Hydro Review

Northern Exposure: Canadian Hydro in the Spotlight

Hydroelectric power has been a staple in Canada's energy mix for more than a century, but its role is evolving. Find out how politics, social responsibility and foreign markets are shaping the industry's future.

By Michael Harris

Thomas Edison received his patent for the incandescent light bulb mere months before the Ottawa Electric Light Company completed Canada's first hydropower project, but the plant still preceded the modern vacuum cleaner, radio receiver and air conditioner by two decades. Not even the double-edged safety razor, Teddy bear or crayon had been invented by the time the Chaudiere Falls facility began generating power in 1881. While electricity in its infancy was primarily reserved as a novelty for the rich and a resource for captains of industry, Canada was quick to see hydro's potential.

Fittingly, it was Edison who quipped that electricity would become "so cheap that only the rich will burn candles." Although his remarks were almost certainly made with regard to his own New York-based utility company, their application is not lost on his northern neighbors. In the decades since Ottawa Electric Light introduced hydropower to Canada, "hydro" has become all but synonymous with "electricity" - and with the majority of the country's power being generated by hydroelectric facilities today, the colloquialism makes sense.

Still, Canada - whose 500 existing hydroelectric facilities already combine for 74,000 MW of installed capacity - could increase its hydro output more than two-fold, according to the Canadian Hydropower Association. And even though hydroelectric production already dwarves Canadian nuclear, coal and natural gas sources - each of which contribute about 13% of the country's overall energy - CHA said new hydro development could potentially translate to more than a million jobs and $125 billion in investments over the next 20 years.

The 3,074-MW Lower Churchill project is amongst Canada's largest hydroelectric facilities currently in development, with its first phase, 824-MW Muskrat Falls, receiving an official go-ahead from Newfoundland and Labrador Premier Kathy Dunderdale in December 2012. Meanwhile, BC Hydro continues making headway on its 1,100-MW Site C proposal, and Manitoba Hydro is developing the 1,485-MW Conawapa and 695-MW Keeyask plants.

Upgrades to existing facilities are also proving to be sources of significant new energy, with recent additions to Lower Mattagami, Mica Dam and Sir Adam Beck combining for more than 1,600 MW of additional capacity.

"The country of Canada has the third-largest amount of surface water on the planet, but we only have about 30 million people," CHA President Jacob Irving says. "We have the population of California spread across the second-largest landmass in the world. What that means is that we've got a lot of water, a lot of land, a lot of elevation change, and a lot of hydro potential."

BC Hydro's 126-MW John Hart project is currently undergoing a number of upgrade and rehabilitation projects that will increase the 65-year old plant's capacity to 138 MW.
BC Hydro's 126-MW John Hart project is currently undergoing a number of upgrade and rehabilitation projects that will increase the 65-year old plant's capacity to 138 MW.

Bringing Canadian hydro to the U.S.

The role of hydroelectricity as Canada's most prominent source of energy has been unquestioned for more than a century, but politics and growing emphases on First Nation relationships, social accountability, environmental stewardship and international exports are changing the way the country's developers and operators are positioning this valuable resource for the next hundred years.

Reading further into Irving's comments then, the potential for Canadian hydropower is such that the country could easily parlay its resources into an exportable commodity - a point that has not been lost on American utilities. Some U.S. states are already working to modify their renewable portfolio standards to include hydropower imported from Canada. For example, the state of Connecticut passed a law in June that would allow for large-scale hydropower from outside the region to count toward the state's RPS requirement in certain circumstances, while a 2008 agreement between Manitoba Hydro and the Wisconsin Public Service Corporation will see the U.S. utility import 500 MW of power from two Nelson River projects.

Meanwhile, New Hampshire-based NU Transmission Ventures Inc. has been fighting for its Northern Pass transmission line since the Federal Energy Regulatory Commission in the U.S. approved its participant-funded financing approach in May 2009. The controversial $1.4 billion project would allow for the transmission of 1,200 MW of hydroelectricity from Hydro-Quebec into New England, and although its scope is perhaps not indicative of import arrangements made by other utilities, it reflects a rising interest amongst U.S. companies in Canadian energy.

"We're not saying that we should provide 100% of the U.S.'s electricity consumption," Irving says, noting that Canadian hydro already represents 1% of America's power. "We wouldn't even be able to do such a thing. But at the same time, we think that there's reasonable room to grow there."

Irving says CHA's intent is to market Canadian hydro as a baseload supplement as the U.S. works to cultivate more intermittent forms of other green generation, such as wind and solar. "What we're focusing on at the federal level is just trying to make it better known within the U.S. amongst our counterparts in Washington about the existence and availability of Canadian hydro to help enable and develop U.S. renewables," Irving says.

An arrangement approved in 2012 between Minnesota Power and Manitoba Hydro exemplifies this sort of partnership. Per a 15-year power purchase agreement that begins in 2020, Minnesota Power will use 250 MW of electricity supplied by Manitoba Hydro's Keeyask plant to help balance a wind farm in North Dakota.

"We think that the high-capacity wind in North Dakota, coupled with a base load resource like hydro and the system Manitoba has, is sort of like the holy grail of renewable energy," Minnesota Power Executive Vice President David McMillan says. "This is a great opportunity to marry those two." The deal hinges on regulatory approval of a new 500-kV transmission line, but the speculative gamble is one parties in both countries are willing to make.

For Canadian developers, such arrangements can help hydro projects gain support and also provide an enticing option for American utilities looking to bolster their own renewable portfolios.

"In 2005, we were 5% renewable and 95% coal," McMillan says. "At the end of last year, we were 20% renewable and 80% coal. By the end of next year, we'll be at 25% and 75% and headed for something like one-third, one-third and one-third in coal, renewable and gas in market purchases. That's kind of the game plan, and Manitoba is crucial to that."

The politics of hydro

Cross-border relationships between the U.S. and Canada will be thrust onto an even more prominent stage as parties in both countries begin preparing to negotiate the terms of the Columbia River Treaty.

The treaty, established in 1964, affects how groups on both sides of the border develop and manage resources along the 1,200-mile-long river. The document states that either country can cancel most of its provisions after September 2024 with a minimum 10-year notice, meaning treaty talks will likely begin in 2014.

With American negotiations being coordinated by the U.S. Army Corps of Engineers and Bonneville Power Administration, and Canada's coordinated by provincial utility BC Hydro, a number of issues have emerged since the treaty went into effect. Amongst these are ecosystem-based functions, navigation, recreation, irrigation and climate change, in addition to considerations for indigenous groups in both countries that are absent in the original treaty. Both groups collected public comments in fall 2013, with more focused recommendations expected in 2014.

Even though CHA will not have a direct hand in the treaty's negotiations, Irving said the 50-year-old agreement still stands as a model of cooperation. "As it comes open for re-discussion and renegotiation, I think it is a good opportunity for everybody to remember the mutual benefit that has been achieved on that shared waterway," Irving says. "I think most parties will be able to look back on a lot of positive achievements and should be able to build on those going forward."

Hydro policies are also being discussed at Canada's federal level, with the government passing bills C-38 and C-45 to improve environmental regulation. They were "omnibus bills," meaning they were broad in scope and amended or replaced existing laws.

The government stated that it wanted to reduce regulatory duplication within federal jurisdiction and between federal and provincial levels. It also wanted to focus regulation on significant environmental risks, obligate officials to render timely decisions and strengthen enforcement. Officials are completing the regulations and implementation policies needed for the new legislation.

During 2013, there was a cabinet shuffle that saw several Ministers change departments, and a new session of Parliament was initiatied with a new legislative agenda. Despite these interruptions, work on regulatory improvements continued and many of the changes relating to hydropower are now in force, with the remaining regulations anticipated to be implemented by the end of 2013.

Observers believe hydro may see benefits from the regulatory improvements. In the past, hydro projects faced much longer approvals than competing projects.

"The perennial difficulty for hydropower is, of course, its high up-front capital costs," Irving says. "But I think here in Canada, we're getting better at understanding that the renewables could and should complement each other. There's a fairly good understanding that in a place like Canada where you have 60% hydropower, it is a good place to be able to bring on other renewables because you have that reliable baseload backup that hydro gives."

At a more local level, Ontario Minister of Energy Bob Chiarelli recently said, "hydroelectric power is a central pillar of the government's renewable electricity portfolio," while officials in other provinces have also made similar proclamations.

The benefits of hydro's initial costs ultimately pay dividends, Irving said, noting that Manitoba and Quebec - both of which feature about 98% hydro in their energy mixes - have some of the lowest power rates in North America. "There is a long-term economic advantage that we offer," Irving says. "It's proven itself and it's undeniable."

Combined with its many other attributes, hydropower's long-term payoff makes the sector's future in Canada bright. "It's a good news story, and it continues to make us one of the cleanest and most renewable generation systems in the world," Irving says.

Michael Harris is online editor of HydroWorld.com, the hydro industry's proven authority, which is powered by Hydro Review and HRW-Hydro Review Worldwide magazines.


First Nations relationships first priority for Canadian developers

With aboriginal groups holding claims to significant portions of Canadian land, First Nation interactions remain a primary consideration for the developers of many hydropower projects in the country. The role that each party plays in those relationships has changed dramatically over the past decades, however, as aboriginal groups and project developers alike are becoming more savvy in interacting with each other.

According to Ontario Waterpower Association President Paul Norris, whose organization has been proactive in educating the province's First Nation communities about all aspects of hydro project development, what used to be largely one-sided affairs are now turning into long-term, mutually beneficial partnerships. "Aboriginal communities are increasingly becoming partners - if not proponents - of new hydro development in the province," Norris says. "We're talking not as much about an approach that deals with the potential impact on aboriginal and treaty rights, but instead, we're talking about a transaction. It's a different concept now."

Three components play prominently in that factor, Norris said, beginning with the way First Nations groups themselves approach hydroelectric development. Where much of the conversation would have likely been initiated by non-aboriginal developers before, now, a number of programs exist that allow First Nation communities to conduct their own assessments for potential projects.

Members of the Nisichawayasihk Cree Nation and Manitoba Hydro conclude Wuskwatim Project Development Agreement negotiations in March 2006.
Members of the Nisichawayasihk Cree Nation and Manitoba Hydro conclude Wuskwatim Project Development Agreement negotiations in March 2006.

Second, government loan guarantee programs for First Nation partnerships and First Nation-led developments are reducing the costs of debt financing. And third, projects operated in conjunction with aboriginal community partners are given a higher value on a per kilowatt-hour basis.

"Quite frankly, I think we've gone well beyond the tipping point of whether an aboriginal community is going to be involved in our business, but rather, how to make that happen," Norris says. "I like to think of it as us evolving from a starting point where the conversation was all about the crown's obligation to aboriginal communities to one now that is a business-to-business conversation."

OWA's commitment to nurturing partnerships between First Nation groups and developers is evident, with Ontario's 10-MW Okikendawt, 19-MW Gitchi Animki, 20-MW Kapuskasing and 50-MW Tazi Twe projects all representing successful partnerships.

"The good news and where it really resonates with these communities is that hydropower projects are multi-generational assets," Norris says. "So these things are going to be there for the next hundred years at least."

Ontario's success stories are indicative of a growing trend around the country, Canadian Hydropower Association President Jacob Irving says. "Our hydropower developers understand that they must engage with aboriginal stakeholders as soon as possible on any project, and that while they will of course adhere to and respect any legislation or regulation pertaining to aboriginal consultation, all of our members across the country do their best to go above and beyond basic regulatory or legislative expectations," Irving says. "They're understanding more and more that it's about having a real relationship with a neighbor in your project, and hopefully creating a satisfied partner as well."

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