Canadian Manufacturing

Aggressive shifts to new generation technologies a challenge for Canadian provinces

Introducing new technologies does not offset incremental capital costs, report says

OTTAWA—The existing mix of electricity generation technologies in Alberta, Saskatchewan, Manitoba, Ontario, and Quebec is the most efficient given the policies, costs and resources constraints facing the different regions, according to a new Conference Board of Canada report.

While the Conference Board of Canada noted Canada’s electricity generation sector faces a need to accelerate investment in infrastructure to renew assets and accommodate growth, the board said drastic changes to the energy mix bring with them relatively substantial incremental costs.

“Canada’s electricity generators face a pressing need to invest in infrastructure to meet growing demand for electricity, while at the same time adapting to changing environmental policies,” Len Coad, research director of Energy, Environment and Transportation Policy at the Conference Board of Canada, said. “One of the key questions is whether investments should target renewing aging infrastructure or new energy sources. The answer is important because it demonstrates optimal combinations for a range of risk or return levels.”

As a result of the risk, the report finds the current technology mix in each of the five Canadian provinces examined is a low-cost, low-risk combination and near optimal. In case of Alberta, for example, a portfolio that reduces natural gas capacity by 9 percentage points from its current level would increase the annual levelized cost by 26 per cent.

“For the most part, the results show that the benefits of introducing new generation technologies into these provinces do not offset the incremental capital costs. It also demonstrates that existing generation technology have a “sunk cost” advantage over new stations,” Coad said.

The report also examines the impact of carbon pricing on the optimal mix of fuel sources for Alberta, Saskatchewan, and Ontario.

“Emission costs below $40/tonne CO2e do not justify a change in the capacity mix for Alberta and Saskatchewan,” the Conference Board of Canada said. “As the price of carbon emissions rises from $40 to $75/tonne, the share of coal decreases toward zero, and the share of natural gas and nuclear technologies start to increase despite the rising carbon penalty on the former.”

The report found the cost equation reflects the limited renewable energy options in both provinces.

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