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Canada – a world energy giant now and tomorrow
Canada is a land of contrasts, producing huge volumes of oil alongside one of the world’s greenest power systems

Having installed nearly 1 GW of new wind and solar capacity last year, Canada’s deployment of renewable energy is set to jump by a record 5.6 GW in 2022. This would mark the first time the country has hit the 5 GW/yr target which the Canadian Renewable Energy Association says is necessary to meet the country’s commitment to net zero carbon by 2050.

Canada has adopted ambitious climate change targets, including complete power sector decarbonisation by 2035. However, the energy transition in Canada is both simpler and more complex than other countries, owing to its huge clean energy potential, its role as a major hydrocarbons producer and its energy relationship with the United States.

Fossil fuel output

In 2020, Canadian crude oil output was 4.04 million b/d, of which 2.84 million b/d was sourced from oil sands. Total liquid hydrocarbons production exceeded 5 million b/d. Canada thus sits among the top rank of oil producers and exporters. The country also produced 165.2 billion cubic meters of gas and almost 40 million tons of coal.

Canada’s oil sands are the largest deposit of crude oil in the world, according the Canadian Association of Petroleum Producers, but mining and processing oil sands is also one of the most carbon-intensive means of oil production. The majority of Canada’s surplus oil and gas production is currently exported to the US, where it has to compete with US shale.

“Among the cleanest in the world”

However, Canada’s electricity sector is much greener than its fossil fuel output implies. Canada has a huge renewable energy resource in its many rivers, making hydropower by far the largest souce of electricity generation in the country.

In fact, Canada, in 2020, was the third largest generator of hydropower in the world behind Brazil and China. At the end of 2020, Canada had almost 81 GW of hydro capacity.

Not only that, but Canada’s hydro capacity is far from fully developed. The International Hydropower Association’s 2021 status report cited more than 4 GW of hydro projects under construction. The technical potential for new hydro in Canada is about 160 GW, twice currently installed capacity.

Hydropower dominates Canadian power generation

in terawatt hours (TWh), Quelle: BP Statistical Review of World Energy

Green power system

The phase out of coal-fired generation is also well underway — at 35.6 TWh, coal-fired generation in 2020 was less than half that generated in 2011 – and the expansion of wind and solar is accelerating. By end-2021, installed wind capacity had reached 14,304 MW and utility-scale solar 2,399 MW.

With its high proportion of hydro power, nuclear energy and growing wind and solar sectors, Canada’s electricity generation is more than 80% low carbon, making it, in the words of the International Energy Agency, “among the cleanest in the world.”

US energy relationship

Just as Canada supplies much of its surplus oil and gas to the US, the opportunities for the export of low carbon electricity are large. Canadian electricity exports to the US reduce the carbon intensity of its southern neighbour, where the proportion of low carbon power is much lower at just under 40%.

The US and Canadian electricity grids already have an exceptionally high level of integration with around three dozen major, two-way interconnections in operation. These interconnectors, distributed from east to west, in 2020, saw the import and export of 77.3 million MWh of electricity, with the primary direction of flow being south.

Electricity trading on the rise

There are huge advantages to this integration. Canada manages its hydro reservoirs conservatively to ensure sufficient reserves are maintained to deal with years when precipitation levels are low. This also means there is surplus energy available when rainfall levels exceed utilities’ baselines.

The combination of reservoir storage and grid integration means that variable wind generation in the US, for example, can be swapped for firm Canadian hydro power.

This trade in green electricity is growing. The Appalaches-Maine Interconnector, for example, which should be complete in 2023, will supply around 10 TWh/yr of Canadian hydropower to Massachusetts and Maine. The 1.2 GW New England Clean Energy Connect transmission line, which is close to completion, with bring more hydro power from Quebec to New England.

Wind and solar potential

However, despite the low cost of wind and solar power, Canada’s installed capacity is relatively modest. Canada has been slow to accept new renewable energy technologies.

The province of Newfoundland and Labrador, for example, had a moratorium on onshore wind development in place for 15 years and only lifted it in April this year. Ontario placed a moratorium on offshore wind development in 2011, principally the result of concern over the impact of offshore wind projects in the Great Lakes area.

Yet Canada’s renewable wind and solar potential is truly vast. Despite its northerly latitude, Canada has more solar irradiance than Germany and some 28 times the land mass, yet Germany has 15 times more solar capacity installed.

For offshore wind, the Global Wind Energy Council estimates the country’s technical potential at 9,321 GW, of which 2,0139 GW would be fixed-bottom installations. Onshore, the US National Renewable Energy Laboratory’s wind maps suggest the potential is even larger. The fact is Canada could meet its electricity needs with clean power many times over.

Moreover, variable wind and solar generation can be integrated into the Canadian electricity system with relative ease, owing to the existing bulk storage capacity provided by sound hydro reservoir management and the high level of interconnection with US electricity markets.

Challenges and opportunities

Power sector decarbonisation by 2035 is an achievable goal, based on accelerating the deployment of wind, solar and hydro capacity. In contrast, the target of making the country’s oil and gas production net zero by 2050 looks a much tougher nut to crack.

Moreover, the US has now started offshore wind development in earnest. The possibility exists that a flood of clean energy generated off the US’ northeast coast could challenge Canada’s hydro exports to northern US coastal states.

Canada’s dependence on the US as a sink for its energy exports has back-fired in the past. The development of US shale oil resulted in reduced prices for Canadian oil exports and a flattening of demand, while Canadian gas exports to the US fell. Only now is Canada building its first liquified natural gas plant, LNG Canada, to diversify its gas export markets.

Canada’s hydrogen strategy: green to overtake blue

As a result, Canada is also looking to exploit the transformation opportunities offered by its ability to generate abundant clean electricity. Hydrogen may be the answer as a means to decarbonise industry, including oil and gas, and build a new sector in low carbon hydrogen exports. Canada already produces 3 million tons a year of hydrogen from natural gas and hosts the world’s largest blue hydrogen production plant.

The government issued a hydrogen strategy in 2020, which envisages a mix of hydrogen production methods, with green hydrogen production gradually exceeding blue. Indeed, some analysts predict a boom in Canada’s renewable energy sector, led by onshore wind, in the mid-2030s, driven by clean hydrogen exports to global markets beyond Canada’s traditional US base.

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