Lighting the way?

Paul H. Harricks of Gowlings assesses recent developments in the Canadian electricity sector, where the provinces bear the weight of responsibility for electricity provision.

The past 18 months in Canada have seen several developments in the electricity sector. Under the Canadian federal system, legislative responsibility for electricity generation, transmission and distribution rests with the provinces, the only major exceptions being the international export of the commodity and nuclear regulation, both of which reside at the federal level. This survey focuses on four provinces that have seen the most activity.

British Columbia

In 2002 British Columbia undertook a major restructuring of its electricity sector. BC Hydro, previously an integrated generation, transmission and distribution company, was split into two provincially-owned entities. BC Hydro continues to be responsible for generation while British Columbia Transmission Corporation operates the province’s transmission grid.

Although the two Crown corporations will continue to dominate the electricity sector in British Columbia for the foreseeable future, significant private-sector opportunities arise. Almost all new generation is done by private developers who have historically been granted ‘take-or-pay’ power purchase agreements with BC Hydro. However, the development community was taken aback when, in June 2005, BC Hydro cancelled Duke Point on Vancouver Island after the project became embroiled in court proceedings launched by a coalition of industrial consumers and environmentalists who believe there are cheaper and cleaner alternatives to the 252 MW gas-fired facility. BC Hydro concluded that the proceedings would have unduly delayed the project.

Alberta

Alberta embraced competitive wholesale and generation markets in electricity as far back as 1996. Despite the rapidly growing oil-based economy, the province is in the enviable position of having surplus generating capacity. However, the fact that it has not developed a capacity market, coupled with the lack of a long-term contract market, has the government concerned that developers have insufficient incentives to build new generation. That situation does not appear likely to change any time soon, but the system operator has been instructed to develop key indicators to monitor long-term adequacy.

Of more immediate concern is transmission capacity. Little system reinforcement has occurred in nearly two decades, congestion has become a problem on the main grid and there are problems with voltage support, stability and system losses. Several new projects have been recommended by the system operator to ensure that transmission is able to stay ahead of new generation. Starting in 2006, customers will bear 100 per cent of transmission costs while generators (who currently pick up 50 per cent) will face costs related to interconnection and location-based losses.

The southwest of the province is witnessing a boom in large scale wind projects and new connection facilities are underway for the area. These are expected to be assigned to the province’s largest transmission company, AltaLink.

Ontario

Canada’s largest and most industrialised province continues to be the site of the greatest activity. Facing a major supply shortfall as early as 2007, Ontario has embarked on a massive programme to build new generation plants and refurbish or expand existing ones. The current government has committed itself to closing all of the province’s coal-fired plants, which supply 25 per cent of Ontario’s power, by 2010. To fill the gap, the provincial government, through the newly-created Ontario Power Authority (OPA), has issued calls to the private sector for new generation, with a major reliance on renewables, to be supported by government-backed financial commitments. To the end of October 2005 over 2,300 MW of new generation had been contracted for.

Approximately 60 per cent of Ontario’s generating capacity is nuclear. Two of the plants are operated by the provincially-owned Ontario Power Generation (OPG). The third, Bruce Power, with 6,200 MW, is North America’s largest nuclear facility and is operated by a private-sector consortium under a long-term lease from OPG. In October 2005, it announced that it will be restarting the last two of its laid-up units (it has six other units currently operating) and will be refurbishing and enhancing two other units. The total cost is CAD $4.25bn. The project will have the benefit of a long-term financial commitment from the OPA. Whether this huge project is the harbinger of a broader nuclear renaissance in Canada may depend on a major ‘fuel mix’ recommendation due in December from the OPA.

Newfoundland and Labrador

One of the largest new power projects on the horizon is the potential development of the Lower Churchill River in Labrador. In early 2005 the provincial government issued a request for expressions of interest for this resource, which is estimated to have the potential for 3,000 MW of hydroelectricity. A total of 25 responses were received and the list has now been shortened to three development proposals and three financing proposals.