The value of unused interregional transmission : Estimating the opportunity cost for Quebec (Canada)

Purpose – This paper aims at assessing the actual use of interregional transmission lines and the opportunity cost of unused capacity. The 13 electric power lines connecting the province of Quebec (Canada) to its neighbours (New Brunswick, New England, New York, Ontario) are analysed for the years 2006, 2007 and 2008. Design/methodology/approach – Hourly electricity transmission data from the Quebec Open Access Same‐Time Information System (OASIS) are analysed and matched with hourly market prices in New Brunswick, New England, New York and Ontario, for the years 2006, 2007 and 2008. Findings – Capacity factors of about 50 per cent are found for these lines. Although increasing from 2006 to 2008, this finding shows that interregional lines are far from being heavily congested. Furthermore, about 25 TWh of additional profitable exports could have taken place every year, given the market conditions and the availability of transmission lines. These exports represented an opportunity cost of about $1 billion per year. Research limitations/implications – Other network constraints and transaction costs could explain why these profitable transactions have not taken place. However, the lack of available energy most likely explains why exports were limited. The opportunity cost could also be overestimated by not taking into account the price impact of additional exports. Practical implications – Price regulation in Quebec (with priority given to local loads) should be reviewed to maximize economic efficiency and environmental benefits in the Northeast region. Originality/value – This is the first analysis of the use of interregional electricity transmission lines. It provides a preliminary estimate of the economic cost of not further integrating different neighbouring regions.