Infrastructure needs $15 billion annually: study

Canada Electricity Infrastructure Investment drives grid modernization, renewable energy expansion, and transmission and distribution upgrades, replacing aging assets through public-private capital spending to meet demand, support GDP, and maintain low-cost, low-carbon power.

Canada's electricity sector will require more than $15 billion in investment annually over the next 20 years to replace or refurbish aging infrastructure and meet growing electricity needs through 2030, according to a Conference Board of Canada analysis study.

"Electricity is an important component of the Canadian economy. Canadians enjoy some of the lowest electricity prices among developed countries, and much of our power comes from renewable sources," said Len Coad, Director, Energy, Environment and Technology Policy.

"With half of the generation assets built before 1980, the industry faces a pressing need to accelerate investment in infrastructure at all levels. Much of the electricity infrastructure is in need of replacement or refurbishment amid an infrastructure investment gap that has persisted. An annual investment of $15 billion is a substantial increase over levels in recent decades."

The study, Canada's Electricity Infrastructure: Building a Case for Investment (http://www.conferenceboard.ca/e-library/abstract.aspx?did

4132), estimates that about $293.8 billion all figures in 2010 dollars would be needed between 2010 and 2030 to replace aging facilities and meet demand requirements. This level of investment would be a mix of public and private sector investment, depending on whether the systems in each province are owned by governments or by private industry.

At least half of the expenditure is expected to be made by private companies, although a large portion of the private investment, as the Ontario cash squeeze in that province suggests, will be producing power that is under long-term contract to a government agency. The remainder of the investment will be made by provincial government corporations or municipal utilities.

The study was funded by the Canadian Electricity Association to review the current state of Canadian electricity infrastructure and analyze future investment requirements.

"The electricity grid that serves us so well was built for a population of about 20 million, but is today servicing around 35 million," said Pierre Guimond, President and CEO of the Canadian Electricity Association. "It is time to make some of the decisions, as seen with BC Hydro rate increases directed to upgrades, that previous generations also had to make to have reliable and affordable electricity."

Several steps were applied to obtain the estimates. The Conference Board:

• Identified all units that are operational, under construction, planned or proposed

• Used the National Energy Board's long-term outlook to determine market requirements through 2020, and used its own analysis to project demand to 2030

• Determined generating capacity requirements by balancing the market requirements against potential retirements or repowering of existing units, and a listing of future projects

• Applied capital costs to all generation projects,to calculate total generation investments

• Used long-term plans published by the transmission companies, system operators, and provincial regulators to estimate transmission investments and

• Based distribution investments on the levels of expenditure required to sustain existing infrastructure and meet growth in demand.

The largest share of the full amount, $195.7 billion, would be for generation as part of a wider Canadian grid repairs estimate covering national needs. Most of these investments would be in renewable and low carbon emission sources of electricity generation.

The Conference Board estimates that the distribution system will require about $62 billion in investment over 20 years, while a broader T&D investment outlook points to rising annual needs, both to sustain existing infrastructure and to implement new systems.

The Conference Board calculates that transmission systems across the country will require about $36 billion in investment. However, this level of investment is likely underestimated given ongoing transmission process cleanup issues that delay projects. Transmission investment costs are affected by the amount of power being transmitted and the distance from the source of electricity to the market. As a result, the Conference Board could only assess future transmission needs based on publicly available expansion plans and their cost estimates.

The historical investment in the electricity sector has varied over the years, with periods of high investment in the 1970s and 1980s. There was a significant hiatus in investment in the mid-1990s, but recently, the sector has once again seen growth in the investment levels.

The electricity sector contributed about $24.6 billion to the Canadian economy in 2010 two per cent of gross domestic product and it employed 116,000 workers. Canada exports about seven to nine per cent of its electrical generation and is a net electricity exporter, where cross-border dynamics like U.S. tax law impact can influence upgrade timelines. In 2010, exports totaled $2.3 billion.

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