Although Canada is one of the biggest power users in the world — due in large part to home heating demands — it is also an energy exporter.

The country generated a whopping 585,000 gigawatt hours of electricity in 2008, which is more than enough for domestic consumption (and, incidentally, more than the total annual electricity use in India).

For many years, Canada's surplus power has been sold to the U.S. It's a profitable business for Canadian utilities — worth about $3.8 billion in 2008 — but it's limited by bottlenecks in Canada's aging transmission infrastructure.

North-south axis

More than three quarters of the electricity generated in this country comes from hydro or nuclear power, neither of which produce greenhouse gas (GHG) emissions. The U.S., on the other hand, gets close to 50 per cent of its energy from coal-fired generating stations.

The electricity business: Federal or provincial?

In Canada, the Constitution Act stipulates that electricity generation, transmission and distribution fall within provincial jurisdiction.

The federal government therefore has little to do with it, except with regard to export.

Each province’s energy export licences and quotas are issued by Canada’s National Energy Board. This independent agency, established in 1959, governs international and interprovincial trade in oil, gas and electricity.

Canada's extensive power grid offer a stable source of clean electricity for many northern states. By purchasing this energy, as opposed to building more coal plants, the U.S. is working towards its goal of reducing greenhouse gas emissions.

Most of the states along the border are connected to Canadian provinces through an extensive high-voltage system.

Canada's main customers are New England, New York, the Midwestern states and the Pacific Northwest. The provinces that export the most are Quebec, Ontario, Manitoba and British Columbia.

Most of the trade is north-south, between provinces and states, because the distances between power plants and markets in the U.S. are shorter than the east-west distances between those plants and other Canadian cities. The value of the American dollar is also an attractive factor in north-south trade.

The international trade in electricity, however, is not a one-way street.

In 2008, Canada imported 23,500 GWh from the United States. That's less than half of what it exported to that country, but it helped Canada meet periods of peak demand.

Canadian industry is also a major player in the development of new technologies and production of electricity generation and transmission equipment, including turbines, nuclear reactors and heavy machinery, which are exported all over the world.

Electricity market

Some electricity sales to the U.S. are settled in advance through fixed supply contracts between provinces and states. There are also electricity markets, where blocks of energy are traded at prices established by supply and demand.

Increasing connections

Although most of Canada's power is shipped to the U.S., a number of provinces have been working to build connections within the country.

In 2010, Quebec and Ontario completed a 1,250-megawatt line, which doubled the exchange capacity between the two.

Newfoundland and Labrador signed a $6.2 billion dollar deal with Nova Scotia to develop the hydroelectric potential of the Lower Churchill river. The plan includes more than 1,000 kilometres of new high-voltage lines and a 180 kilometre underwater cable that will connect the two provinces. Newfoundland will also use the new transmission capacity to sell excess power to the U.S.

See the map of Canada's power grid and how it connects to the U.S. system.

How do the markets work?

Electricity must be used as soon as it is generated because there is no reliable method for storing large amounts of power. Instead, utilities have to store energy that can be converted into electricity, in the form of water held behind dams, uranium rods in a reactor, natural gas in a storage tank, and so on. They bring that generating capacity online to meet periods of higher demand and avoid outages.

When demand increases and creeps towards the limit of supply, power companies can switch to backup plants, including thermal generating stations or hydroelectric plants, if they are available. Utilities can also buy megawatts from neighbouring provinces or states on the electricity spot market, where excess generation is bought and sold. Because prices fluxuate, companies will either generate or purchase based on whatever is least expensive.

Big electricity producers methodically review weather conditions and customer consumption profiles to determine the best times to sell their electricity.

"The estimates are accurate to within an hour, or even within five minutes," explains Jean-Thomas Bernard, an economics professor at Laval University and an expert on the energy market.

Buyers examine the offers that are made and choose the best one when they need extra power. "That's how market prices are created," says Bernard.

Advantage of hydropower

Because supply must always meet or exceed demand, provinces with reservoir power stations have a big advantage when it comes to exports.

The water behind a dam acts like a battery — it is a reserve for electricity producers that can be turned into power on demand by opening the floodgates when more energy is needed.

Hydroelectric dams can be shut to store energy for later use. Hydroelectric dams can be shut to store energy for later use. (Jonathan Hayward/Canadian Press)

"You can't stop and start nuclear power plants or thermal generating stations whenever you want to adjust the amount of electricity produced, nor can you adjust the wind in wind farms," says Bernard.

It is relatively easy, on the other hand, to start and stop hydroelectric plants and utilities can use this unique feature to earn profits on the export market.

Dams can be closed when the grid has an abundance of energy or when prices are low. The water will collect in the reservoir, building energy and potential revenue.

If domestic demand increases or export prices on the spot market increase, utilities will simply open the floodgates to generate power, explains Bernard.

Every year, Canadian provinces make several billion dollars in profit by using their hydropower resources this way

In 2009, for example, Hydro-Québec's net exports accounted for only 10 per cent of its total sales, but 22 per cent of net profits.

Gridlock

The electricity trade accounts for only a fraction of the value of Canadian energy exports, which are ruled by oil and gas. And in the best years, Canada's electricity exports account for only 1 or 2 per cent of total U.S. power consumption.

Canada could be making more money from the export of its excess power, but there's a stumbling block. It's not due to quotas or tariff barriers imposed by the U.S., but rather to the weak export capacity of Canada's own electrical grid.

"The transmission system was the poor child of market deregulation. We didn't reinvest in the systems, so today we have the same transmission capacity as 20 years ago," explains Bernard.

Now the key to increasing Canadian electricity exports lies in developing and expanding high-voltage lines.

In the meantime, the trade in electricity lags far behind exports of oil and natural gas, which generated fossil-fuel export revenue 23 times higher than sales of electrical power in 2008.

Net value of electricity exports to the United States, by province, 2009
Quebec $1.13 billion
Ontario $519 million
Manitoba $321 million
B.C. $289 million
N.B. $111 million
Alberta $8 million
Saskatchewan $2 million
N.S. $1 million
Nfld. and Lab. 0
P.E.I 0
All of Canada $2.38 billion
Sources: B.C. Stats and Statistics Canada