The Strategic Importance of Electricity to the Canadian Economy

Most of our electricity production is to satisfy domestic demand – the World Bank reports that Canada’s per capita electricity consumption is among the highest in the world, largely because of our cold northern climate and our energy dependent resource-based economy. The sector is also a major exporter, with Canadian exports to the U.S. totaling between seven and nine percent of total power generation. We also import power from the south when needed, although exports are significantly greater than imports. In 2010, the value of our net exports was $2.3 billion.

The strategic importance of the industry, however, goes well beyond these stats. Every sector of our economy, as well as the comfort and services we expect in our homes, depends on a reliable supply of electricity.

And our dependence on electricity is growing. While efficiency gains have helped dampen demand, we are finding more and more applications for electricity – such as household entertainment products, huge computer server farms, new industrial and commercial applications, and the electrification of cars and mass transport, to name a few examples.

This dependence is taken for granted by most people. The only time we really take notice is during those rare times when electricity is not available. Then we realize how much we need power for almost everything, and just how much the electricity sector affects our economy.

For example, even though power was off for only about a day for most customers during the 2003 power blackout in Ontario (caused by a problem in Ohio that cascaded across the northeast), it is estimated that the province lost between $1-2 billion in GDP. That one event lowered Ontario’s GDP by about 1.4 per cent for the year.

Canadians have always expected their electricity supply to be reliable, as well as affordable. Over the past couple of decades, users have also increasingly been demanding that electricity supply be sustainable, with a decreasing environmental footprint.

Reliability statistics for the industry are very good right across Canada, and annual surveys of international power bills for residents and industrial customers consistently show that Canadians pay among the lowest electricity prices in the world.

Environmental indicators are also very positive. In 2009, more than 75 percent of Canada’s electricity generation came from sources with virtually no emissions of greenhouse gases or smog-producing gases (in the U.S., only 30 percent of electricity supply is generated from these non-emitting sources). The electricity sector is an important contributor to Canada’s climate change objectives, and should produce a growing economic advantage for the country once carbon emissions are priced.

So far, I have painted a rosy picture of the electricity sector and its benefits for Canada’s economy. But there are clouds on the horizon, and they are moving in fast.

Capital investment in our electricity infrastructure declined dramatically in the 1990s. After reaching a peak of $15 billion in 1991, investment fell rapidly to just $5.3 billion in 1997. Only recently has capital investment begun to increase again to necessary levels.

Canada’s electricity infrastructure is aging. Today, the average age of our generating units is about 32 years. Transmission lines are also getting older, with only about 400 kilometers of new transmission added annually between 1990 and 2007. Our distribution assets are also showing their age, and need updating and investment. While Canada’s population and economy have grown over the past two decades, our electricity system is struggling to keep pace.

The International Energy Agency estimates that Canada needs to invest $240 billion in its electricity infrastructure between now and 2030. The Conference Board of Canada forecasts an even larger expenditure by that date – some $294 billion ($196 billion for generating stations, $36 billion for transmission facilities, and $62 billion for local distribution of electricity). Annually, investment would average between $12-15 billion per year, according to these sources.

Such an investment would benefit Canadians in many ways. It would ensure that reliability of electricity supply remains high even as our population and economy continue to grow. Since most of this investment will be in clean energy sources, our portfolio of non-emitting generation assets will also expand – the Energy Council of Canada expects the electricity sector to increase its generation of clean electrons from 75 to 90 percent of our total supply.

While the investment will be costly and will impact prices, the cost of letting the system deteriorate would be much greater.

This is our opportunity to modernize our electricity infrastructure and to invest in new technologies. Smart distribution grids are one example. Smart grids will bring our distribution systems into the digital age, facilitating local generation of renewable sources of power, increasing automation and supply security, protecting power quality, and providing much more information to customers so they have more control over their usage. Other new technologies such as smart appliances, home monitoring controls and electric vehicles will become commonplace, benefiting consumers.

The electricity sector is of significant strategic importance to Canadians.

Investment in the sector is needed.

Long-term commitment is required.

The various options come with variable costs.

With each option there are implications for reliability and environmental protection.

These reasons demand that we make renewal of our electricity infrastructure a national priority.

We need to start a dialogue across Canada involving citizens, politicians, regulators and non-governmental organizations, to ensure that investments are made in the most efficient and effective manner, and in a way that the public will accept and support.

The time to start this dialogue is now. The importance of electricity to our economy is too great to allow for delay.