(This article has been translated from French.)

The energy sector is full of paradoxes. Gas prices, for example, are carefully scrutinized, and websites such as GasBuddy.com allow customers to compare the pump price within one-tenth of a cent per litre, so they can see the differences between two neighbourhoods in the same city or between one part of the country and another. The situation regarding electricity is practically the opposite. If Hydro-Québec did not publish its annual “Comparison of Electricity Prices in Major North American Cities,” it would be extremely difficult to get a sense of the average price of a kilowatt hour (kWh) across Canada. Yet, these differences are much more significant than those for gas. In fact, while regular gas prices in February 2017 varied between a low of $0.935/litre in Regina and a high of $1.313/litre in St. John’s (according to Natural Resources Canada on February 28, 2017), the price of electricity in some cities was double what it was in others: for residential customers, the average price was $0.0723/kWh in Montreal yet $0.1781/kWh in Toronto, and spanned a range in other cities: $0.1196 in St. John’s, $0.125 in Moncton, $0.1588 in Halifax and $0.1602 in Charlottetown, to name just a few Eastern cities.

This significant variation in prices reflects the greatly differing power systems. As figure 1 illustrates, the power generation sources in the six Eastern provinces (Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador) vary considerably (statistics from 2015). Ontario and New Brunswick rely on nuclear and hydroelectric power, in addition to having some thermal power plants (run on natural gas in Ontario, and on coal or petroleum in New Brunswick) and wind turbines. Quebec and Newfoundland and Labrador essentially rely on hydroelectric power, while power generation in Nova Scotia (NS) is predominantly based on thermal power plants (run on coal or fuel oil). Prince Edward Island’s small power system is the only one that has a substantial proportion of wind power, but the province imports more than half of the energy it consumes.

Not only is there much variation in power supply sources, but the quantities of energy consumed, the energy exchanges, and the installed generating capacity per inhabitant also vary enormously across these provinces (table 1). Quebecers are the champions of per capita consumption, with over 24,000 kWh in 2015, compared with less than 10,000 kWh in Ontario. The other Eastern provinces are either close to Quebec’s consumption level (as is the case of New Brunswick and Newfoundland and Labrador, with a per capita consumption above 20,000 kWh), or to Ontario’s, with approximately 11,000 kWh (see Nova Scotia and Prince Edward Island). The provinces with lower consumption levels also have a much lower installed generating capacity per capita — between 2.3 and 2.8 kW in 2015 — while in Quebec and New Brunswick, the installed capacity per capita is 5.3 kW and 6 kW, respectively. Newfoundland and Labrador has 14 kW installed per capita, but this anomaly can be explained by Labrador’s Churchill Falls megaproject, which has provided Quebec with approximately 30 billion kW annually since 1974 (see K. Froschauer, 1999). By reallocating the capacity of the Churchill Falls plant to Quebecers (who are actually benefiting), we end up with 5.53 kW installed per capita in Quebec — and only 3.74 kW in Newfoundland and Labrador — which is much higher than in Ontario, Nova Scotia and Prince Edward Island.

Costly compartmentalization

The differing power systems in the Eastern provinces mean that consumers’ utility bills differ greatly. The prices, which reflect the historical costs of independently developed provincial systems, send artificially disparate signals to consumers. Why might such a compartmentalized approach be raising costs for everyone? Because power systems that are fragmented according to political borders do not allow us to benefit from factors such as a diversity of demand and installed capacity, leading to a reduction of investment needs; more choices and economies of scale in building new sites; profitable energy exchanges; better coordination of system maintenance and reliability. (For more details, see P.-O. Pineau, 2013.)

Given the massive refurbishment of nuclear plants (10,000 MW in Ontario, generating approximately 68 million MWh annually), the fight against climate change (in Nova Scotia and New Brunswick in 2014, 43 percent and 31 percent, respectively, of greenhouse gas emissions came from the energy sector), and the exorbitant overspending on the construction of new hydropower plants (Muskrat Falls project),  more cooperation would be highly conducive to savings. Some investments could be avoided by making better use of the capacity available in some provinces — such as Quebec — to help fill the needs of other Eastern provinces. It would cost the receiving provinces less and the exporting provinces would earn more. These are the traditional gains that economists see in free trade. Not only have these gains been poorly documented, they have been disregarded in provincial energy policies, and particularly those of the Eastern provinces.

Promising yet insufficient cooperation

While there are some encouraging signs of progress, such as the fall 2016 pact between Ontario and Quebec on electricity and capacity exchange between 2017 and 2023 and Natural Resources Canada’s Advancing Regional Electricity Cooperation program, more needs be done to improve coordination of the Eastern provinces’ power systems. The Atlantic Energy Gateway initiative, launched in 2009 by the federal government, generated many reports in 2012. These reports outlined the possibilities and benefits of better integrating the Atlantic provinces’ power systems. However, since these studies appeared, nothing has changed.

There needs to be a more in-depth dialogue among the Eastern provinces so they can share their aspirations in the energy sector and start to realize the savings from a more integrated approach. While this might be challenging, the Eastern provinces should work toward harmonizing and integrating their power systems. Otherwise, the costs of power projects will continue to rise, while some consumers, particularly those in Quebec, will continue to consume large quantities of clean energy at low cost.

This article is part of the Public Policy toward 2067 special feature.

This article is a translation of “Les systèmes électriques de l’est du Canada.”

Photo: Shutterstock.com

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Pierre-Olivier Pineau
Pierre-Olivier Pineau is a professor and chair in energy sector management at HEC Montréal.

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