October 29, 2020 – Electricity prices and pricing structures vary widely across provinces, with Alberta, Ontario and Nova Scotia consumers facing the highest power costs, says a new report from the C.D. Howe Institute.
In “The Price of Power: Comparative Electricity Costs across Provinces,” authors Grant Bishop, Mariam Ragab and Blake Shaffer provide an interprovincial comparison of power prices across Canada, and explore how overall electricity costs matter for economically efficient power consumption and provincial competitiveness for new business investment.
Using cost estimates for each province’s electricity system in 2018, the authors found Ontario, Nova Scotia and Alberta had the highest power costs – estimated at $143/MWh in Ontario, $133/MWh in Nova Scotia and $122/MWh in Alberta. Provinces with the lowest power costs predominantly rely on hydro generation. Quebec and Newfoundland and Labrador had the lowest unit system costs at $70/MWh, followed by Manitoba at $87/MWh and British Columbia at $97/MWh.
In addition to provincial variations, the cost of power within a province is not charged uniformly across each consumer class – industrial, commercial, small business and residential. In most provinces, industrial consumers pay the lowest unit power costs, followed by commercial consumers, with small business and residential consumers paying the highest unit costs. Ontario is the exception, where taxpayer-funded rebates result in very low power costs for residential and small business consumers while industrial and commercial consumers face higher costs relative to other provinces.
The authors also track changes in power prices in Ontario and Alberta over the past five years and identify the drivers of electricity cost increases. For these provinces from 2014 to 2019, growth in electricity prices facing consumers was driven by increases in transmission and distribution costs in Alberta and heightened energy costs in Ontario. These increased costs may influence where a business locates. “The costs for power facing commercial or industrial consumers influence the attractiveness of locating business in a given jurisdiction – particularly electricity-intensive industries with internationally traded products,” say the authors.
As policymakers contemplate changes to the design of markets and structure of electricity rates, they should consider:
- Aligning consumer prices with the costs of providing electricity by, for example, introducing dynamic or time-of-use pricing, as well as critical peak pricing and direct load control;
- Efficient allocation of fixed system costs (e.g., the infrastructure for transmission and distribution, as well as the costs of generation) through, for example, lower prices for more price-sensitive consumers to avoid reduced production or shifting production to another jurisdiction; and
- Competitive system costs to ensure the efficient attraction and retention of economic activity.
Note: For comparison purposes, the authors use “normalized” rates. In statistics, normalization is defined as adjusting data collected using different scales into a common scale in order to provide meaningful comparisons. To compare the total system costs on a megawatt per hour (MWh) basis for consumers in different provinces, the authors create a common scale based on system costs and the power consumed by domestic consumers, whether residential, business or industrial.
For more information contact: Grant Bishop, Associate Director, Research, C.D. Howe Institute; Blake Shaffer, Energy Policy Fellow, C.D. Howe Institute; or Nancy Schlömer, Communications Officer, C.D. Howe Institute, email: nschlomer@cdhowe.org.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.