Huge investments are anticipated for Canada’s decarbonization effort over the next two decades, much of which will be focused on the electricity sector. Both the efficiency and effectiveness of this investment will depend on the quality of the associated planning processes which control much of the development, mostly at the provincial level.
Ontario, as a case in point, will need to find $400 billion for new and updated electricity infrastructure over the next 26 years, according to a recent report from the Independent Electricity System Operator (IESO). This eye-popping figure is the estimated cost of decarbonizing the power system, and expanding it so electricity can be used to help replace fossil fuels, in order to meet 2050 climate targets. Unless financial prudence and environmental effectiveness are baked into the plan, the entire initiative could go off course.
The precise amount is subject to debate. However, the basic facts have been known for some time. Susanna Zagar, the CEO of the Ontario Energy Board, said in 2021 that, “major investments must be made in our grid to ensure we have access to affordable, reliable and sustainable power, now and in the future.” She underlined the point saying, “The energy transition is real. Public policy has moved from questioning ‘why’ there is a need for energy transition, to ‘how’ we are going to make it happen.”
She is undoubtedly right, but there is much to unpack and examine about exactly how Ontario and other provinces will manage the transition to Net Zero.
The $400 billion estimate was released by the IESO on December 15, 2022, as part of its report entitled “Pathways to Decarbonization.” This landmark statement has prompted energy experts to update their calculations and revisit their own long term planning. A wider rethink may be coming.
The IESO’s assessment has profound social and economic implications. For starters, to avoid fractious polarization, any sensible approach to decarbonization will likely need to ensure environmental measures are consistently and visibly tied together with economic benefits. It would be prudent to require rigorous systems of accountability for all dollars spent. Because energy projects tend to be site-specific, the chosen solutions won’t affect all people equally and they won’t affect all regions equally. Special consideration may therefore be needed to recognize some of the potential inequities.
To reckon with these challenges, policy makers will need to encourage open dialogues across Canada, often with a largely provincial focus, on a suite of related issues. Attention will need to be paid to when long-term energy costs should be recognized, how they should be paid for, the anticipated impact of corporate environmental, social and governance (ESG) practices, and crucially, how to ensure economic competitiveness is maintained as part of the overall result. Canada’s new Electricity Advisory Council will likely tackle some of these questions, but more assistance will be needed.
There are many different ways to get decarbonization done and a wide range of affected parties who will need to work together. That’s why the challenge is largely a question of planning.
Reducing uncertainty is critical during times like these, and it’s the first and foremost reason for planning.
Considering Canada’s federal-provincial structure, a prudent approach would be to ensure that robust province-wide energy planning systems are in place, and to build out further planning systems locally and nationally from there. Such a planning framework could help to make sure expenditures are no higher than necessary, that they likely to be effective at achieving decarbonization, and that they are well co-ordinated with other anticipated spending. Transparent metrics can be used to track progress against targets, and support accountability. Successively updated plans can help to ensure that everyone involved knows what’s coming and what will be expected of them.
A robust and effective long term energy plan would say what the province believes the priorities of the leading players should be when rebuilding the energy system, and define the responsibilities the key parties will have in ensuring success. It would set out timelines for achieving certain goals, and methods for evaluation. It would foster the kind of public discussion that’s needed to prepare the public (mostly consumers) for the potentially hefty costs ahead. It would integrate electricity planning with other kinds of energy planning, and possibly with other kinds of infrastructure planning.
When you know you are going to spend $400 billion, give or take, you have a lot of reason to make sure the money is well spent, targeted to achieve shared priorities, and subject to regular tests of prudence.
The appropriate role of government in planning
Ontario does not have a long term energy plan recognizing its present conditions. This is a little surprising because Long Term Energy Plans were part of the woodwork until only a few years ago. Formal long term energy plans were produced in 2011, 2014 and 2017. Integrated Power System Planning was in place before that.
However, in early 2021, when the next plan was due, the Ontario government actually revoked the requirement in the province’s Electricity Act that required the preparation of a Long Term Energy Plan every three years.
We are already seeing significant procurements starting in Ontario without the benefit of a current long term provincial energy plan. Are they consistent with the rest of the energy strategy? Without a current plan or related metrics, it’s hard to know.
Soon after revoking the planning requirement in 2021, the Ontario government initiated a public consultation on the energy planning framework. As part of that process a new body was set up, the Electrification and Energy Transition Panel. The results of the panel’s work are expected by the end of this year. However the panel will not produce a plan, only recommendations. The Ontario government will once again face key questions on how to structure the planning framework. For example, what level of planning rigor will be expected, what kind of reviews and approvals will be required, and how frequent the plans should be.
At the same time, it’s possible that the most important factor will be the relationship between the planning process and the political process. What is the best way for governments to have periodic input to the plan, and how insulated should the plan be from fundamental changes by future governments? Many jurisdictions approach this in part by delegating the authority to review and approve plans to an expert regulator that operates largely independent of government.
If Ontario wants to avoid another situation where it goes for more than half a decade without updating its plan or its planning timeline, it may want to consider moves like these that help to clarify the appropriate role of government in relation to planning.
The time has come for closer attention to establishing a robust and stable planning framework, especially now that the massive scale of the pending choices has become clear.
Key elements already in place
In the absence of a current provincial energy plan in Ontario, the IESO has carried on producing some of the key resources required to support planning. It releases forecasts, and important documents such as the Annual Planning Outlook. But these documents, useful as they are, do not equal a robust plan capable of minimizing uncertainty costs and ensuring efficiency in decarbonization efforts.
Local Distribution Companies (LDCs) faithfully file plans for review by the Ontario Energy Board. Each of Ontario’s 21 sub-regions have a periodic regional planning process. Many of these regional processes have grown into significant and productive local planning exercises. Hydro One, the IESO, and other regulated energy companies file annual business plans, which also produce important planning information.
Unfortunately, there is no system that pulls all the parallel energy planning processes together. Part of the reason these diverse processes don’t equate to an integrated plan is that it could be problematic if LDCs, the regulator, or the system operator were to comment on high level planning choices that would be more appropriately made by the elected government in the public interest, such as decisions that would impact economic development or sustainability.
If you anticipate spending any amount with 11 zeros in it, it only makes sense to find a good pair of glasses, identify your top priorities, design effective prudency checks, and figure out who should do what by when. Planning has rarely if ever been more relevant.
During an era when the federal government is poised to introduce regulations that could require major changes in power grids, provincial level energy plans could provide critical forward visibility and help to avert unintended consequences.
Adding up the impacts
To be clear, the IESO’s $400 billion estimate is not purely government spending. It is an estimate of all costs that will be required, whether they are incurred by the private sector, regulated utilities, or government. However, 100 per cent of these costs are expected to be recovered from Ontarians, and they are all subject to planning decisions of government. Comparable figures likely apply in other provinces.
The technical planning work being done by the IESO and the LDCs in Ontario is an excellent baseline, but only government can reduce the uncertainty that exists at higher levels and thereby reduce the ultimate cost.
There may be an unexpected financial bonus to reinvigorating provincial energy planning. The Ontario government is currently spending more than $5 billion per year subsidizing electricity prices. The same province-wide energy planning discussion could look at how to ensure taxpayers are getting the maximum value from those expenditures, and possibly come up with ideas on how to use those funds differently. Could some of that money be refocused or better used to help meet some of the province’s other long term challenges?
The scale of the IESO’s $400 billion estimate underlines how urgent and consequential the revival and re-tasking of the long term energy planning process in Ontario is. If decarbonization is to be achieved on time and without costing more than necessary, these kinds of public priorities will need to be built into the plans from day one.
It has never been more important to try to make sure the next round of investment is efficient and consistent with shared public objectives.
Jake Brooks is an energy consultant who served as executive director of the Association of Power Producers of Ontario for many years.
Featured image: Renewed clarity is needed: With new de-carbonization technology entering the market and major investments expected, the value of proactive energy planning is likely at an all-time high. (Credit: iStock.)