14.2 Costs of electrifying Canada’s primary energy supply


Net costs associated with deep electrification of Canada’s primary energy sector were calculated for three net-zero scenarios (NZ60, NZ50 and NZ45) and two baseline scenarios (REF, CP30). While baseline scenarios are not projected to generate annual savings in the next decades, all three net-zero scenarios suggest annual net savings may be possible from 2050 onwards (Figure 14.1). Estimates show that annual costs could reach up to $43 billion for baseline scenarios by 2060, while net-zero scenarios are projected to generate annual net savings as high as $78 billion.

This assessment includes the costs of investments in new electricity generation, transmission and storage, and change in fossil fuel expenditures. It does not include expenses associated with new infrastructures, such as charging stations or catenaries, or new equipment, such as heat-pumps and electric vehicles (e.g., Kayser-Bril et al. 2021). Although part of the savings will be used to cover these additional expenses, in many cases these transformations may be cost-neutral or cost-saving as markets drive lower costs for electric technologies. Appendix D details the investment costs taken into account in this assessment.

14.2.1 Results and discussion

Annual electrification investment costs (capacity, transmission and storage) and fossil fuel expenditures are calculated for all scenarios. Table 14.1 shows the annualized electrification investment costs and the change in annual fuel expenditures relative to 2016 figures. The investment costs are the amount to be spent annually during a given period to attain the carbon emission objectives of a given scenario. The change in annual fuel expenditures refers to the difference in the amount spent on fossil fuels between the lower bound year of each period and 2016.

Cost projections for baseline scenarios suggest Canada’s fuel expenditures will continue to rise, reaching $4.9–$29.2 billion annually in 2030–2060, while electrification investment costs will decrease over time. Net-zero scenarios suggest larger initial investments in capacity, transmission and storage compared to REF and CP30, reaching $14.4–$47.7 billion annually in 2030–2060. This result is also observed in the Energy PATHWAYS model’s findings for the U.S., which indicated that unprecedented investments in new infrastructure would be needed to achieve long-term low-cost outcomes (Larson et al., 2020). Net-zero scenarios suggest savings from avoided fossil fuel expenditures between $3.1 and $77.7 billion annually can be achieved from 2030 onwards.

Table 14.1 – Annual electrification investment costs and fossil fuel expenditures ($ billion) #

Note: Positive numbers indicate cost increases and negative numbers indicate cost savings.

For each scenario, net annual costs were reached by the sum of costs incurred from investments in new electricity capacity, transmission, and storage and the expenditures incurred from the replacement of fossil fuels with other energy modes (Figure 14.1). We refer to these costs as net costs since they take into account the change in annual fossil fuel expenditures, that is, savings in the net-zero scenarios. REF and CP30 scenarios suggest net annual costs will rise in the next decades due to increasing fuel consumption. The negative value for annual electricity costs in the REF scenario during the 2050–2060 period indicates savings due to a reduction in fossil fuel electricity generation capacity that will not have to be replaced. 

Net-zero scenarios suggest that savings from changes in fossil fuel consumption gain importance and significantly outpace investment costs from 2050 onwards. When comparing investments in electricity across net-zero scenarios, investment costs in NZ45 are higher in 2016–2030, while NZ50 costs are higher in 2030–2050, and NZ60 costs are higher in 2050–2060. These scenarios show net annual savings after 2050 due to avoided fossil fuel consumption and heavy investments in electricity capacity, transmission and storage in the first decades. This result may also imply that early spending in electricity infrastructure could result in earlier savings from fossil fuel, as the bulk of infrastructure spending occurs closer to projected net-zero achievement.

Figure 14.1 – Net annual costs #

Note: Negative values indicate net annual savings

Net annual costs range between 0.2% and 1.9% of GDP for all scenarios (Table 14.2). REF and CP30 suggest increasing cost ratios owing to greater consumption of fossil fuels over the next decades, reaching 1.9% of GDP in 2060. Investments in new electricity infrastructure in net-zero scenarios lead to cost ratios between 0.3 and 1.5 % of GDP until 2050, similarly to results from the European Union’s and Germany’s (Andor et al., 2017; Unnerstall, 2017) net zero pathways (D’Aprile et al., 2020). From 2050 onwards, net-zero scenarios show savings ratios reaching 0.5%–3.4% of GDP.

Table 14.2 – Net annual cost (% of GDP) #

Note: Negative values indicate net annual savings

14.2.2 Sensitivity analysis

Some investment costs assumptions adopted in the methodology are subject to variability and uncertainty. For instance, costs of new wind and solar capacity are expected to decrease over the next decades (IEA. 2020a). Fortunately, this supports our conclusions, as lower capacity costs for renewables imply that initial costs in electricity capacity would be lower in all net-zero scenarios. The same argument can be made for energy storage. Technological advancements will very likely reduce storage infrastructure costs (BloombergNEF, 2020).

However, some changes in the assumptions could alter results non-trivially. One such assumption is the price of combustibles used in our calculations. Because fossil fuels are commodities that are subject to global market volatility, it is difficult to accurately predict the prices of coal, natural gas and oil in the next few decades. Lower fossil fuel prices in the future would change the fuel savings calculated in this study. Transmission costs are also uncertain as projected high voltage power lines for Canada depend on several policy choices (Rodríguez-Sarasty et al., 2021). 

To mitigate the price uncertainty of fossil fuels and means of transmission, a sensitivity analysis was carried out, considering fossil fuel prices be half their baseline price and transmission lines twice as expensive per kilometre. The results from the model with the modified fuel prices and transmission costs suggest that savings from avoided fossil fuels in net-zero scenarios are much smaller (Table 14.3).

Table 14.3 – Annual electrification investment costs and fossil fuel expenditures ($ billion) – sensitivity analysis #

Note: Positive numbers indicate cost increases and negative numbers indicate cost savings.

Annual costs show that uncertainty respecting fossil fuel prices or cost overruns in building long-distance power lines would not change the overall outcome of net-zero transitions (Figure 14.2). Lower net annual costs in REF and CP30 are due to lower avoided costs with fossil fuels. Net-zero scenarios still present net annual savings from 2050 onwards, with NZ60 showing net annual savings later than NZ50 and NZ45.

Figure 14.2 – Net annual costs ($ billion) – sensitivity analysis #