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.