Heat pump plan needs workable economics

Hey there, time traveller!
This article was published 18/07/2023 (836 days ago), so information in it may no longer be current.

Canada faces a difficult and painful task if we are to reduce greenhouse gas (GHG) emissions as promised by our federal government. Nowhere is this trickier than residential home heating, representing 37 million tonnes nationally, close to six per cent of overall annual GHGs. Across much of Canada, including Manitoba, most residences are heated by natural gas. For more than 50 years, we have relied on natural gas to provide safe, reliable, relatively clean, and highly affordable heating to keep us warm.

Outright abandonment of fossil fuels and their infrastructure, including natural gas, has become vogue among some climate activists. This is unrealistic and even dangerous. Distinguished environmental professor Vaclav Smil in his recent book, How the World Really Works, warns that without practical and affordable means, such wishful thinking on decarbonization risks unimaginable economic misery.

Students Mauricio Benitez, Guneet Vats and Marceli Walczak studying sustainability economics at the I.H. Asper School of Business completed a novel evaluation, considering the future necessary lifespan for natural gas within Manitoba. While uncertain, they estimated upwards of 40 years. Over any wind-down period, though, adequate maintenance is necessary, especially leak prevention, meaning progressively climbing costs to support this infrastructure.

Energy efficiency improvements represent a low-cost priority, but likely cannot alone achieve deep reductions. The obvious go-to technology is ground source heat pumps (GSHP), which are technically well proven, even in our climate, and can even offer potential reduced annual operating costs. Most significant successes here, however, are commercial and institutional, like The Forks, Ikea and Manitoba Hydro’s headquarters, with residential-oriented systems representing only about four per cent.

The key constraint to broader implementation of GSHP is specifically the capital cost to access a suitable ground source loop. When individual homeowners must finance and implement ground source loops on their own, costs can escalate, to roughly $30,000. Overall economics then can become questionable. Further, carbon taxes are ineffective for promoting any appreciable shift. To have any impact, such taxes need to be excessive, at $275 per tonne.

I agree with GSHP expert Ed Lorhenz that the major barrier is indeed the capital cost of loop connections, and also agree that the major opportunity can be provided through accessible and affordable community loop infrastructure. Such infrastructure, providing access at modest costs for individual home and building owners, would allow GSHP to dramatically springboard ahead. Except that, while good conceptional options are available for ground source or alternative loops, such infrastructure today is practically non-existent for residential users. We are at the starting gate, and turning aspiration into functional broad-based reality will not be easy, requiring significant planning, time, and resources.

A critical constraint is regulation. Under the Public Utilities Board Act (PUB), the definition of “public utility” includes the provision of heat. As such, any ground source loops providing services to multiple, general customers likely fall under the Act. This imposes costs but, more importantly, additional time. As identified by students, Manitoba Hydro represents an ideal utility candidate, already regulated and able to logically and progressively wind down natural gas infrastructure, while simultaneously expanding ground source loops. The already highly integrated nature of their staff means no risk of job losses. Except there are snags; again, regulatory. Manitoba Hydro has no regulatory authority yet through the PUB for utility ground source loops.

There is also a conscious effort to prevent cross-subsidization between Manitoba Hydro and its subsidiary Centra Gas Manitoba Inc. Potentially stranded assets associated with the gas piping network need to be addressed, or Manitoba Hydro risks suffering a devastating financial loss, upwards of $1 billion. The extent to which natural gas infrastructure could be repurposed is uncertain.

There is also a lack of adequate resources to support transformation, especially from the federal government. In the recent budget, significant funds were plowed into mostly unneeded new electricity sources, including solar, wind and battery storage, but nothing that could support implementation of essential large-scale ground source loops.

The federal government needs to recognize the importance of transitioning residential heating to reduce emissions with adequate funding. A model of what is necessary to achieve change is the National Energy Fund created in Iceland. Although the nature of their geothermal resources differs, Iceland is a positive international case study. We can learn from them.

To keep moving forward, we need fewer grand visions and pronouncements, and more concrete actions. These include developing realistic business plans and logical regulatory pathways for a transition, and identifying legislative changes that may be needed. Technical constraints, such as heat withdrawal issues affecting certain areas, as well as practical solutions, need identifying.

Sustainability is usefully envisioned as a three-legged stool. One essential pillar is indeed economics. If Manitoba and Canada are to take advantage of GSHP technology to significantly reduce emissions, the economics need to be workable and the costs affordable.

Robert Parsons, PhD, MBA teaches sustainability economics, mathematical methods, and supply chain management at the I.H. Asper School of Business, University of Manitoba.