Planning for electrification and the energy transition
Planning for electrification and the energy transition
High-level, strategic policy direction is the strongest and most critical contribution government can make to energy planning. Empowered with a mandate to govern and accountable to the electorate, government has both the authority and the responsibility to make strategic decisions and set policy objectives. This responsibility becomes yet more critical in navigating the energy transition. Government must take and execute critical decisions to provide the right environment for alignment of the social and economic forces that will carry out the vast amount of the work necessary to transform the energy system. In Ontario’s energy transition, the focus on a commitment to a clean energy economy should act as the common focal point to mobilize and align these forces.
The term ‘clean energy economy’ has been broadly adopted to advance policy conversations about electrification and the energy transition. It has been used as a guide for policy analysis by organizations like the International Energy Agency (IEA), the Organization for Economic Cooperation and Development (OECD), the United States (U.S.) Department of Energy, the Natural Resources Defense Council and the United Nations, as well as other government and non-governmental organizations around the globe. Despite its broad adoption, there is no single definition of the term.
The Pew Charitable Trust, a leading U.S. think tank with a deep understanding of consumer and public opinion, developed a definition that has subsequently been used by a broad cross-section of energy sector organizations. According to Pew, a clean energy economy “generates jobs, businesses and investments while expanding clean energy production, increasing energy efficiency, reducing greenhouse gas emissions, waste and pollution, and conserving water and other natural resources.” The clean energy economy therefore maximizes prosperity and enables economic competitiveness and growth while using resources wisely and developing sustainable supply, delivery and consumption of energy.
Much of the world – including many of Ontario’s major trading partners – have committed to achieving economy-wide carbon neutrality by 2050. Net zero pledges now cover 90 percent of global gross domestic product (GDP). In the context of this shift, outlined in more detail in Section 2 above, the Panel recommends that Ontario adopt a strategic approach to economic and energy policy that contributes to the global climate solution and thereby sets the province up to succeed and prosper in the emerging global clean energy economy.
Throughout its engagements, the Panel heard that the energy sector will require a clear vision to guide long-term planning and decision-making, ensuring that the energy transition is properly coordinated and paced to maintain energy reliability and affordability, enhance economic competitiveness, and prioritize reconciliation with Indigenous communities, as well as meeting other economic and social objectives. Government must play a critical leadership role in the process of coordinating and balancing the significant distribution-level development and demand-side fuel switching with the required bulk, supply-side infrastructure development. Importantly, increases in the demand for electricity must be paced in a way that aligns with the capabilities of the energy delivery system for power and gas. All of this will need to be accomplished in a collaborative manner, including and incorporating the perspectives and participation of Indigenous and non-Indigenous communities and energy sector stakeholders.
The importance of policy clarity
Government’s overarching policy direction must be clear. The Panel heard consistently from a broad range of stakeholders that it is the provincial government’s role to establish a roadmap for the energy transition with long-term commitments, clear objectives and targets, and integrated cross-sectoral strategies. Sending a clear policy signal, with specific objectives and future-oriented strategies for achieving them, will provide much-needed certainty to guide energy planning, policy, investment and regulatory decision-making, and enable Ontario’s economy to benefit from a supportive and clear investment environment. Investors, buoyed by government’s strong commitments and clear policy direction, can have more confidence to make the significant capital investments required to transform the energy system. This is a key action the government can take in lowering the cost of doing business in Ontario and ensuring the province’s future prosperity.
The central importance of overarching policy clarity in the management of the energy transition has been advocated by other entities both inside and outside the province. The Independent Electricity System Operator’s (IESO’s) Pathways to Decarbonization report, for example, states that “Policy certainty is a must.” The report observes that provincial policy has the potential to “govern the direction of industry, business and consumer behaviour.” Clear and certain policy direction is thus “vital to enabling investment in infrastructure, conservation and demand management (CDM), next-generation technology and decarbonization” and is “a prerequisite for decarbonization at scale.” Similarly, the Intergovernmental Panel on Climate Change’s March 2023 report states that effective climate action is enabled by political commitment, clear goals, and coordination across multiple policy domains. This clarity is crucial not only for achieving decarbonization goals, but also for maintaining consumer trust and enhancing economic prosperity throughout the energy transition. Clarity and consistency can build confidence and unlock private sector investment and consumer action, both of which will be crucial in constructing a clean energy economy.
An economy-wide vision
Government’s overarching policy direction must be holistic and provide an economy-wide vision for the energy transition. A niche approach focusing only on the energy sector would fail to consider the central role energy plays as an enabler of all economic activity and its singular importance in the everyday operations of modern life. The transition to a clean energy economy will therefore require a policy commitment across government.
Recommendation 1: To provide clear direction for Ontario’s energy and economic future, the provincial government should develop and communicate a commitment and associated policy principles for achieving a clean energy economy for Ontario by 2050.
This commitment, and policy principles that would define the parameters by which decisions will be made, should be embedded and integrated across all ministries in a manner that ensures policy consistency, alignment of decision-making, and accountability mechanisms.
Alignment across policy areas
Energy use is affected and shaped by policy decisions in nearly every domain of provincial policy. Economic development, job creation and trade policy may influence the growth of new energy-intensive industry, including when and where new large industrial loads materialize. Housing policy influences how much energy is required in different geographic regions and when expansions of energy infrastructure might be required to support growing communities.
Other areas of policy development may not have a direct and significant impact on energy consumption but nevertheless influence the demands and complexities of an economy-wide energy transition in other ways. Labour, training and skills development policy can affect the availability of the skilled labour required to install critical energy infrastructure and operate technologies necessary for electrification and decarbonization. Policy related to the mining industry may affect both the demand for energy in remote northern Ontario communities and the availability of minerals and materials critical to electrification and energy transition.
In many cases, these policy influences are complex and inter-dependent, linking different policy areas in relation to energy consumption. For example, land-use planning and housing policy affect the density of communities and thus the transportation options for residents, which in turn influences what and how much energy is required to fulfill the community’s transportation needs. As a result, energy needs and use patterns differ significantly according to where people live and work and how communities get developed.
These complex policy relations underscore the need for a holistic approach to energy planning that not only integrates different forms of energy but is embedded in cross-governmental operations of policy development. The transition to a clean energy economy requires that government ministries think deeply about the implications of their policies and collaborate to develop policies that are not at cross-purposes. It will require integrated planning and decision-making in the way that we plan communities, build transportation infrastructure, conduct economic development and finance public spending. It is therefore crucial to have collaboration and coordination across ministries and policy areas – not work at cross-purposes. Only then will we be able to align and effectively mobilize the social and economic forces that will make the energy transition happen.
Recommendation 2: The provincial government should convene an internal clean energy economy planning and implementation body, such as an existing committee of Cabinet.
- This body would be responsible for ensuring alignment across sector strategies (such as industrial and economic development strategies, transportation, building/housing, agriculture, mining, and land use planning, including project development processes such as permitting, siting and funding) and ensuring that sector strategies are evaluated through an energy lens.
- As part of the shared responsibility across governments to coordinate and contribute to the energy transition, the government should provide all relevant ministries with clear mandates to contribute, in their domains, to a well-coordinated energy transition.
- Relevant ministries should develop measurable key performance indicators (KPIs) to align their sectoral strategies and policies with the imperatives of the energy transition in Ontario.
Alignment with partner jurisdictions
This fundamental interdependence also highlights the need for inter-governmental coordination and collaboration. The Panel heard from stakeholders that alignment on broad goals, objectives and key programs would be crucial to ensure that different orders of government are not working at cross-purposes. Inter-governmental alignment provides greater clarity for consumers and businesses on their energy use decisions and for investors to raise capital and facilitate economic growth and the development of new jobs.
Working across governments may also reveal shared objectives and help find the most effective, efficient and mutually beneficial solutions for shared energy challenges. For example, the 2023 federal budget introduced or expanded five Clean Investment Tax Credits (ITCs), including credits for clean electricity generation, storage and transmission, clean technology manufacturing, clean hydrogen, Carbon Capture, Utilization and Storage (CCUS) and clean technology. These ITCs – which are expected to total over $60 billion over the coming decade – are intended to incentivize clean economy innovation in the private sector, support economic growth and create jobs. The Canadian Climate Institute has estimated that Ontario could be eligible for $7.1 billion in funding from the Clean Electricity ITC alone. As federal-provincial conversations evolve, alignment between the province and the federal government on objectives or on the conditions to be met to receive the credit could help the province attract investments that support the ultimate objective of building a clean energy economy.
Stakeholders generally recommended that Ontario commit to targeting a net zero emissions economy by 2050 and that Ontario policies, planning and regulations align with a 2035 net zero electricity grid to align with commitments made by the federal government and the United States. The Panel heard that such targets would provide policy clarity to investors and businesses and enable further investments in clean energy technologies.
Alignment on strategic priorities may also be beneficial in economic and trade relationships. Three of Ontario’s largest U.S. trading partners – Michigan, Illinois and New York – have set strong targets for emissions reductions. Michigan has an Executive Directive aiming to achieve a 28 per cent reduction below 2005 levels in greenhouse gas emissions by 2025 and economy-wide carbon neutrality no later than 2050. Illinois has committed to achieving net zero greenhouse gas emissions statewide by 2050 and has developed a detailed Climate Action Plan to achieve that objective. New York has a statutory target to reduce economy-wide emissions by a minimum of 85 percent from 1990 levels by 2050. Ontario’s three largest interprovincial trade partners have also set a goal of net zero economy wide emissions by 2050. Quebec has set a policy target to achieve carbon neutrality by 2050, British Columbia has committed to achieving net zero carbon pollution by 2050, and Alberta’s Emissions Reduction and Energy Development Plan includes an aspiration to reach carbon neutrality by 2050. At the international level, Ontario’s largest global trading partners, including the U.S., European Union (EU), and China, have set national emissions reduction targets. The U.S. has committed to a policy target of achieving net zero emissions by 2050. The EU aims to achieve net zero greenhouse gas emissions by 2050 at the latest, with negative emissions thereafter. This target has been enshrined in the EU’s Climate Law passed in 2021. China developed a policy commitment to reach carbon neutrality before 2060. These jurisdictions account for the vast majority of Ontario’s interprovincial and international trade, and their commitments to decarbonization represent a significant strategic consideration for the future of the province’s export growth and economic development.
It is in Ontario’s best interest to align with these partner jurisdictions on strategic policy directions related to the clean energy economy. Alignment on strategic objectives creates further opportunities for trade and investment through, for example, the province’s Strategic Investment and Procurement Agreements (SIPAs) with U.S. states. For example, Ontario recently reached an agreement to deepen the longstanding economic relationship with Michigan through an Economic Cooperation Memorandum of Understanding that will support trade and investment initiatives in priority areas like electric vehicles and related supply chains. Aligning with partner jurisdictions on a commitment to a clean energy economy thus eases the frictions of cross-border trade and investment, opening up opportunities, bolstering economic prosperity and creating jobs.
Recommendation 3: The provincial government should continue to seek alignment and coordination of clean energy economy objectives, standards and policies with other governments (within and outside Canada) whenever practical and consistent with the province’s economic and policy interests.
This alignment and coordination should include, but need not be limited to:
- Pursuing strategic policy alignment on key priorities for economic and energy development
- Engagement with the federal government and taking the necessary policy actions to ensure Ontario can access federal funding opportunities (e.g. federal investment tax credits)
- Coordination and collaboration with the federal government to streamline and provide greater clarity, predictability and timeliness of project approvals and clear delineation of responsibilities
- Engagement with Canada and neighbouring provinces and states, directly and through agencies, to pursue the mutually beneficial integration of energy systems (including electricity markets and interties) to advance energy transition objectives
- Pursuing opportunities to enhance cross-jurisdictional coordination and alignment of energy-related codes and standards with the objective of reducing regulatory burden while maintaining a position of leadership in regulatory innovation
- Engagement with municipalities to ensure they are aligned with and supported in the energy transition, including support for Comprehensive Local Energy Planning and requiring local
A long-term vision for the energy sector
A commitment to constructing a clean energy economy will set the broad, overarching objective and target for Ontario’s economy. The energy sector will require a more focused and sector-specific vision for the evolution of Ontario’s energy system.
Some jurisdictions have undertaken to develop a “Scoping Plan” or “Master Energy Plan” for government to deliver the energy policy needed to guide electrification and the energy transition. These plans go beyond traditional electricity and natural gas system demand/supply plans and serve as an economy-wide roadmap to decarbonization and economic development in the shift to a global clean energy economy. They articulate broad strategies for energy transition and seek to tie together energy production and consumption across all sectors of the economy, with consideration for policy goals like affordability, economic development and efficiency. Plans include recommendations such as legislative changes, regulatory policies, fuel-switching programs, and affordability and equity programs, as well as funding models.
For example, New Jersey developed a 2019 Energy Master Plan: Pathway to 2050 (EMP). The plan was developed by the state’s Energy Master Plan Committee. The 2019 EMP represents “an innovative, systematic, and inter-agency approach that, for the first time, holistically considers the complete energy system in New Jersey, including electricity generation, transportation, and buildings, and their associated greenhouse gas emissions.” It spans multiple economic sectors and includes rigorous objectives to achieve 100 percent carbon-neutral electricity generation and a maximum electrification of the transportation and building sectors, along with a detailed roadmap with seven main strategies to reach those objectives.
Similarly, New York released a Scoping Plan in 2022, developed by the state’s Climate Action Council. The 2022 plan “recommends actions that advance the requirements of the Climate Act both within and across economic sectors,” including transportation, buildings, electricity, industry, agriculture, forestry, and waste, and touches on topics such as land use, local government, adaptation and resilience. It provides both sector-specific and economy-wide recommendations oriented towards objectives of climate change mitigation, justice, economic opportunity and long-term job creation.
In May of 2023, the United Kingdom’s Department for Energy Security and Net Zero issued a proposed Strategy and Policy Statement for Energy Policy in Great Britain document for consultation. The document “sets out the government’s strategic priorities and other main considerations of its energy policy,” including the policy outcomes to be achieved and the roles and responsibilities of entities involved in the implementation of that policy. The document also identifies three priority objectives for energy policy: enabling clean energy and net zero infrastructure, ensuring energy security and protecting consumers, and ensuring the energy system is fit for the future.
The Panel sees a critical need for Ontario to develop a comprehensive energy transition policy vision to guide the provincial energy sector toward a clean energy economy. Such a vision would consider the generation, transmission, distribution, consumption and conservation of energy across end-uses in the province. A comprehensive approach is necessary to manage vast changes to provincial energy infrastructure and support a cost-effective energy transition that prioritizes affordability, reliability and economic development. The significant fuel-switching at the end-user level and the necessary build-out of the electricity system is a highly complex undertaking that will need to be paced and balanced using a clearly articulated set of values and principles outlined in an energy transition vision.
Such a vision will need to account for uncertainties and learning along the way. New Jersey’s 2019 EMP, for example, notes that its planning reports are “designed to be living documents to be continually reassessed, remodeled, and reprioritized as early objectives are achieved and newly emerging pathways mature.” As technologies, processes and systems evolve, it will be necessary to review and revise system-wide plans. Ontario’s long-term vision will need to be iterative and ongoing, evolving as the sector and its core technologies and processes evolve.
Recommendation 4: To enact the clean energy economy policy commitment, the Ministry of Energy should develop and communicate an energy transition policy vision that is inclusive of Indigenous perspectives and informed by clean energy economy policy principles.
The vision should outline clear strategic priorities, action-oriented objectives, acceptable trade-offs, and policy outcomes for energy production, transmission, distribution, and end-use shifts (such as transportation and buildings) to an electrified and low-carbon economy by 2050.
Integrated long-term energy planning
Government’s long-term vision for the transformation of the energy sector will need to be operationalized, managed and delivered through a renewed and expanded long-term energy planning process. Throughout its engagements the Panel heard that government needs to lead the way in planning for electrification and the energy transition by setting high-level objectives and providing clear and stable policy direction, while technical energy planning should be carried out independently, with effective oversight and accountability for planning outcomes. Long-term planning must be coordinated and integrated, considering the relationship between electricity, gas and other fuels in a holistic way and examining all the resources available, as well as coordinating with municipal and community energy planning. The process must include meaningful engagement with Indigenous partners at the earliest stages of development, and continued inclusion through the project planning, execution and operations phases. Stakeholders expressed the need for a robust, transparent and accountable planning process that provides policy certainty and prioritizes reliability, affordability and customer choice while ensuring adequate power supply to meet the needs of an electrifying economy.
This section of the report focuses on the key role the government plays in setting the goalposts for integrated planning. Recommendations for how integrated planning should apply to the specific roles of the IESO and the Ontario Energy Board (OEB) and what role electricity and natural gas distributors play in a better coordinated system are developed in the following Section 6 – Governance and Accountability.
As new opportunities and options emerge through electrification and the energy transition, integrated planning becomes more important and grows in complexity. Coordinating electricity and natural gas system planning, and possibly other fuels, requires expanding communication structures and strategic optionality across the energy system. But the energy transition adds other dimensions in which an integrated perspective is needed. This involves thinking across and understanding the linkages between end-use sectors, such as appliances, transportation, industrial and building heating. Technological advancements have also opened up new opportunities for distributed energy resources and flexible demand (some with the ability to fuel-switch in response to market signals) to play an increasingly important role. As a result, planning will also require better integration and awareness between bulk, transmission and distribution levels of the system. Finally, energy planning will require increased integration across levels of government to ensure policy signals are well-aligned to encourage effective private sector action.
Much of the feedback the Panel received echoed input to the Ministry of Energy in its 2021 engagement on the reform of Ontario’s long-term energy planning framework, when the Ministry began the process of reviewing the province’s long-term energy planning framework to ensure that decision-making aligned with the core principles of effectiveness, transparency, predictability, accountability and ratepayer protection. Stakeholders emphasized the need for clear, high-level government policy direction, the importance of integrated, independent planning that considers all fuels and resources, the importance of planning oversight and accountability, and the need for enhanced stakeholder and public participation. The congruence of stakeholder feedback on these two engagements demonstrates the clear priorities and needs of the sector.
The Panel heard a variety of perspectives regarding which entity should lead long-term energy planning, or indeed whether a new entity should be created for this specific purpose. Some stakeholders expressed interest in expanded roles for existing energy sector players/agencies (Ministry of Energy, OEB and/or the IESO). Some stakeholders argued that a new entity (and/or new process) was required to break down policy and sector siloes, while others believed that the Ministry of Energy, the OEB, and the IESO could undertake this task.
The Panel’s jurisdictional review revealed that all jurisdictions recognize the need to undertake integrated planning and have taken a diversity of organizational approaches in that direction. Some are establishing and empowering independent entities of various forms to develop long-term energy plans, while others are building on existing institutional arrangements. Importantly, there is no model that can yet be classified as successful as all jurisdictions are in the early stages of moving towards integrated planning.
Against this backdrop, the Panel believes that at the current moment, strengthening cross-sector coordination and preparing for electrification and the energy transition is best achieved by carefully modifying the existing institutional framework in which the Ministry of Energy continues to lead energy planning. The OEB and IESO are not equipped, nor should they be expected to undertake, the development of a plan linking all sectors of the economy or to make key directional decisions on broad public policy matters, such as the use of public financing, the future role of the natural gas network in Ontario’s energy mix, land use planning, or future building and construction standards. Likewise, the Panel does not believe a new planning entity should be created at this time as it would add to the complexity and time needed to begin undertaking integrated planning in the province.
The Panel believes that the OEB and IESO have crucial roles to play in enabling electrification and the energy transition. However, the OEB's core focus should remain on its economic regulation and consumer protection responsibilities, and the IESO’s primary focus should remain on effective management, coordination, technical planning and oversight of Ontario's bulk electricity system and wholesale markets. Government has both the mandate and the responsibility to build public trust in energy policy and balance the vast array of inherently political trade-offs required in developing long-term energy plans.
Recommendation 5: The Ministry should develop and release, on a regular cycle, an integrated long-term energy plan that will guide Ontario’s development of technical energy plans, strategies, and actions to support the transition to a resilient and affordable clean energy economy.
The plan should provide actionable and measurable guidance and policy direction, as well as regulatory recommendations and legislative revisions (as needed) across electricity, natural gas and other fuels on the production, transmission, distribution, consumption, and conservation and demand management of energy.
- The plan can be developed within the existing legislative framework and should allow for broad input, while allowing for timely and effective planning and decision-making.
- The planning process should include support and alignment for reconciliation with Indigenous peoples.
- The planning process should encourage good communication on policy alignment and regulatory policy development across the ministry, IESO and OEB, while respecting each organization’s distinct roles.
- Both the integrated long-term energy plan and subsequent technical planning should be undertaken at pace and be based on dynamic and iterative analyses using scenarios.
- The planning process should be inclusive and support energy consumers of all types, including vulnerable consumers. It should be participatory and deliberative to build a broad support for the energy transition, a focus on economic opportunity and competitiveness, equity and distributional impacts, and environmental and health benefits.
Policy direction on natural gas
Natural gas is an important resource fulfilling three main essential and distinct functions in Ontario’s energy system today. As a fuel for electrical power generation, natural gas plays a critical role in providing dispatchable balancing and peaking services. As a fuel for space and water heating, natural gas has long been the cheapest option and has been adopted by the vast majority of Ontario households. Finally, as a source of industrial process heat and a feedstock for production in the chemical industry, natural gas plays an important role in supplying cost-competitive energy and material inputs. Today natural gas makes up almost 40 per cent of Ontario’s energy mix.
Yet today, Ontario faces a fundamental conundrum with regard to the future of this resource. There are growing indications that it is unlikely that the natural gas grid can be decarbonized and continue to deliver cost-effective building heat. There is growing doubt that it will be possible to replace the vast quantities of fossil fuel natural gas used today with clean alternatives, such as renewable natural gas (RNG) or hydrogen, in a cost-effective manner. Likewise, it is no longer clear that natural gas is the cheapest way to heat buildings, and customers may begin choosing to disconnect from the natural gas distribution system in the mid-term. This leads to a real risk of economically stranding the rate-regulated distribution assets used for home heating, with significant risk to customers, investors, and public finances.
At the same time, there is mounting concern that increasing electricity demand – whether for building heat or in other parts of the economy (transportation, industry) - will strain the capabilities of the grid to deliver reliable affordable power. For example, in Ontario, replacing the 582 petajoules of natural gas for space and water heating (representing 22 per cent of Ontario’s final energy demand, 2021 numbers) with electricity is a substantial undertaking, requiring a large amount of additional supply, along with the transmission and distribution infrastructure needed to deliver it. This is fundamentally a challenge of pacing: pacing the rate of increase in electricity demand with the rate at which new electricity supply can come on stream. In the years to come, the natural gas delivery system can play a strategic role as a source of affordable reliable energy, whether through hybrid heating or other means of optimizing the electricity and gas delivery systems for the clean energy economy. Which approaches make the most sense from a clean economy perspective will differ from one part of the province to another (region to region, community to community).
Governments and regulators in other jurisdictions have identified this medium to long-term risk and are developing plans for a well-managed long-term transition that would protect customers, provide clear signals to investors and focus natural gas system resources in the most efficient and effective manner. In the long term, this could be balanced with a manageable and realistic amount of hydrogen, RNG or fossil gas with CCUS for such priority areas as electricity generation for reliability and backup purposes and hard to decarbonize industrial applications.
New York, in its Scoping Plan, states that “a well-planned and strategic transition of the gas system will require coordination across multiple sectors” and that “integrated planning will ensure the transition is equitable and cost effective for consumers without compromising reliability, safety, energy affordability, and resiliency.” At the same time, New York states that “it is important that the strategic transition to a decarbonized gas system in New York State does not impose undue cost burdens on customers who currently rely on this fuel for home heating, especially those who can least afford cost increases.” Similarly, Massachusetts’s Clean Energy and Climate Plan for 2050 stated that in 2023 the state will undertake work on “defining long-term policy directions to manage the future of the natural gas distribution system.”
It is clear natural gas will continue to play a critical role as a source of energy in the province for the short and medium-term. The medium to long-term future of the cost-effective use of natural gas is less certain. Detailed and iterative analyses, engagement and regulatory policy will be needed to effectively navigate the future role of natural gas. The OEB will play a central role in this process, in both its regulatory policy role and as adjudicator of utility rate applications. Directional policy guidance from government will be needed to enable the OEB to proactively work with utilities to develop a viable plan amid a well-managed transition. As the electricity planning entity, the IESO will play an essential part in advising government on the role of natural gas generation for reliability and peaking power, as well as the pacing of demand and supply to ensure the electricity sector is able to accommodate additional demand from fuel switching.
Recommendation 6: In order to provide clarity to utilities, investors and customers, the Ministry of Energy should provide policy direction on the role of natural gas in Ontario’s future energy system as part of its next integrated long-term energy plan. This policy direction should be consistent with the clean energy economy policy commitment and consider the various roles natural gas plays across the energy system.
This policy direction will require thorough technical, policy and regulatory analysis, collaboration among government, sector partners, and provincial agencies and a public engagement process. The outcome should be to manage the system optimization and fuel switching necessary to achieve a clean energy economy at a pace that maintains affordable, reliable and resilient energy service.
Key areas of analysis should include but not be limited to:
- Maximizing energy efficiency programs, with an emphasis on cost-effective measures that contribute to the long-term success of the energy transition (e.g. building envelope improvements versus appliance upgrades)
- Updating building and construction codes and standards
- Evaluating the feasibility of innovative decarbonization solutions for the natural gas system, including renewable natural gas, clean hydrogen, and carbon capture, utilization and storage
- Opportunities for gas system optimization, including hybrid heating
- Distributional impacts on Indigenous communities
- Distributional impacts on labour, the average energy consumer, rural and remote communities, and vulnerable communities
- Complexities and challenges of industrial fuel switching and implications for economic competitiveness
- Feasibility of alternatives for dispatchable natural gas as reliability and peak power resource
- Opportunities, options for, and consequences of strategic decommissioning or right-sizing of natural gas infrastructure in the long term
Comprehensive local energy planning
Local governments will play a key role in achieving a successful clean energy economy in Ontario. They must be enabled to contribute to and take responsibility for their specific energy objectives. Municipalities, communities, and local businesses must continue to be committed to thinking about their energy needs holistically. As reflected in the input the Panel received, local governments want to play their role in addressing climate change, energy affordability and, by developing local energy sources, build community commitment.
Establishing a strong link between local and municipal planning with regional and distribution sector energy planning has been a long-standing challenge. That said, there is important work underway to strengthen local energy planning and linkages to regional planning:
- The OEB completed its Regional Planning Process Review in August 2023 (Overview of Outcomes). As part of the Review, the Regional Planning Process Advisory Group (RPPAG) developed two reports, “Recommendations to Improve Ontario’s Regional Planning Process” in December 2021 and “Improving the Electricity Planning Process in Ontario: Enhanced Coordination between Municipalities and Entities in the Electricity Sector” (December 2022), which emphasized the need for enhanced coordination between local distribution companies (LDCs) and municipalities.
- As the lead entity in regional electricity planning, the IESO regularly coordinates with and engages municipalities, Indigenous communities, individuals, and business groups. IESO also supports First Nation and Métis communities and organizations to develop community energy plans through the Indigenous Community Energy Plan program.
Many local governments in Ontario have developed detailed and ambitious strategies to address climate change, transform their municipal energy systems, conserve energy, and reduce both corporate and total greenhouse gas emissions.
Oxford County’s 100% Renewable Energy Plan is a community-wide initiative that lays the groundwork for the county’s goal of achieving 100 per cent renewable energy by 2050. The municipality is planning to introduce renewable energy projects across the county and set emissions reduction targets every five years. Similarly, the City of Ottawa’s Climate Change Master Plan outlines a framework for how Ottawa will transition to a clean, renewable, and resilient city by 2050. ReCharge Hamilton, a Community Energy and Emissions Plan from the City of Hamilton, is a major component of the city’s long-term plan to decarbonize by 2050. The plan prioritizes innovative actions that increase energy efficiency of industrial processes, transform buildings to be more energy efficient and encourage fuel switching, decarbonize the city’s transit fleet, and promote renewable energy generation. Hamilton Community Enterprises provides building heating and cooling solutions and has proposed “Canada’s Thermal Corridor” that could connect heating demand across the Greater Toronto and Hamilton Area with waste heat sources, such as from Hamilton’s heavy industry.
TransformTO, the City of Toronto’s Net Zero Strategy to reduce community-wide greenhouse gas emissions in Toronto to net-zero by 2040, lays out the groundwork for a community energy planning process that considers energy early in the land-use and infrastructure planning process, and identifies opportunities to integrate local energy solutions at a building or neighbourhood-scale. The City of Toronto is collaborating with Toronto Hydro, which has developed a Climate Action Plan to support the objectives of TransformTO.
Many other municipalities have adopted or developed similar plans, often with assistance from Ontario’s Municipal Energy Plan program. These municipal plans emphasize the importance of alignment with provincial and federal governments to promote energy conservation and enable local renewable energy generation. That said, plans are not always fully costed and do not account for electricity or natural gas rate implications. While empowered to shape crucial systems of energy consumption, municipal governments often face challenges, such as limited financial and staff resources, jurisdictional barriers, and conflicts with regulatory requirements. As such, the Ontario government should play a major role in facilitating, resourcing and enabling energy system transformation at the municipal level.
Recommendation 7: To ensure municipalities, communities and local businesses are in the best position to participate in energy decision-making and take responsibility in pursuing their energy transition objectives, the Ministry of Energy should develop a strengthened framework for local energy planning and decision-making and take steps to facilitate its implementation. The goal should be to develop mature Comprehensive Local Energy Planning processes through which communities can effectively contribute to Ontario’s energy transition in ways that suit their needs and reflect their local strengths, opportunities, and priorities. Developing Comprehensive Local Energy Plans with transparency on cost implications and rate impacts can help to align community planning with provincial policy objectives.
As part of Comprehensive Local Energy Planning, communities should establish a table for aligning and resolving key policy issues and priorities – e.g. housing, transportation, land use planning and energy – in a way that uses municipalities’ leadership role and engages them to take responsibility for their own commitments (e.g. on climate) and within their own domain. The provincial government should ensure that municipalities have the support, capabilities and resources to carry out this work.
Engagement on Comprehensive Local Energy Planning must involve a broad set of local interests and stakeholders, including electric and gas distribution utilities. The outcome of the process will form an important input into technical electricity and gas distribution planning and IESO-led (regional) planning, respectively. This process would not replace the existing IESO-led Regional Planning process, which is very technical and should remain so, albeit with broader input from gas utilities and other local planning entities.
The Ministry of Energy and the Ministry of Municipal Affairs and Housing should coordinate to ensure that the province and municipalities are aligned on land-use planning as it relates to energy infrastructure, and to determine how to best support municipalities in leveraging support/ incentives from the province/federal government to support economy-wide decarbonization.
Indigenous participation in energy planning and governance
As elaborated in Section 4 of this report, moving towards a clean energy economy represents an opportunity for government to collaborate with Indigenous partners on shared decision-making and synergetic governance models, including Indigenous participation on boards of directors and joint committees.
Ongoing capacity funding to enable early and meaningful Indigenous participation is critical to address the unique barriers that prevent full Indigenous participation in energy planning and decision-making. While efforts to build capacity can take time to increase communities’ technical energy and systems knowledge, government and the sector must create space for Indigenous perspectives throughout energy and technical planning discussions.
Capacity building also requires a renewed commitment from government and the sector to build their internal capacity, including enhancing Indigenous cultural competency, building greater awareness and understanding of community engagement protocols, governance structures, and the ability to clearly demonstrate how policy development and decision making are informed by Indigenous perspectives.
For a more comprehensive discussion of Indigenous participation in energy planning, please refer to Section 4 of this report.
Recommendation 19: The government should support meaningful Indigenous participation in the clean energy economy through consistent and larger scale capacity building initiatives, including:
- The development and expansion of Indigenous-led and community-driven capacity building initiatives
- Stable and flexible capacity funding to facilitate meaningful Indigenous consultation and engagement with the Ministry and proponents on energy planning, and project development
- Expansion of the IESO’s Indigenous Energy Support Program (including increasing the program budget overall, increasing funding for designated energy champions, wrap-around community supports, and flexible program delivery)
- Tailored and accessible learning resources to enhance understanding of Ontario’s evolving energy system, and improve Indigenous participation in community, regional and provincial energy planning, as well as technical planning discussions
Recommendation 21: To improve embedded governance participation, the government should amend the enabling statuses of the IESO and OEB to ensure Indigenous representation on the Boards of Directors.
Ongoing, transparent, external advice
As discussed in previous sections, navigating the energy transition over several decades in an effective and efficient way that enables Ontario to prosper and stay competitive requires strategic foresight and adaptation, alignment and coordination across economic sectors and, perhaps most importantly, a long-term perspective to maximize policy clarity in line with long-term investment cycles. Many jurisdictions have established special bodies to keep momentum and overall stability beyond electoral cycles, mitigate policy uncertainty, and ensure energy policy and planning are informed by high quality advice.
Such bodies range significantly in scope, membership, transparency and authority, with some being purely advisory, others having important responsibilities for planning and execution, while still others play more of an audit and accountability function. For example, the British Columbia government established the Climate Solutions and Clean Growth Advisory Council (now the Climate Solutions Council) in 2017 to provide strategic advice to the government that “supports a steady and committed approach to climate action that drives down emissions, increases economic opportunities and improves community resilience.” The Council has fifteen members from the public, for-profit and non-profit sectors, First Nations representation, as well as two ex-officio ministry representatives. It provides advice on the government’s plans and programs. The federal government’s Net Zero Advisory Body, established in 2021, is similarly structured, but has a wider mandate to engage publicly and provide independent advice on how Canada can “compete and succeed in a net-zero future.”
With more permanence and resourcing, the United Kingdom Climate Change Committee was established through legislation as a statutory body in 2008 to advise governments on emissions targets and report to Parliament on progress made. While lacking formal planning or policy authority, it has developed into an important voice on the basis of its high-quality and actionable public advice to government across a wide range of areas, such as buildings, heat pumps and energy efficiency, skills and labour force development, power system decarbonization, and infrastructure resilience. With ten members and about 40 staff, the Committee’s 2021-2022 budget was about £4.5 million, of which £1.3 million was spent on research.
Finally, the California Energy Commission (CEC) plays a much more extensive role in planning and developing California’s energy system. Established in 1975 in response to the energy crises, the CEC is the lead energy policy agency and works with the California Public Utilities Commission, the California Independent System Operator and the California Air Resources Board to advance comprehensive and integrated energy and climate policy, including energy innovation and efficiency programming. With responsibility for key energy supply, buildings and transportation planning, every two years the CEC develops an Integrated Energy Policy Report, which presents an integrated assessment of major energy trends and issues facing California’s electricity, natural gas and transportation fuel sectors. In the development of the Report, the CEC holds several proceedings to engage with relevant stakeholders. The CEC also led the development of California’s first three climate change impact and vulnerability assessments between 2006 and 2018.
Against this backdrop, the Panel believes that Ontario would best benefit at this juncture from an external advisory body that pursues research and engages with stakeholders, Indigenous partners and consumer groups to provide strategic advice to government in public on key questions facing Ontario’s energy transition. With a multi-decade focus, with members whose background and experience enable them to see gaps and emerging challenges in the energy system and governance as a whole, and by operating transparently and convening open expert discussion, an Energy Transition Advisory Council would help to navigate the necessary tension between shorter-term political considerations and longer-term policy objectives. Impartial advice from the Advisory Council, informed by the broad-based experience of its members, targeted research and broad engagement, could help set the agenda and enable government to take necessary but sometimes difficult actions. Carrying out these functions would require a core staff and a secure engagement and research budget.
The Panel believes that initially the Council should have advisory functions only. It would have no formal authority, audit, oversight or planning roles. Its influence and standing would therefore depend on its ability to provide high-quality, sage advice to government. Over time, government should evaluate whether a formal coordinating or integrated planning role is needed or whether the Council’s advice should carry additional legal or policy heft. Importantly, detailed policy development would continue to be carried out by government ministries, and overarching energy planning would continue to be led by the Ministry of Energy and its entities.
Recommendation 8: To contribute long-term certainty and orientation to Ontario’s energy transition, the provincial government should establish an external Energy Transition Advisory Council to provide advice, independent of government and on an ongoing basis, on the overall trajectory of Ontario’s energy transition, emerging governance or energy system-level questions and the integration of energy planning and coordination with sectoral strategies.
The Advisory Council should include 10-15 members across industry, Indigenous, consumer/ citizen, academic, finance and other pertinent expert representation, predominantly from Ontario, and select Canadian and international jurisdictions. Government staff, IESO, OEB and representatives from other key entities should be included as observers and to contribute technical expertise.
The Advisory Council would have a long-term mandate and be intended to identify gaps in navigating the energy transition, in a purely advisory function and not duplicative of other planning activities:
- Provide thought leadership on planning and coordination across fuels and economic sectors and respond to government requests for advice
- Lead transparent engagements on key questions facing Ontario in the energy transition (asked by government or self-initiated)
- Identify areas where research and further coordination are required and commission research to address key knowledge gaps. This could include advising on the development of future energy pathways studies and helping identify the implications of findings for the province. In subsequent iterations, the Advisory Council could take on additional responsibilities, including commissioning pathways studies on behalf of the government.
- Advise the government on strategies for educating, informing, and engaging the public on energy choices
- Issue reports and provide advice on the future evolution of long-term integrated planning, including how Comprehensive Local Energy Planning can effectively contribute to Ontario’s energy transition
- Ensure Indigenous perspectives are adequately reflected in all proceedings and report
- Convene sub-committees and working groups as needed (e.g. on transportation, buildings, equity, rural and remote communities, municipalities, skilled workforce development)
- Provide advice on the long-term human capital and financial resource needs of entities involved in planning and regulating the energy system
- Issue a progress update on the energy transition in Ontario on a regular basis (e.g. every two years)
- Provide an annual report on its activities and advice to the government