Pierre-Olivier Pineau, HEC Montreal
Mark Winfield, FES, York University.
All Canadian provinces have interconnections between their electricity systems and those of their neighbouring jurisdictions. These interconnections enable them to export electricity to their neighbours when they have surpluses, or import electricity when they need to. In practice the provinces have pursued strategies of energy ‘separatism’ when it comes to electricity. They have tended use these connections to export electricity to US markets rather than collaborating with their Canadian neighbours. Quebec, for example, has no firm electricity export commitments to other provinces but a long-standing arrangement with New England.
Ontario, for its part, has been even more isolationist. Despite having substantial interconnections with all of its neighbouring jurisdictions, with a total capacity well in excess of 6,000MW (equivalent to approximately half the total capacity of Ontario’s nuclear power plants), to date the province has only ever used these connections for contingencies, not long-term import or export arrangements.
Changes in the political, economic, technological landscape for both Ontario and Quebec over the past few years have begun to raise the question of whether there may be mutual benefits in a closer relationship for both provinces around electricity.
In Ontario, efforts at refurbishing the province’s fleet of aging nuclear power plants has been defined by a record of delays, massive cost-overruns and even project failures. The situation has prompted growing interest in potentially less expensive and risky alternatives to continuing down the refurbishment path, as was proposed in the province’s most recent Long-Term Electricity Plan for the Darlington and Bruce nuclear facilities. There is also increasing recognition of the need for energy storage capacity, of the type that Quebec’s extensive network of hydro dams could provide, to balance Ontario’s growing supply of clean but intermittent renewable energy sources, like wind and solar.
For Quebec, the availability cheap ‘fracked’ gas-fired electricity generation in the US over the past few years has significantly weakened the province’s traditional electricity export markets. In addition, lower than expected electricity demand and various generation projects will create some surpluses of electricity supply.
The prices that Quebec has obtained recently for its exports to the US have been well below the lower end of the range of cost estimates for the Darlington and Bruce refurbishments in Ontario. The situation makes an import arrangement with Quebec a potentially cost-effective option for the province.
However, reaching a long-term agreement with Quebec may be more challenging than it initially appears. In addition to Quebec’s long-standing orientation towards the US export market, natural gas prices in the US are expected to increase in the long-term, likely as a result of environmental constraints on the ‘fracking’ industry and the potential for liquid natural gas exports. Such developments would reduce the price advantages of natural gas-fired generation over Quebec’s exports. In addition, Quebec’s hydro exports may be counted as meeting the renewable portfolio standards which many states in the US northeast have adopted. These standards require that a fixed portion of electricity supply come from renewable sources.
In order to overcome these hurdles, Ontario may need to offer Quebec something in exchange for its hydro exports that those US states cannot. Ontario and Quebec were among the core members of the Western Climate Initiative (WCI), a collaboration between a number of western US states and Canadian provinces to address climate change in the absence of action by the Canadian and US federal governments. One of the central components of the WCI was the creation of an emissions cap and trading system for carbon among the participating states and provinces. The system was to commence operations in 2012.
To date, only California and Quebec are actually participating in the system. Ontario had indicated its intention to join the system at the end of 2012, but so far has failed to do so. The participation of another province would be strongly welcomed in Quebec. The presence of Ontario would strengthen the viability of the WCI carbon market, and reduce the economic risks associated with participation for Quebec. The current carbon prices in the California-Quebec market are in the range of $11/tonne, less than the rate of BC’s carbon tax. In Ontario any adverse economic impacts would likely be more than offset by the lower electricity prices flowing from an Ontario-Quebec agreement relative to the costs of further nuclear refurbishments.
In addition to obtaining lower cost electricity supplies, Ontario would be able to carry through on a long-standing commitment action on climate change. Both provinces could further differentiate themselves from the federal government’s approach on the climate change file, an appealing prospect in the context of the Obama administration’s recent announcements of its actions to curb greenhouse gas emissions in the US. It remains to be seen if the leaders of both provinces are prepared to pursue this sensible course of action.
Pierre Olivier Pineau is a Professor, and Chair in Energy Sector Management at HEC Montréal
Mark Winfield is an Associate Professor of Environmental Studies at York University in Toronto and Co-Chair of the University’s Sustainable Energy Initiative.