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

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.”

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.

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.

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 neighborhoods, 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.