I wrote this piece with my friend Denis Chartrand as a companion document for my CEA presentation back in February 2018 (See http://benoit.marcoux.ca/blog/cea-tigers-den-workshop/) but I now realize that I never published it. So, here it is!
Canada Electricity Industry 2030 20180221
In 2015, China became world’s largest producer of photovoltaic power, and this is clearly a policy enshrined in the 13th five-year plan (2016-2020).[i] This plan calls to increase installed wind power capacity to 210 GW and solar PV capacity to 105 GW by 2020 – about a third more than in 2016, although developers’ enthusiasm means that the solar PV 2020 objective will be achieved in 2018, given 34 GW added in 2016 and 54 GW in 2017 – more than the rest of the world combined. To put this 54 GW in context, it is a third more that the nameplate capacity of the electricity producers in the province of Québec.[ii] However, contrary to what happened in Europe, China’s policy followed the initial price reduction in wind and solar power. If Europe lit the renewable fire some time ago, China now fuels it.
Figure 1 The growth of wind and solar PV capacity saw Europe leading in early years, but China is now the main source of growth.[iii]
China now dominates new installed capacity for wind and solar PV, and this keen interest is enshrined in its 5-year plans – China will continue to have the largest share for years to come.
You may have noticed how small wind and solar PV capacities are in Canada in comparison to the rest of the world – just 12 GW for wind and 3 GW for solar PV, and barely visible in Figure 3. Canada is a small player for wind and solar PV. The rest of the world adds as much wind and solar PV capacity per year as the entire electricity generation capacity currently installed in Canada, all sources combined.
While new generation capacity from wind and solar is being installed at an increasing rate, investments have been essentially flat since 2011, compressed by dropping unit costs:[iv]
Figure 2 While new generation capacity from wind and solar is being installed at an increasing rate, investments have been essentially flat since 2011.
With lower unit costs per MW, developers can install more capacity for a given investment. This phenomenon can be expected if wind and solar technologies follow a pattern like Moore’s Law – we are not paying more for a computer than we did years ago, we are just getting more for the same price (or even lower price).
This flat 2011-2017 trend also masks major difference across the world: China’s new wind and solar investments went from $42B in 2011 to $123B in 2017 – almost half of global investments. Conversely, European investments went down in the same period, while North America was relatively flat. Canada’s investments in 2017 were a modest $3B.
The domination of Chinese investments is even greater when one considers China foreign investments in clean energy. China being already the largest market for renewable energy, it is developing the renewable sector internationally, aiming to be a leader along the entire value chain. China’s Belt and Road Initiative (BRI) is driving Chinese energy investments overseas. The initiative already has driven solar equipment exports of U.S.$8 billion.[v] China is not content to be a manufacturer and it is also looking for opportunities to develop Engineering, Procurement and Construction (EPC) standards that it can apply internationally, plus operating credentials. China is building corporate giants to fulfill those ambitions, such as Shenhua Group, now the largest wind developer in the world, with 33 GW of capacity.[vi] In 2016, Xinjiang Goldwind ranked 3rd for onshore and also 3rd for offshore wind turbine manufacturing[vii]. China has become the number one exporter of environmental goods and services, overtaking the U.S. and Germany.
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[i] See https://www.iea.org/policiesandmeasures/pams/china/name-161254-en.php and https://translate.google.com/translate?hl=en&sl=auto&tl=en&u=http%3A%2F%2Fwww.nea.gov.cn%2F2016-12%2F19%2Fc_135916140.htm, accessed on 20180116.
[ii] Statistics Canada. Table 127-0009 – Installed generating capacity, by class of electricity producer, annual (kilowatts), http://www5.statcan.gc.ca/cansim/a47, accessed 20180131. In 2015, public electricity producers in Québec had an installed generating capacity of 37 GW, while privates ones has 3 GW.
[iii] IRENA (2017), Renewable Energy Statistics 2017, The International Renewable Energy Agency, Abu Dhabi, with estimates based on Bloomberg New Energy Finance for 2017.
[iv] Clean Energy Investment Trends, Abraham Louw, Bloomberg New energy Finance, January 16, 2018.
[v] China 2017 Review, Institute for Energy Economics and Financial Analysis (IFEEA), p. 2.
[vi] https://www.reuters.com/article/us-china-power-shenhua-guodian-factbox/factbox-shenhua-and-guodian-chinas-latest-state-marriage-idUSKCN1B918I, accessed 20180118.
[vii] https://about.bnef.com/blog/vestas-reclaims-top-spot-annual-ranking-wind-turbine-makers/, accessed 20180118.
Now is a time of innovation in the electric industry, like no other since Thomas Edison.
Now is the time when wealth can be created as we use our resources and our brains to ensure a resilient and sustainable energy future for all.
Potential wealth creation stems from the fundamental changes occurring in the electricity sector:
Innovation and wealth creation opportunities are everywhere in this context. Technical innovation is what drives the decreasing costs of renewable sources for energy users. Vendors need to invent new commercial solutions to balance the new distributed grid and ensure that customers stay powered up. Increasing energy efficiency means that we can do more with less. Utilities and entrepreneurs adopt new business models to better serve customer segments. In particular, utilities, previously defined by their geographic territories, are morphing into energy service providers, often competing with offerings from new entrants, or even competing with each other like never before, driving cost down for Canadian consumers and businesses. The digitalization of the electrical grid creates large quantities of data that new software applications can leverage to increase efficiency and create commercial opportunities. Canadian customers, now with the power of choice, can no longer be taken for granted and demand more.
What is even more dramatic is that the changes affecting the electric industry are shaking a pillar of the Canadian economy. The electric industry touches every home and business in Canada and reliable power is an essential ingredient for the competitiveness of our economy. Electric power generation, transmission and distribution utilities contribute almost $30 billion to the Canadian economy, with electrical equipment manufacturers contributing another $4 billion. This industry employs over 100,000 Canadians, but the Conference Board has estimated that 156,000 workers will be needed to carry out the renewal of Canada’s electricity infrastructure. Canada’s net exports of electricity and electrical products amount to billions of dollars every year. The Canadian electricity system is in need of massive infrastructure renewal. The Conference Board of Canada estimates that by 2030, close to $350 billion in new investment will be required just to maintain existing electricity capacity, with most of Canada’s non-hydro assets needing renewal or replacement by 2050. The importance of the electric industry scales up the potential of wealth creation, but also underlines the perils that we are facing: should the Canadian electric industry fail to renew itself for the challenges of the 21st century, the entire economy of Canada would suffer, with foreign service providers taking control and energy exports dwindling.
In conclusion, accelerating the transformation of the Canadian electric industry is essential. In an industry traditionally defined by centralized generation and rigid geographic boundaries between utilities, new linkages need to occur: utilities and customers, vendors and entrepreneurs, cities and businesses, ensuring that all see the opportunities that didn’t exist before and have the support they need to get their ideas to market quickly. The transformation of the electric industry will ensure that Canadians benefit from the billions of dollars to be invested in the electricity system. The structure of the industry will emerge transformed, with Canadian-owned service providers offering novel energy solutions, backed by a web of hardware, software, and professional service vendors. This will increase the opportunities for Canadians to export their energy, their expertise, and the fruit of their labor.