On October 16, 2024, the IESO released its 2025 Demand Forecast as a part of its Annual Planning Outlook (APO) process. The forecast covers 2025-2050 and has been released in advance of the full APO, which includes a resource adequacy assessment, supply scenario and transmission analysis. The IESO expects to release the full APO in the first quarter of 2025. The IESO demand forecast is an essential input for stakeholders interested in energy infrastructure planning, investments, and policy development in Ontario’s energy sector.
The IESO is once again increasing its demand forecast and now anticipates that electricity demand will grow by approximately 75% by 2050, when compared to today. The new demand forecast shows a 15% increase in demand relative to the forecast released by the IESO in March 2024.
The IESO continues to expect Ontario will be a “dual peaking” jurisdiction by the 2030s – meaning both winter and summer demand will largely be the same whereas Ontario is currently summer-peaking. The IESO expects demand to grow to around 27 GW by the early 2030s, up from around 23 GW today.
The key drivers for demand growth are:
While large loads, electrification and industrial decarbonization initiatives put upward pressure on demand, the IESO has also forecasted areduction in demand from the agricultural sector, as the cost to connect is becoming an impediment to customers. Additionally, the province has signalled an increased commitment to energy efficiency programming and funding.
The new demand forecast highlights uncertainties regarding the realization of large industrial projects (data centers, EV production), as well as economic conditions, demographic trends, and technology adoption for electrification. Climate change and policy changes are also noted as factors that could impact the shape of the demand forecast going forward.
Commentary
Relative to today, the latest demand forecast – which expects a 75% increase by 2050 – presents significant opportunities and risks for customers, investors, Local Distribution Companies (LDCs), energy efficiency vendors and Demand Response providers. With such dramatic demand growth, understanding the key drivers is essential for assessing investment potential. The expected surge in demand will also bring significant responsibility to Ontario’s LDCs, whose role in maintaining the distribution system and accommodating the connection of new electricity loads will be critical to Ontario’s energy transition.
Growth Drivers
Electrification and industrial decarbonization initiatives, which are largely driving the increase in demand, are creating clear investment opportunities in areas such as EV infrastructure, battery storage, and energy solutions tailored for data centers. Additionally, the forecast places a spotlight on large industrial projects, particularly in the EV supply chain and data center sectors. For seeking to invest in Ontario, will be keen to understand the certainty and timelines of these “large step loads” as they could unlock substantial opportunities in energy generation and grid expansion.
Electrification of transportation and residential space heating and cooling is another critical driver in the forecast, with increasing demand for critical infrastructure both on the transmission and distribution systems. For LDCs, this presents both a challenge and an opportunity to expand their infrastructure and adopt innovative solutions to meet the growing demand. For solution providers, this represents a chance to engage in projects that support LDCs in this transition. For example, several Ontario LDCs are exploring innovative, new approaches which leverage the flexibility of loads and distributed energy resources (DERs) to support the connection of customers, including new functions as Distribution System Operators (DSOs). The ability of LDCs to leverage demand-side resources to meet local needs as well as bulk and regional transmission system needs will be critical to successfully navigating the energy transition. While large, transmission-connected resources will be needed to meet long-term needs, the ability to successfully connect and energize these projects will be challenging. Demand-side resources can be implemented quicker and targeted to areas that become acutely constrained in the near-term.
Electricity Supply and Generation
To meet the forecasted demand, Ontario will need significant new electricity generation as well as capacity resources (e.g., energy storage). It will be important to monitor the procurement targets and the types of energy being prioritized by either the IESO or the provincial government. Whether through more nuclear, renewables, or storage solutions, the need for electricity generation presents a broad spectrum of investment opportunities. At the same time, the rapid demand growth will require Ontario to maintain and enhance existing supply resources, including the continued need for gas-fired generation in Ontario to meet operability requirements. Power Advisory expects the IESO will need to accelerate their procurement activities. At the same time, Power Advisory expects the need for parallel processes to meet specific customer and system needs. This could include the support of Corporate Renewable Power Purchase Agreements (PPAs) which have been considered by the government over the past year.
Notably, a significant challenge for the IESO will be to adequately and affordably supply the demand for electricity at the pace it is forecasted to grow. Noting pressure from the Minister, “Our economic needs are coming in, and Minister Fedeli, the Premier and others involved in the government are very committed to seeing that growth take hold without any impediment.”
Energy Market Trends and PricingDemand grows coupled with the integration of more renewable resources in Ontario, will have an impact on electricity pricing impacting investment opportunities, return expectations and risk mitigation strategies. Changes in wholesale electricity prices or procurement strategies could influence how investors approach generation, transmission, or storage projects and investments. Additionally, the introduction of the Market Renewal Program (MRP), scheduled to go-live on May 1st, 2025, creates additional complexity for those looking to invest in Ontario’s electricity future.
Regulatory and Policy Landscape
Ontario’s regulatory environment will be a focal point for clients, particularly any forthcoming changes in renewable energy incentives or carbon pricing. The role of public-private partnerships (PPPs) and the permitting processes for energy projects are also critical factors that will influence investment decisions. The timelines and risks associated with project approvals can significantly affect the feasibility of energy investments. For example, Invest Ontario, the government agency tasked with attracting new industrial and commercial loads, flagged the connection process and cost allocation as a major issue to be addressed during a presentation to the IESO’s Stakeholder Advisory Committee (SAC) this past month. Further, the IESO has also indicated that the agricultural demand has decreased much in part due to high connection costs.
Investors will also pay close attention to Ontario’s commitment to energy transition and how it aligns with global trends in sustainable investing, particularly in meeting ESG goals. Opportunities in renewable energy and energy efficiency initiatives will attract those focused on sustainable returns, and LDCs will be crucial partners in executing these initiatives on a local level.
Risks and Uncertainties
While the opportunities are growing, stakeholders must also consider the risks of significant demand growth. The materialization of large industrial projects, such as those in the EV supply chain or data centers, is a key uncertainty. Delays or cancellations could alter demand forecasts and affect the returns on infrastructure investments (i.e. increase the risk of stranded assets).
Economic conditions in Ontario, including investment trends in key sectors like manufacturing, agriculture, and mining, will also impact electricity demand. LDCs will need to be agile in adapting their infrastructure to fluctuating demand levels, while the sector should remain cautious about economic shifts that could affect the energy market.
Additionally, technological and climate-related uncertainties—such as the adoption of electrification technologies and the impact of extreme weather events on electricity demand—could present operational challenges both for the IESO and the LDCs. When considering investing in Ontario, these risks need to be factored in when evaluating the long-term viability of energy infrastructure projects.
Opportunities in Energy Efficiency and Innovation
On October 4, 2024, the Ministry of Energy posted its 2025-2036 Electricity Energy Framework proposal on the province’s Environmental Registry of Ontario (ERO). For more information on the new framework please see "Addressing Ontario's Supply Gap with a New Energy Efficiency Framework”.
Energy efficiency programs, like the Industrial Conservation Initiative and the Peak Perks program, are highlighted in the forecast. These initiatives present opportunities to invest in energy efficiency technologies and DERs that can reduce demand and enhance grid resilience.
For LDCs, these programs present opportunities to implement demand-side management tools that can reduce strain on local grids. Investors can support these initiatives by providing capital for smart grid technologies and distributed energy solutions that enable LDCs to meet future demand in a sustainable manner.
Ontario’s need for innovative storage technologies is another significant opportunity. As the province seeks to balance supply and demand, investments can support large-scale battery projects, virtual power plants (VPPs), and other cutting-edge energy solutions. LDCs, in turn, will play a critical role in integrating these storage technologies into the distribution network, ensuring that they are effectively utilized to enhance grid flexibility.
Conclusion
Ontario’s rapidly evolving energy landscape offers potential for customers, investors and LDCs. By understanding the key growth drivers, regulatory frameworks, and market trends, the sector can position themselves to capitalize on the province’s electricity demand growth and its shift towards a more sustainable energy future. At the same time, LDCs will be at the forefront of this transition, managing the local impacts of rising demand, integrating new technologies, and ensuring the reliability of Ontario’s electricity grid. The risks are real, but the opportunities are growing for those prepared to engage in the ever-evolving Ontario electricity sector.
On October 30, 2024, the IESO is hosting a public information session to preview the demand forecast for the 2025 Annual Planning Outlook. Power Advisory recommends that clients and interested parties with comments, concerns or questions participate in the webinar.
Please contact Power Advisory if you have any questions or would like any additional information.