Relevant • Independent • Objective

CERI Electricity Report Editorial Committee: Ganesh Doluweera, Paul Kralovic, Karen Mascarenhas, Dinara Millington, Megan Murphy, Allan Fogwill About CERI The Canadian Energy Research Institute is an independent, not-for-profit research establishment created through a partnership of industry, academia, and government in 1975. Our mission is to provide relevant, independent, objective economic research in energy and related environmental issues. For more information about CERI, please visit our website at www.ceri.ca or contact us at info@ceri.ca.

whereas Quebec is a winter peaking system (short on winter capacity) using around 220 TWh of annual energy. For instance, Quebec’s 2015-16 winter peak was 37,359 MW4 which was caused by the use of electric heating in winter, whereas Ontario’s peak was 20,836 MW for the same period. The difference in energy load profiles in the two provinces result in the trading of significant amounts of electricity between each other during their seasonal surplus periods. Quebec is connected to both Ontario and the United States (Northeast) through various interties which provide reliability, economic efficiency, capacity and energy, and operability. The Quebec interconnection is connected to New York and New England by DC ties. As shown in Figure 1, the provinces of Quebec and Ontario are connected through nine interties with a combined capacity of 2,775 MW.5 These interties are grouped operationally into three regions: 1) Quebec North connections: less than 100 MW capability; 2) Quebec South connections: (i) bi-directional 1,250 MW HVDC line (Outaouais) which acts as the primary intertie for real time energy flows to Ontario, and (ii) three interties with a total of 660 MW into Ontario, and 220-240 MW from Ontario to Quebec; and 3) Quebec South East connections: 800 MW to Ontario and 470 MW to Quebec capability. Figure 1: Existing Interconnections between Quebec and Ontario6

Trading Electricity for a Cause: The Recent Quebec-Ontario Electricity Agreement Karen Mascarenhas In December of 2016, the premiers of Quebec and Ontario signed a historic trade agreement between Hydro Quebec and the Independent Electricity System of Ontario (IESO), to trade electricity between the two provinces for the next seven years, until the year 2023.1 This was the largest contract signed by Hydro Quebec since deregulation, which underscores the Quebec government’s goal of becoming a North American leader in renewable energy and energy efficiency.2 This new agreement covers three components: energy, capacity and cycling (storage).3 The IESO will purchase a total of 14 terawatt hours (TWh) of electricity from Hydro Quebec to ensure the province has enough reliable energy and capacity to meet its demand, as well as its low carbon emissions targets. Ontario expects that with this agreement, costs to consumers will decline (by $70 million), through the import of 2 TWh annually (enough power to run nearly 230,000 Ontario homes) of hydroelectricity from Quebec to replace its natural gas generation. Moreover, Ontario would use Quebec’s pumped storage facilities to store its surplus electricity during low consumption periods, in addition to providing Quebec with 500 megawatts (MW) of surplus capacity in winter. Consequently, the agreement would help to reduce the province’s electricity sector greenhouse gas emissions (GHG) by an estimated 1 million tonnes (up to 25 percent) per year. Both governments are expected to benefit due to the complementary nature of their individual electricity systems. Ontario is a summer peaking system (due to high temperatures), using around 160 TWh of annual energy,

June 2017

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Table 1 shows the flows between Quebec and Ontario from the year 2012 to 2016. Over the past 5 years, export volumes out of Quebec to Ontario have been steadily increasing. In 2016, Quebec sent around 6,842 GWh to Ontario and received 1,786 GWh. The Outaouais HVDC intertie was used to schedule the bulk of these imports (around 5 TWh) from Quebec. This was the first year that the original Capacity Swap Agreement (CSA) took effect, which allowed Quebec to receive a maximum of 500 MW firm capacity from Ontario during the winter, and Ontario to receive the same from Quebec during its peak load periods. Currently these interties are rarely used to maximum capacity. However, if electricity trade increases between the two provinces to meet higher future demand, these interties would need to be upgraded and their capacity expanded. Table 1: Annual Electricity Trade Statistics for Ontario (GWh)7

The new agreement signed at the end of 2016, which was a refined version of the original CSA provides for:8

“(i) Ongoing sale of 500 MW of firm capacity from Ontario to Quebec during the winter periods of 2016 – 2023; (ii) 2.3 TWh of energy from Quebec to Ontario, to be offered into the IESO-administered market with the intention of displacing higher cost/higher emission gas generation; (iii) Cycling energy from Ontario to Quebec, to be cycled to Quebec during periods of surplus, stored in Quebec and returned to Ontario with the intention of displacing higher cost/higher emission gas generation; (iv) As a result of Ontario having provided 500 MW of capacity to Quebec in winter of 2015/16 as part of the original Capacity Swap Agreement, a commitment from Quebec to deliver 500 MW of firm capacity to Ontario for four months during summer period(s) of the IESO’s choosing before 2030”.

In 2016, Quebec sold 37,744 GWh outside the province: 14 percent went to Ontario, 26 percent to New York and 48 percent to New England. Net electricity exports generated $1,568 million ($1,645 million in 2015) with a record volume of net electricity exports at 32.6 TWh.9 Additionally, electricity export sales generated profits of $803 million in the year 2016.10 Hydro-Québec plans to increase exports by participating in projects to build transmission lines between Quebec and certain states in the US.11 One reason that Quebec would be interested in expanding capacity to the US markets would be due to the revenues generated. Quebec sells its electricity into export markets whose prices are reliant on the price of natural gas. Electricity prices in New England are much higher than in Ontario, even though peak demand of the two regions occurs at the same time. This is due to the natural gas delivery infrastructure bottlenecks and constraints in the pipeline system in New England, which implies that Quebec will continue to obtain a higher premium for sending power to New England than to Ontario.12 On the other side, Massachusetts is keen to import clean hydropower from Quebec, as the New England ISO is anticipating the retirement of around 6,000 MW by the year 2020.13 A 2014 report states that around 90 percent of the province’s energy exports are sold on the open market, without any long-term contracts.14 Quebec’s average export prices over the past few years were: 6 cents/kwh in 2014; 5.6 cents/kwh in 2015; and 4.8 cents/kwh in 2016.15 The pricing of Quebec’s exports declined from the year 2009 (except for 2014), due to recent market conditions such as decrease in domestic demand, US protectionist policies aimed at building their own renewables, wind energy integration depressing prices, and the decline in both natural gas and electricity market prices.16 Although the precise pricing structure details surrounding this new agreement are deemed confidential,17 some studies suggest that Ontario would pay around 4-5 cents/kwh to Quebec for its power.18 For the past few years Quebec has received a premium of $22/MWh from trading with Ontario.19 Quebec received anywhere between $16.25/MWh and $110/MWh in 2016 for selling into the New England pool at market prices.20

Year Quebec USA (Michigan, Minnesota, New York)

Other Provinces: Manitoba

Imports

Exports

Net Imports

Total Imports

Total Exports

Net Exports

Imports

Exports

2012 3,850 1,405 2,445 546 18,954 18,478 674 1,116

2013 4,184 2,229 1,955 376 18,976 18,456 477 789

2014 3,645 3,519 126 865 15,258 14,393 414 296

2015 4,767 2,852 1,915 520 21,527 21,007 319 123

2016 6,842 1,786 5,056 476 21,421 20,945 326 90

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Recent investments in multiple hydro facilities and the inflow of wind energy have led to surplus power in Quebec, which is profitably exported to both Ontario and the US Northeast. This recent agreement appears to provide supply certainty and value for Ontario, and possibly accrue mutual benefits for Quebec in the future. However, some studies suggest that the agreement is short-sighted because with future demand increases, Quebec’s surplus electricity is expected to fade by 2028, while Ontario’s surplus will cease to exist when it retires its nuclear generating stations in 2024.21 This indicates that Quebec would not have the hydroelectric resources to supply Ontario with firm capacity and Ontario would not have the generation available to meet Quebec’s winter peaking requirements. Perhaps this is why the two provinces have chosen to end this agreement in the year 2023. Endnotes 1 https://news.ontario.ca/opo/en/2016/10/ontario-and-quebec-working-together-to-drive-economic-growth.html 2 Quebec Energy Policy 2030 3 http://www.ieso.ca/-/media/files/ieso/document-library/sac/2017/sac-20170510-ontario-hydro-quebec-agreement.pdf?la=en 4 http://www.hydroquebec.com/relations-investisseurs/pdf/18K-2015.pdf 5 IESO, 2015 6 Ontario-Quebec Interconnection Capability A TECHNICAL REVIEW; Prepared by the Independent Electricity System Operator for the Deputy Minister of Energy May 2017

7 http://www.ieso.ca/power-data/supply-overview/imports-and-exports 8 Ontario-Quebec Interconnection Capability A TECHNICAL REVIEW; Prepared by the Independent Electricity System Operator for the Deputy Minister of Energy May 2017 9 http://www.hydroquebec.com/sustainable-development/energy-environment/export-markets.html 10 http://welcome.hydroquebec.com/question/1874/why-sell-our-electricity-cheaper-to-the-united-states-and-more-expensive-here-where-it-is-produced 11 http://www.hydroquebec.com/transmission-construction-projects/quebec-new-hampshire-interconnection/ 12 New England Power Grid 2015-2016; ISO New England 2015 13 http://montrealgazette.com/news/massachusetts-plan-could-spur-hydro-quebec-exports-to-new-england 14 Hydro Quebec’s 2014 Annual Report pg. 98; Clean Air Alliance 2016 15 Hydro Quebec Financial results 16 Renewable and Ontario/Quebec Transmission System Interties: An Implications Assessment Final Report, Marc Brouillette June 16, 2016 Strategic Policy Economics 17 Emails with IESO and Hydro Quebec stating details are confidential. 18 http://www.cleanairalliance.org/exclusive-shutting-down-ontario-nuclear-plants-buying-quebec-hydro-is-path-to-cheaper-electricity/ 19 Renewable and Ontario/Quebec Transmission System Interties: An Implications Assessment Final Report, Marc Brouillette June 16, 2016 Strategic Policy Economics 20 ICE data, EIA 21 Buying Electricity from Quebec: The Case Against the New Intertie Capacity. Marc Brouillette from Council for Clean and Reliable Energy, 2017; IESO, 2016

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Major Generation Projects in Canada

Major Transmission Projects in Canada

NameProvince/

Territory

Capacity

(MW)

Expected

In-Service DateStatus

Site C

(Hydroelectric dam)British Columbia 1,100 2024

Construction began in July 2015.

Future policy on the project uncertain at this time

Romaine Hydro Project

(Hydroelectric complex consisting of 4 individual

plants)

Quebec 1,550

The first plant was commissioned in 2014.

The second, third and fourth scheduled for

2016, 2017 and 2020.

Construction of the Romaine-2 development began in 2009;

Romaine-2 was commissioned in 2014 and the Romaine-1

development was commissioned in 2015; Work on the

Romaine-3 and Romaine-4 developments, which will be

operational in 2017 and 2020, respectively is underway.

Lower Churchill Project

(Muskrat Falls and Gull Island hydroelectric) Newfoundland

Muskrat Falls: 824

Gull Island: 2,250

Muskrat Falls: 2018

Gull Island: 3 years after Muskrat Falls

Construction on the Muskrat Falls Generating Facility started

in 2013.

Keeyask Project

(Hydroelectric power plant)Manitoba 695 August of 2021 Construction started in 2014.

Bruce, Darlington and Pickering

(Nuclear Power Refurbishment) Ontario

Bruce: 6,300

Darlington: 3,500

Pickering: 3,100

6 Pickering units extended to 2022;

4 further extended to 2024

Darlington refurbishment will take

about 10 years to complete

Refurbishement of the Darlington station is underway. Bruce

and Pickering commences in 2020 onwards.

NameProvince/

Territory

Capacity

(kV)

Expected

In-Service DateStatus

Bipole III Transmission Reliability Project

(HVDC line)Manitoba 500 2018 The first steel tower was raised in March of 2016

Manitoba – Minnesota Transmission Project

(AC line)Manitoba 500 2020 Currently under regulatory review

Labrador - Island Transmission Link

(HVDC line)Newfoundland and Labrador 1,100 km 2020

The right-of-way (ROW) clearing and access road

construction is complete.

Maritime Link Transmission

(HVDC and HVAC line)

Newfoundland and Labrador,

Nova Scotia 200 to 250

Commencement of operations

scheduled by the end of Q4 2017Construction began in summer 2014

Relevant • Independent • Objective

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