Market forces weighing on hydro exports

Hey there, time traveller!
This article was published 5/4/2016 (1023 days ago), so information in it may no longer be current.

The provincial government likes to describe our hydroelectric resources as "Manitoba’s oil," an export commodity that can return dividends from cross-border sales. That has pushed the early construction of hydroelectric plants that will produce power Manitobans won’t need until into the 2030s. We are not alone in this, B.C. Hydro is doing the same, with its Site C on the Peace River.

But at what cost to ratepayers? Manitoba Hydro’s new Keeyask generating station will produce power at a cost of more than 12 cents per kilowatt-hour. Meanwhile, the average daytime spot-market price of electricity in our export target of Minnesota was recently posted at 2.05 cents per kwh.

Why is the Minnesota electricity spot market price so low? It competes on the market with natural gas, the price of which has been dropping steeply. The average futures price of natural gas last week was US$1.92 per million British thermal units; in 2006, it was more than US$7 per million BTU.

What do we do about this dilemma? Do we push on with Bipole III and Keeyask in anticipation that one year they might become economical? Or, rather, should we halt construction, do a detailed review, and determine whether to put the projects on hold on the possibility that the market will rebound some day?

Bloomberg Business on March 11 reported that in 2007, Canadian natural gas producers met 16 per cent of U.S. demand. In 2014, it had slipped to less than 10 per cent. Given that, it seems spot market electricity prices, affected by natural gas prices, will not increase significantly if at all over the next decade. The falling costs of wind, solar and energy storage will also play a significant role in keeping electricity prices from rising to where they would have to be for Keeyask and Bipole III to be cost effective, any time in the next decade or two.

Manitoba Hydro is working with Minnesota to build a new transmission line into the United States, but mainly with an eye to sell our power south. It may well be more profitable for Hydro ratepayers if it were used to import low-cost Minnesota electricity, so we could put off building Keeyask and Bipole III.

The premiers of Manitoba and B.C. have asserted that sending the hydroelectricity of their new plants into Alberta could replace a lot of the coal-fired power in that province, including to process Fort McMurray’s oilsands. But a Canadian Energy Research Institute report in January revealed that Alberta can replace its coal-fired generators with what’s called combined-cycle natural gas generators. They would emit half the carbon of the coal generators, at a cost of 5.7 cents/kwh. The same report noted hydroelectricity from Manitoba to Fort McMurray would be 12.4 cents/kwh, and Site C in B.C., at 14 cents/kwh. No wonder Alberta Premier Rachel Notley is not jumping to sign a deal with either province.

There is a new world confronting power producers and buyers, with alternatives emerging to compete with traditional sources of energy, small grids to transmit it and environmental pressures that could change the game. Manitoba Hydro and the provincial government should take a step back, halt the construction of Keeyask and Bipole III and ask for an independent review by experts and determine what’s best for Manitobans to keep their hydro rates low.

Dennis Woodford was a transmission planning engineer at Manitoba Hydro for 15 years and now is president of Electranix Corporation.