About Electricity

Content

Key Descriptors

• The structure of the electricity sector has been evolving over the past decade. In most provinces, there has been a shift from vertically-integrated electric utilities (often provincial Crown corporations) to various degrees of market liberalization and/or unbundling of generation, transmission and distribution services.
• In 2014, electric utilities and industry in Canada generated 639 terawatt hours. Canada is the second largest producer of hydroelectricity in the world. Hydroelectricity accounts for 59.3 per cent of the country’s electricity supply. Other sources include coal, uranium, natural gas, petroleum and non-hydro renewable sources.
• In 2014, almost 59 terawatt hours were exported to the United States, while about 13 terawatt hours were imported.
• The industrial sector accounts for the largest share of demand, fuelled by the presence of a number of energy-intensive industrial activities. The residential and commercial-institutional sectors also consume large quantities of electricity.
• Factors such as population growth and greater use of electrical appliances and equipment are expected to continue to drive electricity demand in the coming years, whereas the slower economic growth could reduce the electricity demand.
• Canadian consumers benefit from some of the lowest electricity prices in the developed world. Prices are especially low in the provinces where the electricity sold to consumers originates primarily from hydroelectric dams.

What is Electricity?

Electricity is the flow of electrons from a negatively charged body to a positively charged body. Electricity can be used by humans as an energy source in a large number of applications that include heating, lighting and powering electric motors.

While electricity exists in natural forms such as lightning and static electricity, it is usually generated for human use by electromechanical generators. These generators may be propelled by the kinetic energy of flowing water and wind, or by the movement of steam produced from water boiled by fuel combustion or nuclear fission. Other energy sources and technologies can also be used, including natural gas turbines and solar photovoltaic cells. Once generated, the electricity is transported by a conductor (usually copper wire) to a point where it is converted into usable energy, be it light, thermal, or kinetic energy.

Industry Structure

The electricity industry is involved in three main activities:

• the generation of electricity using various energy sources and technologies;
• the high-voltage transmission of electricity, usually over long distances, to bring electricity from power plants to end-use markets; and,
• the distribution of electricity to end-users, usually through low-voltage local distribution power lines.

The generation, transmission and distribution of electricity in Canada fall primarily under provincial jurisdiction. Provincial governments exercise their jurisdiction through provincial Crown utilities and regulatory agencies. Historically, electricity has been provided mainly by vertically-integrated electric utilities that were often provincial Crown corporations with monopoly rights (e.g., Manitoba Hydro). Some large industrial electricity users, such as aluminum manufacturers, have also built electricity generation facilities to meet their own electricity requirements.

Over the past decade, the structure of the electricity industry has undergone significant change. Most provinces have unbundled the generation, transmission and distribution functions of electric utilities into separate organizations. As well, some provinces have moved towards a more competitive generation system with the private sector playing an increasing role, giving rise to independent power producers.

Several associations represent the interests of the electricity industry, including the Canadian Electricity Association, several provincially focused independent power producers’ societies, and several source-specific associations (e.g., the Canadian Hydropower Association).

The federal government plays a supporting role by investing in research and development and supporting the commercialization of new technologies. The Canada Energy Regulator (formerly the National Energy Board) exercises federal jurisdiction over electricity exports and over international and interprovincial power lines. The Canadian Nuclear Safety Commission regulates the use of nuclear energy and materials to protect health, safety, security and the environment, and to implement Canada’s international commitments on the peaceful use of nuclear energy. The federal government is also active in the development of nuclear energy technology through its crown corporation, Atomic Energy of Canada Limited.

Generation

In the long term, electricity generation tends to rise slightly every year in order to meet gradually increasing demand. In 2014, electricity generation amounted to 639 terawatt hours. By comparison, electricity generation totaled 467 billion kilowatt hours in 1990.

Electricity in Canada is generated from a diversified mix of sources. Electricity produced from renewable and nuclear sources is considered primary energy because it is captured directly from natural resources, while electricity based on fossil fuels is considered secondary energy because is produced from primary energy commodities such as coal, natural gas and oil. The most important source in Canada is moving water, which generates 59.3 per cent of electricity supply. Canada is the second largest producer of hydroelectricity in the world with over 378 terawatt hours in 2014. The hydropower installed capacity is more than 78 gigawatts. This capacity has been developed where favourable geography and hydrography exist, primarily in Quebec, but also in British Columbia, Ontario, Labrador and Manitoba.

Fossil fuels are the second most important source of electricity in Canada. About 9.5 per cent of electricity supply comes from coal, 8.5 per cent from natural gas and 1.3 per cent from petroleum. Fossil fuel generation is particularly important in Alberta and Saskatchewan, where several power stations have been built adjacent to large coal deposits. Fossil fuel generation is also important in the Atlantic Provinces, Northwest Territories and Nunavut. Ontario used to rely heavily on coal-fired generation; however, in April 2014, the last coal-fired generating capacity was shut down.

Nuclear power is the third most important source of electricity in Canada. About 16 per cent of electricity supply is generated in nuclear power plants using the Canadian-developed CANDU reactor. Eighteen of Canada’s nineteen operating nuclear power installations are in Ontario, one is in New Brunswick. Quebec has decided to shut down their nuclear power plant in December 2012.

Non-hydro renewable sources currently contribute 5.2 per cent of Canada’s electricity supply. Wind has become the predominant non-hydro renewable source surpassing biomass (e.g., wood waste, spent pulping liquor). An emerging source, solar provides a still small but rapidly increasing amount of electricity.

Electricity Generation in Canada (in terawatt hours)

International and Interprovincial Trade

Historically, provincial governments tended to ensure that enough electricity generation capacity was developed within their boundaries to meet provincial needs. As a result, a limited amount of electricity is traded between neighbouring provinces and with the United States. One major exception is Labrador’s Churchill Falls hydro facility, whose output is sold to Hydro-Québec Distribution.

Still, a certain amount of trading takes place as it provides opportunities for sellers to increase revenues by selling electricity that might otherwise go to waste and opportunities for buyers to ensure adequate supplies in periods of high demand or during outages at generating plants.

Some trading reflects seasonal circumstances in that electricity demand peaks during the winter in Canada and peaks during the summer in the United States. As well, hydroelectric utilities with water reservoirs may boost production during daily peak demand periods in order to export electricity at advantageous prices, and then reduce production (while refilling the reservoirs) during off-peak periods while importing electricity at lower prices.

In recent years, Canada has been a net exporter of electricity to the United States. In 2014, export sales to the United States amounted to 58.4 terawatt hours, which is less than 10 per cent of total Canadian electricity generation. Revenues from exports totalled $2.9 billion in 2014, while imports totalled $0.6 billion.

Exports and Imports of Electricity (in terawatt hours)

Prices

Electricity prices differ across Canada due to a number of factors; the most significant of them are the market structure and the type of available generation. Alberta has a deregulated electricity market where prices are market-based. Ontario has partially restructured its electricity market. In other provinces and territories, electricity prices are set by electricity regulators.

The type of available generation is reflected in the cost of generating electricity, which is the important element of electricity pricing. It varies by province or territory depending on the sources used to produce electricity. Hydroelectric stations currently provide some of the lowest-cost electricity in Canada. However, as the most economical projects were developed first, new hydroelectric projects may have higher production costs.

Hydroelectric and nuclear power plants are fairly capital intensive, which means that a major portion of the generation costs pertains to the cost of building the production infrastructure. Operating and fuel costs are relatively low compared to other electricity sources. In the case of natural gas and petroleum-based generation, the cost of fuel accounts for a large portion of total generation costs. Because of this, the cost of generating electricity from these fuels fluctuates with changes in the prices of these fuels. Coal-fired power plants fit in the middle of this spectrum, with mid-range capital costs and mid-range fuel and operating costs.

Other important elements of the pricing of electricity, in addition to the market structure and the cost of generation, are the costs of its transmission and local distribution. These costs vary across Canada, depending on factors such as geography and population density.

Canadian consumers benefit from some of the lowest electricity prices in North America. In Canada, the lowest electricity prices are found in British Columbia, Manitoba and Quebec. These three provinces have access to low-cost hydroelectricity from large-scale projects, according to Hydro-Quebec’s annual report on electricity prices in major cities in North America. In 2014, average prices for residential customers, in cents per kilowatt-hour, were 8.12 in Montreal, 9.12 in Winnipeg, and 10.93 in Vancouver – the lowest in major North American cities, while prices in Charlottetown – 17.37 and Edmonton – were among the highest.

Reliability

Because of the technical limitations on storing electricity, electric utilities and governments work to ensure that enough electricity is available to meet demand at any given time and to avoid power outages. Several actions are also taken to ensure the reliability of the electricity grid.

Having a generating capacity in excess of the expected peak demand is one way to ensure reliability. This allows electric utilities to still meet demand when some generation capacity may be offline because of routine maintenance or unexpected shutdowns. Utilities may also secure access to additional supplies by trading electricity with neighbouring utilities, including those in the United States.

Adequate transmission is also vital to ensure reliability. Transmission allows for moving electricity from areas with excess electricity to areas where electricity is needed. Electricity can be transmitted both within the area of distribution of a given utility and between utilities.

Several other actions are taken to ensure reliability, including the careful management of the electricity grid in real time and the adoption of standards and operation procedures.

Outlook

Electricity demand in Canada is expected to grow at an annual rate of 1 per cent between 2014 and 2040. Most of the growth in energy demand would come from the industrial sector, where overall energy demand is expected to grow at a rate of 0.7 per cent.

In order to meet increasing demand, Canadian producers will increase their generation capacity. The sources of future supply increments will depend on the policy and business decisions made by provincial governments and power producers, respectively. Hydroelectricity generation is expected to continue to dominate the electricity supply mix but its share will decrease from 55 to 51 per cent in 2040. In total generation, the share of wind power is projected to increase from over 7 per cent of total electricity generation in 2014 to close to 11 per cent by 2040, while the share of biomass, solar and geothermal will account for about 5 per cent by 2040, so that over the forecast period, the share of renewable sources in total generation is expected to be about 67 per cent.

Natural gas-based generation is set to increase with its share in total generation increasing from 15 to 22 per cent over the 2014-20340 period, while generation from both oil-fired and coal-fired plants is expected to decrease. Nuclear generation is expected to decrease from 10 per cent to 6 per cent in 2040.

Endnotes

This document is based on information available in the fall of 2015. Statistics originate mostly from publications of Statistics Canada; data on prices are from Hydro-Québec. Growth rates presented in the Outlook section are from Canada’s Energy Future: Energy Supply and Demand Projections to 2040 - Energy Market Assessment, prepared by the National Energy Board.

Electric power is usually measured in watts or multiples of it, such as kilowatts (thousands of watts) and megawatts (millions of watts); one watt is equivalent to one joule per second. Electrical energy — that is, the flow of electric power over time — is measured in watt hours (kilowatt hours, megawatt hours, etc.); one watt-hour is equivalent to 3,600 joules. As an example, a 60-watt light bulb that operates for two hours consumes 120 watt hours of electricity.