In February 2014, Canadian utility Manitoba Hydro announced a memorandum of understanding with US power co-operative Great River Energy to jointly investigate the sale of up to 600 MW of electricity from new hydropower projects.

The MOU arrives as Canada and the USA continue to step up cross-border connectivity. Is it the start of something bigger? David Cormie, Manitoba Hydro’s division manager for power sales and operations, writes about the deal and its implications.

This memorandum of understanding lays out the intention of both companies – Manitoba Hydro and Great River Energy – to study whether Manitoba Hydro’s new hydro generation fits into Great River Energy’s long-term need for new resources. The MOU follows on the other signed power sales agreements from its projects with other US utilities, Minnesota Power, Wisconsin Public Service and Xcel Energy.

Two new large hydro projects are under development in northern Manitoba, with a combined capacity of 2,200 MW. As new hydro comes in large blocks there will be a surplus of power available from these projects beyond that needed in Manitoba, that Manitoba Hydro is willing to take to market.

Great River Energy has been a long-time wholesale customer of Manitoba Hydro, with contracts going back to the early 1990s. The MOU allows the utilities to expand on this long-standing relationship.

Like other US utilities, Great River Energy is dependent on coal and natural gas generation to serve its load. As it looks to the future and makes plans for a world where emissions are further constrained, it is considering whether there is an opportunity to bring additional new Canadian hydro into its generation mix. Hydropower from Manitoba’s new projects has the advantage that it is both renewable and has price predictability and stability.

Improved interconnections

As firm hydro supplies are determined under drought conditions, large amounts of surplus energy are available during periods of normal water supply. In order to maximise the value of this surplus, Manitoba Hydro and Minnesota Power are co-operating on building a new 500 kV interconnection between Canada and the United States.

This line will enter service in 2020 coincident with the in-service date of the first new hydro station at Keeyask (695 MW). The line is being sized to deliver to market all the surplus capacity and energy that will ultimately be available once the Conawapa station (1,485 MW) is fully developed.

The existing interconnections to the US have a capability of 2,000 MW. Building the new interconnection will increase that capacity to almost 3,000 MW with the expanded capacity allowing Manitoba Hydro the ability to concentrate the delivery of surplus energy during the on-peak hours rather than in the off-peak hours.

Linking with US wind power

Manitoba is strongly linked electrically to the United States, very much like hydro-rich Sweden and Norway are connected to wind rich Denmark and Germany with high capacity transmission lines. Given Manitoba’s water storage capability, the power flows from Manitoba to the US are highly correlated to real-time market prices.

The larger that Manitoba Hydro makes the Manitoba storage battery through expanded storage and interconnections, the more benefits there will be"

When the market price is higher than the value of water in storage, hydro generation is maximised and reservoirs are drawn. When the market price is lower than the value of water in Manitoba reservoir storage, power flows can be reduced or reversed, allowing reservoirs to be refilled.

One of the factors that drive real time prices in the power market to which Manitoba Hydro is connected is the amount of wind generation that is operating.

When the wind blows, market prices are depressed. Conversely, when the wind doesn’t blow, market prices are higher. Through the real-time price signals sent by the market, wind and hydro generation become highly negatively correlated, maximising the value of both generation technologies and reducing the cost of serving load.

The larger that Manitoba Hydro makes the Manitoba storage battery through expanded storage and interconnections, the more benefits there will be, especially as the build-out of new wind projects in the mid-west USA, such as in North Dakota, continues.

The other benefits of energy trade between Canada and the USA

Canada is essentially a winter peaking system. During the winter, Canadian electrical demand peaks as heating and lighting systems kick-in. This is unlike the United States where peak loads generally occur in the summer as a result of heightened air conditioning demand. This creates an opportunity for Canadian and US utilities to swap capacity surpluses on a seasonal basis and avoid additional capacity investments.

Manitoba Hydro has several diversity arrangements with US utilities including with Great River Energy. In the summer when Manitoba demand is down, surplus Manitoba Hydro capacity is made available to meet Great River Energy’s customer demand. Conversely In the winter when Great River Energy has surplus capacity, Manitoba Hydro can rely on Great River Energy capacity to meet its peak demand.

The key to these capacity swap arrangements is having strong bidirectional transmission.

Our 2014 Hydropower Report, coming in June, will provide an overview of developments in cross-border trading between Canada and the USA.