Wanted: Higher energy standards for housing

A real concern for many is the cost of heating our homes. It’s a cold country so we should logically adapt our housing to reflect the reality that housing uses 17% of Canada’s total energy budget. To some extent we have started down that road with the R2000 program but there is a major gap between R2000 housing and what is really possible.

Decades of cheap energy have sapped our creative thinking, and left us with a legacy of energy pigs masquerading as houses. That is changing. If the price of oil hadn’t declined this fall and winter, we would have had a major crisis on our hands. It’s only a temporary reprieve, but are we ready to react to the long-term trend that is evident? Whether you heat with electricity, oil, natural gas or wood, prices are going to rise quicker than your wages or inflation. For many, that means a choice of cutting other expenditures and it could be food. What are we to do?

There are some reasons for optimism. First, the advent of new housing concepts like the “net-zero” energy home, which integrates advanced energy efficiency design and building materials with onsite renewable energy, which is then capable of producing an annual output of energy that is equal to the total amount of its annual purchased energy. Going closer to zero energy costs more because photovoltaic, is still a little pricey today. This leads us to the near zero energy home which may be reasonable right now.

Rob Dumont from Saskatchewan was in New Brunswick recently giving presentations on a remarkable “Factor 9” house built in 2007 in Regina. It was designed to use nine times less energy than a house built in the 1970’s and use only 50% of the water. It consumes only 3 kWh per square foot per year or $450 for the energy (1500 ft2 home). On the south wall are active solar panels that heat water for space and hot water heating. In addition, the air infiltration is reduced from 1.5 (R2000) to .5 air changes per hour. An air exchanger ventilates and recovers heat. The R-2000 home, the top energy standard for New Brunswick, would use 13 kWh for each square foot or more than four times the energy. Is it worth it?

The idea of investing a little more money initially to save on energy bills in the future isn’t as exciting to some as granite countertops. But looking into the figures – the older standard 1500 ft2 home uses 28,000 kWh per year, the R2000 uses 19,500 and the Factor nine uses 4500 kWh, which is $2800, $1950, and $450 respectively. (at 10 cents /kWh) Of course, the cost of energy will rise over the years so let’s use an average figure of 14 cents when calculating the present value of the energy savings over the years.

The energy savings by insulating above the standard home of the past to R2000 is $12,600 over 20 years. The benefits of going Factor 9 would be almost $35,000. Supposing the standard house cost $200,000. The R2000 would cost $206,000 based on a 3% premium. The Factor 9 could cost $220,000 to build. The savings in each case are greater than the initial cost increases.

So, the numbers suggest that super insulation and smart building techniques save money, and we know that the local economy benefits from energy dollars remaining in the community. Environmentally, using less energy reduces greenhouse gases. Energy security for Canadians is enhanced by using less fuel and generally contributes to less price volatility. We know all of these good things yet we continue to build with poor energy performance. How could we change?

First, we have to understand why change is necessary. Most people know little about Factor 9 or close to net zero energy homes. Paul Arsenault of AlternaHome Solutions was recently selected as the builder of the first CMHC Equilibrium eco-friendly demonstration home in Atlantic Canada. Moncton is the site.

We need model homes in every major region in the province. Efficiency NB could incorporate a model home subsidy for a number of legitimate builders to aid in the design, construction and monitoring of their first super-efficient home. Let’s build home grown expertise and visibility.

Secondly, the province must adopt a high energy standard for all new construction, even higher than the R-2000 program. Poor energy performance means a cold and bleak future. A bright self-sufficient future for New Brunswick includes conservation, passive solar gain, and eventually photovoltaic for new construction.

Finally, we need to examine the way that our communities are built, to minimize the necessity for private cars. Just reducing the energy demand of housing is only part of the total energy solution.

It’s all in the Performance

Recently, a small industrial owner asked for advice.  He was thinking about converting equipment from oil to electric as a way of saving money.  A quick look at his electric bill indicated that his average cost was 16 cents per kWh, which is relatively high.  His rate for furnace oil was actually lower than his kWh rate and conversion to electric would only worsen his situation. Although most business people are very smart, few understand the complexities of the small industrial rate and the variable first block.  NB Power’s rate design is intended to flatten demand but does it achieve anything but costing some customers more money? The solution chosen by this industrial customer was to reduce the size of compressors and install ground source heat pumps for space heating.  This case made me reflect about NB Power’s lack of progress on rate reform and much more.

In the rarified altitude of NB Power’s 9th floor, there are bigger fish to fry than rates today.  The Lepreau refit, with fuel costs at $1 million per day, must be weighing heavily on David Hay’s mind.  It’s now three months late or $90 million over budget.

His salary and bonus has been in the news virtually every day.   Over at Nova Scotia Power, their CEO is paid $600,000 per year.  Remember Jim Hankinson, the well-respected CEO of NB Power from 1996 to 2002?  He’s now working as CEO at Ontario Power Generation for $1.6 million a year.  That’s one of the companies generated when Ontario Hydro was broken up by the privatization / de-regulation ideology prevalent several years ago.

Although his salary is high by New Brunswick standards, perhaps we should be asking another question – Is David Hay doing the job that he is hired to do in a competent manner? And to be fair, how are the groups directly associated with NB Power playing their roles.  – The Energy and Utilities Board, The Department of Energy and Efficiency New Brunswick.  Are they doing a good job?

The Minister of Energy Jack Keir is ultimately responsible for NB Power.   Mr Keir has indicated that he wants to have NB Power run as an efficient business and operate at arm’s length to the government.   Let’s take the issue of company structure, something that is really outside the domain of CEO Hay.  The previous Conservative government split the corporation up into 5 units and incurred multi million dollars costs for no obvious benefit.  This Liberal government has given no clear direction to NB Power to re-integrate the corporation and reduce costs.  A report was commissioned back in July 2008 with Bill Thompson and Bill Marshall as the authors.  Has this report been given to the minister?

The Department’s major interests are the new refinery and private sector financing and building a second Lepreau unit with power to be sold to New England states.  There are a few problems blocking this project: inadequate transmission capacity south of Maine, no long term contracts signed from US utilities, an unfinished design for the new ACR-1000, and an uncertain future for AECL.  As well, the earliest in-service date would be 2017, the construction cost could be $7.5 billion dollars, and the possibility of cheaper photovoltaic energy being available to customers before that date may be the financial ruin of utilities who buy into the deal.  Aside from these immense obstacles and uncertainties, apparently it’s going well.

If we look over at the EUB and it’s predecessor’s performance over the past twenty years, most objective observers would agree that it has failed to reform and regulate rates.   A couple of examples – Any rate increase below 3% is not subject to review and the revenue-cost ratios are consistently out of the range suggested by the EUB.  Large customers get better rates than small customers and on it goes.  Our energy watchdog is just a cute poodle but it’s not all their fault.  Let’s face it, government wants it that way – An agency with responsibility but little authority.

The folks at Efficiency NB want to see more efficient use of energy and that’s exactly what we need both for NB Power and the citizens of this province.  Roughly three years into their mandate, we see little solid evidence that the agency is achieving its goals.  What percentages of homes in the province have been upgraded?   1%?  2%?    Their annual reports are astoundingly short on detail and context.

So, are EUB, DOE, ENB, NB Power doing a good job?  Respectively, how does ineffective, incompetent, ineffective and not good enough, sound to you?

May I make a few quick suggestions?

1) Give the EUB authority or eliminate the EUB and roll its functions into the Energy Department.  Without real rate reform, we have no incentive to conserve.

2) Premier Graham needs to accept that the energy hub is unlikely to produce anything of value, and re-task the Energy department to do its real job. A maybe solution in 2017 doesn’t cut it.

3) Efficiency NB has not lived up to its mandate.  It has no sense of urgency, and requires attention from government.

4) The Energy Minister should be the chairman of NB Power’s board of directors.  Recombine the corporation into one business unit.

Our modern society provides amazing benefits that result from the incredible energy of liquid fuels such as oil.  Our level of usage is not sustainable and change must begin immediately if we are to re-organize our very survival. The Graham government needs a complete energy reboot.  The question is whether he will press the button or whether the people will do it for him in 2010?

Will wood replace oil?

The cost of oil is rising and will continue to rise. At what price do we say enough is enough and abandon oil as a home heating fuel? That’s a decision that each person has to make. Do governments have a role to play in ensuring warm homes via reasonable heating choices in Canada? Most of us would say yes.

Governments may be still unaware of the nature of this emergency. They can recognize hurricane or flood damage. If there were no fuel it’s would be easy to understand. But rising prices can be tricky. Is it a permanent condition? How bad will it get? The funny thing is that world oil production hasn’t even started to decline yet. It’s just a little less than demand. Imagine when the real decline starts. So let’s talk about our vulnerabilities.

80% of homes in PEI, 25% in New Brunswick and roughly 65% of Nova Scotia use oil as the heat source. Approximately 1.3 billion liters of fuel oil are burned each year in Atlantic Canada. At last years price of 91 cents, that was $1.2 billion. At present day prices of $1.43 / liter, the new bill is $1.86 billion, a difference of $660 million. Next year, who knows? If families locked in a good price last fall, the sticker shock will only hit them later this year.

Over the next few years there will be a large-scale migration from unaffordable oil to other sources of heat due, as peak oil becomes a reality. There will be a burning platform with people diving to another fuel. The key question is what the alternate heating source will be and what are the implications of this massive shift?

First of all, we should realize that the limited Enbridge network will provide little relief outside of portions of Fredericton, Moncton and Saint John. Unfortunately, Efficiency NB hasn’t existed long enough to make a dent in the efficiency levels of our antiquated housing stock. Elizabeth Weir and Enbridge recently announced that they are contributing $2250 / $7,000 towards a $10,000 per person conversion program from electric heat to natural gas.

To put our oil refugee’s plight into perspective, 1.3 billion liters of fuel oil is equivalent to 11.5 billion kWh’s or 11 times the annual usage of Saint John Energy. It is 61% of the output of NB Power’s system. The peak that it would create on the Atlantic grid would be 2500 MW or more, which is equivalent to four new Lepreau 1 units or 2.5 units of the new AECL 1000.

Looking at a wood alternative, we would have to cut 2.8 million cords of wood to replace this volume of oil. To compare, the existing residential usage of hardwood in New Brunswick is roughly 500,000 cords each year.

But what about New Brunswick? My guess is that 60,000 homes are heated with oil. Assuming an average usage of 2500 liters per home, that’s 150 million liters or $214 million out of NB consumers pockets annually at today’s price. The replacement of this energy by electricity would require 1.4 billion kWh’s, from a power station of 420-Megawatt capacity, which is similar in size to the Belledune coal station. Note that this oil is consumed in the winter causing a large peak load. The cost of Belledune plant was $1 billion, if I remember correctly.

Francis McGuire, chairman of NB Power’s board indicated recently that even if the private sector doesn’t build Lepreau 2, then NB Power could proceed on it own by 2022. Has NB Power considered where New Brunswickers using oil heat are going to jump when the price of oil is $250 a barrel? Last time, it was towards NB Power. How would NB Power make up for the kWh shortfall? By burning heavy oil at Coleson Cove at a loss?

Jack Keir, Minister of Energy, has been suggesting Lepreau 2 as an economic development tool leveraged by private investment. Are the promoters presently waiting for government to meet some conditions? It’s a moot point as its completion date is too far into the future for application to the present problem.

Using wood as a solution requires an additional 332 thousand cords to be harvested annually to displace the New Brunswick fuel oil requirement. This shouldn’t be a problem with mills shutting down. Pellets and briquettes can use softwood that is compressed to provide the same heat density of hardwood, with less moisture content.

Wood heat could very quickly meet the requirements of a conversion program. The reduction of oil purchases of 943,000 barrels would retain $137 million a year in the New Brunswick economy as opposed to sending it offshore. Over the years, this would be the equivalent of investing over a billion dollars in the local economy. If Efficiency NB extended their offer of $2,250 to oil heat customers converting to wood, it would go a long way toward alleviating the problems of oil prices. The cost of the providing stoves would be $135 million (60,000 x $2,250), probably spent over a number of years.

The use of EPA rated stoves ensures an efficiency of 70% and emissions that are less than 10% of previous generation stoves. In urban areas, the use of pellet or briquettes may have to be mandatory with round wood as a rural option.

We are at the beginning of an emergency, perhaps a low intensity war. This change from low cost energy to high cost energy will sap our resources, leave us poor and eventually cold. If we fail to adapt to the heating oil challenge as well as the other aspects of peak oil, we lose. Do you see the leadership that we need to ensure that we don’t freeze in the dark?

What will you burn this winter?

How are you going to heat your home this winter? If you’re heating your house with oil and about 25% of New Brunswickers do, you may have noticed that the regulated price of fuel oil is up to a maximum of $1.43 per liter. That’s quite a change from June 2007 when it was 57% lower (91 cents per liter).

What would be a good forecast (guess) for next year’s price? At this moment the world supply doesn’t quite meet demand so the price is trending upwards. It may reach as high as $1.80 per liter and perhaps as low as $1.20 if we get very lucky.

First of all, the recent announcement by the Saudis that they would open the tap by 500,000 barrels a day didn’t drop the price. The increase is only ½ of one percent of the daily supply, it may be heavy crude that not all refiners want, they probably can’t turn the tap any further and certainly no one else can. It may be time to review your options.

Could your house be more efficient and use less energy? Perhaps an energy audit by Efficiency NB is in order. If you could save 25% on your costs, it would stabilize your bill for a short time. They’re waiting for your call and want to help you.

I like to use examples and real numbers to illustrate costs. Let’s assume a home that takes 80 million BTU’s annually to heat. Your house may use more or less fuel depending on size, insulation level and other factors. The costs of different methods are:

Oil – With an 85% efficient furnace, 94 million BTU’s are required, which is 2580 liters. The cost last year (at $.91) would have been $2,347, at $1.43 it would be $3,689 and next year it could be $4,644 or more. Some people lock in their oil rates and this can be helpful when rates are rising. Adding up your liters from the fuel company bill can let you know how your house compares. In the next five years, the cost of fuel oil will increase greatly and make it too expensive to use to heat your home. The only question is how quickly does that happen and what can you do?

Electric –80 million BTU’s divided by 3413 is 23,439 kWh’s, which at the second block rate of $.0861 would cost $2018 per year. The rate structure is changing soon and the second block will be same or higher than the first block. As well, NB Power burns a lot of heavy oil, natural gas and coal, which are all rising in price. When the retrofit of Lepreau is finished in 2010, the $1.4 billion cost will be part of the annual debt repayment and cost roughly $140 million per year. That’s a 14% rate increase.

But using oil, natural gas and coal to create electricity to space heat is not as efficient as burning at the source and should be discouraged, perhaps by installing a carbon tax on the fuels of NB Power that create CO2. Electric heat also causes a peaking problem, which cause additional power plants sooner than if other heating options for residences were used. It’s an unfortunate fact that low electric rates attract heating customers and fear of public revolt prevents rate increases to properly price electricity for conservation, environment and future energy shortages.

Natural Gas – The gas distribution network is new and not yet everywhere in New Brunswick. In fact, will it go beyond the major centers in the golden triangle? Given an 85% efficiency furnace, we would require 94 million BTU’s or 99 GJ. For those converting from electric to gas, the cost of the Enbridge SGSRE rate would be $1872 per year ($1401 for the gas, $279 for delivery and $192 service charge). For those converting from oil, the SGSRO rate applies and you would pay $2557 ($1401 for the gas, 965 for the delivery, and 192 service charge). Enbridge prices their delivery charge based on the competition and loses money on electric heat customer conversions to build a customer base. Because natural gas prices track oil to some degree, we can expect the gas price to climb rapidly so that it will be higher than electric at some point. Gas supply is declining in North America so LNG from offshore countries will be essential as a supply source. How secure and price stable are those countries?

Wood heat – The old standard for many people is wood heat. In this case, with a 70% efficient stove, we would need 114 million BTU’s. A cord of hardwood would provide at least 20 million BTU’s to be conservative, so we should buy 6 cords. If it costs you $200 per cord, then that is $1,200 each year. There is a considerable investment in time and energy involved with wood – stacking, moving it to the stove and tending the fire so it’s not for everyone. The use of an EPA rated stove is recommended for round wood as it reduces the smoke to 10% (2 – 5 grams / hr) of previous stoves.

Some prefer the convenience of wood pellet stoves, which have automatic feed mechanisms. They could be delivered by truck and blown into a container in the home as it is done in Europe. Briquettes are another option providing consistently dry wood that burns with little pollution, no insects and is a stackable product. Manufactured items like pellets or briquettes are more expensive than split round wood.

I’ve considered heat pumps to be in the electric category as they are essentially electric in the coldest weather. Geothermal systems provide low annual costs, but are very expensive in the front-end installation resulting in fewer users. Solar collector heating as well hasn’t yet developed a prime time audience.

Is there a constructive role for government in assuring warm homes in this province? Nobody wants to see people freeze in the dark.

Flip this Province

We all have our favourite TV shows, except for the smart people who don’t watch television at all.  What seems to be the rage this year is the “Flip this house” or “that house” phenomenon.  It’s where a person buys a rundown house for less than it’s real value, spends perhaps 5 or 10% of the value of the home on repair of cosmetic problems and then sells the house for a big profit.  Where there’s a quick profit to be made, many people will be attracted – even those have no experience in building.

I first started watching shows like “This old house” because I love seeing the transformation of a deteriorated structure and the use of new technologies to improve an older home and make it energy efficient.   Later, other programs diverged from that formula, becoming reality shows, where people ham it up for the camera, making good decisions and foolish ones.  The sense of greed in us all is attracted to the idea of quick money.

Most of these programs are filmed in the US where a booming housing market seems to make it possible for even a poor flipper to succeed.  The rapid inflation in housing prices over the past years covers many mistakes.  “Flipping” is now a commonplace activity, like going to the gym.  But like everything else, there is a cycle to flipping and it appears to be post-peak.   The collapse of housing market in the US and the economy will, no doubt, shake out a good many of the non-professional entrants to the sport.

There is a darker side to this activity and all is not what it seems. Trademark Properties and Richard Davis, one of the first developers featured, is suing A&E network.  Some of the second year successors on A&E are being sued for fraud or foreclosed due to financial problems.  Clearly, the blemishes of flipping and the failures of certain projects are not being shown.

Beyond the Hollywood paintbrush, it is ripe with conspicuous consumption – granite countertops, stainless steel appliances, and hardwood floors being the requirement.  Rip out what’s there and throw it in the dumpster.  The cost of the finished property may be very high but that’s OK, it seems.   It’s a scene in the continual marketing of our disposable society, which consumes enormous quantities of everything. Young couples learn what they should want – that dream house in the suburbs and become house poor.  We take one step further away from sustainable housing that our society needs to have.

Those flippers aren’t the models of energy efficiency in their choice of lighting or insulation.  They seem to be mostly interested in the money.

Here in New Brunswick, we have a different group of flippers.  Their role is to dramatically transform homes in New Brunswick from energy hogs to energy savers.  The group is called Efficiency New Brunswick and their budget is $26M according to a recent article in this paper.   They loan money to homeowners at a zero interest rate or provide a grant of up to $2000 (20%) for items recognized by an audit provided by the agency.  To date “700 grants @$1,600 have been handed out and 400 loans have been issued at an average of $8,700 each”.   1100 people have taken advantage of the program.  In the two years of the agency’s life, 6300 audits have been done.  Vice-President Lesley Rogers indicates that they are hoping for a take-up rate of 80%.  Supposing we have 5000 audits per year and 4000 upgrades proceed, is that enough?  There are 300,000 homes in the province with half built before 1980.  It could be 35 years before the upgrading required is complete.

The organization is new, roughly two years old.  It is progressing but there is little information on its web site – still very basic.  In contrast, efficiencyvermont.com has a great deal of information that is useful and directs the customer with frequently asked questions.

Lesley tells me New Brunswick has the highest per capita program participation in Canada.  A number of unique services are available – multi-unit upgrade program, a T8 subsidy program and others.  How about posting some of the good news on the site until a full annual report is published? Perhaps a graph showing the increasing numbers of audits or homes upgraded would be interesting.

The era of cheap oil is over.  The era of super expensive oil is coming.  George W Bush was in Saudi Arabia last week to plead with King Abdullah to turn on the oil tap a little more.  The Saudis refused, saying “that the market was well supplied.” They are the only country with any spare capacity (perhaps 1.5% of world total), but it won’t last long with depletion and increasing world demand.  Perhaps they couldn’t export more.  Jeff Rubin of CIBC World Markets predicts that oil will hit $150 a barrel by 2012.  It could be a lot sooner.  The effect of high oil prices will affect natural gas, electricity and wood to a lesser extent.  This crisis will be like no other in our memory and those who are not prepared can expect to pay considerably higher heating bills

There is a board of directors for the agency.  Perhaps they will do a little strategic planning.  Setting targets for the number of upgrades per year, insisting that the agency get the message out to the public.  It’s still relatively unknown and a poor web site doesn’t help.  Perhaps they could ask why we are promoting oil heat when we have an excellent supply of wood in the province?  Are the targets for energy efficiency of new homes adequate?  Houses are built to last for over a century.  The cost of furnace oil will be roughly $4 a litre in the next five to ten years.  Costs of this magnitude change all of our assumptions on insulation levels and design.  And this is not taking the cost of carbon into the equation.

We all support the work of Efficiency New Brunswick.  We are impatient to see it make progress – Especially those of us who realize what a cold, bleak future awaits us if we do not act agressively to curb energy wastage in housing and business.

Build a wood-fired energy market

My previous article pointed out that a $2 billion dollar problem is developing at NB Power.  No, it’s not Orimulsion again but it’s related.  That previous $2 billion incident was the loss of long-term savings between low cost Orimulsion fuel and the world price of oil that evaporated when the agreement with Venezuela went sour.

Since then, the price of crude has gone through the roof.  Back in 2002, heavy oil was $15 a barrel and today it’s roughly $60.  It’s going considerably higher as the utility’s18-month hedging of prices moves along.  NB Power hedges to know well in advance what it will pay down the road.

The increasing price of heavy oil will cost $100 million extra this year and perhaps $175… or $200 million next year. NB Power has been pointing out that its oil costs are rising.   They have been working on displacing oil with a small percentage of petroleum coke and that could save $60 million.

The Energy department has not yet revised its energy policy but perhaps we will see some new ideas in the spring.  In the meantime, I have a suggestion today that will set us on the right direction for self-sufficiency.

Get a large number of NB Power’s electric heat customers off electric and onto wood or natural gas.  The essential elements are:
* A customer will buy or be leased a high efficiency, low emissions stove from an approved list.
* The kWh reduction between the months of October and March on the customer’s bills will be reimbursed at a rate to be determined, perhaps 3 cents.  For example, if the customer bills were reduced by 15,000 kWh, then the rebate would be $450.  This rebate would continue for four years.  The funds for the program might be split 50/50 between NB Power / Government.

The program would encourage customers to participate by effectively paying a substantial portion of the heating appliance over the time period.  NB Power would benefit over the long term by a lower oil bill.  The provincial government would benefit from the multiplier effect of the money staying and circulating in the province as opposed to being sent offshore to oil-rich countries.  As well, the reduction of greenhouse gases could be considerable.

Let’s look at an example to understand it better.  Supposing NB Power had 20,000 participating customers each of whom would save 15,000 kWh in year 1.  That becomes 300 million kWh / year savings.  It would reduce NB Power’s oil bill by 483,870 barrels a year (10% of oil burnt) or $38.7 Million dollars (at $80/barrel).   KWh sales would diminish by $24 million and the subsidy program would cost them $4.5 million for a net gain of $10.2 million.

The cost to government (year 1) would be $4.5 million.  The $38.7 million dollars formerly spent on imported oil now remains in New Brunswick mainly for labour and machinery to cut / split wood, and delivering the product to NB homes.  Refocusing the money back into the community brings enough income tax to the government to pay for the subsidy program.  Each year, the program grows by 20,000 until the fifth and final year when the subsidies begin to taper out.  It is conceivable that NB Power’s oil consumption could be cut in half.  The inclusion of commercial and industrial customers in this program will ensure these savings goals are reached.

The possibility of selling 20,000 stoves a year should be adequate incentive to install a manufacturing plant in NB. (20,000 @$2500 = $50 Million)

As increases in demand for wood fuel increase and this is not a small program, government may consider providing support for community-based pellet or briquette plants at a number of locations around the province.  This could take the form of loan guarantees or product purchases for a short time.

George Jenkins, a forest researcher, indicates that a significant number of local plants could be supported by the softwood biomass in the province.  It also appears that the economic damage due to the downturn in the lumber and paper industry could be alleviated by the relatively small investments in this plan.

New Brunswick is vulnerable to large increases in the cost of electricity in the near future.  A plan of this size could cut future power rate increases in half, put people back to work in the rural areas of the province, and reduce greenhouse gas by as much as 1.2 million tonnes per year.

NB Power’s total investment of $90 million, spread over 8 years, is totally paid for by reduced oil purchases.  The Province’s investment is also $90 million over the same period, plus investments ensuring the supply side is ready for the sharp increase in demand.

The direct economic development impact of this plan is $820 million.  Would these dollars contribute to self-sufficiency in Dalhousie and Miramichi where the mills are closing as well as other small communities that have lost their sawmill?   The alternative is to sit and watch an extra $2 billion dollars in fuel costs fly out the window to Saudi Arabia or Venezuela between now and 2016.

The next article will provide other suggestions.

What’s on New Brunswick energy horizon

We hear about people making choices between food and heat and that is not good. NB Power recently advised that December’s colder weather would generate higher bills.  But what about the long-term outlook for energy prices?  Will it get better or worse in the coming years?  It’s important that we all stay warm during these cold winter nights this winter and into the future.

Recently, I’ve been helping a Sussex based community group working on getting a wood briquette plant organized.  There are many of us who have a “warm” spot for wood heating with its link with our primeval past, and of course, its low cost.  It takes a little more work because of the physical weight of it. My domicile is heated with natural gas but in the past I have lived with electric, some wood, and oil heat.

Efficiency NB has been promoting the use of central heating systems that can use oil, natural gas or wood as the home heating source.  This policy related to oil has some serious negatives but is not entirely wrong.  On the positive side, oil burned at NB Power’s generating plants has a 35 to 40% efficiency rating, so using an oil furnace at home with an 80% rating burns less oil overall and is relatively good for the environment. However, in the past year, the price of oil has gone up from $55 to $100 a barrel, an increase of 81%.

Is this a significant event?  Yes, it signals a turning point in the world supply of oil.  Demand in China, India and the rest of the world is growing and the supply appears to be plateauing.  Typical economic theory would suggest that higher prices would bring additional supplies to market that would collapse prices.  After several years of higher prices, no supply relief is evident.  Analysts also see no combination of projects under construction that would provide abundant supply.  So the trend to higher oil prices appears very strong.  We are likely to see oil price increases making heating homes or generating electricity for heat prohibitively expensive.

Roughly 60% of New Brunswickers use electric heat, which has lower initial cost of installation, low maintenance, and relatively low cost of product – three important reasons for its success.   Government policy from the 1970’s until recently was to get Canadians off oil heat.  NB Power spent billions on a robust generation, transmission and distribution system capable of furnishing our electric heating needs.  The only problem was that a part of the generation was oil based.

Coleson Cove uses heavy fuel oil, which is also known as #6 heavy oil, or residual oil, or bunker C.  It is the leftover of the refining process.  NB Power uses roughly 5 million barrels a year that generates approximately 3.1 billion kWh’s, which is 17% of total sales.  In the current fiscal year they expect $60 a barrel and a total oil cost of slightly over $300 million.(up a hundred million)  Next year (08/09) could be $400 million as the hedging of lower prices ends and a barrel of heavy oil is closer to $80.

Electric heat comes on in the winter and it is necessary to use higher priced generation (Coleson Cove) to meet that extra demand when the power requirements goes from 1600 megawatts in summer to 3200 megawatt peak in winter.  So there is a correlation between the higher cost power and electric heat.  It’s not 100% but let’s take the worst case for an example.

Supposing a customer uses 15000 kWh of electric heat a year and this is mostly on the lower second block at roughly 8 cents per kWh.  This customer pays $1200 for the kWh’s. It takes 24 barrels of oil to provide these kWh’s, which at $60 is $1440 and at $80 is $1920.   NB Power does not even recover fuel cost.  Although an oversimplified case, we can see that $100 heavy oil would give 16-cent kWh’s just for the fuel without considering O&M or debt repayments on the plant.

It appears that NB Power will be spending $200 Million more each year on heavy oil.  Note that a $10 million increase in costs is 1% rate increase.  So we are looking at a twenty to thirty per increase in rates in the next two or three years.

We have a problem.  We spent $750 million to rebuild Coleson Cove with the expectation of cheap fuel.  Now, we can only get expensive fuel and it’s getting worse very quickly.  Pet coke will help a bit but a nuclear plant won’t be available until 2016 because all the workers will be tied up on the refinery project first.  It looks like we’ll be spending at least $2 billion extra on oil before 2016.  And maybe a lot more than that.

In my next articles, I make some suggestions on how we could work towards real energy self-sufficiency right now.

Premier Graham’s no Robichaud

What does Shawn Graham have in common with Louis J. Robichaud? No, this isn’t the start of a joke.

Both were members of the Liberal Party and have been the Premier of New Brunswick. And Shawn has the desk that Louis used in his office back in the 60’s.

Beyond that, any similarities are difficult to find at this moment. Louis Robichaud succeeded in making revolutionary changes in the administration of New Brunswick. Today, most people see his legacy as positive and progressive. He was involved in the building of schools and universities and the principles of equality of opportunity for all. The creation of a province with two official languages recognized the reality of New Brunswick but was difficult politically and yet very necessary at the same time.

Louis J. Robichaud was a courageous and visionary politician.

Certainly, our latest premier has the best of intentions. He wants to follow in the footsteps of Robichaud and Hatfield in transforming our province. What we may not understand is his vision and how his actions will accomplish the task.

Since being elected, he has announced studies and commissions galore on large sectors of public administration. The public has been invited to respond with their ideas but it has become clear that the course has already been determined. The reports are pre-written and public consultation is only part of change management techniques.

It is also possible that the continual vague announcements of the self-sufficiency task force and the recent speech from the throne are part of a technique to pummel the masses with boredom and remove ammunition from the opposition. When the day of shock and awe arrives, the changes will be legislated quickly. The citizens of the province will be so tired of the empty promises that they will accept any harebrained scheme as an alternative to no government action.

Each year the federal government sends us a big cheque courtesy of the people of Ontario and Alberta, which amounts to 1.5 billion in 2007/08. Thank you very much! The idea of a province of only 750,000 people, operating on an annual deficit of $1.5 billion, spending its way to prosperity by building highways is fairly ridiculous. Adding 100,000 new people with high paying jobs is another dream. Other provinces with greater populations clearly show us that 100,000 is not nearly enough to succeed.

The self-sufficiency agenda presumes that the economy of the world is likely to remain the same till 2026. Nothing could be further from the truth. Almost all oil analysts foresee a peak of oil production by 2020 and most see a peak within five years. Production for the past 18 months has been at a plateau of 85 million barrels per day. In an industrial society like ours, the decline of oil production, at a rate of perhaps 3% per year, will cause a large increase in price eliminating any possibility of economic growth. In fact, we will see hardship in many areas due to our exposure to the cost of oil in transportation, heating, electricity and other products that are based on oil.

The crown jewel in the energy hub concept is a new refinery. However, the new refinery in Saint John may just be a mirage. If world oil production is nearing the peak, perhaps at 87 to 90 million barrels, financing for an unnecessary refinery may be hard to find. Refineries around the world will be shutting down in the next fifty years at the rate of 10 a year, due to lack of crude.

Is the Premier playing ” pin the tail on a donkey?” He knows that he wants a vigorous economy that will support New Brunswick without handouts and that is a good thing. Unfortunately, he had a blindfold on his eyes and can’t see the future of our world. Being very generous, his transformational philosophy might be perceived as adequate according to the economic theories of the last 50 years. However, the game has changed and for New Brunswick to survive and perhaps prosper, we have to change radically our focus and expenditures.

New Brunswick uses 34 million barrels of oil each year, which at $55 a barrel costs roughly $1.8 billion in 2006.  If the price of oil now averages $90, then we will be paying to sources outside of Canada over $3 billion. This is an extra $1.2 billion taken out of our pockets. What is the government’s plan to deal with this? What has Efficiency NB accomplished in the almost two years of its existence. How many barrels of oil has it saved? How many kWh’s are being saved by customers? Where is its annual report?

The Energy Department has moved to Saint John. They have started the Lepreau 2 review and accelerated the windpower program. Has the move to Saint John accomplished anything? Can we expect a revised energy policy? How are we going to reduce our exposure to oil price volatility. Shall we wait until oil is $200 a barrel? Many questions exist but are our eyes wide open?

No one doubted that Louis Robichaud had the interest of the people at heart. His battles with the industrial interests of the province are proof. How will Shawn Graham be remembered?

His handling of the Post Secondary Education review, the self-sufficiency task force, his orientation towards energy exports leave little doubt which group is guiding his agenda.

Captain Graham might think of that when his ship of state gets a little closer to the iceberg.

Will NB curb energy growth?

Efficiency NB started work approximately roughly 15 months ago based on the model of Efficiency Vermont. The Vermont agency has been in operation since the year 2000 and seems to be well organized. The New Brunswick counterpart has a budget of $25 million per year, 16 people on staff and housing inspections are contracted out to four inspection companies.

The Liberal election platform indicated that they wanted an aggressive approach to conservation via this agency, and if I remember correctly, it was suggested that more than 10,000 houses per year might be done with a budget of $50 million. The promises have been scaled back.

In a recent meeting with the Minister of Energy Jack Keir and President of the Agency Elizabeth Weir, the goals of Efficiency New Brunswick were discussed. The new Liberal government has added a number of programs to better serve various sectors such as industrial, commercial, multiple unit residences in addition to single family homes.

It has processed 1500 housing efficiency evaluations since April 2007 but it is too early to say how many of these projects will go ahead.

Growing a new agency of this size always presents problems. There are training issues to be addressed, concerns about the size of the available contractor workforce to accomplish the renovations, monitoring and ensuring that the programs are the best fit, and getting the message out to the people that help is available.

One of the interesting programs is the subsidy for T8 fluorescents as a replacement for the standard T12 four-foot tubes. This newer technology will save between 7 and 22% on lighting energy based on the replacement wattage chosen.

The CFL program is based mainly on education and getting retail stores to stock larger variety of the compact fluorescents in anticipation of the Federal government introduction of efficiency standards in 2011. This will likely remove 95% of incandescents from the marketplace. While the Province was one of the early proponents of a virtual ban on incandescent bulbs, Minister Keir and I part company on the timing of implementation. The minister sees the private sector as leading the way to CFL promotion in a gradual way by 2011. I see this as “fiddling while Rome burns”.

Our difference in opinion is based on:

1) The timing of world oil production peaking. My guess would be approximately five years. He indicated that he believes it is probably more than ten years hence.

2) The severity of impact a shortage of oil will have on the economy and price of oil. The minister indicated that he expects a gradual adjustment of the economy as it becomes clear that oil is peaking. In contrast, my interpretation is based on the 1973 and 1979 oil embargo where the price of oil increased by a factor of four. Additionally, the ability of the world and New Brunswick to adjust to high oil prices on a continual basis will be difficult to achieve at high fuel prices.

It is said that 30% of the homes in New Brunswick were built prior to 1960. It is difficult to say how many have been already upgraded, but supposing that 50,000 required a substantial amount of work to come close to modern energy standards. Given the minister’s time frame to peak oil, up to 5000 homes should be upgraded each year. With a contractor doing one home upgrade a week, it would take roughly 100 contractors to meet this schedule. With new home construction, commercial work and the evacuation of the trades to Alberta, can this level be obtained?

If you believe my prediction of five years to peak oil, then 10,000 homes should be completed each year requiring 200 hundred contractors. This is a massive undertaking. Although improving the energy performance of homes is not a total fix to the extreme energy prices that are inevitable, do we have any choice but to lower the carbon footprint and energy usage of our housing stock?

I am going to make an unsubstantiated guess that Efficiency NB is not going to get anywhere near the 5000 housing upgrades that would be a promising level. A full annual report will be published in November 2007 and the public should know whether some measure of success has been obtained.

We agree there are big energy problems coming down the pipe. We disagree on timing and severity. We agree that Efficiency NB is very necessary for many reasons. What is unclear at this moment is whether the Efficiency NB plane has taken off or is just taxiing down the runway. Both Jack Keir and Elizabeth Weir have good intentions but by December we will have to seriously evaluate the program and make the necessary adjustments. Failure of this agency to thrive and fulfill its mandate is not an option.

Jack Keir has shown more leadership in the Energy field in one year than many of his predecessors. However, the Department is facing unprecedented challenges of enormous proportions. Many have suggested that a total re-engineering of our society is required to power down our economy to a level that will be required and is sustainable. The investment to accomplish this could be similar to that done in WWII. The danger to our personal welfare is just as great.

Sustainable + growth have been put into the same sentence by this government and that’s an oxymoron. Sustainability requires us to leave sufficient resources for coming generations but actively promoting population growth makes that considerably more difficult. The natural gas from the McCully field will likely be completely exported within 25 years successfully heating the homes of the Boston area. Does this sound like a self-sufficiency and sustainability program to you?

A friend told me that the over $400 million dollars being spent by the province on new roads is part of the Linear Oil Strategic Reserve. You might recognize the acronym (LOSR). When we get short of oil, we can tear up the pavement and recover the oil. Just like the tar sands.

If Shawn Graham were to seriously re-evaluate the direction of his self-sufficiency mandate, he might look less like the captain of the Titanic. There is an iceberg out there in the future whether it is five or ten years away. And there is no time to lose in changing course.

Will “Home sweet Home” become “Cold sweet home”

Traditionally real estate has been a good investment for most people. The value of homes appreciates with inflation such that homeowners often end up with an asset that is worth a considerable sum of money. During the era of cheap energy, the largest cost of home ownership has been the mortgage payment. It is starting to become clear that “cheap energy” is a thing of the past and may eventually challenge the mortgage payment as the biggest expense for large houses and homes that are poorly insulated.

Energy prices are rising in the coming year and your finances are going to be affected. Heating oil is 84 cents / liter and could rise at any time based on the world price. The price of electricity is likely to increase by double digits in 2007 (15%?), according to the trial balloon floated recently. Total increases may be 40% in the next four years. There are several reasons for this. Payments for the refit of Coleson Cove, upcoming Point Lepreau refit, higher oil prices and the rate schedule. NB Power subsidizes large industrial power users by $75 million per year by charging less than the average cost of production. Don’t get mad at NB Power; when large industries threaten to close their doors, the government listens. Watch closely whether industrials get a deal in the coming rate increase. If they pay less, you pay more.

After the oil embargo of 1973, government policy was to get people off oil. There was significant conversion from oil to electric heat in New Brunswick such that roughly 60% of all homes are heated with electricity today. Recently, the Liberal government through Efficiency NB made a decision to promote the conversion of homes and business from electric back to oil and to natural gas. This decision was made for two valid reasons.

First, oil or natural gas burned at the home for heat is more efficient than using oil or natural gas to centrally generate electricity to heat homes and results in less greenhouse gases emitted. Secondly, the use of electric heat causes a peak during cold weather and therefore requires earlier construction of power plants and hence power rate increases.

However attractive this logic may be, perhaps we should be thinking about the future of oil and natural gas in 5 years. Many analysts consider a decline in worldwide oil production to be likely within five years with oil prices escalating to shocking levels. Natural gas prices will be linked to some extent. Will we then be suggesting that people convert again to some other form of energy? Are there any other options existing for us?

Just this past week Newfoundland proposed installing a power cable to New Brunswick to sell power from the Lower Churchill hydro project. Hydro electricity is renewable and can heat our homes without greenhouse gases. History has shown us that the cost of power from hydro developments remains quite stable over the years. Power from this source could be available in roughly 5 years. It is also possible to charge thermal storage units in the home during the night with off peak electricity for use during the day. This flattens the load curve. Let’s talk to Danny Williams, the Premier of Newfoundland. Is there a possibility of a partnership with Newfoundland that is good for both parties?

Over the years the size of new homes have increased from an average of 1000 to 1600 square feet. Anyone contemplating new house construction should seriously consider R2000 or Energuide 80 rating as well as reducing the size of the house to minimum requirement. In general, a mega-home means large heating bills.

Efficiency NB has just announced a series of programs to help those with existing or new homes increase efficiency and adjust to the new energy reality. One positive thing I noted was the recognition of wood furnaces as being eligible for grants. Hopefully, this means pellet stoves. Wood is an abundant resource in the province according to Peter Salonius and George Jenkins, forest research scientists in the province. Efficiency NB will be featured in an upcoming article.

The average New Brunswicker’s salary is used up by essentials like food, gas, home payments and heating bills. There is little or no money saved at the end of the year. When rising energy costs disrupt our comfortable existence, something will have to give. How low can we go with our home-heating thermostat? Will your home be a good investment for the long term? Just keep in mind that energy prices will soon change all the rules and it could make your energy guzzling home a millstone around your neck.