no such thing as cheap energy. Energy involves big impacts on the environment and local communities, one way or the other.” 


What is the balance between national, provincial and local-level energy decision making given Canada’s size and regional differences? How should this evolve?

 

First, the vast majority of Canadians agree that the final decision makers for these policies need to be either the Federal Government or the Provincial Governments, depending on the jurisdiction – not many people think that final decisions can practically rest with local authorities. However, there are lots of reasons why local authorities, that is, municipal and Indigenous governments, should be doing more than just being consulted. The Federal and Provincial Governments should be engaging them as part of the decision-making process, learning from local knowledge and ensuring that they are direct beneficiaries of whatever gets done. We have to build a new energy social contract in Canada and we have many positive examples to gain inspiration from. For example, the James Bay Cree have very successfully developed arrangements with the governments to take control of much of their own destiny. Large hydro projects were a source of huge controversy in the 1970s, but they have become sources of business opportunities today. Local communities have changed the way projects are developed in some measure based on local understanding. At the other end of the country, the Indigenous communities in the vicinity of the oil sands have done very well in terms of business and employment opportunities stemming from that sector.

“All energy projects, renewable or otherwise, will require much more involvement of local communities and local authorities, notably Indigenous authorities, in the decision process.” 

What local communities do under their own authority – in other words, with their own energy resources – is the other part of that equation that gets a better balance between top-down and bottom-up decision-making.


 

Do you see incumbent energy players fully embracing technology and the potential of the energy transformation even at the risk of disrupting their own business?

 

If they are at the energy production end, it is probably a little harder for them to get a grip on disruption because their business model does not really focus on customers as much as others in the energy space – it is about producing energy. It is a different story when you get to the delivery end. Traditionally, regulated utilities are very conservative and averse to change. But Canada has integrated utilities that are not only involved in electric but also gas and thermal energy delivery. A lot of the people involved in integrated utilities are predicting a convergence of energy technologies, information technology and artificial intelligence. That convergence is happening very quickly and all of those of companies are now saying: “We have to get ahead of this. We have to be a part of this because it will be disruptive; it will change our business fundamentally. So what do we need to do?” That does not mean they are going to do it in a big hurry because they still have a great deal of infrastructure in place and they are still subject to regulation. Regulators are inherently cautious and risk averse. Large energy companies do see the potential in the energy transformation but they are also burdened with the fact that they have hundreds of billions of dollars of investment, and shareholders, investors, regulators and governments looking over their shoulders saying, “Do not blow this.”

“We need to think about what customers need and what they will insist on before building our new energy systems.” 

The energy transition – more realistically, “transformation” – is very unlikely to be smooth. It is going to cause all sorts of upsets, whether that is in the form of cost surprises, stranded assets or systems that may not deliver. Energy is becoming a customer-facing business and if you focus entirely on upstream production, you are going to miss that point. So if we are worried about the future of Canada’s oil and gas industry, for example, we should not be looking at Fort McMurray, we should be looking at Shanghai.


 

How will our energy systems look in the future, especially around smart cities and communities?

 

We are going to see lots of improvement in energy efficiency – broadly defined to include full system efficiency – just because it is low-hanging fruit. The energy intensity of the economy has declined a lot over the last several decades and it is going to decline a lot more, which is going to provide the basis for distributed energy solutions. Another change I foresee is the growth of knowledgeable and engaged citizens who insist on being part of the decision-making process.

“The energy transformation is very unlikely to be smooth. It’s going to cause all sorts of upsets, whether in the form of cost surprises, stranded assets or systems that may not deliver.” 

The urban transportation system is probably going to be very different. Although electric vehicles will be important, autonomous vehicles and, in effect, distributed transit through Uber and others, will be game changers. Moreover, it would not surprise me in the least if millennials were less likely to own personal vehicles. I suspect that the urban transportation systems of 2050 will not bear any resemblance to today’s systems. Moreover, much of the built environment – buildings and supportive infrastructure – required for 2050 is already built, so change will be incremental and nowhere near as fast as some might like it to be. On the other hand, if it is the development of new neighborhoods or the redevelopment of old neighbourhoods, the technological potential for net-zero buildings exists. It is just a matter of pushing the economics and bit-by-bit, you are going to see a pretty fundamental transformation.

 

 

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