Report of the Electrification and Energy Transition Panel: Summary and Comments

Introduction

Released on January 19, 2024, the Electrification and Energy Transition Panel’s report, “Ontario’s Clean Energy Opportunity” is a comprehensive examination of the province’s energy landscape. Commissioned by the Minister of Energy in April 2022, the report outlines a strategic road map for Ontario’s transition to a clean energy economy. The 141-page document covers four key themes: Planning for Electrification and the Energy Transition; Governance and Accountability; Partnerships with Indigenous Communities; and Consumer, Citizen and Community Perspectives.

The Panel engaged with energy stakeholders and Indigenous partners from December 2022 to July 2023, leading to 29 recommendations. The key focus areas include establishing a government-wide commitment to a clean energy economy by 2050, formulating a strategic policy vision and fostering meaningful partnerships with Indigenous communities.

In a press release dated January 19, 2024, Minister of Energy Todd Smith stated that he would be working with leaders from Ontario’s energy sector to carefully review the report’s recommendations and advice. He is expected to announce next steps towards an integrated energy planning process later this year.

Context

Against a background of calls by municipalities and others to move toward a net-zero electricity generation mix by, among other things, eliminating natural gas-fired generation, Ontario’s Independent Electricity System Operator (IESO) in 2021 published its Gas Phase-Out Impact Assessment. It concluded that a phase-out of natural gas generation without adequate time to prepare would result in substantial increased costs to electricity consumers, and raised the possibility of emergency actions such as rotating blackouts.

In the wake of this report, the Minister of Energy asked the IESO to develop an achievable pathway to zero emissions in the electricity sector, with specific direction to consider reliability and affordability in their work. In its report titled “Pathways to Decarbonization” (December 15, 2022), the IESO found that a zero-emission system could be achieved by 2050 but the costs (and impacts to Ontarians) would be substantial.

In April 2022, Ontario’s Minister of Energy announced the establishment of the Electrification and Energy Transition Panel. The stated mandate of the Panel was to:

• Advise government on the highest-value short, medium and long-term opportunities for the energy sector to help Ontario’s economy prepare for electrification and the energy transition; and
• Identify strategic opportunities and planning reforms to support emerging electricity and fuel planning needs in the context of energy demand, emerging technologies, environmental considerations and overall costs to consumers.

Content of the Report

Overview

In the report, the Panel emphasizes the need for modifying the existing institutional framework, particularly in the Ministry of Energy, to facilitate cross-sector co-ordination. Additionally, actions are proposed to ensure Ontario’s planning and regulatory systems are prepared for electrification. Collaboration and integration in energy planning across fuels, sectors and government levels are highlighted, along with the importance of building and maintaining public support for electrification through a pragmatic and cost-effective approach tailored to local needs. 

The Panel’s findings and suggestions are divided into short, medium and long-term strategic plans. Their recommendations involve navigating the intricacies of immediate actions, steering through the transformative medium-term landscape and contributing to the vision of a sustainable, clean energy future for Ontario in the long run.

• Short-term (Present-2030): The immediate horizon is characterized by innovation and change, demanding decisive government leadership. During this period, a critical focus is placed on establishing robust planning and regulatory frameworks. These frameworks are essential to support a rapid yet orderly transformation to clean energy, largely fuelled by customer-driven initiatives. Anticipated intensification of this transformation is expected after 2030.
• Medium-term (2030-2050): An era of intense transformation unfolds, impacting every facet of Ontario – from sectors to communities. The overarching goal is the establishment of a clean energy economy. This period signifies a shift towards sustainable energy practices, marking a pivotal phase in Ontario’s commitment to environmental stewardship and reduced carbon footprint.
• Long-term (Post-2050): Assuming a well-executed transition, post-2050 represents the accomplished phase of the journey towards a clean energy economy. The emphasis shifts to continuous planning and management of the clean energy system. This forward-looking approach is crucial to address new and emerging challenges, ensuring the sustainability and adaptability of the clean energy infrastructure for future generations.

Planning for Electrification and the Energy Transition

In planning for Ontario’s energy transition, the Panel stresses a commitment to a clean energy economy through the creation of a long-term comprehensive high-level energy transition policy. The term “clean energy economy” has been widely adopted in policy discussions on electrification. The Panel recommends Ontario adopt a strategic approach to economic and energy policy that not only contributes to the global climate solution but also positions the province for success and prosperity in the emerging global clean energy economy.

Throughout its interactions with energy stakeholders, the Panel heard about the necessity for a clear vision in the energy sector to guide long-term planning and decision-making. Clarity is essential to ensure a co-ordinated and paced energy transition that upholds reliability, affordability and economic competitiveness, and prioritizes reconciliation with Indigenous communities, along with other economic and social objectives. 

The government is highlighted as having a critical leadership role in orchestrating the balance between distribution-level development, demand-side fuel switching and necessary infrastructure development. Importantly, managing increased electricity demand must align with the capabilities of the power and gas delivery system, necessitating collaborative efforts that include perspectives from both Indigenous and non-Indigenous communities, as well as various energy sector stakeholders.

These recommendations are in line with the IESO’s report and supported by inter-governmental initiatives. For example, the 2023 federal budget introduces and expands five Clean Investment Tax Credits (ITCs) to further incentivize clean economy innovations in the private sector, supporting economic growth and creating jobs. Ontario could be eligible for $7.1 billion in funding from the Clean Electricity ITC alone. Further, the Panel suggests deepening long-standing economic relationships with jurisdictions that have strong targets for emission reductions.

The report also addresses issues around natural gas in the medium to long term and the role of the Ontario Energy Board (OEB).

Recommendations for planning for the electrification and the energy transition are:

• Recommendation 1: Develop and communicate a government-wide commitment to a clean energy economy by 2050.
• Recommendation 2: Convene an internal clean energy economy planning and implementation body.
• Recommendation 3: Seek alignment with clean energy economy objectives, standards and policies with other governments.
• Recommendation 4: Develop an energy transition policy vision inclusive of Indigenous perspectives.
• Recommendation 5: Develop and release integrated long-term energy plans guiding Ontario’s development.
• Recommendation 6: Provide policy direction on the role of natural gas in Ontario’s future energy system.
• Recommendation 7: Strengthen the framework for local energy planning and decision-making.
• Recommendation 8: Establish an external Energy Transition Advisory Council for ongoing advice.
• Recommendation 9: Fund ongoing independent whole economy energy pathways studies.

Governance and Accountability

The report emphasizes the critical role of energy regulators for the energy transition, where objectives extend beyond traditional factors like price and reliability to incorporate climate change and decarbonization goals. Examples from jurisdictions like the U.K., California, New York, Maryland, Colorado, Maine, Massachusetts, Washington, Hawaii and Washington, D.C. illustrate the evolving mandates of energy regulators to align with government priorities in achieving a net-zero economy.

Technical planning for energy systems is identified as a key aspect involving both high-level policy direction and ongoing evaluation of the energy system’s capability to meet demand. The current energy regulatory system is ill-equipped for the rapid evolution suggested within the report. Energy stakeholders suggest that technical planning should be disentangled from political direction and dictation, empowering independent agencies like the IESO to guide reliable clean energy grid planning. The Panel proposes the OEB take a lead role in overseeing and reviewing co-ordinated energy planning and procurement, ensuring alignment with government direction and cost-effectiveness.

The Panel addresses issues relating to gas and electric regulatory systems, including those related to up-front capital contributions for infrastructure projects. It emphasizes the importance of a regulatory framework prepared for various outcomes to protect customers and contribute to Ontario’s goal of a clean energy economy. The Panel suggests regulatory adjustments to facilitate electrification and align with the broader policy commitments to a clean energy economy.

Closing out this section, the report highlights the rapid evolution of technology for electricity management, including the need for rapid implementation of distributed energy resources (DERs). DERs offer opportunities for improving resource management, reducing costs and contributing to emissions reduction. The government, OEB and IESO are urged to support innovative models and regulatory frameworks to enable the effective participation of DERs in the energy system. The urgency of advancing the regulatory environment is emphasized to avoid hindering rapid evolution of cost-competitive solutions and ensuring a well-managed transition toward a cleaner energy future.

Recommendations for governance and accountability are:

• Recommendation 10: Enable the evolution of innovative business models in line with clean energy economy goals.
• Recommendation 11: Include safety regulators and technical standards organizations in energy planning.
• Recommendation 12: Use existing tools for activities consistent with clean energy economy goals.
• Recommendation 13: Review the OEB’s activities for effective implementation of the energy transition.
• Recommendation 14: Empower the IESO to independently procure electricity resources and lead planning.
• Recommendation 15: Conduct reviews of cost allocation and recovery policies for natural gas and electricity.
• Recommendation 16: Develop a formal and transparent co-ordination framework for planning at various institutional levels.
• Recommendation 17: (For the OEB and IESO) Provide proactive thought leadership on regulatory policy for DERs.
• Recommendation 18: Regularly assess the need for resources across various ministries and agencies for energy planning.

Partnerships With Indigenous Communities

The majority of suggested approaches to attain a clean energy economy involve utilizing Indigenous lands and resources for constructing clean and renewable energy infrastructure and extraction projects. Thus, Ontario’s energy transition presents a chance for genuine inclusion and collaboration with Indigenous communities, carrying lasting effects across generations.

These ideas are not wholly novel. Since 2017, Indigenous clean energy projects in Canada, including hydro, wind, solar, bioenergy and hybrid sources, have seen significant growth with a 29.6% increase in medium and large-scale projects. Additionally, smaller Indigenous clean energy initiatives have emerged involving community-scale or small-generation systems for local consumption and, in some cases, the sale of excess power to provincial and territorial grids. Alongside the rise in clean energy ventures, Indigenous involvement in oil and natural gas projects has also expanded notably. This includes participation in various aspects of these projects such as pipelines, tank farms and liquefied natural gas facilities, particularly in Western Canada.

Going forward, meaningful Indigenous participation entails incorporating Indigenous perspectives and collaboration from the initial stages of energy planning, including at the community, regional and provincial levels. Two key mechanisms for doing so are increasing Indigenous project ownership and helping with rural household energy efficiency. The goal is to establish enduring capacity in Indigenous communities – supported by stable funding – to facilitate ongoing engagement, consultation, participation and partnerships throughout the energy transition.

Indigenous-led organizations have the potential to sustain and foster more equitable partnerships with government entities, ministries and project proponents. This can lead to shared economic success for all involved parties, alongside enhancements to the overall health and well-being of the communities.

There is also broad alignment between Indigenous values and those of a clean energy future. Conversations surrounding the utilization of environmental, social and governance (ESG) strategies which evaluate an organization’s performance and investment appeal have evolved across various corporate, investment and government sectors. Globally, ongoing discussions involve the development and implementation of policies, regulations and goals related to ESG, including the consideration of mandatory ESG reporting. The global adoption of ESG is expanding, with 88% of publicly traded companies, 79% of venture and private equity-backed companies and 67% of privately owned companies implementing ESG initiatives as of 2020. The rising influence of ESG presents an opportunity for the integration of Indigenous perspectives, given the evident alignment between Indigenous interests and ESG considerations.

ESG is currently and will continue to be examined through the lens of investors. Organizations face growing expectations to measure and disclose their ESG performance, demonstrating the need for improvements through performance metrics and data. There is an increasing likelihood that organizations will be expected to showcase their efforts in addressing climate change risks, encompassing both physical risks to assets and risks associated with Ontario’s transition to a clean energy economy.

Recommendations for partnerships with Indigenous communities are:

• Recommendation 19: Support Indigenous participation through consistent efforts and enhanced capacity building.
• Recommendation 20: Advance economic reconciliation through flexible financing models for Indigenous project ownership.
• Recommendation 21: Ensure Indigenous representation on the boards of directors of the IESO and OEB.
• Recommendation 22: Review Ministry of Energy resources to enhance support for Indigenous partners.
• Recommendation 23: Reflect the key role of clean, affordable and reliable energy in policy and regulation.
• Recommendation 24: Consider a mission-oriented approach to economy-wide industrial strategy.
• Recommendation 25: Clearly set out a policy vision for how electrification and the energy transitions will be funded.

Consumer, Citizen and Community Perspectives

The importance of garnering public support for electrification and managing the energy transition is emphasized by the Panel, given the critical role energy plays in fulfilling basic needs, supporting economic productivity and enabling essential infrastructure. Acknowledging that public dissatisfaction can arise from poorly executed decarbonization policies, the report stresses the necessity of engaging households and businesses in understanding the benefits, costs and implications of the energy transition. Recognizing that diverse identities can shape preferences, the report underlines the significance of transparent and inclusive policy-making to ensure ongoing public support.

Highlighting past energy policy challenges in Ontario, the report underscores the historical lack of engagement with Indigenous communities and smaller energy stakeholders, leading to adverse impacts on local economies and communities. Five key principles for effective communication and engagement are identified: transparency, customer participation, consistent province-wide engagement, community-level empowerment, and meaningful participation in siting processes are emphasized.

Affordability emerges as a critical concern, particularly for low-income and rural households. These stakeholders are generally shown to support the clean energy initiative but notably not at the expense of increased costs. The need for mechanisms to support fuel switching, decarbonization and technologies like electric vehicles and heat pumps is underlined, alongside the importance of transparent communication on the costs and benefits of these changes. The report suggests redesigning existing rate mitigation programs for better targeting and accessibility, with a focus on collaboration with remote and rural communities.

The transition to a clean energy economy is positioned as beneficial for public and environmental health, with estimates of significant health cost reductions. However, clear policies and effective community participation are essential to meet these goals, especially with the increasing importance of grid reliability and resilience, given the growing reliance on electricity as well as potential climate change impacts.

Prioritizing customer choice, the Panel concludes by emphasizing the need to empower customers in their energy decisions, encouraging participation in the transition through a range of options and competitive markets. Overall, the recommendations call for comprehensive, transparent and inclusive strategies to navigate the complexities of the energy transition while addressing the diverse needs and concerns of the public and energy stakeholders.

 Recommendations for consumer, citizens and community perspectives are:

• Recommendation 26: Engage with the public and Indigenous partners for transparent access to information.
• Recommendation 27: Explore mechanisms to support broad adoption of fuel switching, decarbonization and supportive technologies.
• Recommendation 28: Redesign electricity rate mitigation and affordability programs for increased accessibility.
• Recommendation 29: Support capacity building for utilities and communities to assess climate change impacts.

In its concluding remarks, the Panel underscores the importance of collaboration, innovation and a transition toward a clean energy economy. As policymakers deliberate on these recommendations, the report anticipates a wave of policy activity in the coming year, marking a pivotal chapter in Ontario’s electrification and energy transition journey. The focal point remains on collaborative efforts to mold a sustainable energy future for the province.

Comment and Conclusions

The Panel’s mandate included elements relating to low rates, fostering job creation, preparation for the energy transition and identification of strategic opportunities and planning reforms to support the transition.

In the report’s introduction, the Panel notes that it interpreted this mandate broadly to consider the role of Ontario’s energy sector and to determine what changes are needed to enable successful electrification and energy transition. It also noted that its recommendation centred on fundamental principles and approaches to guide Ontario, and key changes and additions to existing energy planning and governance frameworks.

The scope and breadth of the Panel’s mandate was matched by the report. Its 29 recommendations across four overarching themes ensure that all stakeholders can be satisfied, at the very least, that their concerns have been heard, if not addressed to their satisfaction.

The recommendations can be characterized as:

• a mix of high-level exhortations (i.e., commit to a clean energy economy by 2050, develop a vision of Indigenous perspectives),
• new advisory panels (i.e., a planning body and an external Energy Transition Advisory Council),
• tweaks of mandates and deliverables for existing agencies (i.e., integrated and aligned planning, independent procurements by the IESO, IESO and OEB thought leadership),
• new funding (Indigenous communities, local distribution company (LDC) capacity-building and low-income consumers, further studies) and
• DEI (Indigenous representation on boards).

The Panel has chosen not to make policy recommendations in a number of important areas but has identified them as areas for decision by the government.

For those looking for movement toward a distribution system operator model for LDCs, no recommendation with respect to regulatory reform or enabling pathways is provided. Rather, the government, OEB and IESO are urged to support innovative models and regulatory frameworks to enable the effective participation of DERs in the energy system and identify barriers thereto.

For community involvement, the report recommends a strengthened framework and improved alignment for local energy planning.

While the report suggests redesigning existing rate mitigation programs for better targeting and accessibility, it is worth noting that the Panel’s mandate included maintenance of low rates. Thus, the government may consider itself constrained on the extent to which subsidized rates for consumers generally can be restructured.

What the report does not address is also noteworthy. Any debate around restructuring Ontario’s hybrid electricity system or the role of centralized procurement has been set aside for now. Implicitly, this reflects an acceptance that the energy transition will necessitate extensive government involvement.

We now await how, whether and when the report’s recommendations will be implemented by the provincial government.

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