Will Ontario’s net-zero electricity grid cost $400 billion?

It’s an easy number for journalists and the public to latch on to. Last week, the Independent Electricity System Operator (IESO) reported that it will cost up to $425 billion over the next four decades to decarbonize the grid by 2050. The price tag made every headline following the release of their Pathways to Decarbonization study, one of three substantial reports published December 15. All three promise to have major implications for the future of Ontario’s electricity system. 

Many have conflated the cost of decarbonizing our grid with the cost of business as usual, where we ramp up fossil fuels to meet demand. Whatever Ontario decides to build, unprecedented investments in new electricity infrastructure are needed over the next few decades as demand more than doubles by 2050. The grid of the future needs to heat our buildings, power our cars and industry, and meet the needs of all Ontarians.

There are numerous pathways to modernizing the grid, but the most cost-effective solutions like energy efficiency, wind, and solar, win on cost over building new gas plants. TAF recently commissioned an independent study that shows the goals of affordable, reliable, and clean electricity are in fact aligned, in part because solar and wind (which make up only 13-15% of the IESO’s estimate above) are by far the lowest-cost sources of new generation today. While some gas-fired capacity is needed over the next decade to ensure the reliability of the electricity system, natural gas continues to become more expensive and less competitive each year. 

The Pathways to Decarbonization report is a valuable resource in considering the future of Ontario’s grid. The IESO has published a comprehensive study with detailed assumptions and results, and have outlined several prudent “no regret” actions, many of which are consistent with a net-zero future and our own study. These include: 

• Accelerating investments in conservation and demand management (which prove more and more economical as fossil fuel costs increase). 
• Starting the work on long lead-time investments such as transmission. 
• Ensuring regulatory, approval, and permitting processes are ready to support future investments at scale. 
• Investing in a labour force that can build and operate the infrastructure needed over the next four decades. 

While the study shows some significant progress on decarbonization, there are some looming gaps that need to be addressed as long-term energy planning evolves over the coming months. 

Why not prioritize the most cost-effective solutions?

For a study that emphasizes decarbonization and affordability, it’s surprising the limited role that wind and solar play in both the Moratorium and Pathways scenarios modelled by the IESO. Both are inexpensive and proven technologies that together made up 75% of new installed capacity globally in 2021. Less than a gigawatt of wind is added to the system by 2035 in the IESO’s Moratorium scenario, and wind, solar, and storage make up less than 30% of total capacity in Ontario by 2050 in the Pathways scenario (compared to 57-67% and over 90% in similar studies recently published by Enbridge Gas and the David Suzuki Foundation, respectively). Recently announced federal refundable tax credits further improve the economic case for wind and solar. 

Why rely so heavily on unproven technologies?

The study banks on resources that have yet to prove technically and economically feasible. For example, the Pathways scenario reflects a 15,000 MW bet on hydrogen without addressing the elephant in the room: where will all of it come from? The IESO makes the simplifying assumption that it will be produced out of province, which carries two major problems. First, it ignores the potential lifecycle emissions resulting from the production of hydrogen, a gap that we hope will be addressed by the Federal government in their forthcoming Clean Electricity Regulations (CER). Second, a significant portion will likely need to be produced in Ontario and, if green, would require additional electricity generation and capacity.

Why lock into future stranded assets?

The IESO concluded that only 7,840 MW of natural gas generation capacity will be needed by 2035, down from the approximately 12,000 MW slated to be in the system in 2027, inclusive of the 1,500 MW of new gas-fired generation the IESO is planning to bring on as part of its upcoming procurements. The Pathways study provides little justification for these latter investments, instead referring to the Resource Eligibility Interim Report published in October, a 13-page report heavy on implications but light on analysis. It remains unclear how the IESO expects these plants to operate in compliance with the CER without leaving ratepayers on the hook for hundreds of millions of dollars in potential contractual penalties. 

We have a once-in-a-generation opportunity to modernize the electricity grid. Whichever path we take, Ontario is facing the reality that it will take significant investment to meet rapidly growing demand. That number might be somewhere near $400 billion, but arguably it could be a lot less if we seize the most cost-effective solutions now. Rather than locking into an antiquated system reliant on centralized power plants, we should choose the lowest-cost technologies that benefit communities, jobs, and public health, and that represent a burgeoning global market. Decarbonization isn’t a barrier to affordability – it’s the key to an economical, reliable grid.