Electricity in Canada:

Smart Investment to Power

Future Competitiveness
January 2013

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Table of Contents
Executive Summary

Introduction

Infrastructure Investment

A Transition in Generation Technologies

12

Energy Conservation and Demand Management

19

Interprovincial Electricity Interconnections

20

Conclusions

25

Executive Summary
As Canada continues to define its place as a
responsible energy producer, the product of one of
its significant resource endowmentselectricity
and the sector responsible for its production,
transmission and distribution will play a significant
role in Canadas energy future. The availability of
reliable, abundant and comparatively inexpensive
electricity that has minimal environmental impacts
both as an input to economic activity and as an export
commodity will have a direct impact on Canadas
future economic growth and competitiveness.
Electricity, along with other forms of energy, is easily
taken for granted. In nearly every instance when
people flip the switch, the lights come on. There is no
need to give thought to the generation, transmission
and distribution infrastructure that is required to
deliver stable, reliable and affordable electricity,
virtually uninterrupted, to homes and businesses.

This paper will illustrate the necessity of continued

investment in electricity generation, transmission and
distribution systems to ensure long-term economic
growth and competitiveness as well as the need to
define the ground rules for energy trade, including
electricity, within Canada. Canadas electricity sector
is at the leading edge of a decades-long transition
towards cleaner sources, smarter transmission
and distribution systems and better informed and
educated consumers that will demand a measure of
control over their energy costs. The infrastructure
investments over the coming decades will ensure
this transition takes place in a manner that enhances
competitiveness and limits negative impacts, and
responds to North American energy legislation
and regulations in a coordinated manner that enables
the gradual de-carbonization of the electricity system.

The Canadian Chamber of Commerce

Introduction
In its 2009 Review of Energy Policies of IEA
CountriesCanada, the International Energy Agency
(IEA) describes the Canadian electricity system as
part of a contiguous North American electricity
grid, with the industry being highly integrated
and the bulk of generation, transmission and
distribution services provided by a few dominant
utilities. Although some of these are privately
controlled, most are Crown corporations owned by
provincial governments. Ownership of the resource
and regulatory oversight rests with provincial
governments except in areas of federal responsibility
transborder and nuclear power related activities.
The generation, transmission and distribution of
electricity in Canada fall primarily under provincial
jurisdiction. Canadas electricity system is a
significant contributor to all aspects of the
Canadian economy:

a direct commodity input to business

and industry;

a participant in trade and export markets;

an enabler of technology development and

deployment and innovation; and,

a high-skills employer.

The electricity sector, by ensuring a secure, reliable

and affordable supply of electricity, has been a main
contributor to Canadas competitive advantage.
The electricity sector is once again at the beginning of
a period of continued investment and reinvestment
in generation, transmission and distribution
infrastructure during which high-emitting, fossil
fuel-based thermal generation should gradually be
replaced by low- or non-emitting electricity sources.
How the forecasted investment of nearly $350 billion
in Canadas electricity system will be allocated will
be determined by demand projections and forecasts,
environmental and other regulations, public pressure
and capital availability.
These strategic investments represent a major
decision point for Canadas electricity sector. These
choices, combined with the magnitude of the
investment required to embark on the transition,
provide the Canadian electricity sector with an
opportunity to rethink Canadas electricity system
and make investments that will meet the needs of
Canadians, businesses and the export market while
ensuring the sustainability of the sector, the Canadian
economy and the environment.
Governments at all levels are increasingly being
called upon to deliver the same level of service for
their constituents while scaling back their budgets
across the board. Partnering with the private

The Canadian Chamber of Commerce

sector in the development of electricity generation

and transmission infrastructure projects provides
an opportunity to leverage greater investment
at reduced cost to ratepayers. These investment
decisions will be made on the basis of sound
business cases, and provide an opportunity to marry
government-backed stability with private sector
efficiency. The traditional Canadian competitive
advantage that was based on reliable and abundant
electricity, as well as competitive tariffs can be
maintained through investment choices. Both
brawnnew capacity and brainstechnological
upgrades to existing infrastructure are required to
enhance the efficiency of Canadas electricity system.
In order to ensure the large-scale generation projects
necessary to complete the transition away from fossil
fuel-based thermal generation are economically
feasible, they must be connected to markets where
demand exists. Despite the fact that there are not
currently any clear and compelling business reasons
supporting its construction, an interconnected,
regional, province-to-province transmission grid
would likely accelerate the pace of the transition
and increase the likelihood of new sources of large
hydro potential being developed. An interconnected
provincial transmission grid would be crucial for
opening up new sources of electricity to new
markets and to maintain Canadas place as the
leading provider of secure, clean, reliable and
affordable electricity.

Electricity in Canada

There are certainly political, regulatory,

environmental and economic impediments to an
interconnected grid project. However, ongoing calls
for a national energy strategy by both government
and non-government players consistently include
recommendations for modernizing and expanding
energy infrastructure to strengthen intra-regional
connections and diversify markets. At a minimum,
sustained calls for a national energy strategy could
finally lead to the tipping point where federal,
provincial and territorial governments set the ground
rules for energy trade within Canada by completing
negotiations on an Energy Chapter in the Agreement
on Internal Tradea necessary condition before
serious discussion of an interprovincial grid could
be contemplated.
This report will examine ways in which the Canadian
electricity sector could take advantage of the
opportunities presented by a period of significant
and necessary capital investment to reconfirm the
importance of electricity to Canadian competitiveness
as well as look at how those investments might
impact the long-term sustainability of the sector and
of interprovincial and international trade relations.

Infrastructure Investment
In order to set the context for this discussion
paper, it is imperative to outline a few
underlying assumptions:

Canada is an energy nation and will continue

to be one for the foreseeable future. In order to
capitalize on its remaining significant resource
opportunities (including those in the electricity
sector), Canada must recognize and embrace
energys importance to national and
provincial economies.

Federal and provincial governments must foster a

business environment that encourages open and
competitive capital investment in energy projects.

Demand for energy is likely to at least double

between now and 2050less than 40 years away.
From the history of energy systems, this is not a
lot of time in which to change energy production
practices. Oil, natural gas, coal and hydro will
continue to power our energy systems for the
immediate future. Demand Side Management
(DSM) should play a role in mitigating this
increase, but infrastructure investments should
be calibrated to prepare for that reality while at
the same time position electricity systems for the
transformation that is underway.

Canada boasts sufficient untapped supplies of

electricity, primarily large hydro, to meet its
future needs. The contribution of renewable
electricity forms like biomass, solar and wind
will grow but remain a small portion of the
total energy system unless breakthroughs in
storage technologies are achieved. New thermal
technologies (such as CCS) and new discoveries
(primarily of natural gas, and particularly in the
United States) are putting pressure on higher-cost
renewable sources.

Providing reliable electricity to business, industrial

and residential customers requires a robust and
integrated electricity generation, transmission
and distribution system. Traditionally, Canadas
electricity system has emphasized regionally-based
hydro, coal, nuclear and natural gas generating
stations that require substantial transmission
infrastructure to move electricity to markets. The
development of Canadas electricity system has also
relied heavily on publicly owned assets to assume the
capital and market risks associated with the
large-scale investment required to deliver the reliable
and affordable electricity supply being driven by
public demand.1

Canadian Electricity Association, How Will We Power Canadas Future: Our Electricity System in Transition, 2011

The Canadian Chamber of Commerce

Canada has seen periodic and significant

investments in its electricity system, most recently
in the 1970s and 1980s. Those investments allowed
the electricity sector to meet growing demand
without any ongoing investment in generation
or transmission infrastructure. For the most part,
ongoing infrastructure upgrades were put off.
Those major investments that were put off due to
earlier overbuilding of the system are now overdue.
Investments are now necessary to replace and renew
aging generation, transmission and distribution
assets that will allow Canada to keep pace with
future demand and for the continued efficient,
reliable and economic operation of the Canadian
electricity system.
An efficient electricity system is a significant direct
contributor to the Canadian economy (Conference
Board of Canada estimates nearly $25 billion in 2010)
and can impact Canadian competitiveness. In its
World Energy Outlook, 2008 the IEA projected that
required investment in Canadas electricity sector by
2030 to be in the order of $240 billion (CAN). More
recently, a 2012 report by the Conference Board of
Canada estimated that $347.5 billion (current dollars)
will need to be invested in Canadian electricity
infrastructure (including electricity generation,
transmission and distribution) from 2011 to 2030.
This identified need for significant investment in
electricity infrastructure over the next two decades
could provide an immediate opportunity for
Canadas energy system to continue providing a
competitive advantage for the Canadian economy.

With an expected cumulative investment in Canadas

electricity grid of nearly $350 billion between
2011 and 2030, the Conference Board of Canada
indicates that this investment will be beneficial for
the Canadian economy: that for every $100 million
(inflation adjusted) invested in electricity generation,
transmission and distribution infrastructure, real
Gross Domestic Product (GDP) will increase by
$85.6 million.2
The new capacity investments identified by the
Conference Board can be characterized as adding
brawn to the systemcapital investments to
construct additional capacity to meet projected
demand and deliver power. Specifically, an estimated
$35.8 billion is expected to be invested in known
transmission upgrades and new build during
this time period based on announced projects in
each province and territory.3 This figure likely
underestimates future levels of investment as it does
not speculate on potential future projects.
Investment in transmission infrastructure is required
to accommodate growing stresses on the system
that include:

greater electrical loads;

an increased number of remote (mostly hydro

and renewable) generation facilities;

enhanced trade between provinces and with the

United States; and,

increasing reliability demands.

The Conference Board of Canada, Shedding Light on the Economic Impact of Investing in Electricity Infrastructure, February 2012

Ibid.

Electricity in Canada

The addition of increasing amounts of emerging

renewable electricity resources (such as wind and
solar) to an existing transmission system designed
for stable, baseload electricity presents unique
challenges. Intermittent energy is any source
of energy (often renewable forms) that is not
continuously available to be dispatched to meet
power system demands. The increasing desire for
significant amounts of renewable, but intermittent,
energy from disperse sources in Canadas electricity
mix is raising some caution flags about the existing
electricity systems ability to operate at peak
efficiency given a shifting generation mix.
In an effort to avoid an overbuild scenario and
mitigate the risk associated with potentially
inaccurate demand forecasts, using technology
to add brains to the current electricity system
could reduce both risk and capital costs. Except
in markets where the need for new infrastructure
is clearly identified, it will likely be less costly to
invest in technological improvements to existing
infrastructureadding brains to the systemto
increase efficiency through the adoption of smart
grid technologies.
Smart grids add communication and automation
technologies to the existing electricity grid that
integrate the behaviour and actions of all connected
supplies and loads through dispersed communication
capabilities to deliver sustainable, economic and
secure power supplies.4 According to the Canadian
Electricity Association (CEA), a smart grid can
ease the incorporation of intermittent electricity
sources (predominantly renewable) into the current
transmission system and allow for continuous
monitoring of the full system to limit energy losses,
improve the dispatch of power to where it is needed,
enhance the stability of the system and extend the
useful life of existing infrastructure. Smart grid
technology also offers a way to manage the myriad
of standards that currently exist between provincial
electricity systems and are prohibiting a coherent
interconnectivity approach.

Managing data
In addition to the new infrastructure required
over the coming years and the technology that can
be added to existing transmission and distribution
infrastructure, much thought and care must be
taken to ensure that the massive volume of data is
not only collected but analyzed such that it can be
turned into useable and actionable information.
Such information can be used, for example, to
better predict the likelihood that generation assets
will fail through condition based maintenance/
monitoring, and thus help plan for capital
investments and equipment replacement and
ultimately better manage supply.
Information can similarly be provided to
consumers in real time so they better understand
their energy consumption and its impact on the
environment, which can be used to instill a sense
of conservation and assist shifting loads during
periods of peak demand.
Predicting and optimizing the impact of
renewables (specifically wind and solar) will
enable more renewable generation assets to
be integrated into the grid by predicting their
variability and being able to optimize whether
particular loads should be dispatched or other
loads turned on to compensate.
There is a significant need for systems integration
to make sure the data gets to the right systems
(and that data is accurate and valid clean and
correct) in order to make best and most effective
use of the data and so that the systems can talk
to one another and have a consistent and accurate
view of the overall power grid.

Canadian Electricity Association, How Will We Power Canadas Future: Our Electricity System in Transition, 2011

The Canadian Chamber of Commerce

Maintaining Competitiveness in
Albertas Forest Sector: A Case Study in
Electricity Choices
A 2011 report prepared by Mike Hogan of Enact
Power for the Alberta forest sector entitled Power
Challenges in the Forest Sector sets out a number of
challenges, with respect to electricity supply and
costs, facing Albertas forest sector as it looked to
secure a sustainable and profitable future. The report
analyzes options that would enable the forest sector
in Alberta to remain competitive as the sectors
electricity costs are set to increase significantly due
to electricity policy decisions made by the provincial
government. The bulk of the rising electricity costs
are associated with a $15 billion transmission
build, coupled with growing costs associated
with accommodating growth in wind generation
supported by both price and policy incentives.
Power Challenges in the Forest Sector sought to identify
the challenges and opportunities for Albertas forest
sector based on the new policies and practices set

10

Electricity in Canada

forth by the Alberta government. Within the existing

policy framework, what could the forest sector do
to maximize flexibility while also ensuring access to
long-term economic, reliable and stable electricity
supply given that the provinces transmission and
wind developments could have an impact on the
competitiveness of electric rates in Alberta for
many years?
According to the report, the Alberta governments
decision to change the planning and development
process in the electricity sector was driven by a
belief that a significant transmission build is critical
to ensure the electricity market works properly.
According to the Government of Alberta, the $15
billion planned transmission build will ensure low,
long-term costs for consumers. Notwithstanding
higher transmission costs, total delivered costs
to consumers and industry in Alberta are and
will be competitive, says the Government.
Industrial consumers concerns about deteriorating
competitiveness are understood, but the Alberta
government believes that without the transmission

build, long-term costs will be much higher given

challenges securing rights of way, the availability
of skilled labour in the province and increasingly
complex stakeholder relations. The transmission
build is required to secure a reliable supply of
electricity to facilitate Albertas continued growth.
The Alberta government also recognizes that in some
instances on-site generation, especially cogeneration,
should be pursued for both economic and
environmental reasons and has established policy
and directives which provide a substantial incentive
for industrial and other large loads to build attractive
generation facilities. At the same time, the $15 billion
transmission build will facilitate an efficient market
in which these and other generators can participate.
Given that the policy decisions made by the Alberta
government are likely to result in increased electricity
costs that will have a direct and negative impact
on the forest sectors integrity and the increase in
wind power that is expected to comprise a growing
share of Albertas electricity profile, circumstances
in Alberta may be aligning themselves to provide
an unprecedented incentive for forestry and
other industrial sector consumers to build on-site
generation. Low natural gas prices, increasing policy
and financial incentives for biomass and other
environmentally attractive generation technologies,
and dramatic increases in transmission costs are
steering the forest sector into generating electricity
for their own needs and also into becoming providers
of renewable energy to the Alberta electricity grid.
It should be noted that in Alberta industrial energy
users pay the lions share of transmission costs due
to their high proportion of loading on the system.
The only way to avoid these costs is to develop
on-site generation and supply ones own back-up
requirements. However, if industrial customers
build large-scale on-site generation, the remaining

consumers in the electricity system will be required

to pay out ever increasing transmission costs. The
bulk of these remaining consumers are likely to be
residential and small commercial consumers.
In an effort to shield itself from higher electricity costs
that would have rendered the sector uncompetitive,
the Alberta forest sector is now examining
cogeneration options that will ensure both a secure,
stable and relatively low-cost electricity supply as an
input to its own operations and also a potential new
revenue stream from electricity sold to the Alberta
electricity grid.

Conclusion
While it is easy to argue that if these projected
investments in Canadas electricity sector are not
made the impact on Canadian competitiveness will
be negative, the Alberta example above illustrates
that there is a delicate balance of policy, investment
and incentive that must be maintained. Investments
are necessary to revitalize existing infrastructure,
reduce maintenance costs, maintain system reliability
and build a transmission and distribution system
that is capable of managing the transition to a more
carbon efficient energy future. These investments will
also support the ongoing training of Canadas next
generation of skilled electricity workers. While there
is concern that the necessary amount of attention,
incentives and training are currently in place to
attract individuals into the sector, a prolonged
period of investment in electricity infrastructure that
is creating jobs is a is an attractive way to address
Canadas skills crisis. Investment in smart grid
technology as a way to improve the efficiency
and extend the life of existing infrastructure is a
clear example of using technology to make
Canada competitive.

The Canadian Chamber of Commerce

11

A Transition in Generation
Technologies
Canadas electricity sector is in the midst of a
decades-long transition that will alter the manner
in which electricity is generated and delivered to
the grid. Aiding this transition are a number of
federal and provincial policies and regulations that
will set limitations on the type of new generation
being built in Canada and alter the end-of-service
dates for existing infrastructure. These changes are
likely to result in a cleaner electricity supply mix in

Canada but will also have an effect on the business

of electricity and could affect electricity affordability
and reliability. The National Energy Board (NEB)
projects that total generation capacity will increase
by 27 per cent between 2010 and 2035, with natural
gas-fired and renewable-based capacity showing the
largest increases. Total installed capacity is projected
to increase from 133 GW in 2010 to 170 GW by 2035.

NEB Electricity Generating Capacity, Reference Case

Source: National Energy Board

12

Electricity in Canada

One of Canadas economic competitive advantages

has traditionally rested on access to reliable and
affordable electricity generated from different sources
across the country. The composition of this diverse
mix of electricity sources is changing. We are in the
midst of a transition period where fossil
fuel-based thermal generation (primarily coal) is
slowly being phased out to be replaced by an increase
in natural-gas fired generation, potential large hydro
developments and increased use of non-hydro
renewables such as wind, solar and biomass. This
transition in generation fuels is well underway.
According to the NEBs latest forecast for the
electricity mix out to 2035, hydroelectricity remains a
dominant source of Canadian electricity. As a result
of projected hydro-based capacity expansion, annual
hydroelectricity production increases from 346 TWh
in 2010 to 430 TWh in 2035. The share of wind-based

generation triples from less than two per cent of total

generation in 2011 to six per cent in 2035. Biomass,
solar and geothermal energy will account for nearly
four per cent of total capacity by 2035. In addition,
over 9,000 MW of coal-fired capacity will be retired
over the 2010 to 2035 period, or about two-thirds
of the total coal-fired capacity in 2010.5 Much of the
reduction in coal-fired generation capacity can be
attributed to Environment Canadas recently outlined
performance standard that will be applied to existing
coal-fired electricity generation and new units of 10
MW or greater. This standard is planned to come
into effect by mid-2015 and is expected to promote
the replacement of coal-fired units at the end of
their economic life and will encourage investment in
cleaner generation technologies (e.g. high efficiency
natural gas generation and renewable energy), as
well as the use of carbon capture and storage.6

National Energy Board, Canadas Energy Future: Energy Supply and Demand Projections to 2035, November 2011

Environment Canada, News Release: Key Elements of Proposed Regulatory Approach. Retrieved May 15, 2012 from:
www.ec.gc.ca/default.asp?lang=En&n=714D9AAE-1&news=55D09108-5209-43B0-A9D1-347E1769C2A5, 2011

The Canadian Chamber of Commerce

13

NEB Canadian Generation Mix in 2010 and 2035, Reference Case

Source: National Energy Board

The next cleanest thermal option available to the

Canadian electricity system in the transition phase is
natural gas. Natural gas-fired electricity generation
stations, as a replacement for coal-fired plants, are
expected to increase in number in the next decade.
Natural gas is a cleaner burning fuel compared to
coal: for the same amount of electricity, gas-fired
power generation typically produces 40 to 50 per
cent fewer greenhouse gas emissions than a coalfired facility.7 The production of natural gas facilities
are also associated with lower investment costs and

shorter construction periods compared to coal-fired

generating plants.8 Recent natural gas discoveries
in both Canada and the U.S. that are resulting in an
over-supply of natural gas and historically low prices
are causing utilities to rethink investment in natural
gas electricity generating stations.
Based on these factors, the NEB projects the share of
natural gas-fired generation in Canada will increase
from nine per cent in 2010 to 15 per cent in 2035.
In terms of environmental impact, cost and capital

National Energy Board, Coal-Fired Power Generation: A PerspectiveEnergy Briefing Note, July 2008

National Energy Board, Canadas Energy Future: Energy Supply and Demand Projections to 2035, November 2011

14

Electricity in Canada

risk, increased electricity generation from natural

gas appears to be the immediate next step in the
transition away from coal-fired generation. Natural
gas is a cleaner burning fuel, and generating stations
can, in most cases, be built in three to five years
provided that public pressure and environmental
concerns do not impede siting decisions. A well
developed natural gas supply infrastructure in
Canada and recent low natural gas prices have
also enhanced the attractiveness of natural gas as a
generation fuel.
While natural gas provides the most logical next step
in the transition to a reliable and reduced emission
electricity system in the short-term, there are those
who suggest that the natural gas step in the transition
be ignored altogether in favour of a much more rapid
move to an electricity system that is predominantly
based on renewable electricity. For the purposes
of this paper, renewable energy generation
encompasses a variety of unique sources, including
large hydro and run-of-river, wind, ocean (tidal and
wave), solar, geothermal, and biomass. The only
distinction that the paper makes between renewable
types of energy is in their ability to deliver reliable,
dispatchable power to the grid. For these reasons,
hydro generation is looked at separately from other
renewable sources.
Canada is a world leader in hydroelectricity
generation with roughly 60 per cent of its total
electricity output generated from hydro sources.
Hydro power is a flexible, low operating cost,
non-emitting source of baseload electricity, which
contributes to maintaining competitive and stable
electricity prices due to the fact that the output from
hydro generating stations can be adjusted quickly
with variations in demand and because it is not
subject to fuel cost volatility.

By taking into account provincial utility planned

projects, the reference case assumes significant
hydropower expansion. Hydro-based capacity,
including small hydro, increases from 75 GW
in 2010 to 87 GW in 2035. This capacity expansion
reflects a number of large hydro projects currently
under construction as well as utility-planned
projects in Newfoundland and Labrador, Quebec,
Manitoba and British Columbia. Despite this
increase, the projected hydro capacity in 2035
remains roughly half of the untapped potential of
163 GW identified by the Canadian Hydropower
Association. Given all of its positive attributes, and
despite that fact that environmental opposition to
large hydro projects is growing, there is a strong
case to be made for policies and initiatives that
support the realization of Canadas untapped
hydro resources, both for economic and
environmental reasons.
Canada is a net exporter of electricity. Exports
originate mostly from hydro-based provinces and
generally account for less than 10 per cent of total
generation. Levels of annual exports are largely
influenced by hydro conditions as well as local
supply and demand balances. In the 2005 to 2010
period, annual exports fluctuated in the range of
43 TWh to 56 TWh. Canadas electricity imports
have fluctuated in the range of 17 TWh to 24 TWh.
Most imports occur during off-peak periods when
prices in neighboring markets are low and in
accordance with pricing in export markets, due
in large part to the emergency of unconventional
natural gas as a fuel stock for electricity generation.
NEB projections indicate that the net electricity
available for export has the potential to increase
significantly. This is largely due to the projected
growing surplus of clean and competitively-priced
power from hydro-based provinces. By 2035, the net
electricity available for export is projected to reach
44 TWh annually, compared to 25 TWh in 2010.

The Canadian Chamber of Commerce

15

NEB Net Electricity Available for Export and

Interprovincial Transfers, Reference Case

Source: National Energy Board

In addition to abundant hydro resources, Canada

has significant non-hydro renewable resources
including wind power, biomass, solar, tidal and
wave power. These technologies have grown in
the last few years, despite challenges relating to
availability and cost. Policy and incentives have
helped their growth, such as Ontarios feed-in tariff
and specific purchase programs in other provinces.
Wind power has experienced strong growth in
recent years. Over the projection period, it makes

16

Electricity in Canada

the largest contribution to non-hydro renewable

growth. The availability of large hydro storage
capacity in Canada facilitates the development of
wind power as hydro may be used as a back-up
source of power when intermittent wind resources
are not available. Total installed wind power
capacity quintuples over the projection period,
reaching 23 GW in 2035. The largest capacity
additions are in Quebec, Ontario and Alberta. The
share of wind-based generation triples from less

than two per cent of total generation to six per cent

by 2035. Total combined capacity of biomass, solar
and geothermal is also expected to grow, with net
capacity additions over the projection period of
over 5,400 MW, accounting for nearly six per cent of
total generation by 2035.9
As projected in NEBs outlook, wind power has the
greatest non-hydro based renewable contribution
potential to Canadas electricity mix. According
to the Canadian Wind Energy Association
(CanWEA), wind energy is generating affordable,
clean electricity to the extent that Canada is now
the ninth largest producer of wind energy in the
world with current installed capacity at 5,511
MWrepresenting about 2.3 per cent of Canadas
total electricity demand. In 2011 alone, 1,267 MW of
new wind energy capacity was added to provincial
grids, representing an investment of $3.1 billion and
creating 13,000 person-years of employment. More
than 6,000 MW of wind energy projects are already
contracted to be built in Canada over the next
five years.

9
10

Although renewable sources of electricity are

starting from a small base, they have been growing
very quickly globally. The IEA states that global
photovoltaic (PV) capacity has been increasing
by 40 per cent a year since 2000. Global energy
generated by renewable sources is set to grow by
40 per cent by 2017. In Canada, wind energy has
grown an average of 60 per cent a year since 1999.
The environmental appeal of renewable energy is
substantial, and renewable sources will comprise
an increasing amount of Canadas generating mix
over time. However, without major advancements
in battery and storage technologies, it is unrealistic
to assume that renewables can shoulder baseload
generation for Canadas electricity system for
some time. The exception to this conclusion could
lie in Canadas ability to partner significant wind
generation with expanded hydro generation so
that the benefits of both types of generation are
interconnected.
In addition, there are also 20 nuclear power reactors
operating at five different facilities in Canada. In
2010, these reactors generated 15 per cent of all
electricity in Canada. However, as a result of higher
growth in other types of generation, such as wind
and gas-fired power, the NEB projects that the share
of nuclear in total electricity generation will decline
to 12 per cent by 2035.10

Ibid.
Ibid.

The Canadian Chamber of Commerce

17

GermanyA Case Study in Electricity

Policy, Investment and Competiveness
An ongoing case study examining the competitive
implications of energy/electricity policy choices is
currently occurring in Germany. While not directly
comparable to the Canadian situation, what is
occurring in Germany provides some insight into the
possible competitive implications of energy
policy choices.
Germanys objective is for 80 per cent of its energy
to be produced by renewable sources by 2050.
Biomass, wind and solar currently make up about 25
per cent of the countrys electricity supply. Despite
this significant investment in wind and solar power,
Germany faces an energy shortfall due to a lack of
transmission lines to supply its industrial centres and
also due to the intermittent nature of both wind and
solar power.
According to numerous newspaper stories, academic
studies and government reports, German electricity
prices are on an upward trend as a result of the phase
out of nuclear power and government mandating of
renewable energy. Because renewable technologies
are not yet economical compared to traditional fossil
fuel technologies, Germany will have to continue to
pay a premium for a highly renewable
electricity system.

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Electricity in Canada

These higher electricity prices are affecting German

industry to the point that its competitiveness is
deteriorating. According to a recent survey by the
Association of Industrial Power Industry, Germany
ranks fourth in terms of having the highest industrial
electricity prices in the world. Electricity is more
than 30 per cent cheaper for industrial companies
in many Asian and European countries, and it is
more than 50 per cent less in the United States and
Russia. Persistent higher energy costs in Germany,
and throughout Europe, could see energy-intensive
manufacturers divert investments that might have
gone into Europe to other lower-cost alternatives.

Conclusion
A significant percentage of Canadas energy
resources will be required to meet projected demand
increases over the next three decades. While there are
barriers (environmental impact, cost, reliability) to all
generation types, there is also opportunity to enhance
Canadian competitiveness by attracting skilled
workers, innovators and entrepreneurs to help us
solve the challenges associated with the development
of our resource base. Finding solutions that will
allow the Canadian electricity sector to generate
low-impact, low-cost electricity from all of our
countrys diverse and plentiful sources for both the
domestic and U.S. markets will improve Canadian
competitiveness. These solutions will result in
jobs for skilled workers, better regulations,
investment in research, development, deployment,
technology and infrastructure, and a reduced
environmental footprint.

Energy Conservation and

Demand Management
Traditionally, the business case for energy
conservation has been based on the ability of both
industrial users and consumers to lower costs
through reduced usage and for energy companies
to forego the costs of adding supply due to the
reduction in demand. While conservation programs
have met with some success, they have often hinged
on the ability of the utility to pass through higher
costs to consumers.
There is virtually a consensus view that demand
management is an important factor in meeting
long-term electricity demand with most advocates
holding to the view that it is often cheaper to save a
unit of electricity than it is to purchase or generate
an additional unit. Demand management includes
energy conservation programs, such as energy
audits and subsidies for high efficiency equipment
and appliances that are typically funded by utility
companies and/or governments. Traditionally,
demand management activity has been driven by
higher electricity prices, the emergence of new
energy-efficient technologies and government
programs to encourage the adoption of those
technologies. For the most part, energy efficiency
technologies are versatile and can be implemented
in residential, industrial and commercial settings.
Industrial and commercial users have typically
benefitted from energy efficiency investments
through reduced energy input costs and a reasonably
quick return on the capital invested in the efficiency
technologies. For residential consumers, return on
capital outlay often takes too long for cost savings to
be an effective incentive.
Demand response utilizes time-of-use metering to
provide customers with the flexibility of reducing
consumption during peak power periods. By shifting
electricity usage to off-peak periods, industrial

11

consumers see the benefits of demand response

in reduced electricity costs. Advances in metering
technology are making demand response and
time-of-use billing cost-effective for residential
consumers as well.
The benefits associated with energy efficiency and
demand management include supply security,
improved reliability and indirect environmental gains
via emission reductions. Improved management of
energy loads through efficiency and reduced demand
could lessen the need for infrastructure investment in
both generating stations and transmission lines. The
CEA estimated that demand management has the
potential to reduce electricity use across Canada by
17 000 MW by 2025.11 The energy savings from these
programs can result in surplus generation capacity,
and energy that can be sold in export markets.
Demand management and energy efficiency
programs will become more effective when the
argument for conservation moves from cost
savings for consumers (even though this is an
important driver) to an articulate business case that
demonstrates that reduced electricity demand in the
domestic market creates surplus electricity that can
be sold to the export market for profit.
Utility companies are often skeptical of efficiency
programs due to fear of potential income losses as a
result of decreased demand and the cost of marketing
the program; in fact, in some provinces, energy
efficiency programs are starting to become costly at
current electricity price levels. A reframing of the
argument in favour of demand reduction as a way to
increase export supply would alleviate some of
this concern.

Canadian Electricity Association, Power Generation in Canada: A Guide, 2006

The Canadian Chamber of Commerce

19

Interprovincial Electricity
Interconnections
Interconnected power systems form the backbone of
a competitive market that allows jurisdictions and
companies to import power during peak periods and
export excess power to the market during off-peak
periods. Interconnections in Canada are primarily
North-South because utilities have configured grids
to ship power north-south rather than east-west. This
north-south configuration is strengthened by the fact
that the majority of Canadas electricity resources
are located in the northern part of the country while
population centres and electricity markets are located
in the south near the U.S. border.

Source: Canadian Electricity Assoication

20

Electricity in Canada

The lines shown on the map below represent major

(345 kilovolts and above) transmission lines in North
America. The map clearly illustrates that major
transmission lines that could transmit electricity
across the country on an east-west basis do not
currently exist. It also illustrates that the significant
hydro potential that exists in north-western Canada
is unlikely to be developed unless it can somehow
connect to a power grid that can deliver electricity to
markets where demand exists.

Canada, the worlds second largest exporter of

electricity, is an active participant in North American
electricity trade. Electricity exports from Canada to
the United States range, on average, between six to
10 percent of overall production.12 Most provinces
are connected with their nearest U.S. states and also
with their neighbouring provinces. This cross-border
trade allows generators to operate more efficiently
as they can continue to generate electricity even
when local demand is low. With open markets and
interconnections, power can be sold across hundreds
of kilometres. Outside of the ability to trade surplus
power and bring companies additional revenue, the
interconnected electricity grid enhances the reliability
of each countrys transmission network and is a
safeguard during times of emergency outages or
periods of high demand.13
While all provinces are connected in some capacity,
the majority of interconnections between provincial
grids have small transfer capacities, meaning that one
province cannot be dependent on electricity supply
from an adjacent province during times of large
deficits.14 The north-south structure is so prominent
that provinces with the largest external transmission
connections, including British Columbia, Manitoba,
Ontario and Quebec, have a greater number of
interconnections with the United States than
neighbouring provinces.15
Looking towards the near future, a recent report
published by the Conference Board of Canada
identified that investments in north-south
transmission will continue to be made. In fact, three
new United States-Canada interconnection projects
under development were identified, including
the Montana-Alberta Tie, NU-NSTAR-Hydro-

12
13
14
15
16
17

Quebec and Champlain Hudson Power Express.

In comparison, significantly fewer proposals for
east-west interconnections were identified from the
investment plans examined in the report.16
With an increasing focus on energy security
and environmental concerns, coupled with
the advancement of high-voltage transmission
technology, greater attention has been focused on the
advantages and disadvantages associated with eastwest transmission connectivity in Canada. Greater
interprovincial transmission capacity would allow
for additional export flexibility between provinces.
It is proposed that this increased interprovincial
trade would not necessarily diminish electricity trade
between Canada and the United States; rather, it
would increase trade opportunities by reinforcing the
reliability of the Canadian transmission grid.
Recommendations in a recent Canadian Academy
of Engineering report support the development
of a pan-Canadian electricity market,17 suggesting
that an interprovincial network would provide
both economic and environmental benefits to
Canadians in a number of ways. Firstly, a national
grid would enable the interconnection of new
sources of hydroelectric and tidal energy. The report
identified approximately 163 000 MW of untapped
hydroelectric and tidal power across Canada, a
generating source with relatively low cost and
environmental impact. Adding these generating
sources of electricity would enable the phasing-out of
older and environmentally-harmful thermal sources
of electricity generation (e.g. coal and nuclear) that
would normally need to be upgraded or replaced.

The Conference Board of Canada, Canadas Electricity Infrastructure: Building a Case for Investment, April 2011 and Canadian
Electricity Association, Canadas Electricity Industry , 2012
Canadian Electricity Association, Canadas Electricity Industry, 2012
Canadian Electricity Association, Power Generation in Canada: A Guide, 2006
The Conference Board of Canada, Canadas Electricity Infrastructure: Building a Case for Investment, April 2011
Ibid.
Canadian Academy of Engineering, Canada: Winning as a Sustainable Energy Superpower, Volume 1, June 2012

The Canadian Chamber of Commerce

21

Furthermore, interconnecting provincial networks

could facilitate the addition of intermittent renewable
sources (e.g. wind and solar) to the grid, allowing
these generating facilities to gain access to a wider
market. The increased use of these resources would
work towards improving Canadas environmental
footprint. Finally, this transmission network could
improve the management of regional peak loads,
enhance energy storage capability, help correct the
high variability in electricity prices across Canada
and provide security to the overall system.18
A second report by Pineau also outlined the expected
benefits and challenges associated with an integrated
Canadian electricity market.19 Eight potential benefits
associated with electricity integration initiatives
were identified, including improved reliability,
increased diversity in demand, a decreased need for
provinces to invest in new generating capacity and
improved supply security.20 With the ability to access
neighbouring generation facilities, each province/
territory would have access to a reserve power
supply in the event of an emergency or to satisfy peak
demand, ultimately improving the overall reliability
of the system.21 Access to this surplus power would
be possible because of the variation in the timing of
peak loads between provinces.22
As a result of this pooling, additional investments
in new generating capacity (investments that would
normally be needed to meet increased demand)
can potentially be avoided in certain provinces.23
Furthermore, with access to a greater variety of
generation technologies, the grid is less affected by
events that impact a particular source of energy (e.g.
fuel shortage, low rainfall, etc.) and, consequently,
is more secure.24 Greater integration would also
18
19
20
21
22
23
24
25
26
27

22

give provinces lacking access to hydroelectricity a

relatively clean and plentiful source of electricity and
allow them to gain access and become less reliant on
higher emitting sources of electricity. It is apparent
that integrating electricity grids between
provinces could translate into economic and
environmental benefits.
However, it is important to consider the problems
associated with a province-by-province transmission
system. Firstly, each province independently operates
its own electricity sector, meaning that unique
technical and operating structures have developed
province-by-province. Since the grid would need
to be coordinated across multiple systems and
time zones, it does present logistical challenges in
terms of pricing, regulations and infrastructure.25
There is also a growing amount of participation in
electrical generation and transmission from private
sectors, increasing the complexity and difficulty
of developing a coordinated national strategy and
plan.26 The Canadian Academy of Engineering also
points out that real-time adequacy, security and
reliability may be at risk without the development
of appropriate system control technologies.27
High construction costs and significant line losses
(averaging about seven percent) associated with
long transmission lines also need to be considered,
leading to speculation as to whether east-west sales
will ever be as lucrative as north-south sales. The use
of high voltage transmission lines or direct current to
transmit power over long distances can reduce
line losses.
Regardless of these prospective advantages and
disadvantages, several major obstacles exist in the
path towards pan-Canadian electricity cooperation.

Canadian Academy of Engineering, Canada: Winning as a Sustainable Energy Superpower, Volume 2, June 2012
Pineau, P.O. Integrating electricity sectors in Canada: Good for the environment and for the economy. The Federal Idea, Montreal:
1-25. 2012
Ibid.
Ibid.
Ibid.
Ibid.
Ibid.
Ibid.
Canadian Academy of Engineering, Canada: Winning as a Sustainable Energy Superpower, Volume 2, June 2012
Canadian Academy of Engineering, Canada: Winning as a Sustainable Energy Superpower, Volume 1, June 2012

Electricity in Canada

The push towards an east-west transmission

grid is heavily affected by political structure and
political will. A provincial politician advocating
the implementation of a national transmission
grid would face several risks. Since the benefits
of an integrated approach would appear only in
the long-term, it would be difficult for a politician
to justify the necessary spending to pursue this
change, especially in times of economic constraint.
Also, voters located particularly in provinces where
electricity supply is reliable and can be purchased at a
low cost may not support this integration because of
perceived threats to power, security and/or cost. For
example, consumers living in provinces dominated
by hydroelectric generation (e.g. British Columbia,
Manitoba and Quebec) may be reluctant to share this
exclusive resource and risk inevitable price increases.
At the same time, producers of less efficient and more
costly electricity in the non-hydro provinces would
be competing with these provinces. Finally, one of
the greatest benefits of integration, environmental
benefits, holds very little weight in the
decision-making process because of a lack of
incentives to protect the environment, such as the
establishment of a national carbon price. Without
national or international incentives to reduce
greenhouse gas emissions, the appeal of a
pan-Canadian integrated transmission grid diminishes.
Outside of political will, one of the greatest
identifiable barriers to successful implementation of
an east-west transmission grid is regulatory policy.
Planning for future transmission requirements is
an extensive process that is largely dependent on
market structure, government policy and regulatory
oversight.28 Increasing legislative and regulatory
complexity at the federal, provincial and territorial
levels has resulted in lengthy and often duplicative
regulatory processes.29
A prime example of this complexity is highlighted
when examining the various regulations in place for
28
29
30
31
32

environmental protection at the federal, provincial

and territorial levels. In order to seek approval for
the building of a transmission line between two
provinces, project proposals may potentially face
conflicting mandates between provinces and/or
similar obstacles in both provinces at varying levels
of government.30 In fact, the length of time needed
from the point in which a decision is made to actual
grid connection can take more than 10 years.31
Over the past five years, calls for the development
of a national energy strategy have been growing
louder. Governments (including the Council of the
Federation, the New West Partnership and the Senate
of Canada), industry associations, think tanks and
industry advocacy groups such as the Energy Policy
Institute of Canada (EPIC) have all expressed a desire
for an energy strategy. While there are differences
between and among the elements of a national energy
strategy depending on the advocate, there appears to
be general agreement (or at a minimum a coalescence
around certain ideas) in each of the proposals along a
number of lines.
There is general agreement around an energy
framework for the production and consumption
of energy in an economically prosperous and
environmentally sustainable fashion, while
positioning Canada as a global technology leader.32
Within that broad framework, there is also general
consensus that markets should determine the
appropriate levels of supply, demand and investment
in energy production, transportation and use.
Energy infrastructure should be designed not only
to deliver energy products to existing markets, but
also to connect regions of the country and open
up new markets for our energy exports. Canadian
competitiveness should be enhanced by taking
advantage of export opportunities, technological
expertise in the energy sector and the delivery of
energy related services. A national energy strategy
should also focus on the development of all of

The Conference Board of Canada, Canadas Electricity Infrastructure: Building a Case for Investment, April 2011
Canadian Electricity Association, How Will We Power Canadas Future: Our Electricity System in Transition, 2011.
Ibid.
Ibid.
Energy Policy Institute of Canada, A Strategy for Canadas Global Energy Leadership. Presented to The Conference of Energy and
Mines Ministers. 1-22. Retrieved May 14, 2012 from: www.canadasenergy.ca/wp-content/uploads/2011/07/EPIC-Ministers-Presentation-English.pdf. 2011
The Canadian Chamber of Commerce

23

Canadas energy resources, both renewable and

non-renewable, while paying significant attention to
energy efficiency, conservation and literacy.
Although the calls for a national energy strategy
are getting louder, one of the fundamental building
blocks for energy/electricity trade within the country
remains unresolved.

Agreement on Internal Trade

Despite the calls for a Canadian energy strategy from
groups like EPIC, the Council of the Federation and
the Senate, the foundation upon which the rule of
energy trade within Canada could proceed remains
unconstructed. This is despite the fact that there are
a number of studies that show that the volume of
internal trade (inter-provincial) in energy is nearly as
large as the volume of international trade.
The Agreement on Internal Trade (AIT) is an
intergovernmental accord on domestic trade which
was signed by federal, provincial and territorial
governments in 1994 and entered into force in 1995.
Its purpose is to reduce and eliminate barriers to
the free movement of persons, goods, services and
investment within Canada and to establish an open,
efficient and stable domestic market. When the AIT
came into effect in 1995, it committed the parties to
negotiate an energy chapter (chapter 12). Despite
years of effort by officials beginning with a 1998
electricity focused draft, the energy chapter has not
yet been completed.
In 2009, a complete draft energy chapter was
presented to the Committee on Internal Trade
(CIT). All parties, except one, supported the formal
inclusion of the draft chapter into the AIT. Since
consensus of all parties is required to incorporate a
new chapter into the AIT, the draft energy chapter
was rejected. At a minimum, sustained calls for a
national energy strategy could finally lead to the
tipping point where federal, provincial and territorial
governments set the ground rules for energy trade
within Canada by completing negotiations on an
energy chapter in the AIT.
33

24

Even if an energy chapter within the AIT is

impossible to negotiate or is deemed to be the wrong
vehicle for enhanced electricity cooperation within
Canada, the principle remains sound. A report for the
Federal Idea: A Quebec Think Tank on Federalism
entitled Integrating Electricity Sectors in Canada: Good
for the Environment and for the Economy noted that if
the Canadian provinces wish to give themselves the
greatest chance to develop their economy by avoiding
heavy and unnecessary investments in energy
infrastructure, and to minimize the environmental
impact of this sector, they have no other choice but
to talk about a shared platform on which they can
transform and integrate their electricity markets.
Obviously, such a project faces major obstacles. The
potential economic, environmental and even social
benefits are so great, however, that grounds for
agreement should be sought.33

Conclusion
Although there are not currently any easily
identifiable business reasons for constructing an
interprovincial electricity interconnection, if the
geographical, engineering and political challenges
could be overcome an interconnected grid could
allow for a pan-Canadian electricity market via
interprovincial electricity interconnections and
could be the catalyst for the next wave of Canadian
generating capacity to be brought on line. It is
also clear that increased regulatory clarity and
efficiency needs to be in place before transmission
infrastructure investments can successfully be
implemented and modernization of Canadas
electricity infrastructure can occur. Before any
decisions can be made on a national in scope
electricity project like an east-west grid, the ground
rules for how energy trade will be conducted between
and among the provinces and territories must be
established. As a result the Canadian Chamber
encourages federal and provincial governments to
pursue discussions on energy trade and national
carbon regulation, and to re-engage on negotiations
to complete an energy chapter under the AIT.

Pineau, P.O. Integrating electricity sectors in Canada: Good for the environment and for the economy. The Federal Idea, Montreal:
1-25. 2012
Electricity in Canada

Conclusions
Canadas electricity sector is embarking on a
decades-long period of transition that is likely to
see a move away from fossil fuel-based thermal
generation to an electricity system that is heavily
weighted towards non-emitting, renewable sources of
electricity. Once this transition is complete, it is likely
that hydroelectricity will remain the predominant
electricity source in Canada with a significant portion
of its remaining potential under development. As
the trend to include the environmental and social
costs of energy development gains momentum,
Canadas competitive advantage gained by access
to abundant, reliable, low-cost energy can be
maintained through the investment choices made to
support this transition away from fossil fuel thermal
generation. In order to sustain the transition over
time, investments in both brawn (new capacity and
infrastructure) and brains (technological upgrades
to existing infrastructure) will be required.
While there is not currently a strong business case
for the construction of an east-west transmission
grid, it is clear that the development of inter-linked,
regional transmission systems could serve as a
catalyst for new hydro development and assist in the
transition away from thermal electricity generation.

For further information, please contact:

Scott Willis | Director, Natural Resources and Environmental Policy | swillis@chamber.ca | 613.238.4000 (223)

The Canadian Chamber of Commerce

25

This report was made possible by the

generous support of our sponsors

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