On October 22, 2024 Ontario’s Ministry of Energy and Electrification published Ontario’s Affordable Energy Future: The Pressing Case for More Power, setting out the government’s vision for the energy sector: “A pro-growth agenda that takes an all-of-the-above approach to energy planning.” The vision lays out a series of challenges and policy priorities under three main themes:
Simultaneous with the release of the vision paper, the Ministry launched an Integrated Energy Resource Plan Consultation. The consultation seeks feedback from the public, interested parties and Indigenous communities on several questions aligned with the themes of the vision paper to inform the Ministry’s creation and development of an integrated energy resource plan that looks out to 2050. The posting states that the “plan, which will be developed for release in 2025, will consider the long-term view of energy use across the economy and across all sources of energy.” (emphasis added)
The deadline for feedback on the consultation is December 13, 2024.
On October 23, 2024 the government introduced Bill 214, Affordable Energy Act, 2024, which (among other things) sets out proposed amendments to the Electricity Act, 1998 that align with the energy vision, such as:
Concurrently, the government launched a consultation on Bill 214 with a stakeholder feedback deadline of November 22, 2024.
The release of these key energy policy statements from the government follow closely on two other significant Ontario energy announcements: (1) the IESO’s release of a new annual forecast, which anticipates that electricity demand will grow by approximately 75% by 2050, when compared to today; and (2) the government’s proposal to launch a new 2025-2036 Electricity Energy Efficiency Framework.
Commentary
As is clear from the energy vision’s themes and priority areas, the government intends to develop a comprehensive integrated energy plan (covering the entire economy and all energy sources, such as electricity and natural gas) that is extremely broad in both scope and ambition. It reinforces key “pro-growth” themes of the government’s approach to energy policy: economic development, affordability, and becoming a clean energy exporter. This is made abundantly clear through the Minister of Energy and Electrification’s statement, upon releasing the energy vision, that “Ontario’s energy policy will literally determine the success of our province, today and for the next generation.”
The energy vision, integrated planning consultation, and the introduction of Bill 214 represent positive first steps towards developing a formal holistic provincial energy plan. It signals a break from previous energy plans that were almost exclusively focussed on the electric system (Bill 214 proposes to replace existing legislative references related to developing a “long-term energy plan” with “integrated energy resource plan”). The announcements reiterate many of the actions Ontario has already taken, or is taking, with respect to (quickly) building out energy infrastructure, such as its commitments to nuclear refurbishment, developing small modular reactors (SMRs), competitive supply procurements, priority transmission projects, municipal support for energy projects, customer choice, rate mitigation, opposition to the federal carbon tax, developing a new energy efficiency framework, and becoming an “energy superpower” (i.e., exporter).
However, the government is also signaling and raising new policy challenges, priorities, and questions that have not articulated or addressed in detail previously, but will seek to address as it develops its 2025 integrated plan. Four of the critical new areas emerging as part of the government’s policy vision are: (1) integrated energy planning and electrification; (2) the role of the distribution system; (3) the role of distributed energy resources (DERs); and (4) the future role of the natural gas system.
Integrated Energy Planning and Electrification
The government explicitly acknowledges this need for policy clarity through an integrated plan in the vision document: “An integrated energy resource plan would help manage change and growing demand by providing clear signals and long-term confidence to the sector and investors. By planning for all sources of energy and ensuring the energy system supports key goals such as building housing and attracting investment, Ontario will have a pathway to achieving its energy vision.” (emphasis added)
The energy vision includes several integrated energy planning priorities, such as:
Moreover, Bill 214 proposes to add a new purpose in the Electricity Act “to promote electrification and facilitate energy efficiency measures aimed at using electricity to reduce overall emissions in Ontario.” This explicit statutory purpose (along with a similar proposal to amend the objectives of the IESO, but not the OEB) to promote electrification and using electricity to reduce emissions is language that the current government has not used previously with respect to its approach to energy planning.
Power Advisory believes that developing and implementing a truly integrated energy plan for Ontario is a necessary and difficult undertaking. Ontario’s need to build new electricity infrastructure (generation, transmission, and distribution) to meet economic growth, housing and population growth, as well as facilitate the broader electrification and emission reductions is well known, and highlighted most recently by the IESO’s revised demand forecast.
These holistic energy needs and system changes require clear and, in many cases, prescriptive government direction as well as deep coordination across government (and its agencies), energy utilities (electricity, natural gas, and other fuels such as low-carbon hydrogen and biodiesel), energy end-uses, and economic sectors.
Further, and just as important, Ontario needs a policy and economic environment that has the ability to attract the tens of billions of dollars in financial capital necessary to fund the building-out of energy infrastructure needed to meet future energy demand growth. Much of this capital has environmental, social & governance objectives, seeking net-zero investment and supply chain opportunities.
As result, these initial announcements on energy vision and Bill 214 provide a signal that Ontario’s government recognizes it needs to show leadership on Ontario’s energy transition, so that investments can be made confidently, supporting economy-wide decarbonization and facilitate other provincial policy objectives (e.g., affordability, job creation, attracting new businesses and industries).
The Role of the Distribution System
Previously, much government policy and direction on energy supply has been almost exclusively focussed on bulk electricity system investments, such as the transmission system and large-scale, transmission-connected generation. However, the vision statement specifically identifies the electric distributions system and local distribution companies (LDCs) as a priority in three distinct areas: (1) last mile connections; (2) grid modernization; and, (3) grid resiliency.
The energy vision states that “Ontarians expect that their LDC will serve them safely, reliably, cost effectively, and that over time they will steadily improve. These expectations must be met as LDCs concurrently confront the necessary modernization of the grid, improve the grid’s overall resilience, and directly support Ontario’s economic development and housing targets. […] By providing further clarity on what are considered grid modernization activities, the province can help LDCs make prudent investments to support increasing energy demand.”
Further, it sets priorities for grid modernization, including:
Power Advisory has previously noted that other jurisdictions have recognized and put into place policies to encourage a more proactive approach to distribution system expansion and modernization as a critical element of energy transition policies. As a result, Power Advisory views the statements in the government’s energy vision as extremely important and positive signals for LDCs, demonstrating that the government recognizes the critical role of LDCs in achieving broader energy transition, economic, and housing objectives. This recognition coupled with the priority placed on policy clarity and accelerating grid innovation projects should provide new opportunities for LDCs to not only more confidently plan investments in grid expansion and modernization (such as investments needed to facilitate and integrate DERs), but also transition pilot projects to wider-scale system implementation.
The Role of DERs
Another development in the energy vision, which also represents a shift away from a bulk system policy orientation, is the identification of DERs (e.g., solar photovoltaic panels, batteries, electric vehicles, thermal storage, smart thermostats) as a resource (supply or demand response) and the need for a DER policy framework: “Giving customers more ways to participate in the grid, with a focus on creating new ways for families and businesses to save money while reducing province-wide energy demand, benefits us all. As the grid evolves with the increasing adoption of DER, the policy framework too must evolve to support customer choice and reduce barriers to all types of DER investments that can support local energy needs and improve the efficient utilization of these resources within the energy system.”
The energy vision sets priorities for DERs, including:
Further emphasizing the government’s intention to direct policy attention to facilitating DERs is the integrated energy plan consultation featuring five DER-related questions (out of a total of 20 questions):
Overall, this points to the energy vision and forthcoming integrated energy resource plan developing and creating new and far greater opportunities for customers, LDCs, and DER solution providers to help meet electricity system resources needs going forward.
Power Advisory has previously stated that DERs (including demand response) need to be pursued more aggressively because they represent a clear option for helping the province strategically and cost-effectively meet local and regional supply needs. The smaller scale nature of distributed generation and storage results in less impact on communities (and face less strict municipal approvals, land restrictions, and/or permitting/siting issues) and therefore less likely to face community opposition compared to larger transmission-connected supply resources. Further, these distribution-connected resources can be developed, constructed and energized much quicker than large-scale transmission-connected resources.
The Future Role of the Natural Gas System
With respect to its role for heating, the energy vision states that “[n]atural gas is a vital component of Ontario’s energy mix and the province’s first integrated energy resource plan.” It states further that “increased electricity generation through natural gas can help reduce province-wide emissions by supporting cost-effective electrification in other sectors.”
The energy vision then goes on to state that “There is a need for the energy system to adapt to the pace of change so consumers continue to be empowered to make choices about their energy sources. That will require coordination among natural gas utilities, electricity utilities and the IESO to manage energy system costs and ensure reliability as significant investments in energy infrastructure are needed to support a growing and evolving economy. This coordination would ensure that electricity resources keep pace with demand as an increasing number of consumers switch energy sources over time, while reducing the risk of stranding assets before the end of their useful life […] Going forward, Ontario will include a Natural Gas Policy Statement in its integrated energy resource plan to provide clear direction on the role of natural gas in Ontario’s future energy system.” (In early 2024, the former Minister of Energy announced that the government would introduce a “Natural Gas Policy Statement;” but a statement has yet to be released.)
Further, priorities for natural gas are given, such as:
While Ontario sees natural gas as critical in the short- and medium-term, these statements on coordinating electricity and natural gas planning (and Bill 214’s amendments references to promoting electrification and reducing emissions) represent the first time this government is raising the possibility (albeit indirectly) of a long-term downsizing of the natural gas system and the need to reduce the risk of stranded assets as the economy transitions to lower-carbon and clean energy sources through, for example, electrifying space heating. The vision also discusses the long-term possibility of adapting and repurposing the natural gas network to “support the integration of clean fuels to reduce emissions, including renewable natural gas (RNG) and low-carbon hydrogen.”
Power Advisory has previously noted that while Ontario has a clean energy advantage, state governments (e.g., Massachusetts, New Jersey, and New York) geographically close to Ontario are increasingly taking a lead role in addressing the energy transition and clean energy economy through a whole economy perspective, tackling energy supply, demand, and end-use consumption together. These approaches recognize the need for coordinated planning of changes to electric and natural gas networks within a broader energy transition framework. These state governments are seeking to prudently decarbonize and electrify energy consumption in a sustainable way to maintain reliability, safety, and affordability as well as meet environmental and emission reductions targets. They are actively implementing and/or developing a suite of planning, legislation, regulatory and other policy instruments to achieve the energy transition.
Thus, it appears Ontario has decided to take steps towards emulating what is occurring in these peer jurisdictions.
The Missing Piece: Cost-Effectiveness and Oversight
The need for affordable, cost-effective infrastructure investment and resource acquisition is mentioned many times in the government’s energy vision and proposed legislation. However, the statements do not present or establish a clear process for achieving these outcomes. For example, the energy vision states “Ontario needs planning and regulatory frameworks that support building infrastructure and resources quickly and cost-effectively […] The IESO and the OEB are essential partners in achieving Ontario’s vision for an affordable and clean energy system. Ontario’s forecasted growth will increasingly challenge its agency partners to undertake their planning and approval functions rapidly and transparently.”
This points to the IESO and OEB as agents of facilitating and implementing the government’s vision and plan, through, for example, improving existing functions and activities (e.g., forecasting, planning, competitive procurement, adjudication, coordination). Yet not all resources can be acquired through competitive procurements (e.g., large-scale, baseload nuclear and hydro-electric generation are much more likely to be sole-sourced) and there is a natural tension involved in building infrastructure both quickly and cost-effectively.
However, the energy vision does not indicate what (if any) advisory and/or oversight role either agency will provide as input towards ensuring that cost-effective decisions are being made as part of developing and/or reviewing the government’s integrated energy resource plan. Instead, the energy vision states that “[t]here is a need for independent, external advice into the energy planning framework, including advice on the integration of energy planning with other government objectives, such as housing and economic development” without specifying what party (or parties) would provide this input. On this point, it is worth noting the government’s energy vision briefly references an unpublished independent cost-effective energy pathways study it commissioned.
Also, related to oversight is that public access to information and data is critical to making efficient planning and investment decisions. And to its credit, the government’s energy vision takes this into account: “Ontario’s energy sector participants, businesses, and the public expect that energy planning decisions are made at the pace of growth. They also expect that planning information, such as growth forecasts and available system capacity is informed by the best available data, which is updated regularly and made publicly available to support investment decisions.“
Overall, given the political history and impact of energy prices and energy policy in Ontario for the past several decades, Power Advisory believes strongly that the government should provide more clarity on what independent oversight and input mechanisms will be relied upon to ensure that the integrated energy resource planning process results in prudent and cost-effective investment decisions.
Conclusion
Power Advisory has previously stated and repeats here that Ontario’s energy market needs forward-thinking leadership from government, especially with regards to the infrastructure challenges and impacts associated with the transition of end-use energy consumption on natural gas and electric distributions systems. The government’s announcements represent concrete progress towards such leadership.
By necessity, the scope of this change, which will have economy-wide impacts, must involve a high degree of government policy choices and interventions to expedite decision-making and action. Perhaps underscoring the lead role of government in this undertaking is the energy vision’s absence of any mentions of the IESO’s Market Renewal Program. Similarly, Bill 214’s goals and objectives for the integrated energy resource plan do not make references to markets.
The government’s desire for rapid action that matches the expected pace of growth is understandable. However, it must be tempered to some degree by strong and credible independent oversight and transparency measures being made an integral part of the planning and decision-making process. Mechanisms are needed to ensure cost-effectiveness and affordability objectives can be achieved and that course corrections can made expeditiously to mitigate, for example, significant cost-overruns and/or stranded costs.
This oversight can be addressed by mandating the OEB to review (but not approve) the government’s integrated energy resource plans for economic prudence, cost-effectiveness, impact on ratepayers and other relevant matters (e.g., adequacy, reliability and resiliency). To meet the government’s timeliness objectives while also providing transparency, the review could take the form of a published public report with an assessment and recommendations, be time-limited (e.g., the report must be published within 120 days of receiving a plan to review), with a clearly, pre-defined scope (i.e., the issues to be assessed) and process (i.e., degree and form of stakeholder involvement).
Oversight can be supplemented further by mandating the OEB to conduct similar reviews (and possible approval) of IESO plans and procurements related to implementing an integrated energy resource plan for economic prudence, cost-effectiveness, impact on ratepayers and other pre-defined parameters, and/or for compliance with government directives to the IESO related to the implementation of the integrated energy resource plan by the IESO.
For example, the OEB’s review and report could play an important role in ensuring clarity regarding the roles and responsibilities governing planning coordination between the IESO and regulated energy utilities. Also, an OEB review and report would create a transparent forum for all stakeholders to better understand the inputs, analysis, and conclusions of the government’s plan, including how the OEB itself will make use of the planning outputs as it carries out adjudicative and other regulatory responsibilities.
Ultimately, the level of detail contained in the government’s forthcoming 2025 integrated energy resource plan will provide the information necessary to rigorously evaluate the robustness of Ontario’s energy vision and planning process. However, the newly released energy vision represents an important and welcome step by Ontario towards grappling in a serious way with the complex, politically contentious, comprehensive economic and energy system evolution challenges posed by the energy transition. As noted by the Minister, energy policy is critical to the future success of Ontario (and Canada and globally). It is absolutely necessary for Ontario to have a clear, coordinated and well-articulated planning, legislative, policy, regulatory, and oversight process for the energy transition.
All of these elements are needed for the energy sector as well as individuals and businesses to make prudent, coordinated, and proactive energy distribution, transmission, production, and end-use investments to ensure a future energy system that is reliable, affordable, clean and maintains economic competitiveness.
Power Advisory strongly recommends that clients and interested parties with comments, concerns or questions on the proposal and consultation questions provide feedback by the November 22, 2024 (consultation on Bill 214) and December 13, 2024 (Integrated Energy Resource Plan Consultation) deadlines.
Please contact Power Advisory if you have any questions or would like any additional information.