Powering Ontario’s Growth

August 2, 2023

The Government of Ontario recently released their plan on how Ontario will manage the electrification of the energy sector as is anticipated in the battle against climate change.  A copy can be found here:  https://www.ontario.ca/page/powering-ontarios-growth

Overall, it is quite a good document.  It clearly lays out the nature of the problem and the currently planned solution.  As is always the case, you have to ignore that this is a political document (they could not resist direct shots at the Liberals on pages 19 and 72) and that it is intended for general consumption so does not get too far into specifics.

A few take-aways:

  • The document is very careful to avoid taking any positions on climate change and what needs to be done to combat it.  Instead, it starts with the assumption that electrification will happen and proceeds to explain how Ontario will adapt.
  • The government is doubling down on nuclear power.  This includes a potential of 4,800 MW new generation at Bruce, potentially extending 2,000 MW at Pickering for another 30 years and four small modular reactors (SMR) instead of one at 300 MW each.  Nuclear power is reliable base load power whose costs are largely known once the facility is built so the attraction is understandable compared to intermittent renewable power.  The challenge will be whether these projects can be built on budget.  The history has been awful in this regard so the government is hoping that OPG’s success so far with the Darlington refurbishment will be a model for the future.
  • There is the recognition that hydro power is the cheapest and most reliable but the opportunities in Ontario are unfortunately limited.
  • Hydrogen is also seen as a potential fuel of significance.  Hydrogen can be both a fuel, for instance for fleets of vehicles, and a means of storage.  It can also be exported.  As such, it could provide a competitive edge to Ontario which solar does not.
  • There is very little recognition of the potential of renewable power (wind and solar). 

However, there are three serious gaps in the document that are of concern to NOTL Hydro:

  1. Most of the initiatives are being driven by Ontario Power Generation (OPG).  This creates a number of concerns:
    • As OPG is 100% owned by the Government of Ontario, most of the risk is therefore being born by the Ontario taxpayer.  As markets never develop as expected, this is a significant risk.
    • OPGs concurrent involvement in nuclear refurbishments, SMRs, hydrogen, pumped storage and new hydro create the very real risk that management will be stretched thin or, worse, become bloated.  This is one reason why NOTL Hydro has previously proposed that OPG be broken into smaller, more focused, businesses.
    • This risk of political interference over the 20-30 year timelines of this plan remains very high.
  2. The lack of recognition that the current electricity market is broken is disappointing.  With a Global Adjustment that completely distorts all pricing and an hourly pricing that bears no relation to the underlying costs of electricity, the current market structure holds back potential positive investments.
    • The Global Adjustment (GA) is unique to Ontario.  That is highlighted in any discussions with out-of-province sector participants.  This is not a compliment.  As the GA is so high and as it is applied to all electricity purchases at the same monthly price it has a pervading influence.
    • As the hourly price bears no relation to the actual cost of electricity, decisions are not being made based on it.  This is a loss of opportunity.  For instance, if the differences in cost between the daily peaks and middle of the night electricity was reflected in the prices, industry and investors might take more actions to arbitrage this difference which would assist in reducing the peaks.
    • The lack of a proper market means the government is consistently forced to intervene with programs and contracts (Ultra-Low Overnight rates, storage contracts, industrial initiatives) as there is no market which would otherwise signal and deliver them.
  3. Finally, as mentioned, the report largely ignores the potential uses of distributed energy resources (DERs); primarily wind and solar.  To some degree this is understandable.  DERs got a bad name in Ontario with the Green Energy Act, their intermittency is a significant issue and they are not always the most competitive source of electricity in Ontario.

However, there are opportunities with DERs that Ontario should look to be taking advantage of; particularly as their costs continue to decline.  These include:

  • Wind, if located properly, can be a fairly reliable source of power.  There will always be some intermittency but with the right locations these can be minimized and it can be very economical.  It has been suggested by others that the use of the Great Lakes be more thoroughly investigated.
  • One of the big advantages of solar is that it can be scaled so investments can easily be made by private capital.  It can also be funded through net metering thus removing the need for a contracted payment.  This removes both the capital cost and ongoing funding costs from the Government.  The challenge is the larger the solar project the more economical it is.  The solution is Community Solar which allows the output of a large project to be shared by multiple customers.  Electricity demand during the day is reduced at no cost to the government. 

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