Utilities North America
The Canadian, Mexican, and American electric utility sectors are all unique. Mexico, with its nationalist government, seeking to undo the reforms Mexicans had been waiting a lifetime for, is a market in turmoil, doused in uncertainty. Canada has a strong provincial government focus for its electricity generation, transmission, and distribution, but questions around monopoly situations remain the elephant in the room. The US electricity utility sector has been described as defensive and boring, despite the bankruptcy of its largest electricity utility.
CANADIAN ELECTRIC UTILITY SECTOR
- The structure of the electricity market in Canada is continually evolving. Currently, most provinces have moved from vertically integrated electric utilities to a more liberalized market where there is an unbundling of generation, transmission, and distribution.
- Traditionally the provincial setup was a Provincial Crown Utility with monopoly rights. There were also some large industrial users who had built their own electricity generation facilities. The landscape has changed, and generation, transmission, and distribution have been unbundled, becoming separate entities. In some provinces, this has seen increasing involvement from the private sector, making a more competitive environment, and a trend toward independent power producers.
- 9% of the electricity generated by Canada is exported to the US, via 34 major international transmission lines.
- In 2018 the Canadian power generation market was estimated at $24 billion. $14 billion was from local production, and around $11 billion was from imports of electricity from the US.
- The total installed electricity generation capacity is 135 GW. The market growth is likely to see this increase to 170 GW by 2035.
- In 2017, Canada generated 652.3 TWh of electricity. Hydro energy generated 60% of the total, nuclear 15%, gas and oil 10%, coal 9%, and non-hydro renewables 7%.
- Renewable resources were responsible for the generation of 67% of Canada's electricity in 2017. 82% of the electricity generated is from non-green house gas emitting sources. In 2017, Canada was the second-largest producer of hydroelectricity globally.
- Canada ranks sixth in the world generation stakes, accounting for just 3%.
- Ontario (58.6%) and New Brunswick (36.1%) are the only two provinces that use electricity generated from nuclear energy. Nova Scotia is the only province that uses electricity generated by tidal power, with 0.2% of its electricity coming from this source.
- The highest electricity user in 2016 was the industrial sector, using 44% or 738.4 PJ. Residential use was responsible for 33% of the total electrical energy usage, using 591 PJ. Commercial use accounted for 416.5 PJ or 23.3%, while agriculture and transportation rounded out the list with 2.2%.
- There is some variation in usage between the Canadian provinces, with Quebec consuming 35% of the total electrical energy usage. Ontario was in second place, consuming 27%. British Columbia and the territories consumed 12%, Alberta 11%, the Atlantic provinces 7%, and Saskatchewan and Manitoba 4% each.
- The means of producing electricity and the distribution infrastructure varies between the provinces. So too does the price of electricity.
- The highest residential pricing was seen in Charlottetown, where they paid 19.25 cents per kWh. Montreal paid the least, paying just 8.2 cents per kWh.
- Halifax was home to the highest industrial pricing at 11.80 cents per kWh, while industrial pricing in Winnipeg is the lowest in Canada at 4.99 cents per kWh.
- The interests of the electricity industry are represented by the Canadian Electricity Association, independent producers societies that are provincially focused, and source-specific associations like the Canadian Hydropower Association.
- Research and development and the commercialization of new technologies fall primarily within the realm of the Federal government. The National Energy Board has jurisdiction over electricity exports and inter provincial and international power lines.
- Nuclear energy has its own set of players with the Canadian Nuclear Safety Authority regulating the use of nuclear energy and health and safety procedures and Atomic Energy of Canada involved in research and development.
- In the majority of provinces, the government is the owner of the leading electricity company. These provinces include British Columbia, Saskatchewan, Manitoba, New Brunswick, Newfoundland, and Quebec. The governments are attempting to advance their energy policies through their ownership of the electricity companies, with the net result being there is little competition at retail or wholesale levels.
- The leading electricity utility companies in Canada, based on market share, in 2016 were Hydro Quebec (28%), Ontario Power Corporation (13%), BC Hydro (9%), Bruce Power (7%), and TransAlta (7%).
MEXICIAN ELECTRIC UTILITY SECTOR
- There is only one supplier of electricity in Mexico, the Comision Federal de Electricidad (CFE). The CFE pulls the energy from four subsidiary companies that were previously operated by the CFE. Centro Nacional de Control de Energía (CENCE) operates the grid as an independent contractor.
- The Mexican electricity market experienced some upheaval when the Mexican Energy Reform came into force in 2016. The reform opened the market up to private companies to expand, advance, and modernize the electricity infrastructure in Mexico. As part of the reform, medium and long-term distribution auctions were planned in the wholesale market. Several options for electricity generation and a move toward clean resources were also introduced.
- The first long-term auction to develop 1.8 gigawatts of wind and solar electricity saw eleven companies pay an average contract price of $45 per megawatt/hour. Three auctions, in all, took place up until 2018.
- Unfortunately, the process of reform has not been smooth sailing. President Obrador's nationalist government is stalling. Auctions for wind and solar energy generation have been canceled, and there are fears that the reforms have been either delayed or frozen by new government policy.
- In December 2019, plans were being made to ensure power generation was consolidated in the State's hands. The plans include the removal of investment incentives and an increase in transmission costs, which would render many projects economically unviable.
- The distribution and pricing of electricity in Mexico are determined by base, intermediate, and peak times over the day, based on regional demand. Typically, there are a range of different prices across Mexico with prices averaging $48-60 MWh. Border towns have been known to have prices as low as $23 MWh, while tourist destinations like Baja California can have prices in excess of $60 MWh.
- Prices generally rise over the summer months as demand increases.
- Consumption increased by 4.6% per year from 2000 -2010. Since then, there has been an average increase of 1.6% per year. In 2018, electricity consumption increased by 2.1%. The per capita electricity consumption in 2018 was 2,100 KWh.
- Industry accounts for 55% of the electricity consumption, while households account for 22%. Only 1% of the population is not connected to the grid.
- As stated on its website, the Comision Federal de Electricidad (CFE) "aims to develop business, economic, industrial, and commercial activities in terms of its purpose, generating economic value and profitability for the Mexican State as its owner." Perhaps contrary to the current environment, the CFE also guarantees open access to the national grid. Part CFE's role is to improve productivity and minimize the cost of electricity for the benefit of the people and the competition. Currently, the CFE is $19 billion in debt.
- Centro Nacional de Control de Energía (CENCE) is a former sub unit of the CFE that was decentralized, is now an independent contractor that has operational control over the Mexican grid. They are also responsible for ensuring impartiality in access to the grid and other distribution networks. Formulating the expansion and modernization of the national grid fall under the responsibility of CENCE.
- Independent Generators pay a fee to CFE to use the transmission network while supplying electricity to private companies pursuant to commercial contracts. With CFE increasingly looking to move the goalposts and increase the transmission fee the independent generators pay, many of these generators could see their investments rendered unviable and their private contracts eliminated.
Future of Electricity Market in Mexico
- Since President Obrador came into office in 2018, his government has promoted its agenda around energy policy. The results have limited the opportunity for investment by private companies
- The regulatory commission has had it's budget cut 30%. Auctions for generation rights have been canceled, as have tender rights for all verticals in the electricity industry. There are increasing concerns that the clean energy certificates and financial transmission rights, created under the reforms, days may be numbered.
- The government is looking to push a state-centric model onto the industry. It is unlikely the market created by the reforms will be totally dismantled, but it is unclear what the electricity market in Mexico will look like in the future.
- The government has announced $1.8 billion in funding for the NFE's much-needed upgrade of power generating fleet. This is a 200% increase in the budget and represents 8% of the total utility budget. Notwithstanding this, it will not cover the upgrade required to lift Mexico to the next level. The national grid development plan requires $6 billion annually for the diversification of electricity sources, which is still not funded.
- Mexico has a goal of generating 35% of its total power output using clean sources by 2024. In February 2009, Mexico was generating just under 18% of its total power from clean sources. Given the current backdrop, this goal is looking increasingly unlikely.
US ELECTRIC UTILITY SECTOR
- The US ranks second to China in the world generation rankings, producing 17% of the total electricity produced worldwide in 2016. China produces 25%.
- The total electricity generated in the US in 2018 was 4178 billion kWh. They exported 13.8 TWh and imported 58.26 TWh.
- There are three different types of electric utility companies in the US. 168 investor-owned companies serve 110 million Americans. The two largest investor-owned companies are California Pacific Gas and Electric, which has a customer base of 5.48 million customers and Southern California Edison Company at 5.07 million.
- Publicly owned utilities make up a further 1,958 companies, serving 24 million customers. The two largest publicly owned companies are Puerto Rico Electric Power Authority, with 1.47 million customers and the Los Angeles Department of Water and Power with 1.43 million customers.
- The third type of electric utilities are co-operatives, non-profit member-owned utilities. A good portion of co-operatives are located in the Midwest and Southwest. 812 co-operatives are serving 20 million customers. Pedernales Electric Co-op, in Johnson City, Texas, is the largest co-operative with 333,809 customers.
- Natural gas was the source that was most commonly used to generate electricity in the US, generating 44% of US electricity. Over the last few years, wind and solar energy have been trending upwards, and in 2019 accounted for 12% of electricity.
- Hydroelectricity accounted for 22% of the electricity generated, beating coal for the first time.
- The Clean Power Plan was an initiative by the Obama administration. Its purpose was to reduce the carbon emissions produced by power plants in a meaningful way. Standards were introduced for power plants and customized goals for states to reduce carbon emissions, but at the same time maintain electricity reliability and affordability.
- A reasonable transition period made the plan more palatable for the power plants, with the plan not coming into full force until 2030, by which time carbon pollution levels from the electricity are expected to be 32% less than the 2005 levels.
- With a new administration in the White House, the Federal government is increasingly looking for ways to roll back a range of environmental initiatives, including the Clean Power Plan. Interestingly, states are not on board with this, instead reaffirming their support for clean energy. Power companies are increasingly seeing the opportunity that comes with a consumer preference toward clean energy.
- In January 2019, the largest electricity utility company in the US, Pacific Gas and Electric, filed for bankruptcy. They had $71.39 billion in assets and $51.69 billion in liabilities.
- Pacific Gas and Electric's filing for bankruptcy is not a reflection of the electric utility sector but brought about primarily because of liabilities associated with the Californian wildfires. Most analysts consider the US electric utility sector to be "defensive and boring."
- The size of the US electric utility market is estimated to be $932 billion in 2020. This is based on revenue.
- The market is forecast to experience a growth of 2.6% throughout 2020. The average growth from 2015-2020 was 1.3% per year.
- The average US household uses 908 kWh of electricity each month. The average cost of this electricity is 12 cents per kWh.
- Hawaii consumers pay the most at 33 cents per kWh. Unfortunately, Hawaii has to pay a high price for the crude oil it uses to generate its electricity. Those in Iowa pay the least for their electricity, 8 cents per kWh. The state does not have to pay the high fuel costs that other states have to generating most of its electricity requirement from hydroelectric dams.