The Canadian Electrical System in Transition - Part 3

Thirty or 40 years ago, Canadians had one telecommunications option: landline telephones with a rotary dial, maybe push buttons on the most modern models. Then, telecommunications corporations re-engineered their networks to integrate a wide variety of devices and services - cellular phones, the internet, voice over IP, fax machines, etc. - which drove down costs, expanded choice and capabilities, and increased reliability. Similar innovation is now transforming electricity generation and distribution. In the not too distant future, “smart grids” will incorporate natural gas, legacy generation such as hydro and nuclear, utility-scale and micro-wind and solar, geothermal, tidal, and maybe even radical small-scale nuclear technologies.

 “If you draw that same kind of parallel there’s lots of opportunity around electricity and the energy structure to innovate and come up with similar types of systems that are flexible, that are two-way, that allow consumers choice,” said John Rilett, Calgary-based Enmax’s director of distributed generation.

 “And give them more control over what they do, while at the same time maintaining safe, reliable energy for everybody.”

 The process will probably take another 20 to 30 years in North America and Europe and much longer in developing countries, but when complete, the foundation will have been laid to electrify the global economy by the end of the 21st century, if not sooner.

Michael C. Moore is an energy economist at the School of Public Policy, University of Calgary. He worries that managing the evolution of the Canadian energy system will be made more difficult because citizens know so little about them.

“Years ago, a colleague and I did some surveys about public knowledge of energy systems,” he

said in an interview. “What we found out was probably predictable: the public - consumers, business leaders, political leaders, Aboriginal people - didn’t really have a deep knowledge or understanding of how energy systems work, let alone what it costs to run them. But they all had an over-riding sense that the people who were supplying the information about the energy systems weren’t giving them the full story.”

Canadians don’t trust the managers of the nation’s energy systems, says Moore. Mistrust and lack of understanding make citizens vulnerable to unrealistic - and wildly over-optimistic - claims of what is possible and what is not possible, especially with respect to clean energy technologies like solar and wind.

“If there's anything that we could do as a group that would change the support for the inevitable infrastructure that we're going to have to build, that will make all this work, I would say that's a step we ought to take next,” says Moore. “Get people to understand more about how energy systems work.”

What fuels the Canadian electricity system?

According to the National Energy Board, Canada is a global leader in hydro-electric power generation, ranking third globally behind only Brazil (62%) and Norway (95%) as a percentage of total electricity produced. In absolute terms, Canada generated about 10 per cent of world hydro-electricity in 2015, second only to China.

Ontario phased out its coal power plants after the introduction of the Green Energy Act in 2009. Alberta, Saskatchewan, and Nova Scotia are the last provinces burning coal to generate power, but most of that capacity will be shut down by 2030.

According to Moore, the old approach to power generation was based upon a “central station model” very much like the telecommunications model. It relied on very large capital facilities located near urban or high-density load centres, such as the coal power plants that supplied more than half of Alberta’s electricity for decades. In the case of British Columbia, power was generated by huge hydro dams in remote locations, then distributed to consumers throughout the province by an extensive system of high-voltage transmission lines. Similar hydro models exist in Manitoba, Quebec, and Newfoundland and Labrador.

But the convenience of flipping a light switch or throwing wet clothes in the dryer when desired came with a high price: a tremendous amount of redundancy - such as fuel supplies, generation and transmission capacity - built in. That redundancy will be mostly eliminated in the new power system, says Moore. In fact, the existing system will be an integral part of the new.

“A little micro-turbine to run your house, or a Powerwall battery, doesn't alleviate the need for a backbone system when power supply goes down or when you need a backup and you're reaching from another region,” says Moore. “So, the old model is likely to be a huge part of the new model but we'll just use it more smartly, use it more efficiently and use it more cost-effectively.”

The new power generation model

The new model is emerging most strongly in the United States, which until just a few years ago got about 56 per cent of its electricity from coal power plants. That number has now dropped to 30 per cent as hydraulic fracturing in American shale basins drove down the price of natural gas from $14 a million BTU to under $3, encouraging utilities to mothball aging coal plants that were already under legal siege from environmental groups like the Sierra Club with its Beyond Coal Campaign.

The emerging model looks something like this: natural gas + wind/solar + legacy generation (e.g. nuclear, hydro) + storage + smart grids. Energy economist Ed Hirs says renewables like wind and solar have “inherent advantages” (e.g. no fuel costs) over coal regardless of federal subsidies, which are set to expire in four years. “As soon as more natural gas pipelines are built around the nation, coal power plants will be going away just like the coal plants in the United Kingdom did,” he said in an interview. Already, 5 per cent of American electricity (8% of generating capacity) is supplied by wind. Solar provides about 1 per cent.

The new electrical system model will allow two-way communication between power grid and customers. Small-scale generators like rooftop solar panels will be able to sell power back to the utility when prices are highest and store power in batteries when they are lowest. Some systems  have enabled industrial customers to do this for years and the approach is catching on with residential customers in states like Texas renewables generation is highest.

A similar model is emerging in parts of Canada, particularly Alberta, which is replacing its coal power plants with a combination of natural gas, wind, and solar.

“There's likely to be a very interconnected system of demand and supply signals that relies a whole lot more on telecoms being woven into the power structure so consumers are getting a market signal about power use,” explains Moore.

“A better pricing model leads to more efficiently dispatched electricity to the places where it's needed, in the hours that it’s needed. Over the next 20 years or so, new high-density batteries will be used to store electricity when it’s not needed, in order to shave the peaks off demand cycles.”

How competitive are the new renewable energy technologies?

Levellized cost of energy (LCOE) is a common metric used to compare the cost of different types of power generation. LCOE compares costs across projects and technologies, considers a plant’s expected lifetime and operation cycle, and amortizes those costs over an assumed financial lifetime. Canadian utilities use US-based LCOE estimates as guidelines to help them choose which technology to invest in.

Estimates are one thing, investment decisions are quite another, according to Naomi Christensen, senior policy analyst with the Canada West Foundation. She notes that LCOE is highly variable, differing from region to region. “It's important to look at the estimates with a critical eye. You can talk to one person and they'll say ‘solar's the cheapest,’ and the next person says ‘well, wind is the cheapest,’ everyone seems to have the data to back it up.”

The US Energy Information Administration adds another layer of caution in a recent study, noting that “capital, maintenance, operating, and financing costs often vary significantly across technologies and fuels. In addition, regional differences in construction, fuel, transmission, and resource costs mean that location also matters…Different generation technologies also operate in different ways: some are dispatchable, or can be scheduled, while others are dependent on energy sources, such as wind and solar, that are available intermittently.”

Those cautions duly noted, LCEO estimates provide a good yardstick for comparing power generation technologies. That yardstick shows pretty clearly that natural gas combined cycle coupled with onshore wind provides a cost-effective and competitive alternative to a new coal plan, which would require carbon sequestration/storage, raising its rate to $122 to $140 per MWh. Older coal power plants produce power at $35 to $50 per MWh, but will bear the brunt of carbon taxes and stricter regulations, rendering their electricity uneconomic.

Western Canada Power Grid

The Canada West Foundation published a study in 2016 that suggested the quickest and most economical way to quickly lower greenhouse gas emissions from electricity generation is the development of a western power grid that allows large GHG emitters Alberta and Saskatchewan to tie into hydro from British Columbia and Manitoba, which have significant hydro capacity. Co-author Christensen says hydro has largely been left out of the emissions reduction discussion, which has focused on natural gas and wind in Alberta, and wind plus carbon capture and storage in Saskatchewan.

“Alberta wants to triple the amount of renewable production and Saskatchewan wants to double its renewable capacity by 2030. That seems like a really long time from now but it's about 13 years to add a lot of new infrastructure,’ she said in an interview. “An alternative would be to increase imports of hydro electricity from either BC or Manitoba, which of course are major hydro producers and looking for customers for their hydro product.”

A western grid would require the construction of expensive inter-provincial transmission tie-ins between the provinces because most of western Canada’s electricity inter-ties are north-south to the United States instead of east-west to other provinces. “There would definitely be new infrastructure that would need to be built, which comes with its own challenges obviously because of the challenges of building any type of linear infrastructure in Canada these days,” says Christensen.

If the Alberta oil sands could tap into cheap hydro from BC’s Site C dam and electrify its operations, the Canadian Energy Research Institute calculates the reduced emissions to be 13 to 16 per cent - at the same time production is forecast to rise by more than 1 million barrels a day by 2025. Building that connection alone would cost about $2 billion, according to CERI.

Christensen says the Canadian government might pick up some or all of the cost, pointing to a $6.4-billion federal loan guarantee for Newfoundland’s Lower Churchill Falls hydro development and $5 billion committed to the bridge being constructed between Detroit and Windsor. “The federal government could play a leadership role transitioning to a clean western grid powered by clean sources of energy,” she says. “This would be basically green infrastructure.”

Are there alternatives to BC’s Site C hydro dam?

Site C is proposed to be built on the Peace River in northeastern British Columbia, downstream from the existing W.A.C. Bennett and Peace Canyon dams. According to the provincial utility, Site C will generate 1,100 megawatts and produce about 5,100 gigawatt hours annually of electricity - enough to power the equivalent of about 450,000 homes. The Liberal government of Christy Clark claims that Site C is needed because 1 million people will move to British Columbia within the next 20 years.

Paul Kariya is the executive director of Clean Energy BC. His association of independent power producers claims submitted a proposal to BC Hydro to build a variety of smaller power generation projects - most of them renewable energy - that could be built incrementally at a lower cost.

“They said that because they’ve already done Site A and Site B, they have a system with sunk costs and investment, so that completing Site C only makes sense. BC Hydro said, ‘We can do it much cheaper than what you guys are presenting,” Kariya said in an interview.

Kariya and his members also aren’t convinced BC Hydro’s optimistic load growth forecasts are realistic. He points to a recent pulp and paper mill - a large power consumer - closure combined with several lumber mill shut downs and slower than expected growth in mining in recent years as evidence of stagnant demand for electricity.

I think recent load situations have indicated that it's kind of gone the other way. didn't materialize the way that I think BC Hydro planners had thought. I don't know; I think

“No doubt British Columbia is a desirable place to live, population will grow. How much of that's going to be met by conservation and demand-side management, we really don't know,” he says. “My members on the clean private sector-side feel that they could meet any of those eventualities and do it in an incremental way so you don't have to hold your breath, put out the big investments, then wait 10 years to hit the switch for 1,100 megawatts.”

Site C became a campaign issue during the 2017 provincial election when it was opposed by both NDP leader John Horgan. who promised to pause the project and send it to the BC Utilities Commission for review, and Green Party leader Andrew Weaver, who opposed Site C outright. Both leaders believe that renewable energy like that provided by Kariya’s members are a better alternative to spending over $8 billion to Site C.

After the May 9 2017 election, the BC NDP and Green Party entered into an agreement that would see the Greens provide support for a minority NDP government. One of the provisions of that agreement was that to “Immediately refer the Site C dam construction project to the BC Utilities Commission on the question of economic viability and consequences to British Columbians in the context of the current supply and demand conditions prevailing in the BC market.”

Alberta phasing out coal, building 30% renewable energy generation by 2030

The Canadian government announced in Nov. 2016 that coal power generation would be virtually eliminated by 2030. Four provinces still burn coal for electricity – Alberta, Saskatchewan, Nova Scotia and New Brunswick.

“Eighty per cent of Canada’s electricity already comes from non-emitting sources,” said Catherine McKenna, federal environment minister. “Our goal is to make Canada’s electricity 90 per cent non-emitting by 2030.”

Alberta was already well ahead of Ottawa, having announced a year earlier a plan to phase out coal-fired power on the same timeline, replacing it with one-third combined cycle natural gas plants and two-thirds renewable energy, mostly wind. The plan included shutting down some coal plants well before the end of their effective life. Rachel Notley’s NDP government negotiated an agreement with six utilities that included paying the companies $1.1 billion, to be fully funded by Alberta’s price on industrial carbon emissions – not by consumer electricity rates, the Alberta government said in a press release.

“Alberta is by far the largest source of coal pollution in Canada, with greenhouse gas emissions that exceed the sum of every car from British Columbia to Manitoba. We are phasing out coal pollution in a measured, financially responsible way that will improve air quality and the health of Albertans.,” said Shannon Phillips, minister responsible for the Climate Change Office.

Several of the utilities later announced their intention to phase out coal much more quickly. For instance, ATCO said it would convert its coal plants by 2020, taking the plants offline for six months at a time, so the plants burn natural gas by the time their power-purchase contracts expired.

“At today’s gas prices, it’s very competitive with coal and much lower-emitting and we see it as a really neat way to transition off coal and still keep the reliability and flexibility that comes with big generating units to back up wind and solar as they come on and off the system,” said Siegfried  Kiefer, ATCO chief strategy officer.

TransAlta also announced plans to retire coal plants and adopt renewables sooner than the government deadline. The company noted that exiting coal added additional benefits, including lower operating and sustaining capital costs, increased operating flexibility, and 5-to-10 years of economic life to each converted unit.

“TransAlta is committed to providing reliable and competitive power to our customers. Supplying markets with renewable power and competitive clean capacity from gas conversions will serve customers with low cost and low carbon electricity for decades to come,” said CEO Dawn Farrell.

CONCLUSION

Canada is fortunate to have an existing stock of hydro electric dams that produce cheap and clean power. That hasn’t prevented controversy, however, in British Columbia and Alberta over how to provide additional generating low-carbon capacity going forward.

A year into the transition, Alberta seems to be managing the transition from coal fairly well. The government has reached agreement with provincial utilities on coal phase out and the construction of more wind and solar facilities. The transition includes switching to a capacity power market, which will reduce price volatility for consumers, but raise costs slightly.

The strong likelihood of a minority BC NDP government means the Site C dam and the near-term future of BC Hydro and the provincial electricity system are uncertain at the time of publication.