New markets for Manitoba Hydro

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This article was published 18/3/2016 (999 days ago), so information in it may no longer be current.

The electricity industry is at the verge of big technological and structural changes. Among them is the rise of renewable energy sources, mostly wind and sun, as they replace fossil fuel sources. These changes are also felt in provinces that rely mostly on hydro: Manitoba, British Columbia, Quebec and Newfoundland and Labrador.

Ontario has boosted output of wind energy dramatically in recent years, encouraged by generous feed-in tariffs. Its installed capacity for generating electricity is nine per cent wind power, and more is on its way.

As the wind does not always blow and the sun does not always shine, fluctuations in output need to be met with reserve capacity. This could expand the role for hydro provinces.

Hydroelectric power and intermittent energy sources are natural partners. Turbines powered by hydroelectric dams can be ramped up and down relatively quickly, and this allows hydroelectricity to play a stabilizing role in the electric grid. Hydro power also tends to be cheaper than other types of peak-power plants, in particular natural gas. But there is a catch: hydroelectric resources are not always in the best location to support an expansion of renewable energy. It is mostly the hydro-poor provinces (Ontario, Alberta) that rely on fossil fuels and other energy sources and are looking at expanding renewable energy to reduce air pollution and carbon dioxide emissions. As renewable energy is growing, electric utilities have two options to deal with the intermittency problem.

One option is to invest in grid-scale electricity storage. New technologies such as industrial-scale flow batteries are developing quickly, but they still need to prove their commercial viability. Trade-in electricity provides another option — and this means more transmission capacity. A larger grid is better able to accommodate an expanding role of intermittent energy.

Most of Canada’s electricity trade is north-south with the United States. Interprovincial electricity trade is small in comparison. Self-sufficiency mandates in Canadian provinces have mostly made cross-border electricity trade an afterthought, although a profitable one. Different provincial approaches to regulating electricity markets have further complicated co-operation.

Take Manitoba’s trade with the United States, mostly with Minnesota: in 2015, the province exported $370 million worth of electricity to that state, but the revenue fluctuates a fair bit due to changing electricity prices and demand — as low as $289 million in 2011 and as high as $480 million in 2007. Manitoba’s imports from the U.S. are tiny in comparison: about $5 million in 2015.

Manitoba Hydro is working to expand its 700-megawatt transmission capacity to Minnesota by another 700 MW, with a potential to boost export volume by about 40 per cent. In the long run, this is good news for ratepayers because the revenue from electricity sales contributes to keeping electricity prices low. In the short term, export revenue can be volatile due to fluctuating spot prices and the effects of exchange rates. But more transmission capacity helps as it allows selling more electricity when prices peak.

Manitoba enjoys the lowest retail electricity prices anywhere in Canada. Hydro resources are Manitoba’s international trade advantage. The challenge will be to direct exports to markets where prices are high, pay for developing new generation stations and earn profits to benefit Manitobans.

But Minnesota is not Manitoba’s only option. Ontario’s Independent Electricity System Operator says there is room for more co-operation between Manitoba and Ontario. Manitoba’s total installed capacity of 5,700 MW faces lower demand in the summer, when demand in Ontario is peaking. Northwestern Ontario could use up to 200 MW of capacity from Manitoba to satisfy growing demand.

Wind farms are also starting to appear in northern Ontario, and more could be developed along the shores of the Great Lakes if transmission capacity was available. In addition to serving local demand, a new high-voltage direct current line could feed clean and affordable electricity from Manitoba through Sault Ste. Marie, Sudbury and Barrie to Toronto. The existing line cannot accommodate significant new loads, but IESO believes there is potential for another 1,000 MW of new transmission capacity.

Manitoba and other hydro-rich provinces have a bright electricity future if they invest in new generation capacity and interconnections, with an eye to long-term benefits. These new cross-border trade opportunities create prosperity and help Canada meet its greenhouse gas-reduction goals.

Werner Antweiler is a professor of economics at the University of British Columbia’s Sauder School of Business. He works on international trade, energy and environmental economics issues.