Ontario’s Affordable Energy Future vision paper: opportunities for energy sector investment

On October 22, the Ontario Ministry of Energy and Electrification released “Ontario’s Affordable Energy Future: The Pressing Case for More Power”. Providing a holistic roadmap of government energy policies, the vision paper (the Paper) outlines government priorities that will guide the province’s first “Integrated Energy Resource Plan” (IERP). Many of these priorities will require substantial investment as the province prepares for electricity demand increases in the coming decades.

This bulletin provides a brief overview of the Paper and six of the government’s key-growth areas considered critical to meeting the province’s energy needs. Sector participants should be aware of these growth areas when considering future investments in Ontario’s energy sector.

What you need to know

• The Paper highlights the current state of the Ontario’s energy sector and the province’s forecasted electricity needs in the coming decades. Notably, Ontario’s Independent Electricity System Operator (IESO) predicts that electricity demand will increase by 75% by 2050 in the province, requiring more energy “equivalent of four and a half cities of Toronto”.
• In order to address the anticipated energy needs, the Paper articulates directions for its future growth agenda, providing a list of priorities. This vision, which is currently undergoing consultation, will shape the government’s first “Integrated Energy Resource Plan”.
• The Paper outlines numerous sector priorities, and we examine six of the key priority areas that energy sector participants should be aware of when considering future energy investments:
  • Electricity generation: extending Ontario’s clean energy advantage through baseload energy resources and a “cadence of competitive long-term procurement” to build new energy resources at lowest cost.
  • Electricity transmission: continuing to expedite transmission infrastructure development through “enhanced transmission planning and pre-development activities”.
  • Natural gas and “other fuels”: establishing a Natural Gas Policy Statement, prioritizing an “economically viable natural gas network”, and exploring opportunities to increase clean fuel production.
  • Indigenous participation and leadership: providing early and meaningful engagement and consultation on energy planning, and delivering continued capacity funding and support for Indigenous ownership and participation in energy projects.
  • The role of municipalities: strengthening local energy planning through municipal guidance, support and capacity building, and establishing better alignment with the province’s planning process.
  • Exports and interties: exploring opportunities to help other jurisdictions address anticipated shortfalls and meet their clean energy commitments, and consider opportunities for trade through new and expanded interties.

The current state and future vision of energy in Ontario

In addition to summarizing Ontario’s various energy initiatives to date, the Paper outlines the province’s long-term vision for the energy sector and the directions necessary to address the need for more power in the coming decades. The Paper is informed by two recent energy policy documents, the government’s “Powering Ontario’s Growth” (July 2023) and the Report of the Electrification and Energy Transition Panel (January 2024), building on the steps these two reports set in motion and providing a cohesive document for Ontario’s energy strategy.

The Paper reports on the current state of the sector and the forecasted need for electricity in the coming decades, referencing the IESO’s 2025 Demand Forecast. This update projects that electricity demand will increase by 75% by 2050 in the province, requiring 111TWh more energy or “the equivalent of four and a half cities of Toronto”. The drivers of this increase include economic growth, population increases, mining and steel electricity, and investment in Ontario’s industrial base. The Paper also notes the rise of artificial intelligence and the high energy consumption of data centres, a topic explored in a previous Torys bulletin. In order to address the anticipated energy needs, the Paper articulates directions for its future “pro-growth agenda”, establishing an “all-of-the-above approach to energy planning”.

Following the release of the Paper, a series of proposed legislative amendments were introduced under Bill 214, An Act to amend various energy statutes respecting long term energy planning, changes to the Distribution System Code and the Transmission System Code and electric vehicle charging. The Bill addresses aspects of the Paper, and (1) introduces proposed legislative amendments concerning integrated resource planning; (2) adds a stated purpose to the Electricity Act to promote energy efficiency and makes explicit that one of the objects of the IESOis to promote energy efficiency; (3) provides the Lieutenant Governor in Council authority to make certain types of changes to the Distribution System Code and the Transmission Code; and (4) excludes the distribution and retail of electricity for electric vehicle charging from the application of various energy statutes in Ontario (except as otherwise provided by regulation).

Growth priorities and opportunities to invest

The Paper provides a list of priorities to guide the province’s first IERP (to be released in 2025) and address future growth, which range from addressing affordability by opposing a carbon tax and empowering consumers to leverage distributed energy resources, to supporting electrical vehicle adoption and infrastructure. From the many initiatives discussed, we highlight the following six priority areas for sector participants to consider when planning for future investment in Ontario’s energy sector.

Electricity generation

The Paper stresses the need to extend Ontario’s “clean energy advantage” and bring more clean energy onto the grid by leveraging wide-ranging generation technologies, as well as competitive approaches to procure clean energy while also keeping energy affordable. The Paper emphasizes nuclear and hydroelectric power as the “backbone” of Ontario’s clean energy system, having provided 75% of the province’s electricity over the last 20 years, and further highlights the province’s nuclear leadership in the field of small modular reactor technology. As such, Ontario’s plans to address electricity growth will prioritize baseload energy resources from these sources.

Priorities for this growth area include:

• “a cadence of competitive long-term procurements” to build new energy resources at lowest cost;
• securing energy from existing resources including through refurbishments and specialized programs; and
• exploring the strategic value of long-life assets, including long-duration storage.

Electricity transmission

The Paper emphasizes the importance of expanding the province’s transmission network. Ontario has roughly 30,000 km worth of transmission lines, with another 1,000 km of lines currently under development. The Paper highlights the accelerated development of eight new lines across Ontario to support various demands relating to auto-manufacturing, resource opportunities and municipal growth.

Priorities for this growth area include:

• continuing to expedite transmission infrastructure development through “enhanced transmission planning and pre-development activities”;
• efficiently and fairly connecting customers to the transmission system; and
• advancing Indigenous reconciliation and partnerships through new transmission infrastructure development.

Natural gas and “other fuels”

Natural gas is described as a “vital component” for Ontario’s energy mix and the IERP, comprising roughly 40% of Ontario’s energy mix and fulfilling diverse roles across industrial, residential, commercial and agricultural sectors. As such, the Paper announces that a Natural Gas Policy Statement will be included in Ontario’s plan to provide clear direction on the role of natural gas in the energy system. Another key priority is the need for an “economically viable natural gas network” to support the energy transition, attract industrial investment, and ensure energy system reliability and affordability. This network would support the integration of clean fuels to reduce emissions, including renewable natural gas (RNG) and low-carbon hydrogen. The Paper also emphasizes seeking opportunities to support energy efficiency, clean fuels and carbon capture to reduce natural gas emissions.

The Paper also prioritizes the need to consider “other fuels”, such as petroleum-based fuels, propane and low-carbon fuels. Here, the Paper highlights the “exciting and innovative advances in low-carbon fuels” such as RNG, ethanol, renewable diesel, biodiesel, and low-carbon hydrogen.

Priorities for this growth area include:

• continuing to ensure a secure fuel supply and fuel transportation infrastructure;
• exploring opportunities to increase production of clean fuel;
• identifying end-use applications where the fuels can be best deployed; and
• enhancing integration of all fuels in the planning and coordination with other provincial strategies, including strategies relating to transportation, agriculture, forestry, and the environment.

Indigenous leadership and participation

The Paper outlines the continued leadership and partnerships with Indigenous communities in the sector (as corresponding economic benefits) as a priority. Here, the Wataynikaneyap Power Transmission Project, the largest Indigenous-led infrastructure project in Canada, was showcased as a partnership creating opportunities for those communities and providing reliable electricity.

Priorities for this growth area include:

• providing early and meaningful engagement and consultation on energy planning;
• providing continued capacity funding and support for Indigenous ownership and participation in energy projects (as seen with the Aboriginal Loan Guarantee Program and IESO’s Indigenous Energy Support Program); and
• having energy procurements incorporate the value of Indigenous leadership and participation by building on existing incentives and engagement requirements.

The role of municipalities

The Paper highlights the “value in municipalities taking on greater energy planning in their communities”, which the government hopes to achieve by focusing on priorities such as:

• strengthening local energy planning through municipal guidance, support and capacity building, as illustrated by initiatives such as the Municipal Energy Plan Program;
• establishing better alignment with the province’s planning process;
• improving the Regional Planning Process to support coordination with natural gas planning;
• supporting high-growth regions and integration with municipal energy plans; and
• working with neighbouring jurisdictions to improve interjurisdiction infrastructure planning such as through electricity interties.

Exports and interties

As part of establishing Ontario as an “energy superpower”, the Paper showcases the transmission interties with neighbouring provinces and states. Ontario has 26 connections with five jurisdictions, including Manitoba, Québec, Minnesota, Michigan and New York. The province has been a net exporter since 2006 and, in 2023, scheduled net exports of 12.4 TWh, or 11% of its total generation.

The Paper emphasizes the competitive advantage Ontario has in helping other jurisdictions address anticipated shortfalls, their clean energy commitments, or both. There may also be opportunities to leverage trade with neighbouring jurisdictions; for instance, the New York ISO (NYISO) and the Midcontinent ISO (MISO) are both projecting significant shortfalls in the future. Export agreements could offset the cost of new-generation projects in Ontario. As such, a stated priority of Ontario’s energy plan is to work with the IESO and other sector partners to explore opportunities to increase trade with neighbouring jurisdictions through new and expanded interties.

What’s next for Ontario’s energy direction

The articulated energy policy vision and its priorities will guide the government’s first IERP, set to be released in 2025. The government is seeking input on this vision as part of the Integrated Energy Resource Plan Consultation until December 13, 2024. Additionally, on October 23, the government introduced a series of proposed legislative amendments set out in the Affordable Energy Act (Bill 214). The amendments address several aspects of the Paper, including integrated energy resource planning, “last mile” connections and regulatory exemptions for electric vehicle charging. The government has also issued notices on the Environmental Registry in relation to these proposed amendments (ERO 019-9300 and ERO 019-9284), seeking input this Fall. Given that many of the issues presented in the Paper are in the early stages of being implemented through the legislative process, current and prospective sector investors ought to consider these priorities when planning future investments in Ontario’s energy sector.