By Peter Milley & Warren Mabee
The new Liberal government in Nova Scotia campaigned on a promise to break Nova Scotia Power’s monopoly, creating a “heavily regulated, competitive market”, which would allow consumers to buy electricity directly from suppliers of their choice. Their objective is to have power rates decline because energy providers will compete on price. At the same time, the province hopes to see a shift away from coal and petcoke (currently supplying 59% of electricity) towards cleaner sources of power, including renewables and natural gas.
The question for the government now is what can be learned from others who have tried this approach to ensure that its implementation in Nova Scotia is both effective and economical.
Increased supplies of renewable energy are needed to meet the targets in the Environmental Goals and Sustainability Act, but are often seen as contributing to rising energy prices. In Nova Scotia, the Community Feed-in Tariff (COMFIT) program offers between $0.131 per kilowatt-hour (kWh) (for larger wind projects) to $0.652/kWh (for in-stream tidal power); these prices reflect very small project sizes and the emerging nature of the technologies being employed. It should be made clear that the cost of renewable power is dropping; other jurisdictions, such as Germany, now offer as little as $0.068/kWh (Canadian currency) for onshore wind generation. The trick is to ensure that renewable power can be used or stored; intermittent generation from wind farms can be ‘lost’ if not balanced with other, dispatchable forms of power within the grid. Experiences in other provinces (like Ontario) suggest that effective central planning, leading to a balanced portfolio of renewable generation options, is essential.
It is important to remember that all new electricity generation is expensive – particularly at a smaller scale. An audit of a cancelled 900 MW natural gas-powered facility in Oakville, Ontario indicates that the net revenue requirement for these types of facilities (i.e. the break-even cost of power, including building, operating and a reasonable rate of return) might be in the range of $0.06/kWh for generation, excluding transmission and distribution, assuming natural gas prices remain at current low levels, and depending on how much electricity is actually required from the plant (capacity factor). In Nova Scotia, where smaller-scale facilities are needed, generation costs may be higher as economies of scale are lost. Investors in new generation capacity need assurance in terms of sales and pricing in order to move forward with projects.
Generation cost doesn’t include transmission – movement of power from the generator to substations around the province. In Nova Scotia, consumer electricity rates include transmission tolls that are currently regulated as an integrated element of electricity rates. If consumers are given the ability to purchase electricity directly from producers, the operation and regulation of the transmission system will likely need to be separated and the system managed to ensure supply is balanced with demand. Over recent decades, several jurisdictions (e.g. Alberta, Ontario) have attempted to adjust their electricity utility systems to facilitate increased competition while attempting to ensure consumers were protected from rising electricity rates. To meet these objectives independent system operators have been established in those provinces, representing new costs for the entire system, which one can expect to be covered through increased tolls.
The final step in the electricity chain is distribution – moving power from substations to homes and businesses. In the world of deregulated and distributed generation, small scale electricity (i.e. wind, solar, or small-scale gas generation) might be connected to consumers through the distribution grid alone. Again, this increases the complexity of the local distribution system and increases costs for local utilities. If consumers are provided the option of purchasing power directly from a local renewable energy producer, protocols will be needed to ensure end use demand and energy supply remain balanced, generator connection costs are appropriate, and that the system is operated in a manner fair to all.
In some instances, deregulation has not resulted in lower energy costs. For example, one of the authors lives in Kingston, ON and pays a total of $0.177/kWh for electricity at home; the other lives in Halifax, NS and pays $0.136/kWh. The critical point is that achieving effective competition in electricity markets is complicated.
Restructuring Nova Scotia’s electricity generation, transmission, and distribution system could result in net benefits for the province and its people. However, this is not a simple task and new generation capacity will be expensive. A carefully thought out plan which balances renewable and non-renewable generation capacity and ensures that appropriate systems are in place for transmission and distribution of that power is required. Nova Scotia stands to benefit from a cautious approach.
Peter Milley, FCMC is a PhD Candidate at Queen’s University and a Partner in Halifax Global Inc. Warren Mabee is a Canada Research Chair in Renewable Energy Development and Implementation, Associate Professor at Queen’s University and Director of the Queen’s Institute of Energy and Environmental Policy.