Offshore wind turbines could upset the balance of Canada-U.S. power trade in the Northeast.
A flood of cheap power generated by planned U.S. offshore wind projects could find its way onto Canada's power grid, reversing a long-standing trend of mostly one-way trade that sees massive exports of Canadian hydropower to the U.S.
The Biden administration's recent approval of the first major wind farm off the coast of Massachusetts kick-started a plan for 30 GW of offshore wind capacity to be installed by 2030. Vineyard Wind LLC's 800-MW Vineyard Offshore Wind Project and subsequent projects could upset a captive clean energy market for province-owned Hydro-Québec, which has for decades exported power from its network of dams to New York and New England. Infrastructure expansions are already underway to meet renewable portfolio standards in U.S. states, including Central Maine Power Co.'s New England Clean Energy Connect transmission line, which would carry Quebec-generated power to Massachusetts. Central Maine is a subsidiary of Avangrid Inc., which itself is a partner in the Vineyard Offshore project.
Even if offshore wind does not reach President Joe Biden's ambitious goals, with 30 projects proposed in U.S. waters, there will likely be enough power sources to disrupt the traditional import-export market with Canada, industry experts said. Although Bloomberg NEF's forecast of 23 GW offshore wind installations by 2030 falls short of the U.S. government's prediction, Melina Bartels, an associate for Bloomberg NEF, said the volume of power flowing onto the Northeastern U.S. grid will be high enough to drive down winter prices and create opportunity to send power north of the border. The extra power in New England could send winter power prices 40% below those seen in the last few years in five years, Bartels said, and multiple transmission connections could create favorable conditions to send power to Canada.
"Traditionally, when we think of this connection relationship with Canada, we think of hydropower coming from Quebec and fueling these two different markets in the U.S.," Bartels said during a recent virtual conference by the Canadian Renewable Energy Association. "I think as this offshore wind begins to flood New England, we actually might see power flowing in the opposite direction as well."
The level of exports would depend on daily price signals, said Bartels, who spearheads Bloomberg NEF's North American mid- and long-term power system forecasting, but the amount of offshore wind that would be available would be enough to upset the supply-demand balance in certain months. Exports would require coordination between regulators in both countries.
Increased trading activity would also require better infrastructure, including increased storage at interconnection nodes, more transmission availability and integration of carbon pricing, said Lisa DeMarco, senior partner and CEO of Resilient LLP, a Toronto-based law firm that specializes in climate change, clean energy and Indigenous law. Integrating carbon and power markets would also bolster fair trade in power.
Increased trade in power will be vital to the Biden administration's goal to decarbonize the U.S. power grid but could hit a snag if Canada's national carbon levy creates a disadvantage when weighed against higher-emitting U.S. generation before the nation's grid is decarbonized. Trade agreements, including the U.S.-Mexico-Canada Agreement, require access for power sellers in both countries. The federal carbon levy, now set at C$40/tonne, is set to rise to C$170/tonne by 2030 and could set up a situation that would make fossil fuel-generated power from the U.S. attractive to Canadian entities at new or existing border interconnects in the Northeast and the Midwest.
"If you consider the emission rates along the border states, right at the southern edge of Canada, on average in Ontario, Quebec and Manitoba we've got between 4 kilograms/MWh to 40 kilograms/MWh emission rates, and in the U.S., on average, we're about 638 kilograms/MWh," DeMarco told the conference. "It's something to look at very carefully to make sure that we're not ending up with perverse and unintended consequences of a Canadian price on carbon that would have the clean Canadian activity subject to dirty U.S. electric imports."
Canada's government could play an increased role in cross-border transmission networks, according to an official of the Canada Infrastructure Bank. The government-owned agency recently announced it had agreed in principle to invest as much as C$655 million in ITC Holdings Corp.'s Lake Erie Connector project, which would allow Ontario to exchange power with the PJM Interconnection network in the U.S.
"We are interested in having further discussions about similar projects and transmission between the two countries, but there needs to be an appetite of the provinces, the states in the U.S. or the markets in the U.S. as well as the private sector to try to come together," said Sashen Guneratna, managing director of investments at the bank. "Interprovincial and cross-border transmission is part of the focus of the bank, and we are willing and able to help make that happen."
Regardless of where the connections are made, the rise of offshore wind power in the U.S. will play a substantial role in electricity trade between the two countries, Bloomberg NEF's Bartels said.
"The largest impact on the U.S. and Canada power relationship is going to be the growth of offshore wind in New England," Bartels said. "At times, [the electricity] will come from offshore wind generation, at times that will come from imported hydropower from Canada, and I think at some times, those two sources of power will work in tandem, and I think sometimes they'll have to compete with one another."