Is reducing natural gas the key to hitting Ontario's climate targets?

By Tyler Hamilton - Published on May 03, 2016
The next big energy challenge is transitioning away from natural gas furnaces. But will consumers buy into it?



When Ontario shut down its last coal-fired power plant in 2014 the province could literally breathe easier. Smog alerts are now a thing of the past, and more than 90 per cent of the electricity that powers homes and businesses is emission-free.

Yet winning the battle over coal doesn’t mean Ontario can rest on its laurels. Never have Ontarians been more dependent on that other fossil fuel — natural gas — and not just for electricity generation.

Buildings represent 19 per cent of greenhouse gas emissions in the province, and about two-thirds of that comes from natural gas used for space and water heating. Overall, natural gas supplies about three-quarters of primary heating needs for Ontario households, according to Statistics Canada.

To put that in perspective, the carbon dioxide emissions from natural gas use just in households is roughly equivalent to Ontario’s coal emissions in 2009, when four operating coal plants generated about 10 per cent of the province's power from coal.

That’s a problem in a province with ambitious emissions-reduction goals.

“It’s a big challenge,” says Ron Dizy, managing director of the Toronto-based Advanced Energy Centre, which is part of the MaRS Discovery District. “If we’re going to achieve greenhouse gas emission reduction targets, it seems pretty clear we’ll have to reduce greenhouse gases from home heating. That means thinking about ways to mitigate the amount of natural gas we use in Ontario homes.”

An Ontario company based in Cambridge may be a big part of the answer. Ecologix Heating Technologies has developed an air-source heat pump designed to handle Canadian winters. The system operates like a high-efficiency central air conditioner — it provides cooling in the summer by harvesting the heat inside a home and dumping it outside. But it also operates in reverse — it can pull heat from the outside winter air, concentrate it and send it into a home for both space and water heating. It does this using less than half the energy of an electric baseboard or furnace system.

Air-source heat pumps have existed for decades in parts of the United States where evenings get chilly but rarely drop below freezing. When temperatures sink below 8°C, conventional air-source heat pumps shut down to avoid being damaged. That’s cold comfort if you’re living in Toronto, Ottawa or North Bay, which is why air-source heat pumps, which represented less than one per cent of heating equipment sales in 2015, have gotten a bad rep in Canada.

“Public perception is that heat pumps just don’t work in cold weather,” says Steve Davies, president of Ecologix.

But the technology has advanced significantly over the past 10 years. Cold-climate heat pumps, available in Ontario from Japanese manufacturers Mitsubishi Electric and Fujitsu, can reliably provide heat when temperatures fall to minus 20°C or lower. Well below that, backup electric resistance or natural gas heating can be used, but it’s rarely needed.

(View the text alternative for the furnace versus air source heat pump graph)

Graph showing energy consumption from furnace heating versus air pump.

Davies decided around 2008 that it was time to develop a made-in-Ontario cold-climate heat pump system and within a year the company had constructed prototypes for testing. Since then, his team has managed to continually lower cost and boost system performance. In 2012, Ecologix was granted $4.5 million from Natural Resources Canada’s Clean Energy Fund to help complete development as well as demonstrate dozens of systems as part of a multi-year, $13-million trial that ended in March.

The technology, according to the just released final project report, “is capable of challenging the fossil fuel furnace to become the carbon-neutral standard for new home construction and existing home heating system replacements.”

The Ecologix system is unique in many ways. Not only is it designed for cold Canadian climates but it’s the only one on the market that, in addition to providing cooling in the summer and space heating in the winter, can simultaneously provide up to 100 per cent of a home’s hot water throughout the year. That’s a big deal when you consider that water heating accounts for one-sixth of home energy use.

It also ships with an Internet-connected control system. This means Ecologix can remotely monitor system operation and conduct performance diagnostics, reducing the need for costly in-home service calls. As well, the company is working with Ryerson University on a new design to harvest waste heat from solar PV systems.

“They have a fairly robust technology,” says Jeremy Sager, a project manager with CanmetENERGY, a technology testing branch of Natural Resources Canada. “What they need now is to get some volume going.”

Of course, ground-source heat pump or “geoexchange” systems are another option. They harness latent heat in the ground, rather than the air, making them more efficient. But you’ll pay three times more ($30,000 vs. $10,000) and will need to drill deep boreholes or dig trenches on your property. Simply put, air-source heat pumps are more hassle free and affordable, particularly in densely populated communities where space comes at a premium.

Compared to oil-based heating still used by five per cent of Ontario households, an air-source heat pump system consumes 61 per cent less energy and results in annual savings of nearly $2,000, according to research highlighted by Canada Mortgage and Housing Corporation. Air-source heat pumps use 53 per cent less energy than electric baseboard systems and can save households about $1,800 a year. In other words, the system pays for itself in energy savings in about five or six years.

“I would say where there’s existing electric resistance or fuel oil heating being used – as well as propane – the technology is pretty much a no-brainer,” Sager says.

(View the text alternative for baseboard heating versus air pump graph)

Graph showing comparative costs between baseboard heating and air pumps.

But natural gas remains a hard nut to crack.

One issue relates to equipment costs. An air-source heat pump that supplies heating and cooling will likely cost twice as much as the purchase of a high-efficiency central air conditioner and natural gas furnace. Davies doesn’t claim his product will ever become cheaper than a furnace and air conditioner combo, but he says it will be within $2,000 inside five years.

The bigger challenge is persistently low natural gas prices against the backdrop of rising electricity rates in Ontario.

One of the original goals of the Clean Energy Fund project was to show that Ecologix could compete economically with natural gas technologies. Back in 2010, that was “an easy stretch,” Davies says. “If natural gas and electric prices had remained stable, the cold-climate heat pump would have been a very attractive replacement for a gas furnace in an urban home.”

Since then, the spread between the cost of electricity and cost of natural gas in Ontario has widened — from a ratio of  three to one in 2009 to more than six to one today.

An National Resources Canada test of a Mitsubishi cold-climate heat pump in 2013 clearly demonstrates the challenge. The heat pump was installed in one test house in Ottawa and its performance was assessed against a high-efficiency gas furnace in an identical house. The heat pump consumed about 49 per cent less energy in the form of electricity than the gas furnace, but the heat produced still cost about 124 per cent more.

“You’d have to go back to 2006 gas prices, which is about double today’s price, for the air-source heat pump to be cost-effective,” Sager says.

It could happen. A long-term forecast by Deloitte LLP in late March predicts natural gas prices will double by 2023 and keep rising until 2040. But waiting for that prediction to come true leaves too much to chance, and time is running out

Davies isn’t giving up. He’s convinced heat pumps will come to dominate the heating and cooling market in Ontario and across Canada over the next 25 years. “This must happen if we are to honour our climate change commitments as a nation,” he says.

That’s the conclusion of a Council of Canadian Academies expert panel on energy use and climate change, and of the comprehensive Pathways to Deep Decarbonization report released in September. “By 2050, buildings consume between 53 and 72 per cent less energy per square metre, due in large part to the adoption of heat pumps for space conditioning and water heating,” according to the report’s emissions reduction roadmap for Canada.

Achieving this means levelling the playing field. One immediate action the province could take is to recognize the importance of reining in natural gas emissions by putting a moratorium on pipeline expansion, which continues to happen as new communities emerge.

The government could also establish a home heating target – for example, that a certain percentage of households shift away from natural gas heating by a specific date. To support that goal, it could earmark annual revenues from the carbon cap-and-trade program (based on amounts collected from natural gas customers) and use that to offer incentives to purchase technologies such as heat pump systems, with a nod to systems built by Ontario companies such as Ecologix.

“Over the years, as we’ve built volumes, it becomes less expensive for us,” says Davies. “But we’ve only got hundreds out there, not thousands.”

Driving serious economies of scale, even if just through government procurement programs, can give new technologies a fighting chance against incumbent systems. It’s also a way to seed the growth of local ventures. “Maybe the role of government here is to create that volume,” says Dizy from the Advanced Energy Centre. “Government is great for solving these chicken and egg problems.”

Homeowners who don’t have the upfront cash to pay for a system could get low-interest financing through municipal initiatives like Toronto’s Home Energy Loan Program or the proposed Guelph Energy Efficiency Retrofit Strategy which collect loan repayment through property taxes; or on-bill financing programs offered by the local electric or gas utility. Municipalities or utilities could issue green bonds to create big pools of capital for this purpose.

The utilities themselves will need to consider their role, as will the province’s energy regulator. Do electric or gas utilities get into the business of selling, installing and financing these systems? What regulatory barriers prevent this? What benefits do heat pump systems bring to their respective businesses?

If the long-term goal is to dramatically reduce emissions from natural gas — and to meet climate targets, it’s a goal that must be achieved — then a nagging question is how the gas business in Ontario needs to change.Heat pump grid infographic.

(View the text alternative for the How heat pumps would change the grid list image.)

There’s big infrastructure at stake. Enbridge and Union together have about 76,000 kilometres of main distribution pipelines and another 72,000 kilometres of service lines that bring the gas directly into Ontario homes, businesses and industry. That’s enough pipe to circle the Earth nearly four times.

Neither company will just walk away from these assets before getting a reasonable return on investment, nor should they. Transitioning millions of homes from natural gas to electric heating will take some time, and the process needs to be carefully managed as Ontario moves toward the 2050 target of reducing greenhouse gas emissions to 80 per cent below 1990 levels.

Instead of viewing natural gas as a primary source of home heating, one approach is to treat it as a source of in-home “peak heating” – to be used during the coldest of days when air-source heat pumps are less efficient and when heating demands are exceptionally high. “You can definitely have that kind of backup fuel switching,” says Davies, who is a fan of the idea.

The reason comes down to efficiency. It makes more sense to directly burn natural gas for home heating on an extremely cold day than it does to burn it in a power plant to create electricity that a heat pump will eventually have to convert back into heat. With the former, more than 90 per cent of the energy becomes usable heat. With the latter, about two-thirds of the energy ends up as waste heat that’s discarded through an industrial smokestack.

“Leaving the natural gas pipeline infrastructure in place to supply peak to the home seems like a good way to preserve that infrastructure,” Dizy says.

The gas utilities, for providing this backup home service, would get some sort of special compensation – the same way operators of natural gas “peaker” plants get special payments for being on standby reserve when electricity demand spikes. It’s not a perfect solution, but even as a small source of revenue it might prevent gas pipeline infrastructure from becoming prematurely stranded as the province begins its long-term transition away from natural gas.

But observers like Julie Leach from the Toronto Atmospheric Fund say Ontario has yet to seriously tackle the home heating issue. On the contrary, she says, “public policy and market signals are pushing us in the opposite direction, encouraging expanded use of natural gas for space and water heating.”

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