Utilities in Québec have crafted an innovative plan for reducing the use of natural gas — without provoking the ire of the natural gas sector. In fact, the Canadian province's primary investor-owned gas utility, Énergir, is the co-creator of the plan.
Natural gas and electric utilities are, unsurprisingly, often on opposite sides when it comes to the debate over whether to heat buildings with gas or electricity. That’s why it’s so noteworthy that Énergir and state-owned electric utility Hydro-Québec have come up with a new “dual-energy” agreement.
In the next few weeks, the two utilities will ask energy regulator Régie de l’énergie to approve a carbon emissions reduction plan that combines government incentives for electric heat pumps with a continued role for natural gas in residential, commercial and institutional buildings.
The heat pumps, which can warm buildings more efficiently than traditional heaters in all but the coldest weather, will reduce overall natural-gas usage by about 70 percent in buildings that install them, with a potential reduction of 540,000 metric tons of CO2 emissions overall.
But when temperatures plunge to lows that would force heat pumps to turn on energy-hungry auxiliary electric resistance heating elements, heaters running on natural gas will kick in. That will save Hydro-Québec from having to build or buy the resources needed to serve a major new load on a grid that already faces severe periods of peak demand in winter.
A lower price tag than all-electric
Replacing all of that natural gas with electric heat pumps would cost about $2.6 billion over 10 years, both for Hydro-Québec to supply its new peak demand and from rate hikes both utilities would need to impose to cover the costs involved, according to Énergir spokesperson Élise Ducharme Rivard. Going instead with the dual-energy approach should save $1.5 billion compared to the all-electric scenario, while still reaching the province’s goal of cutting carbon emissions from buildings in half by 2030, she said in an email.
“There are lots of ways to decarbonize heating,” Philippe Dunsky, founder and president of Dunsky Energy + Climate Advisors, said in an interview. “Sometimes they’re blunt and can be pretty expensive, and sometimes they’re more nuanced and can be less expensive.” In the case of the new Québec plan, he said, “The utilities convinced the government that they could be trusted to go do it.”
Dunsky’s firm helped Énergir develop the plan, he noted. It also led the Québec government’s electrification working group, tasked with finding ways to decarbonize buildings, transportation and industry as part of the province’s goal of cutting economywide carbon emissions by 37.5 percent by 2030.
Énergir will see reduced sales of natural gas under the plan, he pointed out. But as part of the proposed dual-energy rate that Hydro-Québec and Énergir intend to ask regulators to approve, “the electric utility is going to pay the gas utility for the peak value that it’s providing” with a rate structure that enhances the returns from providing heating fuel at times of greatest grid stress. “That’s the real innovation here,” Dunsky said.
In February, Énergir released a climate resiliency plan using the guidelines set by the Task Force on Climate-Related Financial Disclosures, a group formed by the G20's Financial Stability Board to enhance corporate disclosure of climate risk. The plan sets “concrete measures [on] energy efficiency, renewable natural gas, innovative energy complementarity…that allow us to remain a key player in addressing climate, economic and social issues for our customers and for Québec,” Rivard said. “We need to find ways to meet our customers’ needs and ambitions of reducing emissions to remain relevant for them. Not addressing those would be worse.”
To be clear, Dunsky said, “at the end of the day, the gas utility is still going to end up short” of revenue it would have generated if it hadn’t agreed to the plan. But Énergir “sees the writing on the wall, sees that it needs to reduce its sales of conventional natural gas dramatically…and [will figure out] how to do this in a way that hurts…the least.”
Compromise versus conflict in the battle of electricity vs. natural gas
Québec’s approach stands out in an environment that’s seen natural gas utilities fighting hard — and some say dirty — against efforts to phase out natural gas in buildings. Across the U.S., local government efforts to restrict natural gas in new construction have been met with heavy pushback from the natural gas industry. In response, a growing number of state legislatures have passed laws restricting cities and counties from setting their own policies on this front.
By contrast, California just passed new building codes that will make all-electric homes and certain commercial buildings the default for new construction starting in 2023. The state has seen two of its major investor-owned utilities — the all-electric Southern California Edison and the dual-fuel Pacific Gas & Electric — express support for a shift toward electric buildings. But its primary natural gas utility, Sempra Energy subsidiary Southern California Gas, has mounted an expensive lobbying campaign against the nearly 50 city and county bans on natural gas that have been passed in the state so far.
Dunsky highlighted how the partnership in Québec differs from these more fractious approaches to switching from natural gas to electricity. For starters, Énergir's ownership structure is unlike most natural gas utilities. It's owned by Caisse de dépôt et placement du Québec (CDPQ), the investment fund that manages public pension plans and insurance programs for the provincial government.
In June, CDPQ bought out a significant stake in Énergir held by Alberta, Canada–based natural gas company Enbridge. Now CDPQ can guide Énergir's strategy in line with its arguably longer-range view and an approach more focused on the public good.
Québec’s energy landscape is also unusual compared to much of North America, Dunsky said. The province already gets 95 percent of its electricity from hydroelectric dams and another 4 percent from wind power, giving it one of the lowest-carbon grids in the world.
At the same time, it faces a significant winter peak demand from the roughly 85 percent of homes that already use electric heating instead of fossil fuels, the outcome of a decades-old push to replace oil-fired furnaces with resistance electric heating systems that run on cheap hydroelectricity.
In that sense, said Dunsky, “Hydro-Québec is basically the future of a lot of utilities in the Northeast [U.S.] as we electrify heating loads,” as well as those in the upper Midwest and Pacific Northwest, where heating loads already drive steep winter grid peaks, compared to the summer-peaking patterns driven by air conditioner use that are common across most of the country.
Addressing winter peaks without new-build gas
A report from the American Council for an Energy-Efficient Economy (ACEEE) has identified a series of efficiency and electrification measures that could reduce the need for new power plants to serve the growing winter peaks that will be exacerbated by the shift to electric heating and electric vehicles. At the same time, this year’s winter blackouts in Texas, and previous cold snaps that pushed Northeast grids to their limit, have highlighted the dangers of failing to prepare for these changing peak patterns.
“These hybrid programs are an important option to consider in the use cases where full electrification doesn’t yet make sense, because of reliability, comfort or cost challenges,” Rachel Gold, ACEEE utilities program manager, said in an email. It’s important that programs like this come with controls to make sure backup gas systems only start up when heat pumps can’t meet full load, she emphasized. What's more, it's essential that any other upgrades include better insulation and air sealing.
Mike Henchen, a principal on the Carbon-Free Buildings team at nonprofit RMI, noted that states like Maine and Vermont have run successful heat-pump incentive programs, aimed at replacing the oil-fired heaters prevalent in the Northeast. Programs like these have helped build the private-market ecosystem for heat-pump manufacturers, distributors and building contractors and installers to bring down the cost of making the switch, without which “we probably wouldn’t be in a good position to get whole-home electrification done now.”
RMI supports a complete phaseout of fossil fuels in buildings in the long run, Henchen stressed. He says it’s particularly important to stop building natural-gas infrastructure for new buildings. At the same time, partial electrification efforts like the Hydro-Québec and Énergir partnership that can slash 70 percent of building emissions “can be a helpful step in the right direction” — although “ultimately you’re going to need to address the other 30 percent as well.” (Canary Media is an independent subsidiary of RMI.)
Policy carrots and sticks
It's also important, said Henchen, to give utilities an incentive to craft ways to shift from natural gas to electricity without causing undue financial disruption — or leaving the costs of supporting the remaining natural gas infrastructure on the shoulders of customers who can’t afford to switch to electric heating and appliances. Colorado lawmakers recently passed a “Clean Heat Standard” that gives natural gas utilities some leeway to cut emissions through efficiency, electrification, reducing natural-gas leakage or replacing fossil gas with hydrogen, biomethane or recovered methane.
In that light, Québec’s “creative structure where there is some flow of funding between the gas provider and the electricity provider is very interesting,” Henchen said. “There could be any number of creative ways in which that could come into play.”
Dunsky noted that Canada’s national goal of reaching net-zero carbon by 2050 will require programs like Québec’s to end reliance on natural gas in the future. But in the near term, “if we say we want everyone off gas tomorrow morning, we’ll spend the next 10 years fighting it. Instead, we’ll spend the next 10 years with the gas utility being an active participant in decarbonizing and reducing emissions by a third in the heating sector.”
(Lead image: Julie Boulanger)