Final Report: Working Group on Ontario – Newfoundland and Labrador Interprovincial Electricity Trade (ONLIET)
In the 2013 Long-Term Energy Plan (2013 LTEP), Ontario committed to explore the potential for clean, firm electricity imports as a source of electricity supply for the province.
Newfoundland and Labrador is forecasted to have clean electricity resources in excess of its own supply requirements for the foreseeable future:
- Some power is currently available for export from the existing 5,428 megawatts (MW) Churchill Falls station.
- In 2020, additional power will be available for export from Newfoundland and Labrador’s hydroelectric plant presently under construction at Muskrat Falls.
Furthermore, there is significant future export potential available from Newfoundland and Labrador, such as developing approximately 2,250 MW of new hydroelectric power from Gull Island, Phase 2 of the Lower Churchill Project and potentially other wind and small scale hydro generation projects. Nalcor is actively seeking markets for electricity production from these resources.
At the 2015 Energy and Mines Minsters’ Conference (2015 EMMC), Ontario and Newfoundland and Labrador committed to exploring opportunities for importing clean and reliable electricity from Newfoundland and Labrador into Ontario.
A working group was formed comprising provincial government officials, along with representatives from Ontario’s Independent Electricity System Operator (IESO) and Newfoundland and Labrador’s provincial energy corporation, Nalcor Energy.
As outlined in the Working Group’s Terms of Reference (see Appendix A), members were tasked with developing interim and final reports for submission to both Ministers of Energy.
The interim report was delivered to Energy Ministers in February 2016. The final report contains the technical and economic considerations that impact electricity trade between Ontario and Newfoundland and Labrador. The report also includes additional perspectives on the potential for future clean electricity trade opportunities between the two provinces.
Summary of Results
According to IESO, as outlined in the 2016 Ontario Provincial Outlook (OPO), an electricity supply gap could emerge in Ontario as early as in the mid-2020’s. Ontario’s supply requirements will depend primarily on demand conditions in the province (e.g., levels of electrification in heating and transportation, etc.). Consistent supply gaps appear in the high demand/electrification scenarios of the OPO.
During the mid-2020’s, Newfoundland and Labrador is forecasted to have excess capacity and energy from existing resources and developments currently under construction. This energy could be delivered to Ontario via Quebec or the northeastern United States. The route through the United States is technically feasible, but a more likely scenario to deliver large quantities of energy from Newfoundland and Labrador to Ontario would be via Quebec due to the shorter distance. Proceeding with the Quebec transmission route would require engaging Quebec under the terms of their Open Access Transmission Tariff (OATT).
It is expected that Ontario’s existing, committed and directed resources, including planned nuclear refurbishments, would be sufficient to meet IESO’s low or flat demand Outlook until 2035, provided that Ontario’s planned resources come into service and existing resources continue to operate. Given Ontario’s current demand forecast, the infrastructure investments required to facilitate an agreement, and the uncertainty associated with the involvement of third party transmitters, the Working Group recommends that no immediate action be taken in terms of pursuing an electricity trade agreement at this time.
However, in the event of a higher Ontario demand outlook or unforeseen supply challenges materializing, the two provinces may wish to explore opportunities for importing clean and reliable electricity from Newfoundland and Labrador into Ontario.
As such, Ontario and Newfoundland and Labrador may benefit from periodic discussions regarding future conditions, requirements and opportunities to advance the provinces’ overall interests with respect to energy and climate change.
1.0 Supply Requirements and Options
1.1 Forecast of Ontario System Needs
Ontario has moved forward with a cap and trade program that will limit greenhouse gas (GHG) emissions and fight climate change. To date, Ontario has taken significant action to reduce GHG emissions from the electricity sector through the elimination of coal-fired generation and associated investments in emissions-free generation. In June 2016, Ontario released its 5-year Climate Change Action Plan (CCAP), which outlines how cap and trade auctions proceeds will be used to fund additional actions to reduce GHG emissions. On March 22, 2017 Ontario held its first cap and trade auction.
In September 2016, IESO released its latest planning document to support the Ontario Ministry’s public consultations and update of its 2013 Long-Term Energy Plan (2013 LTEP). The IESO’s 2016 Ontario Planning Outlook (OPO) reflects supply requirements for four potential electricity demand forecasts.
The four outlooks for Ontario’s electricity demand are:
- Outlook A (or “low demand Outlook”), which explores the implications of decreasing electricity demand;
- Outlook B (or “flat demand Outlook”), which explores a level of long-term demand that roughly matches the level of demand that exists today; and
- Outlooks C and D (or “higher demand Outlooks”), which explore increasing levels of demand driven by different levels of electrification associated with policy choices on climate change.1
1: Note that Outlooks C and D would see Ontario return to being a winter-peaking jurisdiction as a result of an increased use of electricity for space heating.
Figure 1: Ontario Net Energy Demand across Demand Outlooks2
2: Source: IESO, OPO 2016
|Year||Outlook A||Outlook B||Outlook C||Outlook D|
Based on IESO’s OPO analysis, Ontario is in a strong position to reliably address any of the demand outlooks outlined above due to:
- Capability of resources that exist today (“existing resources”);
- Resources that have been procured, but are not yet in service (“committed resources”); and
- Resources not yet procured or acquired, but have been directed to meet government policy objectives outlined in 2013 Long-Term Energy Plan (2013 LTEP) and elsewhere (“directed resources”).
Each of IESO’s Demand Outlooks has different requirements for supply. Outlooks A and B may require incremental capacity through peaking resources if some existing units do not continue to operate. While the province is expected to have sufficient energy production under these Outlooks, capacity could be required to meet the system’s needs at peak. This capacity would be expected to have the flexibility to turn on and off quickly and ramp to meet the load requirements during those peak hours.
The high electrification scenarios (Outlooks C and D) would likely require both additional capacity and energy production to meet reserve margins. This would require a mix of resources that can provide the peaking capability described above as well as deliver energy efficiently in all hours.
It is anticipated that once the supply need is identified, IESO’s Market Renewal initiatives3 will be in place to facilitate the acquisition of resources to meet the Ontario system needs. Market Renewal includes the creation of an Ontario capacity auction to satisfy incremental capacity needs. The expected auction participants include existing Ontario resources whose contracts expire as well as new entrants who wish to compete in Ontario markets.
3: The IESO’s Market Renewal project is focused on identifying opportunities to create a marketplace that reflects asset value in a consistent and transparent manner and that is prepared for future changes. For more information, see section 3.1.
Based on IESO’s current view, by 2035 Ontario is expected to have a total installed capacity of nearly 40,000 MW (approximately 30,000 MW of effective capacity at the time of peak). However, approximately half of that installed capacity will have reached the end of current contract by 2035.
The figure below shows available supply at time of peak demand against all four demand scenarios.
Figure 2: Available Supply at the Time of Peak Demand Relative to Total Resource Requirements4
4: Source: IESO
|Year||Existing Supply||Refurbished Nuclear||Committed, Not Yet Online||Directed Procurements||Resources at Time of Peak||Expired Contracts||Total Resource Availability|
|Year||Outlook A||Outlook B||Outlook C||Outlook D|
Outlook D switches to Winter Peak in 2027. Outlook C switches to Winter Peak in 2031.
It is recognized that there are risks that could affect the availability of supply over IESO’s planning outlook. These include the risk of implementation delays, such as the nuclear refurbishment program and the effect of aging on the performance of the electricity generation fleet. This risk has been factored into the reserve requirements by IESO.
It is expected that the planned resources including existing, committed and directed resources would be sufficient to meet IESO’s flat demand outlook (i.e., Outlook B). Additional resources would be required to meet any increased growth in demand such as in demand Outlooks C and D. Electricity imports could be a competitive product to address needs in flat or higher demand scenarios.
1.2 Newfoundland and Labrador Supply Options
Newfoundland and Labrador has a number of clean electricity supply options that can assist Ontario in meeting its potential future electricity needs. Furthermore, with its expansive hydroelectric reservoir network and the associated ability to dispatch the fleet in response to customer needs, Newfoundland and Labrador has the ability to tailor supply portfolios to match Ontario’s demand profile as it changes over time, subject to transmission constraints.
The opportunities to partner can be considered in three categories which are presented in the figure below:
- Existing energy using existing transmission capacity;
- New capacity and energy using existing transmission capacity; and
- New capacity and energy using expanded transmission capacity.
Figure 3: Newfoundland and Labrador’s Supply Options
Existing Energy Using Existing Transmission
In much the same manner in which surplus energy from Newfoundland and Labrador is offered into the Ontario market today via Nalcor’s 265 MW transmission reservation through Quebec, surplus energy from Newfoundland and Labrador will remain an option for energy supply to Ontario well into the future.
Short-term opportunities until mid-2020, when full power at Muskrat Falls is expected, are available from the Churchill Falls generating plant, owned by Churchill Falls (Labrador) Corporation (CFLCo), and existing long-term transmission service reservations through Quebec totaling 265 MW.
Under a power contract with Hydro-Quebec (HQ), CFLCo recaptures 300 MW of firm capacity and 2.4 terawatt hours per year (TWh/year) of energy. CFLCo sells this recaptured capacity and energy to Newfoundland and Labrador Hydro (NLH)5 in its entirety. NLH in turn uses the capacity and energy to serve its customers in Labrador. Energy and capacity that are surplus to NLH’s Labrador customers are exported to markets in the Northeastern U.S. and Eastern Canada, including Ontario through the province’s transmission reservation through Quebec. Currently, Nalcor exports approximately 1.5 TWh of energy annually.
5: NLH is owned by Nalcor. It is the primary generator and transmitter of electricity in Newfoundland and Labrador.
Following the anticipated completion of Phase 1 of the Lower Churchill Project in 2020, which includes the 824 MW hydroelectric facilities at Muskrat Falls, Nalcor’s annual energy surpluses will grow to approximately 3 TWh per year.
In the current context, Nalcor’s ability to enter into long-term supply contracts will be driven by access to its 265 MW transmission reservation through Quebec, in combination with the amounts of surplus energy available. Furthermore, as domestic load in Newfoundland and Labrador is highest in the winter, Nalcor’s ability to offer capacity and firm energy to Ontario is anticipated to be greater in the spring, summer and fall when domestic load is lower.
New Capacity and Energy Using Existing Transmission
There are additional opportunities to construct wind and relatively small-scale hydro projects in Newfoundland and Labrador to firm up the potential supply to Ontario via the existing 265 MW firm transmission reservation through Quebec. Under this scenario, quantities of both capacity and firm energy, up to 250 MW, could be delivered under a longer term contract from Newfoundland and Labrador to Ontario.
As the key feature of this supply scenario is the development of new, relatively small-scale supply sources in Newfoundland and Labrador, the timing for the start of the delivery of such supply would likely be in the early 2020’s and beyond. See Appendix B for further details.
New Capacity and Energy Using Expanded Transmission
In addition to Newfoundland and Labrador’s surpluses from existing resources and the relatively small scale developments that would use existing transmission assets, proposed new hydroelectric generation at Gull Island could be built to offer long term capacity and energy commitments to Ontario and other jurisdictions.At 2,250 MW and 11.9 TWh average annually, Gull Island represents a significant opportunity that could be used in part to meet Ontario’s long-term energy and capacity requirements.
Gull Island represents a long-term, reliable supply of low-emitting capacity and energy from a renewable resource. Annual average production of 11.9 TWh from the Gull Island facility could displace about 4.5 megatonnes of GHG emissions if the equivalent energy were produced from natural gas generation in Ontario. The Gull Island project is located downstream from the existing Churchill Falls generating station.
Significant progress has been made on developing the project including:
- Environmental release;
- Feasibility studies;
- Aboriginal land claims agreement; and
- A water management agreement.
The clean energy resources that are available in Newfoundland and Labrador to potentially meet electricity consumer needs in Ontario are summarized in the Table 1.
|NL Supply Option||Capacity*||Energy*||Dispatchable||Capacity Factor||Contribution to ON Winter Peak||Contribution to ON Summer Peak|
(up to 1.5-3 TWh per year)
|Small Scale Hydro||Yes
(up to 156– 461 MW)
(up to 2,250 MW)
(up to 11.9 TWh)
(up to 4,000 MW)
(up to 25 TWh)
*Assumes no transmission constraints
6: Source: ONLIET Working Group
As illustrated in Figure 2 in section 1.1, Ontario begins to experience a resource gap in 2025 under high demand outlooks C and D. Therefore, if higher demand assumptions start to materialize, Newfoundland and Labrador’s baseload supply options starting in the mid-2020’s could be options for Ontario. See Table 2.
|Timeframe||ON Need||NL Supply Option||Opportunity Level|
|Present – 2018||None||Existing surplus from Churchill Falls||Low|
|2018 – mid-2020’s||Energy could be imported to displace natural gas generation and GHG emissions.||As above, plus small scale hydro/wind||Low|
|Mid-2020’s – 2041||Peaking (Outlook A or B)||As above, plus Gull Island development, targeted to hours where natural gas generation would be used||Medium|
|Mid-2020’s – 2041||Baseload (Outlook C or D)||As above, plus Gull Island development, targeted to all hours||Medium|
|Beyond 2041||Peaking (Outlook A or B)||As above, plus more capacity available at Churchill Falls, targeted to hours where natural gas generation would be used||Medium|
|Beyond 2041||Baseload (Outlook C or D)||As above, plus more capacity available at Churchill Falls, targeted to all hours||Medium|
7: Source: ONLIET Working Group
2.0 Transmission Considerations
Any large scale firm commitment of supply to Ontario as described in the previous section will require the expansion of the transmission systems in Newfoundland and Labrador, Ontario and in the connecting systems. Connecting routes could be either through Quebec or through the Maritimes and New England.
Expansion of the transmission systems in Quebec, the Maritimes and New England is not under the direct control of either Ontario or Newfoundland and Labrador. Transmission service would have to be negotiated through the open access transmission tariffs in each of these connecting jurisdictions. Among other things, the open access transmission tariffs detail the fees customers must pay to access the transmission system and sets out the transmission system planning process for the region. According to the Independent System Operators/Regional Transmission Organizations (ISO/RTOs) Council, ISO/RTO’s coordinate their planning activities with neighboring areas. Regional planning processes identify system expansion opportunities in advance of the need, giving market participants the ability to assess alternatives and propose either market-based or rate-based transmission expansion solutions.
2.1 Transmission Route through Quebec
Ontario has nine existing electricity interconnections with neighboring jurisdictions, which includes four with Quebec. The current interconnections between Ontario and Quebec have a combined capacity of about 2,775 MW. However, transmission constraints regularly limit available transfer capability between the two areas. As a result of these limits and commercial considerations, real-time transactions with Quebec have reached maximums of about 1,800 MW either way in recent years.
The Gull Island generation path through Quebec could conceivably involve some expansion of the AC transmission network in Quebec or a High Voltage direct current (HVdc) line from Labrador to Ontario. In 2006-2007, studies considered developing large-scale hydroelectric projects in Newfoundland and Labrador and transmitting the output through Quebec to markets in Ontario, New York and New England. According to Hydro-Quebec at the time, its transmission system required enhancements in the range of $3.2 – 4.3 billion to support transmission capacities between 1,100 and 2,824 MW. Significant study would be required to validate and update these numbers to reflect the current projected size of deliveries, targeted markets and Quebec’s generation and transmission system.
If the provinces decide to proceed with an agreement, they would then have to engage the process that is outlined under Quebec’s Open Access Transmission Tariff (OATT) to initiate the study work necessary to identify the specific transmission system enhancement necessary to facilitate the contemplated deliveries between Newfoundland and Labrador and Ontario.
While the open access procedures to be undertaken under the Quebec OATT are prescriptive and could be initiated by Newfoundland and Labrador and/or Ontario, it would likely be advantageous to engage Quebec in trilateral conversations to ensure Ontario and Newfoundland and Labrador understand Quebec’s energy needs and opportunities.
2.2 Transmission Route through New York
The path through the Maritimes and onward to Ontario would involve the construction of a new HVdc line from Gull Island to the Maritimes and further substantive upgrades to the AC network in Eastern Canada and the U.S. Northeast. While these upgrades have not been fully costed, they are anticipated to be substantial and would result in higher costs to transmit the energy to Ontario.
In addition to the high costs to upgrade transmission networks in the U.S. to facilitate large scale deliveries to Ontario, recent experience in the region has shown that successful projects need to bring substantial benefit to each region it passes through.
Further, local opposition to transmission expansion projects could delay or cancel proposed projects.
Nalcor advises that there is the potential for success if deliveries to Ontario are part of a larger initiative to bring large quantities of energy from Newfoundland and Labrador into New England. This is based on a recent study by RLC Engineering that identified the technical capability to deliver more than 500 MW from Massachusetts to Ontario using existing infrastructure.
2.3 Transmission Considerations in Ontario
The former Ontario Power Authority and IESO’s Review of Ontario Interties report issued in October 2014 identified several considerations for additional transmission work within the province to accommodate various levels of firm imports. That report identified that the interface at the Quebec border is limited in its ability to accommodate increased firm imports from the east. Several options of possible enhancements are identified to handle proposed levels of imports which have a range of cost up to $2.2 billion8. Although this provides an order of magnitude, detailed options would need to be developed to address specific alternative paths for power from Labrador.
8: Source: IESO, 2014 Intertie Report
The route through the Maritimes, New England and New York is technically feasible and may offer smaller opportunities for either energy and/or small quantities of firm supply as part of a larger delivery to the region. However, the commercial and cost implications for such a route for large scale quantities (such as the energy from Gull Island at 11.9 TWh/year) from Newfoundland and Labrador to Ontario makes it appear to be a more expensive option.
A more likely scenario to deliver large scale quantities of power from Newfoundland and Labrador to Ontario is via the route through Quebec. This route would conceivably require an expansion of the AC transmission network in Quebec, or a new transmission line, as well as significant enhancements of the transmission system in Ontario.
3.0 Policy Considerations
3.1 Impact on Ontario’s Future Initiatives
Emissions Reductions / Climate Change
In April 2015, Ontario announced its intention to join the cap and trade system under the Western Climate Initiative, partnering with other jurisdictions, including Quebec and California, and making carbon pricing a cornerstone in Ontario’s fight against climate change. Cap and trade places a limit on the amount of emissions that can be produced in covered sectors/jurisdictions (the cap), and then allows those covered by the cap to trade among themselves (the trade) in a flexible and cost-effective way, thereby placing a price on carbon.
In May 2016, Ontario finalized the rules for its new cap and trade system to limit greenhouse gas (GHG) emissions, reward innovative companies, generate opportunities for investment in Ontario and create jobs while moving to a low-carbon economy. Under the Climate Change Mitigation and Low-Carbon Economy Act, 2016, money raised from Ontario’s cap and trade program will be deposited into a new Greenhouse Gas Reduction Account (GGRA). The first auction is targeted for March 2017.
In June 2016, Ontario released a Climate Change Action Plan (CCAP), a five-year plan that will help Ontario fight climate change over the long term. The CCAP outlines actions which will help Ontario transition to a low-carbon economy, including the shift from fossil fuels to clean electricity, and helps define how cap and trade auction proceeds will be spent. By law, proceeds must be invested in projects and programs that help reduce greenhouse gas emissions. Electricity trade agreements that would reduce GHG emissions align with the goals of the CCAP.
Meeting Ontario’s domestic electricity needs through Newfoundland and Labrador’s proposed Gull Island facility could help reduce GHG emissions from Ontario’s electricity sector by several megatonnes, depending on the scope of the agreement and the Ontario supply mix at that time.
The IESO is currently implementing enhancements to its current market design as part of its Market Renewal project. The work is focused on identifying opportunities to create a marketplace that reflects asset value in a consistent and transparent manner and that is prepared for future changes.
Part of the initiative is the creation of an Ontario capacity auction to procure incremental capacity needs. Such an auction would allow all capacity resources – including imported capacity – to participate and compete in an open auction. An Ontario capacity auction would function alongside the existing wholesale energy market in which imports can currently participate. Although the detailed design of the various elements of Market Renewal is still under development, the first capacity auction is currently targeted for 2020 with targeted delivery of capacity in 2021 or 2022, but will be dependent on when additional (incremental) capacity is required.
Additionally, as part of Market Renewal, IESO is creating market rules to allow for the export of capacity from Ontario generators to external jurisdictions. Rules currently exist for the export of capacity from Ontario to the New York ISO; however, IESO is engaging with stakeholders for expanding such rules to allow for export to additional jurisdictions.
The IESO is currently consulting with stakeholders regarding the expected benefits and costs of Market Renewal. A “Benefits Case” is being developed that will estimate the expected benefits and costs of the Market Renewal based on the implementation of such initiatives in other jurisdictions in the US. The final Benefits Case is expected to be available during Q1 of 2017. Preliminary results are shown in Figure 4.
Figure 4: Market Renewal Benefits Case
|Year||Energy||Operability||Intertie||Capacity||Total||Cost Recovery from Customers|
3.2 Impact on Employment and Economy
Newfoundland and Labrador
The estimated impact of the Gull Island Project on Newfoundland and Labrador’s employment and economy was presented in the 2011 Report of the Joint Review Panel: Lower Churchill Hydroelectric Generation Project. The Lower Churchill Project consists of Muskrat Falls hydroelectric project as Phase One and Gull Island hydroelectric project as Phase Two. While significant analysis and detailed studies would be required to update and validate the Gull Island project employment and economic data presented to the Joint Review Panel, the information in the Panel’s report provides a useful point of reference for the impact of Gull Island development.
The report was written by the five-member Joint Review Panel that was established in 2009 by the Government of Newfoundland and Labrador and the Government of Canada to examine the environmental and economic impacts of the Lower Churchill Project and to consider comments from the public.
The Panel reported that Nalcor projected Gull Island would generate approximately 3,000 indirect person years of employment, and approximately 4,900 person years of induced employment. Indirect employment refers to employment resulting from the supply of goods and services to the Gull Island Project and induced employment refers to employment resulting from expenditures of income in the economy by those directly and indirectly employed on the Gull Island Project.
Transmission lines to carry the power to markets were not included in the panel’s assessment. It will be necessary to determine the ultimate transmission pathway and technical specifications discussed in the Transmission Considerations section in order to beginning estimating the full economic impact of delivering the power from Gull Island to Ontario.
Increasing electricity imports into Ontario may result in transmission upgrades and therefore increased employment to complete the upgrades. The amount of increased employment would depend on the size of the transmission investments required in Ontario. For example, Hydro One’s Bruce to Milton Transmission Reinforcement Project created 500 jobs during construction.
However, a large scale increase in electricity imports could also have a negative impact on employment for domestic generators. In particular, there could be a large impact to Ontario’s nuclear industry if some refurbishment is deemed no longer necessary. According to a 2010 study by the Canadian Manufacturers and Exporters, approximately 15,600 people are employed in the operation and support of Ontario’s nuclear power plants, contributing $2.5 billion per year in economic benefits9.
9: CME, 2010, at http://on.cme-mec.ca/_uploads/pdf/CME-EconomicBenefitsReport.pdf
Nuclear refurbishment is planned in Ontario from 2016 – 2033. The full Darlington refurbishment project is expected to contribute $15 billion to Ontario’s GDP throughout the project and create 11,800 jobs annually11. The full Bruce Power refurbishment is expected to make up to 23,000 jobs possible and generate about $6.3 billion in annual economic benefits in communities throughout the province11.
11: Ontario Building and Construction Trades Council of Ontario, Southwest Economic Alliance, Canadian Manufacturers and Exporters, The Society of Energy Professionals, the Power Workers’ Union, and Bruce Power, at http://brucepowercom.c.presscdn.com/wp-content/uploads/2015/09/140368_EconomicImpactStudy-5med-2.pdf
Employment in Quebec would result from constructing a new transmission line, if required, through the province to connect Labrador to Ontario. In lieu of detailed design work related to a new transmission line through Quebec and associated components, an examination of the projected economic and employment impacts of Quebec’s new 735-kV transmission project, Chamouchouane–Bout-de-l’Île, may assist in suggesting the potential transmission economic and employment impacts of a new transmission line to transmit power from Gull Island to Ontario. While the technical specifications, such as the appropriate kV rating, will need to be studied, it is highlighted here as a reference point for future discussion and consideration.
Hydro-Quebec has completed environmental studies, technical studies and meetings regarding the construction of a 406-km 735-kV line between Chamouchouane substation in Saguenay–Lac-Saint-Jean and the Montréal metropolitan loop. Hydro-Quebec estimates the project’s economic spinoffs for Québec to be $1.1 billion or more than 80% of the total investment. Hydro-Quebec further estimates the project will create the equivalent of more than 1,000 full-time jobs over a five-year period. During peak periods (2017–2018), more than 1,500 workers will be employed on the project. It is not known whether additional transmission investment beyond the Chamouchouane–Bout-de-l’Île project would be required to deliver Gull Island power from Labrador to Ontario.
It is important to note that a major new interconnection between ON and QC would likely require HVdc upgrades given the present use of HVdc interconnection between the provinces. Thus, a new 735 kV line as noted above might not provide accurate insight into the economic and employment impacts of new HVdc construction.
Should Ontario and Newfoundland and Labrador decide to further pursue an electricity trade agreement requiring a new intertie with Hydro-Quebec, consultation will be required with Hydro-Quebec to further develop the concept.
3.3 The Role of the Federal Government
The Prime Minister’s mandate letter to the federal Minister of Natural Resources directed the Minister to, “Work closely with provinces and territories to: develop a Canadian Energy Strategy to protect Canada’s energy security; encourage energy conservation; and bring cleaner, renewable energy onto a smarter electricity grid.”
On March 3, 2016, Canada’s First Ministers released the Vancouver Declaration on clean growth and climate change, which committed the Government of Canada to “fostering dialogue and development of regional plans for clean electricity transmission.” Further, in Budget 2016, the federal government allocated $2.5 million over two years, starting in 2016–17, to Natural Resources Canada to facilitate regional dialogues and studies that identify the most promising electricity infrastructure projects with the potential to achieve significant GHG reductions.
The Government of Canada has also been engaging with provinces and territories in various forums to develop energy policy actions including through:
- The Energy and Mines Minister’s Conference (EMMC);
- The Canadian Energy Strategy (CES); and
- The Pan Canadian Framework on Clean Growth and Climate Change.
Through the EMMC, the federal government engages with provinces and territories on transmission system issues which can facilitate new opportunities to transmit and export energy across provincial and international borders.
Additionally, through the Council of the Federation’s Canadian Energy Strategy (CES), provincial and territorial energy ministers have committed to contribute to the Pan-Canadian Framework on clean growth and climate change. Under recent CES implementation, one area of federal involvement includes collaboration on initiatives to enhance export/import capabilities of current and future energy infrastructure and to identify new investments in transmission infrastructure to facilitate the opportunities for electricity trade and export. At the July 2016 Council of the Federation meeting, Premiers reaffirmed their commitment to work with the Government of Canada to bring Canada’s energy resources to domestic and international markets as a key element in supporting long-term job creation and economic growth while strengthening access to energy.
The Government of Canada has also provided financing assistance to provinces to support large-scale electricity projects. For example, on November 4, 2012, the Federal Government provided a $5 billion federal loan guarantee for the Muskrat Falls Project and an additional $1.3 billion for Nova Scotia’s Maritime Link. This guarantee will lower the costs of borrowing, with projected savings of over $1 billion for ratepayers in Newfoundland and Labrador and Nova Scotia. Further, on November 3, 2016, the Federal Government announced it would provide an additional loan guarantee for the Muskrat Falls Project, up to an additional $2.9 billion. This extended guarantee is projected to reduce the future electricity rate increases related to Muskrat Falls, by approximately 1.5 cents per kilowatt hour. The Federal Government also announced in 2015 that it would set aside funding towards new transmission infrastructure between Prince Edward Island and New Brunswick.
An electricity trade agreement between Ontario and Newfoundland and Labrador would align with the federal government’s current work and commitments to foster interconnected electricity transmission, clean long-term growth, and reductions in greenhouse gas emissions. Should Ontario and Newfoundland and Labrador enter into an electricity trade agreement, the Government of Canada would have a role in providing financial assistance for the project.
Additionally, on October 3, 2016, the Government of Canada announced a pan-Canadian approach to pricing greenhouse gas (GHG) emissions which may impact the attractiveness of importing clean and reliable electricity from Newfoundland and Labrador into Ontario.
Under the new federal approach to climate change, all Canadian jurisdictions will have carbon pricing in place by 2018. The price on carbon will start at a minimum of $10 per tonne in 2018 and rise by $10 a year to reach $50 per tonne in 2022. Provinces and territories will have flexibility in deciding how they implement carbon pricing in that they can put a direct price on carbon or they can adopt a cap-and-trade system. The Government of Canada will provide a pricing system for provinces and territories that do not adopt one of the two systems by 2018.
4.0 Summary and Path Forward
Under Ontario’s current IESO planning outlook, supply needs begin emerging in the mid-2020’s. The nature and magnitude of these needs depend on demand factors such as the pace of electrification or rate mitigation and supply factors such as the continued availability of resources with expiring contracts and the nuclear refurbishment schedule.
Newfoundland and Labrador has a portfolio of options to meet Ontario’s needs over varying timeframes. Starting in the mid-2020’s, Newfoundland and Labrador could work to provide Ontario with energy from the Gull Island development. The shortest and likely preferable transmission route for delivery of this energy would be through Quebec. This route would likely require an expansion of the AC transmission network in Quebec, or a new transmission line. Should Ontario and Newfoundland and Labrador decide to further pursue an electricity trade agreement, consultation with Hydro-Quebec will be required to further develop the concept and determine cost estimates.
Ontario’s existing, committed and directed resources, including planned nuclear refurbishments, are projected to be sufficient to meet IESO’s low or flat demand outlooks until 2035, provided that Ontario’s planned resources come into service and existing resources continue to operate. Given Ontario current demand forecast, required infrastructure investments, and uncertainty of third party involvement, the Working Group recommends that no immediate action be taken in terms of pursuing an immediate electricity trade agreement.
However, in the event of a higher Ontario demand outlook or unforeseeable supply challenges materializing, the two provinces may wish to explore opportunities for importing clean and reliable electricity from Newfoundland and Labrador into Ontario.
As such, Ontario and Newfoundland and Labrador should have annual discussions regarding future conditions, requirements and opportunities to advance the provinces’ overall interests with respect to increased energy collaboration.
Appendix A: Terms of Reference
Terms of Reference
Working Group: Ontario – Newfoundland and Labrador Interprovincial Electricity Trade (ONLIET)
Purpose and Mandate
At the 2014 Energy Mines Ministers Conference, the Ontario Minister of Energy and the Newfoundland and Labrador Minister of Natural Resources committed to establishing a working group to focus on exploring the possibility of importing electricity from Newfoundland and Labrador to Ontario. The purpose of the ONLIET Working Group (Working Group) will be to analyze, provide advice, and make recommendations to the Ontario Minister of Energy and the Newfoundland and Labrador Minister of Natural Resources on clean electricity trade opportunities that can benefit both provinces.
The Working Group will identify clean electricity trade opportunities that have the potential to provide benefits to Ontario and Newfoundland and Labrador and undertake an assessment of identified supply options in terms of: economic feasibility, ratepayer value, system reliability benefits, contribution to achievement of climate change policy objectives and economic benefits. The Working Group will also provide advice to the Ministers on future work required to pursue the identified trade opportunities.
The Working Group Co-Chairs will provide a status update on work completed to date and work plan for future work to be completed by July 17, 2015. An interim report summarizing the opportunities discussed and the results of the assessment of options including: benefits, implementation issues, cost and impact on stakeholders will be submitted to Ministers no later than December 31, 2015. A final report will be submitted to Ministers no later than December 31, 2016.
The reports will serve as confidential advice to the respective Ministers.
The Working Group will:
- identify opportunities for expanded trade in electricity and electrical capacity between Ontario and Newfoundland and Labrador that can provide system reliability, economic and environmental benefits to the respective provinces;
- evaluate specific options based on economic feasibility, ratepayer value, system reliability benefits, contribution to achievement of climate change policy objectives, economic benefits and implementation issues; and
- consider options that are compatible with Ontario’s 2013 Long Term Energy Plan and Newfoundland’s and Labrador’s 2007 Energy Plan, or more recent statements of government policy where available.
The scope of work will include the following:
- Identification of Ontario’s supply requirements (e.g. baseload, load following, peaking) including quantity, seasonality and desirable supply attributes in the short, medium and long-term.
- Identification of Newfoundland and Labrador’s potential supply options/scenarios to meet Ontario’s requirements in short, medium and long-term.
- Identification of the transmission requirements necessary to deliver power from Newfoundland and Labrador to the Ontario border, including an assessment of overall project costs and benefits.
- Assessment of employment and economic benefits resulting from required infrastructure investments.
- Identification of the scope for further study or consultation services that may be required for completion of the December 2016 report.
- Identification and assessment of potential funding options for required infrastructure investments, including the potential for federal support for infrastructure investments.
- Assessment of the potential role for the federal government in facilitating clean electricity trade between Ontario and Newfoundland and Labrador.
The Working Group will not consider broader market reform but will review relevant market rules and if appropriate consider possible approaches that may facilitate the identified trade opportunities.
Composition and Membership
In addition to the Deputy Minister co-chaired Working Group, there will be an Assistant Deputy Minister-co-chaired subcommittee, consisting of:
Ontario Ministry of Energy
- Steen Hume, Assistant Deputy Minister, Energy Supply Policy
Independent Electricity System Operator (IESO)
- Darren Finkbeiner, Manager, Special Projects
- George Pessione, Director, Resource Integration
Newfoundland and Labrador Department of Natural Resources
- Paul Morris, Assistant Deputy Minister, Energy Policy
- Joanna Harris, Manager, Policy and Planning
- Greg Jones, General Manager, Energy Marketing
Governance, Organization and Operation
Meetings: Subcommittee meetings will occur on a regular basis by teleconference. Working Group meetings will occur as required by the co-chairs.
Consultations: The Working Group and subcommittee shall seek input and advice from technical experts including the IESO, the Ontario Energy Board, Hydro One, Nalcor Energy and Nalcor Energy’s expert advisors for the purpose of option identification and evaluation, and consult with other key stakeholders and external consultants as necessary.
Reimbursement of Expenses and Remuneration – Ontario: Working Group members will be responsible for expenses incurred by them in carrying out their duties, including costs incurred for travel, meals and accommodation, in accordance with all relevant Management Board of Cabinet directives including the Travel, Meal and Hospitality Expenses Directive. Any expenses for third-party services, including consulting fees, will be shared equally pending approval of Working Group Co-Chairs.
Reimbursement of Expenses and Remuneration – Newfoundland and Labrador: Any associated expenses incurred by working members will be reimbursed by the appropriate policy of the responsible organization. Any expenses for third-party services, including consulting services, will be shared equally pending approval of Working Group Co-Chairs.
Operating and Ethical Principles
Members of the Working Group will be expected to adhere to the following operating and ethical principles:
- Foster and contribute to an open, collaborative climate, independent of vested interests.
Working Group members will operate in accordance with the conditions outlined in the Terms of Reference and any applicable policies or directives. For Ontario members this will include the following directives: Agency Establishment and Accountability Directive, Government Appointees Directive, and Travel, Meal and Hospitality Expenses Directive.
Working Group and sub-committee members acknowledge that information that may be shared among the group will be for the Working Group’s sole use and may be considered confidential and/or commercially sensitive by the member sharing the information. Working Group and sub-committee members will maintain the confidential and/or commercially sensitive nature of such information that may be shared, subject to applicable law, and will not acquire any right in such information that may be shared.
Appendix B: Newfoundland and Labrador Supply Options
Small Scale Hydro
Newfoundland and Labrador has a number of potential hydroelectric opportunities located throughout the province. These opportunities range in size from under 10 MW to 36 MW in Newfoundland and from 146 MW to 425 MW in Labrador. These opportunities include run of river developments as well as developments that would require the creation of reservoirs using water impoundment. A number of these opportunities have been studied in detail, while others will require additional work in order to determine reliable cost and schedule estimates. In addition, environmental assessments will need to be completed to investigate any potential environmental impacts associated with development. Available capacity on the Maritime Link and Labrador-Island Link would also need to be analyzed to determine optimal size for any new hydro developments in Newfoundland. A timeline to compete a new hydro project will depend on the specific project chosen. It can be anticipated that a new hydro development would take at least 36-48 months to complete.
Newfoundland and Labrador has world class wind resources and there is significant potential to develop wind energy in all areas of the province. There are currently two 27 MW wind farms operating in the province with average five year capacity factors of approximately 40%. Recent wind resource assessments and analysis has shown that the majority of the island portion of the province has average wind speeds above 8.0 m/s and that wind developments in these areas can expect capacity factors to exceed 45%. The numbers for Labrador are 7.0 m/s and 35%. Along with the wind resource, Newfoundland and Labrador has significant areas of Crown Land that can be used for development. As a result, potential wind farm developments could be constructed in many locations across the province. This flexibility will allow for potential wind farms to be located in areas that are the most economical to develop. The size of any new wind developments is scalable and can be customized to meet expected demand. A 100 MW wind farm in Newfoundland can be expected to generate approximately 394 GWh annually.
The major limiting factor on the size of any potential developments will be proximity to available transmission. Therefore, in order to integrate new large scale wind, transmission infrastructure may need to be upgraded. Available capacity on the Maritime Link and the Labrador-Island Link would also need to be analyzed to determine optimal size for any new wind farm developments in Newfoundland. It is anticipated that a new wind farm would take approximately 30-36 months to complete. This includes a 20-24 month construction period.
Following the expiration of the Renewal Contract between CFLCo and Hydro-Quebec in 2041, Newfoundland and Labrador will have in excess of an additional 4,000 MW and 25 TWh of hydroelectric energy annually that could be dedicated to meet Ontario’s long-term needs. Similar to the Gull Island development, this energy and capacity can be tailored to meet Ontario’s unique needs.