Changes could carry substantial costs
OTTAWA, Sept. 1, 2015 /CNW/ - The existing mix of electricity generation technologies in Alberta, Saskatchewan, Manitoba, Ontario, and Quebec is the most efficient given the policy, costs and resources constraints, according to a new Conference Board of Canada report released today.
- Canada's electricity generation sector faces a need to accelerate investment in infrastructure to renew assets and accommodate growth.
- For each of the five provinces examined, the current mix of generation technologies is optimal because changes in the mix of fuel sources bring with them relatively substantial incremental costs. This makes an aggressive shift to new technologies a challenge.
- The price of carbon emissions must rise above $40/tonne CO2e to justify a change in the capacity mix for Alberta and Saskatchewan.
"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," said Len Coad, Research Director, Energy, Environment and Transportation Policy, The Conference Board of Canada. "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. This helps inform investment decisions by providing a benchmark for the optimal generation mix."
The report, Finding the Mix: The Choice of Generation Technologies in Canada, uses a tool from financial portfolio analysis to examine how changing the mix of fuel sources affects the return and risks for society and for electricity generators. It finds the current technology mix in each of the five Canadian provinces examined is a low-cost, low-risk combination and near optimal. This makes an aggressive shift to new technologies a challenge as any changes to the current portfolios would result in substantial incremental costs. 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," said Coad.
Alberta and Saskatchewan are heavily reliant on fossil fuels—coal and natural gas. Coal and natural gas currently account for 81 per cent of Alberta's generation mix and 75 per cent of capacity in Saskatchewan. On the other hand, Ontario recently eliminated coal from its generation fleet, has a broad portfolio of renewable generation capacity, and relies on natural gas and nuclear technologies. Manitoba and Quebec are primarily hydropower systems, with some reliance on wind and natural gas capacity.
The report also examines the impact of carbon pricing on the optimal mix of fuel sources for Alberta, Saskatchewan, and Ontario (the provinces that rely on hydrocarbons for electricity generation). Emission costs below $40/tonne CO2e do not justify a change in the capacity mix for Alberta and Saskatchewan. 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. This reflects the limited renewable energy options in both provinces.
The report was funded by TransAlta Corporation, SaskPower, Enmax Energy Corporation, and Atco Power and is publicly available from our e-Library.
SOURCE Conference Board of Canada
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