Mark Winfield and Pierre Olivier Pineau
June 23, 2014
The next step for Ontario’s energy mix
The central issue facing Ontario’s electricity system is whether to attempt to refurbish the Bruce and Darlington nuclear power plants. The track record of previous nuclear repair efforts has been one of delays, massive cost-overruns and even project failures. The situation has prompted many to ask whether there might be less expensive and less risky alternatives to continuing down the refurbishment path.
One option that has drawn increasing attention is the possibility of entering into an agreement to buy hydroelectric power from Quebec. Quebec’s traditional American markets for hydro exports have weakened considerably over the past few years. This has been a result of the availability of low-cost, “fracked” natural gas supplies to power generating plants in the United States. The province typically now receives only four cents to five cents/kWh for the electricity it sells south of the border. That price compares very favourably with even the most optimistic cost estimates for nuclear refurbishments in Ontario of just over eight cents/kWh. In fact, some analysts have estimated, based on past experience, that the refurbishment costs could run as high as 37 cents/kWh.
An arrangement with Quebec could offer Ontario other benefits as well. Ontario’s growing supply of renewable energy sources, such as wind and solar, means that there need to be backup resources for when the wind doesn’t blow or the sun doesn’t shine. Quebec’s extensive network of hydro dams could provide exactly the type of support that Ontario needs to ensure reliable electricity supplies.
In addition to a weakening U.S. export market, Quebec faces energy surpluses from lower than expected demand from the province’s own consumers, and increasing supplies of wind power and hydroelectricity. The time for an in-depth discussion between the two provinces may well have come.
Extensive interconnections already exist between the two provinces’ electricity systems. However, to date they have only been used for contingencies, not long-term imports or exports.
Despite these appealing possibilities, the conclusion of a long-term agreement between Ontario and Quebec may be challenging. Quebec has a long history of electricity exports to the U.S. and is tied into the U.S. market in a number of different ways. Ontario needs to offer Quebec something for its hydro exports that the U.S. cannot.
Currently California and Quebec are the only actual participants in a North American greenhouse gas emission cap and trading system set up by a coalition of provinces and U.S. states in 2012. Ontario was initially supposed to join the system, but so far has failed to do so. The participation of another province would strengthen the viability and credibility of the system and would be strongly welcomed in Quebec for those reasons.
In Ontario any adverse economic impacts of putting a price on greenhouse gas emissions (currently at $11/tonne in the Quebec-California system, well below the B.C. carbon tax of $30) would likely be more than offset by the savings for Ontario electricity consumers flowing from an Ontario-Quebec agreement for hydro imports compared to the costs of further nuclear refurbishments.
Such a scheme would put both provinces in a leadership position 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 U.S. 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.