Hamilton: Ontario will have to reduce natural gas consumption

By Tyler Hamilton Energy and Technology Columnist

Commercial and residential developer Remington Group is expected to break ground next year on North America’s largest Asian-themed shopping mall and an associated 470-unit condominium complex.

The entire project will occupy 800,000 square feet and will be located at Kennedy Rd. and Steeles Ave., essentially at the heart of Markham’s shopping district.

On the surface, the grandeur of this project makes it a natural headline grabber. What has me paying attention, however, is what lies below the surface.

Remington plans to install a massive geo-exchange system – otherwise known as a geothermal heat pump system—that will tap the Earth’s energy to provide heating and cooling to both the mall and the facility’s condo units.

Remington is one of those rare developers that likes to lead the market more than follow it. Another of its condo projects, this one located on the south side of The Queensway between Islington Ave. and Kipling Ave., will boast 1,250 units that will also be cooled and heated using geothermal. The system’s piping, which is used to extract energy from the ground, will be installed under a neighbouring park as part of a pilot project with the city.

Over at Victoria Park Ave. and Sheppard Ave., 210 affordable housing units under construction are also getting the geothermal treatment. Remington has embraced geothermal so much that it now owns 50 per cent of Groundheat International, one of the country’s leading geothermal drillers and installers.

Those three Remington projects alone represent nearly 2,000 condo units and hundreds of retail spaces.

This got me thinking: who’s losing out here? All signs, it seems, point to the natural gas utility.

This isn’t to say that an Enbridge Gas Distribution or Union Gas is under any immediate threat. Still, not a week goes by that I don’t hear about some new renewable energy project that aims to reduce natural gas use.

It could be a solar hot-water system atop the roof of a hospital or senior’s home. It could be a university, such as the University of Ontario Institute of Technology, which has chosen geothermal over natural gas for its campus heating.

Biogas is also bumping up against its fossil-fuel cousin. Animal manure from the Toronto Zoo, wastewater treatment sludge from Ashbridge’s Bay, food waste from Toronto’s green bin facilities, and methane from the Green Lane landfill—all of it will soon be converted into biogas, allowing the city and its facilities to reduce its consumption of natural gas.

“You start seeing these other projects like geothermal and biogas and renewables and you start asking, is it a possibility that you not only see declining use but will see us shut out of certain segments? That’s possible, but I think it’s too early to say,” says Arunas Pleckaitis, vice-president at Enbridge Gas Distribution.

“We’re aware the business environment is changing. And we’re asking ourselves, how does our business model and business have to adjust?”

It’s a strange situation, in a way. Look at the big picture and it couldn’t be better days for natural gas. Advances in horizontal drilling and hydraulic fracturing have dramatically reduced the cost of “unconventional” gas, such as shale gas and coal-bed methane. This is significantly boosting supply, both now and into the foreseeable future.

Natural gas is also considered the clean fossil fuel. When burned, it releases roughly half the CO2 emissions of coal, zero mercury, and far fewer smog-causing pollutants. Being so plentiful, embracing natural gas for power generation – and essentially displacing coal – is seen as the most effective and quickest way to reduce CO2 emissions in the electricity sector.

Still, the party could be short lived in a market like Ontario. Yes, the province is relying on natural gas-fired power generation as part of its coal phase-out strategy, but once all the coal plants are shut down in 2014, then what? At that point, natural gas becomes the dirtiest fuel in the power generation hierarchy and will have a big target on its back.

It’s also important to understand that electricity only represents 18 per cent of the energy consumed in Ontario. Natural gas, excluding that used for power generation, represents a whopping 35 per cent.

“Gas is the primary heating fuel in Ontario,” wrote Gord Miller, Ontario’s environmental commissioner, in his recent annual report on energy conservation. “The potential savings on consumers’ bills and emissions reductions from reduced consumption is large – possibly more than savings from electricity.”

The Ontario government has had some incentives to encourage the use of solar thermal and geothermal technologies, and both Enbridge and Union Gas have had “demand-side management” programs aimed at reducing natural gas consumption. But no targets have been set. It has all been uncoordinated and, for the most part, overshadowed by the government’s obsession with the electricity sector.

But if Ontario is to meet its greenhouse-gas emission targets, it will soon have to place a greater effort on reducing natural gas consumption, either through conservation, energy efficiency initiatives, or displacement through renewables such as geothermal, solar thermal and biogas.

Enbridge knows this is coming. It’s seeing it in the market today. The challenge now is figuring out how much will come, how quickly, as well as what role the utility will play.

Could geothermal be in the cards? “That’s one of the areas we’re examining,” said Pleckaitis.

He pointed out that a utility like Enbridge does have access to low-cost “patient” capital and could build and own large geothermal systems knowing that a return on investment might take several years. Its parent company, Enbridge Inc., takes a similar approach with its pipeline infrastructure investments.

Enbridge is already dabbling with solar thermal hot water systems for homes, though premature cancellation of the federal government’s EcoEnergy Retrofit program, which offered hefty incentives to homeowners, has cast doubt over those efforts.

Biogas opportunities are also on Enbridge’s radar, though how it would participate in the market remains unclear.

One potential business model could be designed around district energy systems. The idea here is that Enbridge, rather than extending its natural gas pipes into every home, would instead build and own a district energy system that would supply heating and/or cooling directly to homes from a central hub in the community.

A district energy system based on geothermal could be one approach. Another is to build a combined heat and power facility that runs on natural gas, or even better, biogas.

“We’re talking to municipalities and asking, should the utility play a role in the development of district energy systems in your community?” said Pleckaitis, adding that he expects greater cooperation with electric utilities on these projects. “There’s going to be a need for joint planning.”

There’s also going to be a need for flexibility from the Ontario Energy Board as it determines what gas utilities can and can’t do in this rapidly changing marketplace.

At the same time, Enbridge must be prepared to take some risks. Experimenting with new business models is good, but natural gas customers shouldn’t have to cover the cost of those experiments.

Tyler Hamilton writes weekly about green energy and clean technologies. Contact him at tyler@cleanbreak.ca