Atlantic Canada: Is Net Zero Electricity by 2035 Possible?
This week John Dalton, President of Power Advisory joins the podcast to provide an overview of the electricity markets in Atlantic Canada, including the provinces of New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. We also cover Quebec’s role in supplying electricity to the region.
Here are some of the questions Peter and Jackie asked John: Is the Muskrat Falls hydro project operating yet? What is the final cost of Muskrat Falls? Considering the high cost, do you expect other large hydro projects to be built in Eastern Canada? What is the latest on the Atlantic Loop and Quebec to US transmission projects? Are the incentives and financing in Canada’s Budget 2023 enough to get transmission projects started? What was the historical agreement between Newfoundland and Labrador and Quebec for supplying electricity from Churchill Falls and how has that shaped the relationship between the two provinces on electricity? Will Atlantic Canada have small modular reactors (SMRs) operating by 2035? Is renewable power generation (wind or solar) expected to grow in Atlantic Canada? Do you think Atlantic Canada will reach net zero electricity by 2035?
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Episode 199 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
I’m Peter Tertzakian. Welcome back. So Jackie, do you sleep with the drapes open or closed?
Jackie Forrest:
Closed. It has to be very dark. Yeah.
Peter Tertzakian:
See, I’m just the opposite. I like to leave them open and wake up with the morning light.
Jackie Forrest:
Yeah, except in Canada, you’re waking up at four in the morning in the summer.
Peter Tertzakian:
Yeah, yeah. Well, I just love that natural rhythm, and this time of year, it’s getting lighter and lighter as we’re definitively into spring. It’s interesting, though, that you think about in the dark, you flip the light switch on in the morning as you’re just groggy, getting out of bed, and you have no idea where your power comes from. You just flick the switch and assume it comes on.
So power into your home is just one of those things that are taken for granted. So what better segue than to introduce our guest, who is going to talk about power, but not here in Western Canada, in Eastern Canada? We’re going to be talking about the power markets in Atlantic Canada and the East Coast. With us, we have John Dalton, who is president of Power Advisory, LLC, and he’s a senior electricity market analyst. John, I think you’re coming to us from Boston, Massachusetts.
John Dalton:
I certainly am. Yes.
Peter Tertzakian:
Welcome.
Jackie Forrest:
Well, John, you’ve had a long history of being in the power business, so maybe just introduce yourself to our audience. Tell us about Power Advisory, the firm, and what markets you cover.
John Dalton:
Certainly. Yeah, no, first of all, thank you both for this opportunity to have this conversation. I look forward to it. So in terms of who I am, I typically frame myself as an electricity market analyst. I’ve got over 30 years of experience in the electricity sector with over 25 years focusing on Atlantic Canada. That covers the full range of Eastern Canadian electricity markets. While I’m Boston-based, I had the good fortune of living in Canada and Toronto for six years and in that time developed many of the relationships that I continue to maintain in Atlantic Canada.
In terms of Power Advisory, we’re a team of 22 professionals. We have the full range of disciplines that one would need to evaluate electric power markets, as well as generation and transmission asset investments. This includes economists, financial analysts, engineers, transmission planners, and contract specialists.
Peter Tertzakian:
Well, we’re going to talk about the East Coast of Canada and the East Coast of the United States, and it’s an interesting power market that I think has lessons, much broader lessons because between New Brunswick, Nova Scotia, PEI, and Newfoundland, Labrador, and then the Eastern Seaboard of the United States, these are all very territorial-type markets, each with their power utilities and so on.
In the pursuit of net zero, the pursuit of decarbonization of electrical grids, necessarily, there’s a need to go cross-border and so on. We’re going to get to that. I’m just setting this up for our audience in terms of some of the places that we’re headed with this thing. But let’s just start with a characterization of the Eastern electricity markets. Give us the thumbnail about how those power markets and grids and consumption work.
John Dalton:
One of the points that you made, Peter, is a good one, is that these are relatively modestly sized electricity markets. In total, we’re talking about the four Atlantic Canadian electricity markets, which would encompass Newfoundland and Labrador, PEI, New Brunswick, and Nova Scotia. The total peak load for those electricity systems is about 7 gigawatts. If you contrast that to Ontario, we’re talking about 24 gigawatts for Ontario, and for Quebec, it would be more than 40 gigawatts. So these are modestly sized power markets, and as a result, cooperation is critical across the markets, as well as transmission. So where you can develop generation and transmission in other markets cost-effectively just within the market, I think in Atlantic Canada, you need to cooperate.
Jackie Forrest:
Yeah, some people might think they’re sleepy markets, but I think there’s a lot of change afoot, a lot of it because of the government’s goals to reach net zero by 2035. So could you just tell us a bit about the makeup of electricity? How much is dependent on fossil fuels?
John Dalton:
Sure. Each of these markets is separate and distinct. One needs to look at them separately. Starting first in terms of New Brunswick, New Brunswick has the most diverse of the electricity generation markets, and they often claim to have, among the most diverse markets, the most diverse generation supplies in North America. They have 36% nuclear. They have one nuclear unit there, which provides 36% of their supply. They have hydro, one very large hydro resource, which needs to be refurbished, which provides 28% of the total electricity supply. One coal-fired unit, which is scheduled to be retired by 2030, which provides about 16% of the supply. A handful of wind resources provide about 8% of the supply. Biomass is a couple of independent power producer biomass projects that provide 5% of the supply. A range of different natural gas generators provides bout 4%. And then there’s one large oil fire-generating facility.
Peter Tertzakian:
Well, I think it’s interesting that New Brunswick has got the full gamut of almost every source, and even having been to the Bay of Fundy and seeing their title station, so they even have … That’s got to be like 0.1%. But, interestingly, New Brunswick has the full gamut of energy supply, but the other province… Quebec is dominantly 100% hydro almost, isn’t it?
John Dalton:
It is. Yes. Hydro Quebec is virtually all hydro, as is essentially Newfoundland and Labrador right now with the commercial operation of Muskrat Falls.
Peter Tertzakian:
So it’s Nova Scotia, Prince Edward Island. There’s a fair bit of coal there still. Is that correct?
John Dalton:
Yes. Nova Scotia is predominantly coal. Well, coal is the largest resource in Nova Scotia, and Nova Scotia interestingly has a target to phase out all of its coal by 2030.
Peter Tertzakian:
Yeah, I’ve been to the Sydney coal mines, too. I’m an energy tourist, I’ve been to all these places.
Jackie Forrest:
What about Prince Edward Island? We can’t forget about that.
Peter Tertzakian:
Yeah. I’ve been there, too.
Jackie Forrest:
Where do they get their power from?
Peter Tertzakian:
Yeah, where does Prince Edward Island?
John Dalton:
So PEI, interestingly, gets much of its supply from onshore wind, as well as from New Brunswick. They have a modest amount of on-island resources, but they have the highest penetration of wind generation of any province in Canada. So they have more wind generation than their peak load.
Jackie Forrest:
Well, I don’t think a lot of Canadians would know that. I certainly didn’t know that.
Peter Tertzakian:
No.
Jackie Forrest:
That’s interesting. When I think about the Maritimes or Atlantic Canada, I don’t think about wind and solar too much. Well, let’s talk a little bit more in detail. Both Muskrat Falls and the Atlantic Loop are two very important projects that could change the future of the region. Let’s start with Muskrat Falls. Just to give some context, how big is the project, where will the power go, and has it started producing yet?
John Dalton:
Yes. So Muskrat Falls has been in commercial operation. It’s an 824-megawatt hydroelectric facility. The power will be flowing from Labrador, where the projects are located, to Newfoundland and then from Newfoundland on to Nova Scotia and other Atlantic and even potentially the US Northeast. The challenge with the Muskrat Falls project has been the Labrador-Island Link. The good news is that the Labrador-Island Link has been recently operating at close to its rated capacity. So this project is very close to the final commercial operation. So that’s good news for the province of Newfound and Labrador.
Jackie Forrest:
Just to clarify that link. That’s an underwater transmission line that would connect Labrador to Newfoundland, is that right?
John Dalton:
That’s right. It’s a 1,100-kilometer HVDC transmission line that connects the two parts of the province of Newfoundland and Labrador.
Jackie Forrest:
Then there’s the piece that would go from Newfoundland to Nova Scotia. Is that also ready to go?
John Dalton:
Yes, that’s the Maritime Link, and that has been operating for several years.
Jackie Forrest:
Okay. So that project is very close to being fully running. Now, one thing about that project, it was controversial, because it cost a lot of money and more than what it was initially budgeted to cost. Can you just give us an overview of what the final costs are and if there’s a way to put that in terms of levelized cost for electricity and how that would compare to other sources, like wind or solar?
John Dalton:
Sure. The bad news is that the Muskrat Falls project is essentially twice. Its total cost was over $14 billion, and that’s over twice the initial budget. I don’t have an LCOE estimate for the project. It is higher than the cost of wind. I think, though, that when looking at an LCOE, or levelized cost of energy, one needs to recognize that that is just a cost metric. It doesn’t consider the value that the resource provides, and for a resource like Muskrat Falls, because it is dispatchable, it can provide the ability to operate when the wind isn’t available. That’s an important distinguishing effect associated with hydroelectric resources.
Peter Tertzakian:
So in the pursuit of decarbonizing the electrical grid broadly, there has to be a lot of new infrastructure built, and this cost overrun … I remember when Muskrat Falls started. I don’t know how long ago it was, a dozen years ago, maybe longer. It was, as you said, $6, $7 billion, and it ballooned to $11 billion. That was a big sticker shock, and now it’s $14 billion. What have we learned? Site C Dam in British Columbia is going to cost more. These estimates for building infrastructure always seem to be incredibly low. There’s that old joke. Double the time to build and square the costs. Well, okay, we’re not squaring the costs here, but it’s doubling, maybe more. Have we learned anything from these sorts of overruns, and what does it portend for other infrastructure build-outs that utilities are building out over North America?
John Dalton:
Yeah, I think, Peter, what it speaks to is the real challenges associated with these long lead-time projects. As you said, there are a lot of things that can go wrong. When you’re developing a cost estimate for these projects, you have to make estimates in terms of labor productivity. What are the underlying geotechnical conditions? What are the soil conditions? In many instances, these are only estimates. While one can perform studies to try to quantify the risk, what we’ve learned is that often, these studies don’t capture the full range of risk.
Jackie Forrest:
Now, as we go to more electrification, we’re going to see growth in demand, and it has to be clean. So hydro does have a great role to play in that. It could be available all the time. It could back up some of the wind and solar. But considering all the cost overruns, and probably we’re going to see something on Site C that’s the same in terms of being higher than expected, do you think that there are going to be other large hydro dam projects built in Canada? Are there other ones coming up that you anticipate over the next ten years will go forward?
John Dalton:
Well, there’s one project in Atlantic Canada that offers considerable promise. It’s the Gull Island project, and it’s essentially three times the size of Muskrat Falls. So its capacity is more than 2,200 megawatts. Based on the site conditions, its cost is estimated to be well below that of Muskrat Falls. But it simply represents a major challenge in terms of the construction timeframe, and in particular, one of the major challenges, because you need to finance that project, is lining up the contracts and providing the revenue certainty that you need to get financing under reasonable terms. For a project of this size, you’re going to need very likely multiple contracts with different parties. So that represents a specific commercial challenge.
Peter Tertzakian:
Guess what? I’ve been there, too. I’m driven through it. That is a remote area. It’s not only building the hydro. Newfoundland, Labrador, it’s called the Rock for a reason. The cost of building transmission lines must be prohibitive from there to anywhere where there are large population centers.
John Dalton:
Yeah, it’s all something that has to be considered when evaluating whether it makes sense to build the project. The cost of Muskrat Falls, half the cost was effectively the cost of transmission.
Jackie Forrest:
Well, let’s talk about the Atlantic Loop. Where would the power come from, and where would it go to?
John Dalton:
The most recent vision for the Atlantic Loop was expressed in a recent federal budget, and it was framed in terms of transmission that would connect Quebec, New Brunswick, and Nova Scotia. So the idea here is that surplus hydroelectric energy in Quebec could be delivered to New Brunswick and Nova Scotia, but this would require reinforcement as well as the development of additional transmission to connect Quebec with New Brunswick and Nova Scotia.
Jackie Forrest:
Correct me if I’m wrong, but I think this project has been a bit controversial in the Maritimes. Some people would view it as they would rather build their generation and not be dependent on Quebec. Then the transmission cost could be quite large, and they would have to pay for that. Is there support for it in the Maritimes, or is that still uncertain?
John Dalton:
I think any of these large infrastructure projects are controversial, and certainly, some people are much more interested in terms of developing domestic resources. Some people are very concerned with the environmental impact associated with siting new transmission infrastructure. So the project is not without controversy, but there are several supporters and advocates for it and several parties who feel that additional transmission is needed to better interconnect these provinces and be able to allow them to achieve their net zero ambitions.
Jackie Forrest:
You mentioned the budget. The budget talked about a 15% investment tax credit for transmission and potentially $10 billion in financing from the Canadian Infrastructure Bank. It seemed from the label that it might be supporting transmission, although that wasn’t certain how that would look. But do you think that would cause projects like Atlantic Loop or others to go forward? Is cost the issue? You talked about some of the stakeholder issues. I’m not sure if cost was the only reason these projects weren’t moving forward.
John Dalton:
Yeah, the cost is one issue, and it’s cost as well as financing. Who’s going to at the end of the day be able to take these projects and be able to get financing under reasonable terms and conditions? That’s where the federal government can play an important role in terms of providing … The Canadian Infrastructure Bank can provide loan guarantees and reduce financing risks. But yeah, there is a very real issue associated with securing stakeholder support, and that’s always an issue for a major transmission investment.
Peter Tertzakian:
So, we have stakeholder support, engineering, permitting, the capital to build these mega projects, then the government incentives. But then on top of that, there’s what I alluded to earlier, which was the interprovincial politics of it all and the utilities. Certainly Quebec Hydro, Hydro-Quebec, is effectively state-owned, as are many of the others. There are all these interprovincial pricing politics in terms of long-term contracts and so on. Can you talk to us about the challenges of cross-provincial border building out of infrastructure and what’s going on there?
John Dalton:
Yeah, it’s a very important question, and it’s a difficult one because one of the fundamental questions is how are the costs of any of these major transmission infrastructures… how is it going to be shared among the provinces? As well, some provinces view themselves as benefactors. If Quebec is going to be selling additional generations to New Brunswick and Nova Scotia, it can see itself as a clear winner. If New Brunswick is going to be the home for transmission that is going to ultimately be used to serve Nova Scotia, then New Brunswick could view itself as conceivably someone who’s paying the cost by having to site the transmission in their province.
Peter Tertzakian:
Yeah. I know that Newfoundland, Labrador, and Quebec have been at loggerheads about the price of electricity. Where are we today, would you say, in terms of overcoming these provincial political barriers?
John Dalton:
Well, I think there’s a lot more talking that’s going on now than there has been in the past. I know that there are discussions among the three provinces that are considering the Atlantic Loop. We see Newfoundland and Labrador talking with Quebec about the renegotiation of the Churchill Falls contract. So, these discussions are underway, and I think that it’s essential that there be such discussions if we’re going to be able to achieve some of the clean energy ambitions that all these provinces have.
Jackie Forrest:
Some of our listeners might not understand the history, but the Churchill Falls project is somewhat controversial, because Newfoundland and Labrador agreed to give their power at a very low price, and Quebec has been a beneficiary of that for a long time. That’s enabled Quebec to provide low-cost electricity to its citizens and export it to other places. So, I think there’s been a lot of history there that has resulted in winners and losers and a lack of cooperation, potentially.
John Dalton:
Very definitely. The Churchill Falls contract, the pricing on that, the current contract price is two-tenths of a cent per kilowatt hour or $2 per megawatt hour.
Jackie Forrest:
Wow.
John Dalton:
Yeah, so that’s a contract that has … The vast majority of those benefits have flowed to Quebec, and Newfoundland and Labrador appropriately feel aggrieved. I think that there’s a need to hopefully put that behind them and figure out what can be done in the future.
Peter Tertzakian:
Yeah, that’s a long payback period.
Jackie Forrest:
So, John, the Atlantic Loop, we just talked about that. That’s an in-Canada project, but there are also a lot of projects contemplated to move power from places like Quebec into the United States, its Northeast states, but my understanding is there’s been a lot of controversy on those. Just give us an update on that, and do you think some of those might happen?
John Dalton:
Certainly. Yeah, several projects have been proposed. One where there’s recently been some activity, which is good news for the project developers and I think the good news for New England, is the New England Clean Energy Connect Project. This is a transmission project that would deliver surplus hydroelectricity from Quebec to the New England electricity market. That project terminates in Maine, and the challenge has been that Maine stakeholders are supporting the transmission facilities and are realizing some of the environmental disruptions associated with that facility. But the ultimate market for that power is going to be the state of Massachusetts. So, the good news, though, for this project is that there originally was a referendum that was passed where 60% of Maine voters voted to not support the project. The good news is that a few weeks ago, a court decision was issued, which will allow that project to move forward, and that’s good news for the region.
Peter Tertzakian:
So, we’ve got the baseload dominantly coming from hydro. New Brunswick has got the nuclear reactor, but now New Brunswick is also, given their nuclear experience and history, pushing into small modular reactors, which is also potentially a large source of baseload. That creates an interesting dynamic in … Let’s call it green-on-green competition or no emission on no emission competition. How does that all play out in terms of the market share of joules of energy or megawatt hours of energy that are delivered to the whole loop?
John Dalton:
That’s a very interesting question. I think that the small modular reactors offer lots of promise, but as of yet, we don’t have any commercial operating experience with the technology. In Ontario, Ontario Power Generation is talking with GE and Hitachi and has a target date for 2029 for a 300-megawatt small modular reactor. As you said, New Brunswick also has SMR ambitions. But the cost of these and the timeframe for when they’re going to be commercially available is unknown. So, I think that that is a question that’s still unfolding.
Peter Tertzakian:
The federal government has given some incentives for that as well.
Jackie Forrest:
Yeah. In the budget, there was the investment tax credit, but as John says, money is one thing, but how long does it take to site these and the regulatory approvals? I do hope they’re going to contribute, but I agree. We think about our 2035 net-zero electricity. Are SMR is going to contribute in a big way to that? Because that isn’t that far away, potentially, considering where the technology’s at today.
John Dalton:
Yeah, no, I think as Peter suggested, it’s a critical baseload resource and has an important role to play. But how big a role is it going to have in 2035? That’s a question still to be answered.
Peter Tertzakian:
So, you build the loop that loops around the Atlantic and Maritime provinces, including Quebec as well. Then all this other potential generation comes in, whether it’s SMR, potentially more wind, and solar, and you have the broad-based capacity in competition. Talk about wind and solar. There’s not that much out there in Atlantic Canada, is there? Well, you said 4% at the front end, something like that in New Brunswick. So, is there the potential for more?
John Dalton:
There certainly is. Atlantic Canada has a favorable wind resource. We have Nova Scotia that last year just contracted for 350 megawatts. They have another procurement scheduled for another 350 megawatts by the end of this year. New Brunswick is looking at additional wind. Quebec has additional wind procurements anticipated. So, I think that wind has an important role to play. As you said, Peter, the Atlantic Loop and the development of transmission infrastructure will play an important role in terms of allowing this wind to be developed.
Jackie Forrest:
In the US, they’re talking a lot on the East Coast, near where you are, about offshore wind. Well, what’s the situation in Canada? Why don’t we talk about offshore wind? Aren’t those going to be more efficient and generate more power?
John Dalton:
Yeah, so the real driver for offshore wind in the US where I’m located on the Atlantic Coast is just the difficulties associated with siting onshore wind in many jurisdictions. You don’t have the same challenge in Atlantic Canada, but I think that at the end of the day, offshore wind is going to have an important role to play in Atlantic Canada. The capacity factors that you can get from offshore wind are more than 50%. So, it’s a very attractive resource.
Jackie Forrest:
Well, let’s talk about Quebec. They’re known for hydropower, you said, almost all hydropower, not a lot of wind and solar today. Maybe you can tell me how much they have, but do you anticipate there’s going to be a lot of growth in Quebec on those types of resources?
John Dalton:
Definitely, and in particular wind. So, I think that Hydro Quebec has more than 4,000 megawatts of wind today. They’ve procured another 850 megawatts just this year, and they’ve announced another procurement for another 1,500 megawatts. But that as a system, given the storage capability of their hydroelectric resources, is well-suited for integrating large amounts of wind, and the wind is the lowest-cost domestic resource and virtually new domestic resource in all these markets. So, I think that there’s going to be considerable amounts of additional wind in Quebec.
Peter Tertzakian:
So okay. We’ve talked about, again, all of the potential challenges to getting things done, from politics to NIMBYism to where the capital’s coming from. The plan is … I don’t know what word I want to use. Is it idealistic to think that we can have this loop built by 2035 and achieve net zero electricity for Atlantic Canada and Maritimes?
John Dalton:
I don’t think it’s idealistic, but it’s a major challenge. We talked about cooperation in terms of utilities, with governments, and it’s going to require lots of cooperation. It’s going to require lots of investment, and I think it’s going to also require probably technologies that we don’t have available to us today. One of those critical technologies is probably going to be something like carbon capture. We have carbon capture, but we don’t have carbon capture that’s at a cost that makes it economically feasible.
Jackie Forrest:
Right. I imagine geological storage sites could be an issue in some of those areas as well for carbon capture.
John Dalton:
For sure. They do have some salt domes, which could allow for carbon capture. But it’s one of the considerations for sure.
Jackie Forrest:
Hey, John, last question for me. We always talk about the cost of getting to net zero and the burden and whether is it going to be affordable, but we never talk about the opportunity. If Atlantic Canada were to pull this off and be green electricity by 2035, wouldn’t one of the benefits, in my view, be that a lot of companies might come to this region of the world because they could produce their products and call them green and have no emissions associated with them. For example, green hydrogen, making aluminum and things that take a lot of power, data centers? Do you think that if you could achieve this that there’d be a lot of economic benefits as well?
John Dalton:
Certainly, and we’re already seeing this. We’re already seeing lots of parties that are looking at Atlantic Canada as a place to produce green hydrogen for sure. Green steel, and green aluminum. Based on the attractive renewable resources that this region offers, I expect that you are going to be seeing people that are going to be sitting there. We know that there are existing industrial customers that are very interested in terms of greening their operations. That’s going to create, as you suggested, additional economic development opportunities for the region.
Peter Tertzakian:
Well, I sense that there’s a lot to learn from the experiences that are going to come out of this, notably also on the collaboration side, which seems to be a ubiquitous issue in building infrastructure for energy anywhere. Technology, engineering, and finance, these are not the major stumbling blocks. It’s getting people to agree on how to do things. So, we’ll be watching it carefully. Well, John Dalton, President of Power Advisory, LLC, thanks for joining us from Boston, Massachusetts, and shedding some light on the East Coast power markets.
John Dalton:
Thank you very much. I enjoyed the conversation.
Jackie Forrest:
Thank you to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
Announcer:
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