March 27, 2006

NEB analyzes current status, prospects for emerging cleaner sources of electricity

A new energy market assessment by the National Energy Board (NEB) examines both the current status and the prospects for non-conventional power generation sources. The report, Emerging Technologies in Electricity Generation, "identifies for the Canadian public, the barriers to growth in 'greener and cleaner electrical generation' and gives suggestions on how those barriers can be overcome," said NEB chairman and CEO Kenneth Vollman.

Examples of the most widely used emerging technologies include wind power, small hydro and biomass, which are already competitive with conventional electricity generation in some locations. Other emerging technologies like fuel cells, photovoltaics and clean coal need additional technological improvements and cost reductions in order to become more competitive. Demand management measures are included in the analysis, as these may be considered energy sources with the potential to reduce the need for more new generation facilities.

The NEB assessment takes into account regional differences as well, as prospects for emerging technologies vary among the provinces and territories depending on available resources and prevailing government policies and strategies relating to fuel preferences.

Statistics from 2003 show that Canada's emerging technology industry generated about 17 terawatt hours (TWh) of electricity. This is about 3% of the country's total electricity production and is roughly equivalent to the entire Canadian demand for electricity for 11 days.

Reasons for this low penetration include the low costs of electricity from conventional sources such as large-scale hydro, natural gas, coal and nuclear generation, and to some extent, the structure of the industry which has traditionally been oriented to large central generating facilities owned by large publicly-owned utilities.

With improved conditions, the output of these emerging technologies could, by some estimates, increase by up to 15% by 2025. The time, in fact, is ripe for rapid growth in emerging technologies, says the report. Rapidly rising prices for fossil fuels, together with improvements in technology are helping make green energy relatively less expensive: the cost of wind energy, for example, has dropped about 80% in the last 20 years. This, together with concerns about climate change and further development of nuclear power, has set the stage for growth in renewable and green energy.

The NEB study found that small hydro is Canada's largest contributor to the green power sector, with close to 2,000 megawatts (MW) of installed capacity. It is a mature technology with good near-term and long-term prospects because of the large number of potential sites in Canada. While operating costs are usually low, capital costs may vary depending on project location and output from these facilities is vulnerable to seasonal fluctuations, says the report.

A bigger constraint, however, is the environmental assessment and approval process which can be disproportionate to project size, causing cost increases and time delays. Local public opposition based on environmental concerns can also hamper small hydro developments.

Although wind power experienced a record year in 2005 in terms of capacity expansion, biomass remains Canada's second-largest renewable energy source after small hydro. The NEB includes industrial cogeneration (the combined production of heat and electricity from a single fuel source) in this category. Widely used in the pulp and paper industry, it is the most common method of biomass generation, notes the report.

The prospects for biomass generation have been enhanced by rising natural gas prices, the shift away from coal-fired generation, limitations on new hydro development and intermittency problems associated with other renewable energy technologies. The potential for use of landfill gas, municipal waste and agricultural residues varies by region and may be constrained by relatively high start-up and operating costs.

The growth of wind power is being encouraged by provincial renewable energy portfolio standards, requests for project proposals, good wind resources in many regions and relatively short construction lead times for wind energy projects. The intermittency of wind power requires backup power or energy storage to ensure reliability, and project siting and feasibility often depends on access, at reasonable cost, to existing transmission facilities, says the study.

The NEB reviews five other emerging technologies (geothermal, solar photovoltaic (PV) cells, fuel cells, ocean energy and clean coal, including integrated coal gasification combined cycle), plus demand management. Costs, along with the benefits and constraints to development are outlined for each.

A number of government incentives and industry initiatives are actively promoting the growth of emerging technologies. At the same time, however, there remain several significant barriers to growth, among them:

*the lack of a co-ordinated strategy for research and development;

*the lack of access to the transmission grids;

*a regulatory process that can be burdensome, especially for small project developers who often lack the expertise to deal with the process; and

*the need to allow electricity prices to reflect true market values and capture the environmental benefits of emerging technologies.

The NEB proposes a series of options through which governments could enhance support for development of emerging technologies. These will need to focus on reducing barriers (options 1 and 2), promoting co-operation (options 3 and 4) and improving certainty (options 5 through 7).

1. Develop rules for access to the power transmission grid that are transparent and offer emerging technologies some measure of certainty.

2. Establish clear regulatory guidelines that are appropriate for a project's size and scope.

e.g. Small hydro projects must often meet the same regulations as large projects.

3. Continue to support research into emerging technologies.

4. Encourage regional co-operation in order to share resources and develop solutions that promote the growth of emerging technologies.

5. Continue providing incentives that improve financial certainty.

6. Allow electricity prices to reflect their true market value.

7. Where appropriate, guarantee minimum prices to green energy developers.

In addition to proposing options to directly address these barriers, the report notes that emerging technologies could be helped by encouraging the opportunities to combine generation from different sources. For example, electricity generated by large hydroelectric facilities could be supplemented by wind power.

Another option is enabling fossil fuel based systems to trade or purchase emissions credits to achieve air quality goals more efficiently. This option would encourage jurisdictions with green technologies to expand production.

"Diversifying our electricity generation capabilities would make our economy more flexible and increase protection for our environment," said Vollman.

The energy market assessment was produced following an extensive stakeholder consultation process that involved technical experts and facility operators, as well as on-site visits and literature reviews.

Emerging Technologies in Electricity Generation may be viewed on the NEB Web site, www.neb-one.gc.ca, or requested from the National Energy Board, 444 Seventh Avenue SW, Ground Floor, Calgary T2P 0X8; 403/299-3562, toll free 1-800-899-1265, E-mail publications@neb-one.gc.ca. More information is also available from Bob Modray, technical specialist, economic and energy analysis, 403/299-3157, E-mail bmodray@neb-one.gc.ca.

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