A Microgeneration Strategy for Canada - Part 1

Published 2006

Case Summary

This case provides an overview of the potential for microgeneration policy in Canada. It does not provide a detailed analysis of existing or recommended policy options. Instead, it draws attention to the opportunities that microgeneration provides, and shows how other jurisdictions have seized on these opportunities while Canada lags behind. This case is based on a review of relevant literature and on interviews with stakeholders in the microgeneration industry.

The case presents microgeneration technologies as part of a strategy to transition to a low carbon economy. It explores the way in which microgeneration has captured the imagination of the public and policy-makers alike in the UK. The barriers to microgeneration in Canada are considered as well as an outline of government initiatives designed to overcome those barriers, and concludes by suggesting elements for a microgeneration strategy for Canada.

Sustainable Development Characteristics

Microgeneration in the transition to a low carbon society

Canada’s Greenhouse Gas emissions are rising sharply, with energy use in buildings accounting for approximately 30% of emissions (CETC-Buildings Program website). While Canadians are concerned about climate change (Environics Research, reported in Refocus Weekly, 2003), many people feel helpless to act alone, and often do not connect their day-to-day behaviour with climate change. Even in a time of rising energy prices, most consumers find it difficult to link their always-on standby lights with the monthly energy bill, let alone with carbon emissions. It is not surprising that government exhortations to conserve energy appear to be largely ineffective, and successive government programs have failed to engage citizens in the fight against climate change.

At the same time, growth in Canada’s renewable energy lags far behind other nations (Martinot). Despite some of the world’s most abundant renewable resources, and a population that overwhelmingly supports their use (Refocus Weekly, 2003), Canada’s renewable energy industry receives far less government support than that in Germany, the US, Spain or Japan. As a result, Canada’s renewable energy companies, some of them world leaders, often rely principally on exports because domestic markets are held back by limited government support, red tape, and inefficient policy.

Most of Canada’s electricity is generated in large, centralized plants, often some distance from the centres of population where most energy is consumed. While this creates some efficiencies through scale economies, more than 7% of Canada’s electricity is lost in its transmission and distribution (1999 figure; World Bank, 2002). Since Canada’s electricity-related greenhouse gas emissions in 1999 were 134 million tonnes, transmission and distribution losses imply a substantial carbon penalty. With a huge, renewables-rich land mass and a geographically dispersed population, Canada is ideally placed to become a leader in developing small-scale, distributed renewables, or ‘microgeneration’.

"Solar heating and power systems are viewed as the norm, with one in three single family homes using a solar water heating system and one in 10 using photovoltaics." (National Round Table on the Economy and the Environment, 2006).

Engaging the public

For most of us, energy use is largely invisible and unconscious. We simply are not aware of the stand-by lights, the power ratings of our toasters and lightbulbs, and the efficiency of the furnace. Exhorting the public with campaigns to conserve energy had poor results in the past, and although most Canadians are concerned about climate change (Bueckert, 2006), many feel helpless to make any positive changes in their own lives. Environment Canada’s evaluation of the One-Tonne Challenge program found that many people remained unaware of how they could make changes in their daily lives to reduce emissions (Environment Canada, 2006). Encouraging sustainable energy consumption is not straightforward. Canadian energy prices are relatively low, and do not reflect the true environmental and social costs of energy production and consumption. In any case, despite recent price hikes, many consumers find it hard to link the monthly bill to their day-to-day behaviour. But however difficult it may be, failing to engage with consumer behaviour is not an option if Canada is serious about cutting emissions. Microgeneration technologies provide opportunities to engage Canadians in the fight agains climate change with a positive and empowering approach.

Introducing clean, affordable energy generated within their own homes and businesses enables people to see and understand their own energy use, and to be proactive in reducing their emissions. Microgeneration technologies help people to see the bigger energy picture, and help to make people more aware of their energy choices and use at home. This sets residential-scale energy apart from larger alternatives – it is a real way of engaging people with the origins and impacts of energy and the implications of consumption, and combating the apathy that so often accompanies climate change concern.

"I see micropower in terms of a battle for hearts and minds, really, as much as the more mundane but very important fact that it can be part of the energy supply". (UK Energy Minister, Malcolm Wicks, 2006).

A recent study in the UK found that households in which microgeneration technologies have been installed are generally more aware of the energy use in their home, and adapt their behaviour accordingly. This was even true of microgeneration technologies in social housing, where the residents themselves had not made the decision to install the technologies. These residents had never thought of themselves as environmentalists (Dobbyn & Thomas, 2005). In the US, experience from the Sacramento PV (Photovoltaic) Pioneers program demonstrated how homeowners felt benefits from the satisfaction derrived from, and status acquired in being a leader in sustainable energy (Smiley, 2003).  Microgeneration is a visible reminder to the whole community of climate change solutions and self-sufficiency.

“I tell people all the time that I generate my own electricity.. I love it.. I think it's fascinating.”(Homeowner in Lancashire, with wind turbine. Dobbyn & Thomas, 2005).

“A lot of parents seem to notice it and ask what we’re doing. It’s good for them to see new things going on in the school.” (Teacher, Scottish primary school with solar panels. Dobbyn & Thomas 2005).

Reducing greenhouse gas emissions

Microgeneration technologies can help achieve a reduction in Canada’s greenhouse gas emissions. Many microgeneration technologies are zero carbon renewables: micro wind power, solar PV and solar thermal, and biomass heating and Combined Heat and Power (CHP). These technologies directly offset energy from carbon emitting sources. Others use renewable energy to supplement traditional sources: ground and air source heat-pumps, for example, use a small amount of electricity to extract heat and cooling from the earth and air.

Realisation of the full market potential would result in the installation of over 600 MW of small wind turbines and greenhouse gas emission reductions of over 300 kilotonnes CO₂e per year (equivalent to removing over 50,000 cars from the road).” (Marbek and GPCo, 2005). The solar resource is also huge, again with the southern (populated) areas of the prairies particularly richly endowed, and also southern Ontario (Morris, 2006). On a typical July day, Toronto receives more solar energy than Miami (McGonagle, 2006). In Canada’s forested areas, where wind resources are constrained, bioenergy represents an enormous opportunity. It is worth noting that the provinces that are most dependent on fossil fuels for electricity, such as Alberta and Saskatchewan, also have the richest microgeneration resources.

Already, despite very limited deployment, microgeneration technologies are reducing Canada’s greenhouse gas emissions. For example, active solar heating systems currently operating in Canada replace around 23,200 tonnes of CO2 equivalent every year, while the solar thermal collectors sold during 2004 alone will replace, over their lifetime, 122,600 tonnes. (SAIC, 2005).

Microgeneration technologies alone are not the solution to Canada’s energy policy needs, as they will not serve all of Canada’s energy demands, but neither is the contribution of microgeneration vanishingly small. Modelling for the UK government, based on learning curve estimations of future costs, has suggested market penetration of small (< 50kW) wind and PV could reduce the UK’s carbon emissions by 6% by 2050 if net metering tariffs are in place (Energy Savings Trust et al, 2005). While this would clearly be different for Canada, the UK's experience demonstrates that gains from microgeneration are small, but potentially significant. There is an urgent need for further analysis to assess the potential for market penetration of microgeneration in Canada to reduce emissions.

Providing clean, affordable power to Canada’s remote communities

Reducing infrastructure needs and enhancing robustness

Electricity in Canada is produced far from the point of consumption. The electrical system requires substantial investments in transmission networks to move power around the country. As electricity demands rise over the coming years, costly upgrades to transmission systems will be needed. In any case, long-distance transmission brings inefficiencies into the system. Microgeneration reduces or delays that need, by meeting demand closer to the point of use and thus reducing the need for increased transmission capacity. This economic benefit of microgeneration is not always captured in cost comparisons, which typically represent generated, rather than delivered, electricity costs. This fails to represent the costs of infrastructure and the efficiency losses of long-distance transmission (WADE, 2005).

Microgeneration technologies can also enhance system robustness, and help to prevent black-outs: meeting some electrical load locally reduces the strain on long-distance transmission lines. Studies after the 2003 black-outs in Eastern Canada and the US found evidence that a few 10s of MW of distributed PV could have prevented the black-outs (Perez and Collins, 2004).  Canada’s electricity transmission infrastructure is inefficient and stressed, and distributed renewables can ease this pressure (CanREA, 2006). The National Energy Board recently concluded that:

“Alternative and renewable resources and demand management are becoming more important in addressing … supply adequacy.” (National Energy Board, 2005).

PV technologies, in particular, reduce energy demands during summer peak loads, on hot sunny days when air-conditioning demands spike.

Providing opportunities for Canadian business

“Global demand for small, environmentally friendly power systems is rapidly accelerating. In Canada, there is a huge potential market among homeowners and small business operators.…the micropower market could provide thousands of jobs and billions of dollars in revenue.”(Micropower Connect, 2006).

Critical Success Factors

1. Dynamism at the local level played a key role in fostering the development of policy.
2. National government leadership was essential in encouraging local level progress to spread.
3. Enabling straightforward grid connection is essential and a pre-requisite if economic instruments such as capital grants are to work.
4. Microgeneration can capture the public imagination, and engage public debate around energy futures.

What Worked?

1. Canadian governments have already recognised many of the benefits of public support for microgeneration technologies, and both the federal government and provincial governments have taken important steps to remove barriers and enable growth in microgeneration markets.
2. The Renewable Energy Deployment Initiative (REDI) was established in 1998 to provide $51m over 9 years to solar air and water heating and biomass heating in commercial buildings.
3. The Class 43.1 Capital Cost Allowance tax incentive for the purchase of renewable energy equipment has been valuable for supporting the small wind market.
4. PST exemptions or rebates on renewable energy purchases offered in PEI, BC, and Ontario. Nova Scotia provides a 10% rebate for solar water heating, and $200 for certified clean-burning woodstoves, while the Quebec Energy Efficiency Fund provides $400 towards solar wall installations, a form of active solar air heating. In BC, a project of the BC Sustainable Energy Association, partnered with provincial and federal governments, Vancity Credit Union, and BC Hydro, is providing support for homeowners and communities to access rebates for solar hot water systems.
5. Natural Resources Canada and a range of industry associations and other stakeholders have made progress over the last few years in tackling some of the systemic barriers.
6. In 2006, a new National Standard of Canada was issued covering grid interconnection of microgeneration technologies, providing a basis for harmonized rules across Canada.
7. The Ontario Power Authority’s Standard Offer Program, which provides a guaranteed price for electricity generated from renewable resource installations under 10MW.
8. The federal government has provided support to a number of Canadian industry associations representing the microgeneration industry, either with core funding or for specific projects. Government support has also been available for the development of product standards and training and certification programs. Other support has been targeted at raising awareness of small-scale renewables.
9. The Aboriginal and Northern Community Action Plan (ANCAP) was developed to help northern communities respond to the challenges of climate change, through adaptation and reduction of greenhouse gas emissions. This includes supporting renewable energy projects, as well as resource estimation (through a Wind Assessment program), and community energy planning in remote communities across Canada.
10. There are many Canadian municipalities that have installed small-scale renewable systems, often as part of initiatives to reduce the carbon footprint of civic buildings. The federal government's Green Municipal Funds, which is administered by the Federation of Canadian Municipalities, has been an important source of support for these projects.

What Didn’t Work?

1. Energy systems and markets are structured and regulated in such a way as to unfairly exclude small producers, by barring entry into energy markets, failing to compensate small producers for their generated energy, and a host of issues associated with codes and standards, building regulations, and permits.
2. The process of connecting to the grid needs to be carefully regulated to ensure safety and reliability, but the process of interconnection is often overly complex, and some observers have suggested that the lack of uniform interconnection standards across the country has been ‘the number one interconnection barrier for small renewable systems.’
3. Codes are vital for ensuring that products and buildings are safe and reliable, but they need to be updated as new technologies emerge. This has not always happened.
4. Canada currently lacks straightforward training and certification systems for installers of many microgeneration technologies.
5. Local by-laws and planning rules have usually been designed without consideration of micro-renewable technologies.
6. In an energy system dominated for decades by large, centralized power generators and heating fuel providers, many homeowners, developers, and policy-makers simply do not know about or understand the alternatives.

Financial Costs and Funding Sources

Although they typically have low operating costs, most microgeneration technologies involve large up-front capital costs, and frequently long pay-back timeframes. This is particularly true in Canada, where electricity prices are very low. For many homeowners concerned about reducing their energy bills, upfront costs are a major disincentive, particularly given the difficulty in accessing the financing mechanisms available to investors in large centralized energy systems. High upfront costs were cited as one of the principal barriers to increased microgeneration by most of the industry figures contacted, reflecting the results of recent surveys (Marbek and GPco, 2005).

It is often argued that the high upfront costs of microgeneration technologies are a reason to delay support until costs have come down through R&D. This is often a self-defeating argument, given what we know about the relationship between cumulative installations and cost (see figure below). Removing the barriers to adopting microgeneration technologies will allow costs to fall, and for microgeneration technologies to establish self-supporting markets. This, of course, does not mean that microgeneration should be given a blank check, but rather that targeted support can create momentum for change.

The Renewable Energy Deployment Initiative (REDI) was established in 1998 to provide $51m over 9 years to solar air and water heating and biomass heating in commercial buildings. It provides up to 25% of the cost of these systems, and in 2002 support from REDI was extended to ground source heat. While it has provided much needed support for the development of the renewable heat industries in the commercial sector, and is considered to have been a successful program, it has not engaged with homeowners to bring renewable energies to a wider market.

PST exemptions or rebates on renewable energy purchases are offered in PEI, BC, and Ontario. Several provinces have also developed grants for renewable equipment purchases: Nova Scotia provides a 10% rebate for solar water heating, and $200 for certified clean-burning woodstoves, while the Quebec Energy Efficiency Fund provides $400 towards solar wall installations, a form of active solar air heating. In BC, a project of the BC Sustainable Energy Association, partnered with provincial and federal governments, Vancity Credit Union, and BC Hydro, is providing support for homeowners and communities to access rebates for solar hot water systems.