Werner's Blog — Opinion, Analysis, Commentary
Electric Common Sense

The government-regulated electricity industry in Canada remains woefully archaic in important ways. Because it falls under provincial jurisdiction, interprovincial trade in electricity is mostly an afterthought unless geography makes it a necessity (as in Labrador's case). The Globe and Mail's Jeffrey Simpson just wrote an excellent piece Hydro imports: When will the bulb go on for Ontario and Quebec? that takes aim at the missed opportunities between the two provinces. I strongly agree with Simpson's point of view.

The logic for more electricity trade between Ontario and Quebec is compelling. Ontario is paying a hefty price for switching from coal-fired power plants to natural gas plants and renewable energies. Its generous feed-in-tariff (FIT) for solar and wind electricity is costly and is driving electricity retail prices in in Ontario. In 2012, Ontario's electricity derived 55% from nuclear reactors, 22% from hydro, 16% from natural gas, 3 from coal (down from 15% a few years earlier), and 2.8% from wind and solar power. That mix is far more expensive than in Quebec, which by geographic fortune can rely mostly on hydro. Generating electricity in Quebec is roughly a third cheaper than in Ontario. Ontario importing more electricity from Quebec could be a win-win for both provinces. Economically, this makes sense as long as there is a large price gap between the two provinces in terms of generating cost. Environmentally, Ontario loses nothing buying clean hydro from Quebec. At the margin, it will further reduce greenhouse gas emissions if gas-fired plants are used less.

‘Ontario importing more electricity from Quebec could be a win-win for both provinces.’

Canada's electricity grid is in a lamentable state. It is oriented north-south to facilitate electricity exports to the United States, but not east-west to promote electricity trade across provincial boundaries. The two westernmost provinces are also in a separate large-area grid (the Western Interconnection). The federal government has never made building an interpprovincial electric grid a national priority—unlike the transcontinental railway in 1881-5 and the Trans-Canada Highway in 1950-71. The federal government was loth to intrude on what the perceived as exclusively provincial turf. However, the benefits of increased electricity trade are as obvious as those of the rail and road infrastructure projects. The eyes are on the premiers of Quebec and Ontario to start a new era in electricity trade in Canada. But the federal government can adopt a more active stance promoting more interprovincial cooperation.

Ontario is also in need of reforming its electricity market in other directions. More trade with Quebec is only one important direction. In a commentary published by the C.D. Howe Institute, A New Blueprint for Ontario's Electricity Markets, A.J. Goulding points to Ontario's volatile and contradictory energy policies, and the lack of robust long-term planning. Goulding argues for the introduction of a "capacity market" in Ontario, distinct from the model of "energy-only market" as that in Alberta. In a capacity market, power plant receive payments for providing generating capacity even when thatt capacity is not fully utilized. In a complex electricity market such as Ontario's, a capacity market is better able to convey the appropriate price signals to generators and stimulate appropriate investment into power equipment and transmission lines.

Posted on Saturday, June 7, 2014 at 20:40 — #Energy
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