Hydro: The Power Underpinning our Future Energy System

How competitive is hydropower when compared to other clean energy sources like solar or wind?

There is no question that hydropower has historically been a very economic energy proposition. There are significantly lower long-term electricity rates for the jurisdictions with hydropower than those without hydropower. Today, however, we are seeing a massive transformation in the economics of the electricity sector. This includes the increasing per unit cost of hydro. One reason for this price rise is the increased cost of updating and expanding civil infrastructure over the last 10 to 20 years. Another reason is that how hydropower is being developed and built has been changing. In particular, an increased focus on environmental protection has increased hydro costs. We are more careful about minimizing ecological impacts. We also work longer and more intensely with communities to reduce impacts, both environmental and social, and to create benefits for local communities. All of these things add to the development schedule and add to the capital cost. At the same time, solar and wind capital costs have come down. Natural gas is at a very low price, too. All of these changes in the energy world have created a challenge for hydro, but there also are opportunities for the industry that increase its competitiveness.

“We are seeing a massive transformation in the economics of the electricity sector.”

One opportunity involves coal, which has been, historically, a main competitor of hydro for base load generation. Base load power sources are noted for being able to economically generate the electrical power that satisfies minimum demand. Today, coal is not an appealing energy option in North America for a number of reasons. These include major greenhouse gas emissions and the negative impact of mining. Natural gas has now become a popular energy source for base load generation as well. Natural gas prices are very low right now, but the majority of the forecasts show significant increases coming for those prices. While natural gas produces half the emissions of coal, it still has a hundred times the life cycle emissions of hydro or wind or solar.

Overall, we cannot solely look at the per unit cost of hydro when comparing it to other clean energy sources. Hydro also provides additional benefits that wind and solar do not. It is very dependable – you can count on it being there when it is needed. It is a very flexible energy source – you can dispatch, increase or decrease its output as you need. Hydro provides a wide variety of ancillary services that are necessary to the operation of the electrical system, including what is called “inertia.” This bolsters the stability of the power system, which helps avoid blackouts or disturbances. Long-term, hydropower will be competitive in Canada. This nation has a lot of hydro resources and I see us increasing hydropower in conjunction with increases of solar, wind and maritime power. Hydro will be part of our energy portfolio of options moving forward, because we cannot just rely on one resource. We need a whole range of resources.

What factors are disrupting Canada’s hydropower industry in terms of how our hydro systems operate and their business models?

I see several main factors disrupting the hydropower industry. Firstly, there is the radical shift in the energy generation mix. This is going to have a huge impact – not just in what is being developed – but on how the system will operate. It is going to be a more dynamic operation with greater uncertainties. These changes will happen more frequently if we have intermittent energy sources like wind and solar. We are going to see more fluctuation in production units’ operation. That means more wear and tear, so work and research is being done to deal with this reality.

Secondly, the old system was to sell power under long-term contracts. We are now moving to a variety of markets because there is a need for ancillary services. Normal hydropower plants have the ability to increase or decrease energy output, and effectively have storage. But, if there is an increasing need for storage, we will go beyond what our hydropower systems can provide on their own. It will be necessary to utilize pump storage or water batteries, which are dedicated facilities used wind and solar are not producing as much energy. Also, we are going to see battery technologies develop, like solid-state, liquid metal and lithium-ion batteries. Ultimately, if we are going to convert our whole energy system to renewables, we are going to need much more battery type storage than what our existing hydropower system can supply.

“This nation has a lot of hydro resources and I see us increasing hydropower in conjunction with increases of solar, wind and maritime power.”

A third disruptive factor is the business model. We are going to see many smaller players in the energy market. It is already happening. Most of the developers of solar and wind are independent producers, as are some of the hydropower developers. We historically have had a vertically integrated power industry. I do not think that it is going to go away, but we are going to see many more players, a greater degree of wholesale, and more retail competition.

Within Canada, a major business model issue is the concentration of hydropower in certain provinces. The thermal base loads that are a natural market for hydropower are closer, geographically speaking, going south than going east to west. Manitoba, for example, is 1,000 miles from Toronto, whereas Minneapolis is only half that distance. Another issue is there has always been a little bit of a silo effect when each province generates its own power and acts alone. To produce energy with the least cost and greatest efficiency, Canada needs to work better with its neighbours to the south.

There have been questions about the environmental footprint and the social impact of hydro, particularly in Indigenous communities. How is the industry addressing these issues?

If you build any new major infrastructure project, there is going to be some negative impact. It is inevitable. Right now in Canada, there are many hydro projects being built across the country that do not have any significant opposition or controversy. They are the ones that you do not read about in the news. Our industry has come a long way to reduce environmental impacts and social impacts, while providing benefits to communities. Canada is internationally known as a leading jurisdiction in dealing with Indigenous issues. We have gone the furthest, both with our national laws and with how the hydro utilities develop their projects as partnerships with local communities.

“We historically have had a vertically integrated power industry. I do not think that it is going to go away, but we are going to see many more players, a greater degree of wholesale, and more retail competition.”

The Keeyask hydropower project, for example, has been labeled by some as a controversial project. Overall, from an environmental or social point of view, it is a good project. It is a project that is being developed in partnership with the four local Cree Nations. They were part of the early planning process. They were involved in the environmental assessment. There was 10 years of studies, consultations, planning and negotiations to form a partnership. Ultimately, there was a vote in each of the Cree Nations to support and participate in the project. They are right now a part of the partnership board that is managing the project.

The controversial projects that do end up on the front page can discourage young people from getting involved in the hydro industry. Thankfully, a lot of young people are also looking at the hydropower industry as one of the main solutions to dealing with climate change. There is a lot of exciting work to be done in hydropower, with the new technologies and approaches we are using. There also tend to be good long-term prospects working for hydro companies.

“Right now in Canada, there are many hydro projects being built across the country that do not have any significant opposition or controversy. They are the ones that you do not read about in the news.”

Having said that, hydropower is always going to improve its performance. We are doing that by learning from recent projects on how to work with communities, how to reduce impacts and how to increase benefits. At CHA, there is an Indigenous Relations working group where we share our best practices and also the difficulties we have encountered. The industry is doing a lot of research on fish and aquatic impacts. We also investigate enhancements for stewardship programs as well as new ways to reduce environmental impacts during construction.

According to CHA, the development of Canada’s hydroelectric power has the potential to produce a million jobs and $125 billion over the next 20 years. What needs to happen to reach these figures?

That is an aggressive forecast. A few things need to happen for us to achieve this. First of all, hydropower needs to continue to innovate. A lot of people think hydropower is a stale technology using ancient techniques. However, just like other technologies in society, we are continuing to evolve. In fact, this evolution is happening faster and faster everyday. The industry’s approaches to environmental protection and to construction, the way we work with communities, our business models – all of that is changing at a rapid pace.

Second, Canada’s initiatives to reduce its greenhouse gasses are substantial, but they are not enough. Even deeper initiatives will need to be created. The US is the second largest greenhouse gas emitter in the world and 30% of its power today still comes from coal generation. Canada could double its hydropower, which is technically and economically possible, to serve its own needs and to assist in the US’ expansion of clean energy. There should be, in the long run, a market in the US for Canadian hydropower.

“The US is the second largest greenhouse gas emitter in the world and 30% of its power today still comes from coal generation. Canada could double its hydropower […] to serve its own needs and to assist in the US’ expansion of clean energy. There should be, in the long run, a market in the US for Canadian hydropower.”

Third, the provinces and independent system operators need to create market structures to monetize the benefits that flexible power, like hydropower, can provide. We are talking here, for example, about the flexibility of hydropower as a backup for wind and solar. To date, the systems have not had to put a value on this factor, because they came automatically. However, Canada and other regions, are losing base load coal and nuclear in a lot of circumstances, while installing a higher penetration of solar and wind. We are going to need more of these ancillary services priced, explicitly traded and recognized in the market.

Fourth, the provinces need to work together to better share their clean energy resources. Wind, solar and hydro resources are unevenly spread out across the country. There are already interconnections between the provinces, but if we want to get a lower cost and a more effective long-term solution to reducing our emissions, we need to have better clean power sharing and integration across the country.

What do you think Canada’s long-term energy mix should be for meeting our environmental targets, while also growing our economy?

First, energy use itself will become much more efficient than it is today due to technological advances. Second, the electrical supply needs to become a zero – or at least a relatively low – emitter of greenhouse gasses. This means not only eliminating coal, but also, over time, having much less reliance on natural gas generation. Natural gas generation should only be viewed as a transition fuel, not as a long-term solution. Third is a huge shift in the rest of the economy to reduce greenhouse gasses by fuel switching or electrification. I am talking about the obvious things like electric vehicles, mass transit, trucks, trains and heat pumps for residential and commercial heating and cooling.

“For Canada to do its share of reducing greenhouse gases and keeping climate change to a manageable level, we need over the next 20 to 50 years to add huge amounts of new wind, solar and maritime energy, and in parallel roughly double the amount of hydropower in Canada from what we have today.”

This also includes manufacturing through new kinds of processes like electric boilers and electric arc furnaces. To reach this vision, Canada needs to have a massive amount of new electricity onboard to fuel the nation while reducing greenhouse gasses. Much of this will come from alternative energy sources. Large amounts of hydropower are going to be needed to provide the basic energy, but also to provide those ancillary services the system needs to help backup and supplement the large additions of wind and solar. To sum up, For Canada to do its share of reducing greenhouse gases and keeping climate change to a manageable level, we need over the next 20 to 50 years to add huge amounts of new wind, solar and maritime energy, and in parallel roughly double the amount of hydropower in Canada from what we have today.