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Barriers to investment in North American electricity infrastructure will saddle consumers with higher electricity costs

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Release Date: May 30, 2011

CALGARY, AB—North America’s electricity infrastructure needs close to $1 trillion (US) in investment over the next decade to meet the growing needs of Canada, the United States, and Mexico, according to a new report from the Fraser Institute, Canada’s leading public policy think-tank.

But unless governments remove or lower barriers that limit investment in expanded electric generation, transmission, and distribution facilities, consumers will likely see power rates jump, the report warns.

“Population and economic growth, as well as the production of new and more electricity-consuming products such as electric cars, mean that significant investment in new electric generation, transmission, and distribution infrastructure will be needed in the near future,” said Gerry Angevine, Fraser Institute senior economist and co-author of North American Electricity: Escalating Prices Possible Unless Infrastructure Investment Barriers Are Eased.

“Unfortunately, numerous obstacles to investment are hindering not only expansion of electric generation capacity throughout North America but also development of the required additional infrastructure needed to transport power from new generation sites to the end users.”

The report points out that electric generation capacity in North America is projected to increase by eight per cent, or 102,291 MW, by 2020 compared to current levels. The need to connect wind power and hydroelectric capacity being built in remote regions to consumption centers will add to investment requirements, including additional international, cross-border connections.

To ensure reliability as electricity production and consumption increases, interregional transmission connections throughout North America will need to be strengthened. The report also notes that the deployment of new smart-grid, energy efficiency, and other demand-side management technologies will mean a greater share of electricity infrastructure investment will be allocated to distribution.

North American Electricity: Escalating Prices Possible Unless Infrastructure Investment Barriers Are Eased is the third instalment in the Fraser Institute’s Continental Energy Strategy series of reports. It notes that failure to achieve the required level of investment in electricity infrastructure will lead to significant economic losses for North Americans, and that power rates will have to be adjusted (by regulators or market forces) to ration limited electricity supplies. Barriers to investment also threaten the reliability of the continental electricity system and increase the possibility of blackouts.

The study makes 12 policy recommendations to expedite investment in required electricity infrastructure across North America:

  • Reduce energy policy uncertainties and risks. Federal, state, and provincial authorities need to provide transparent and consistent policy positions and rules; they must also commit not to introduce changes to laws and regulations unless they are needed to improve electricity markets and transmission system efficiencies.
  • Privatize government-owned electricity generation and transmission facilities. Business operates to economic imperatives rather than political ones, and shareholders with a direct interest in private firms are more likely to dismiss management teams that are ineffective, than are governments.
  • Deregulate the electricity generation sector where this hasn’t yet been done. This will allow electricity to be priced by market forces, thereby providing appropriate signals to potential investors. Allowing the electric generation supply mix to be shaped by competitive forces will help to ensure that electricity supply costs (and prices) are minimized. The role of governments should be restricted to ensuring that electricity markets are competitive and function effectively and efficiently.
  • Streamline regulatory processes for electricity transmission and distribution. The time and cost of the regulatory process needs to be reduced as much as possible to help ensure that approvals are not delayed unnecessarily and that the cost of regulation is not excessive.
  • Improve efficiency of approvals for multi-jurisdictional, international cross-border electric transmission projects. Policies and processes need to be in place to ensure more efficient handling of multinational transmission line applications, as through a single-window (possibly joint panel) approach.
  • Establish clear rules for the sharing of transmission system expansion costs. Authorities must be clear about the responsibility for the cost of required transmission system expansion so that potential investors in new electric generation facilities to be located in remote areas have clear knowledge of whether and to what extent they will need to share a portion of such costs. This will remove a key element of uncertainty from investors’ decisions.
  • Establish consultative processes and mechanisms. Electricity industry advisory councils should be established to ensure that government officials and investors discuss energy policy matters. This will help ensure that plans for investment in new electric generation facilities and new or upgraded transmission systems are not de-railed by policy “shocks.”
  • Defuse land access issues. Project planners and developers must implement conflict and dispute prevention and resolution initiatives. Similar processes must be in place in situations where native land claims threaten to prevent access to land required for electricity infrastructure.
  • Streamline regulatory approval processes for nuclear plants. Joint one-window approvals processes, where a project proponent can deal with one agency rather than many for all the necessary permits, approvals, filings, etc., would eliminate unnecessary duplication, create organizational efficiencies, and speed up decisions.
  • Ensure that investment in regulated transportation infrastructure is attractive. Regulators overseeing electric transmission and distribution companies in all jurisdictions need to ensure that timely investment in such activities is sufficiently attractive and that regulated rates of return are competitive compared to competing opportunities across industries, at home and abroad.
  • Facilitate investment in merchant transmission facilities. Merchant transmission lines can help connect power from one market region or jurisdiction to another, and therefore, enhance system reliability. They also facilitate the expansion and further integration of the continental electric transmission grid, thereby increasing system reliability as well as opportunities for cross-border electricity trade.
  • Reduce environmental policy uncertainties. If carbon emissions are to be curbed, specific limits and carbon capture and storage requirements must be introduced with sufficient lead time and in sufficient detail to ensure that the affected stakeholders have adequate time to adjust their business plans.


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