July 24, 2006

Study gives clearer picture of extent to which DSM can reduce energy demand growth

A groundbreaking study prepared for and released jointly by the Canadian Gas Association (CGA) and the Canadian Electricity Association (CEA) provides a clearer-than-ever picture of the potential contribution that energy efficiency and demand side management (DSM) can make to reducing energy demand growth in Canada. It concludes that, depending on the policy instruments in place across the industrial, commercial and residential sectors, a reduction of 3 to 10% in total energy demand by 2025 is possible. This equates to a reduction of 16 to 56% in energy demand growth by 2025.

"For the first time we have a clear understanding of the energy demand reduction that can be realized from conservation, energy efficiency, and demand side management (DSM) measures," said CGA president and CEO Mike Cleland. He noted, however, that "even with the most aggressive scenario, half of future demand growth will have to be met with new supply."

The Demand Side Management Potential in Canada: Energy Efficiency Study is the first of its kind in Canada, as it examines comprehensive energy management for all fuels-oil, gas and electricity-and all economic sectors-industrial, commercial and residential. Transportation is excluded, however, and the project did not examine the energy management potential in the upstream oil and gas industry, which is both a growing and energy-intensive sector. The study is national in scope, providing regional and sectoral breakdowns and allowing for fuel switching. Two leading experts in the field, Marbek Resource Consultants and MK Jaccard and Associates, carried out the project for the CGA and the CEA.

The study modelled energy consumption over a 25-year period (2000 to 2025) using three different scenarios compared against a reference (baseline) case. The scenarios incorporated a bundle of energy management policy instruments, ranging from conventional to very aggressive measures. The CGA and CEA note that the latter will be a challenge to implement. Among the policy instruments considered by the research consultants were marginal cost pricing, higher-density land use policies, enhanced energy performance codes and standards, carbon liability, fuel switching, market intervention and greater market penetration of energy technologies for on-site application and generation.

The baseline case is defined as projected energy use in the absence of any new energy efficiency measures. It does include continuing pre-2000 DSM measures and efficiencies achieved through routine technology improvements and replacement of old equipment with new, more energy-efficient counterparts. Under this case, total energy demand would rise by 1,137 petajoules (PJ) or 22%, from a total of 5,174 to 6,311 PJ between 2000 and 2025.

The achievable scenario I (status quo) estimated the potential contribution of DSM to reducing growth in energy demand assuming that energy efficiency financial incentives, voluntary actions and information programs remain at their 2005 levels and types of spending over the study period. Under this scenario, the consultants projected that total energy demand growth would be limited to 955 PJ, representing a 16% reduction in demand growth and a 3% reduction in total energy demand.

The achievable scenario II (aggressive) estimated the potential contribution based on a much more aggressive set of policy instruments. Total energy demand growth under this scenario would be only 490 PJ, a 56% reduction in demand growth and a 10% reduction in total energy demand, compared with the baseline case.

The third, economic potential, scenario assumed total adoption of energy efficiency measures on purely economic considerations and assumed a carbon liability. It also ignored market barriers observed in historical data. The total energy demand growth would be limited to 213 PJ, representing a reduction of 81% in energy demand growth and a 15% reduction in total energy demand.

In general, the study concluded that energy efficiency, conservation and DSM can yield significant energy demand reductions over the 25-year period 2000-2025. Achieving these savings, however, will require expansion of existing programs and-if the upper range of savings is to be gained-implementation of a range of more aggressive policy instruments.

Energy efficiency and DSM should be an integral part of future discussions about Canada's sustainable energy futuree, says the report, adding that sustained and long-term co-ordination of policy and program development is needed, involving governments and other regulators, utilities and other stakeholders, so as to remove barriers to achieving Canada's full energy efficiency potential.

"The results of the study confirm the need for greater co-ordination on energy efficiency policy and program development between governments, utilities, regulators, and other stakeholders," said Cleland. "This co-ordination will help identify both barriers to achieving the demand reduction potential and policy instruments that governments are realistically willing to implement."

CEA president Hans Konow observed that "This study further illustrates the importance of ensuring that DSM and energy efficiency potential are included in future discussions on Canada's sustainable energy future. In an era of rising energy costs," he added, "it is vital that consumers be provided options for better managing their energy consumption and consequently their energy bills."

The CGA served as project manager on behalf of a working group representing the federal and provincial governments, the energy utility industry, energy users, and non-governmental organizations. The project was funded by Natural Resources Canada (NRCan), CGA and CEA. More information is available from Paula Dunlop at the CGA, 613/748-0057, ext 341, or Francis Bradley at the CEA, 613/230-5027.

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