On the overview, in making investment decisions on interties, the main consideration is whether electricity will flow through those interties and how much of the intertie capacity will get used. It's essentially a demand-and-supply question.
In the context of this committee, the demand question, I think, involves a lot of crystal-ball gazing to a future where we expect decarbonization and fuel switching to impact on electricity. The supply question is what kind of generation should or will get built, and more importantly for interties, where. I think the cost question is paramount in that.
The concept I'm bringing to the committee is that eastern Canada, which in my view includes Manitoba, has three distinct energy endowments. These endowments could represent a national competitive advantage for this country. Interties could augment this competitive advantage, and this opportunity is predicated on three factors.
The first is the demand and the associated impact on the economics of interties. Today, demand for electricity has a daily and a seasonal profile that inherently reduces the transmission and distribution asset utilization and hence their economic use. Today the interprovincial intertie investments are not warranted for Ontario. I've written about that. However, in the future, demand will not only grow but will also change the daily and seasonal load profile that is presented to those transmission assets and the requirements on new supply. That's factor number one.
Factor number two is the energy assets that eastern Canada has. That's hydro and natural gas storage, and it equates to electricity—in a minute, I'll explain—and they're both akin to grid-scale seasonal batteries. Ontario's nuclear advantage could be the generation that supplies the batteries and cost-effectively optimizes the development and/or leverage of those batteries with the interties.
The third factor is the U.S. Demand in the northeastern U.S. will rise with emission reduction, much as Ontario's will, and the U.S. has fewer supply options than what we have up here. Collectively viewing the requirements of new supply, the transmission asset optimization, and the U.S. need for clean energy could enable a unique low-cost source of electricity both for domestic use and for exporting electricity and gas-from-electricity to the U.S., if Canada is smart about it.
Now I'm going to talk about each of those factors in a little more detail. The nature of the existent demand and supply balance can dramatically shape whether an investment in interties makes economic sense. My study showed that after the next eight years, due to surpluses in both Ontario and Quebec, there was no domestic energy cost advantage for intertie development or even enhancing any trade agreements between those two provinces.
I agree with climate analysts that fuel switching will lead to electrification. My analysis shows meeting Ontario's 2030 targets will require 60% more electricity than it currently has, even while taking advantage of all the efficiencies that come out of innovation. Much of this demand is in winter.
Demand for electricity has two inherent characteristics that are counter to optimizing value-added interties. One is a daily demand. The IESO in Ontario has stated that because of the daily demand profile, the value of interties for emission reduction purposes is limited to only a few hours a day, and that is only 25% of that capacity of the interties productively used for GHG reduction. At such low utilization rates, that can add up to 60 bucks a megawatt hour, almost doubling the cost of power that will go across those interties. That's challenge number one.
Challenge number two is seasonal demand. In an electrified world, seasonal variation in demand for electricity is significant. In Quebec, where most buildings are electrically heated, you can see that the winter demand for electricity is approximately 65% higher than in the summer. The only clean electricity supply that matches this new winter heating, which will happen in Ontario at some point, is the large reservoir of hydro, which Quebec has. However, Quebec does not have enough capacity to supply the new winter heating that Ontario will require by 2030, so the issue is going to come down to who's going to build it. Are you going to build it in Quebec, where you need interties, or in Ontario, where you won't need interties?
The supply choices could hurt or help interties being a good idea, and whether interties make sense in the future depends on whether the new demand to the grid will justify the acceptable utilization of assets. If the grid demand says fill up the transmission pipes, it will be a good idea; otherwise, it might not be.
Two of the most talked about clean energy alternatives have opposing benefits with regard to interties. One is wind, and one is the solar-battery distributed energy concept you've heard about.
The intermittent supplies that have been and are being built are counter to the efficient use of an intertie because of their intermittency. Wind generation also needs a backup capacity. That backup capacity extends into the nature of the interties as well. The wind in Ontario has reduced the utilization of the interties between Ontario and Quebec by 15% to 20%, but it still needs the full size of the pipe.
Distributed energy resources alter the daily demand profile. That's a good thing. The most significant advantage of DERs is that they can be managed in concert with controllers from a local distribution company. That can peak shave. It can flatten the demand. It can smooth everything out and increase the utilization of all the transmission and distribution assets.
Most studies on decarbonization include a significant amount of new hydro and nuclear in the supply mix. I'm referring to the ones in Canada's mid-century report. The model in the Trottier report was around picking the lowest costs. Their model was built over the next 20 years: all the economically feasible hydro, and then following that up with nuclear. In their view, the nuclear was a bit more expensive. Whether hydro is a lower cost to nuclear remains to be seen. We have the Muskrat Falls, Site C, and Keeyask dam issues that have increased costs.
The public acceptance of nuclear in this country is an endowment. Canada's energy endowments of hydro and the natural gas storage systems all provide a potential competitive advantage to our economy.
In terms of hydro, it's well understood that potential remains for further development of hydro capacity in eastern Canada. Large hydro's ability to respond to both daily demand with fast ramping as well as the winter season peak makes it extremely highly desirable.
In terms of nuclear, Canada's nuclear advantage includes two significant factors. One that I've mentioned already is the public acceptance that allows us to build it out quickly, more quickly than other jurisdictions, and Canada's nuclear supply chain is large. It's actively engaged in a megaproject. It's a well-oiled machine today.
In terms of natural gas storage, which is less widely discussed, it is an important role that Ontario's natural gas capacity can play in decarbonization. The large storage caverns accumulate natural gas all year. We use it in the winter for heat. Those assets also feed Michigan, so we have an export channel for those natural gas assets. These storage assets can be used to collect renewable natural gas and/or hydrogen, both of which require electricity.
Combined, hydro, nuclear, and natural gas assets are a unique capability. Hydro is a battery that can provide daily and seasonal flexibility. Natural gas is a battery that can address the winter season. Nuclear could be the thing that charges them all up. When you have a future-flattened demand with distributed energy resources, you can flatten the system immensely and get the utilization of those interties up very high. That drives out to low cost.
The last factor is the U.S. I believe the topic that's most relevant to the intertie decision is whether there will be an export opportunity. The U.S. will be challenged to find supply options to meet the long-term emission reduction objectives that they're going to have.
The northeastern U.S. and the Great Lakes region have far fewer options at their disposal than has eastern Canada. Their options are mostly around wind, solar, and batteries. The high latitude makes the solar option far less economic in the northeastern U.S. than in the south. To meet their climate objectives, they're going to need some baseload solutions. Baseload solutions that fill up transmission pipes are a good idea.
Canada's hydro, nuclear, and gas advantage is likely a lower cost and perhaps even the only option for these U.S. jurisdictions. How Canada's assets get developed to provide a competitive advantage for us to export to them should be a key consideration in how you strategize around interties.
In closing, eastern Canada has a unique triad of energy endowments. If we plan in a holistic manner to optimize the demand on the grid, this can create an energy advantage to Canada both domestically and as an export of energy to the United States.