Ottawa looks to push provinces to modernize electricity grids

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The future of Canada’s electricity grid is suddenly rising to the top of the federal government’s agenda for meeting climate targets and competing economically during a global energy transition.

Ottawa has publicly committed to a new regulation, called the Clean Electricity Standard, requiring provinces’ power systems to have net-zero emissions by 2035. But there is also a push under way behind closed doors to commit significant new federal funds to help achieve that requirement, while increasing supply to meet growing household and industrial needs.

Natural Resources Minister Jonathan Wilkinson is making new electricity spending one of his department’s main requests for the next budget, according to officials whom The Globe and Mail is not identifying because they were not authorized to speak publicly on the issue.

“If you ask about the most difficult set of challenges facing this country, in terms of how do we make progress in emissions reduction and the economic side of it, a lot of people would say oil and gas or transportation,” Mr. Wilkinson said in an interview. “I would say it’s the grid.”

Such assessments are increasingly being made by the private sector, too. Last week, Royal Bank of Canada released a report warning that this country “needs to accelerate the expansion of its electricity system or risk falling behind in a renewed Net Zero grid race,” especially with the United States set to invest massively in non-emitting power after passage of the Inflation Reduction Act.

The prioritization here is overdue. Canada’s clean existing electricity supply relative to most other countries, with fossil fuels currently accounting for less than 20 per cent of generation, led to complacency about the challenge of meeting a projected doubling of demand. This increase will be caused mostly by electrification of transportation, building heating and other energy needs currently met by fossil fuels.

That threatens to compromise Canada’s emissions targets, hurt service reliability and discourage investments by industries increasingly prioritizing clean electricity for their operations.

Now, the question is how effectively Ottawa can assert itself in an area of mostly provincial jurisdiction. It needs to overcome a political problem with electricity policy: lack of incentive for provincial governments to make expensive and disruptive investments that won’t benefit consumers until after most current office holders have moved on.

While many provinces recognize some need for new renewable electricity sources – with small nods in that direction even by Ontario Premier Doug Ford, who came to office tearing up wind and solar contracts – there has yet to be enough urgency in most places.

“Our principal concern at this stage with respect to the energy transition is the speed with which it’s taking place,” said Francis Bradley, who heads the industry association Electricity Canada.

Ottawa’s ability to change that trajectory will depend partly on the effectiveness of the Clean Electricity Standard, due in the next few months.

One consideration facing Environment Minister Steven Guilbeault, responsible for delivering the policy, is how much flexibility to leave for emitting fuels (mostly natural gas) to be used during instances of peak demand past 2035. Another is compliance options, such as offset purchases or a strengthened carbon price, for systems that continue to emit.

But however that regulation turns out, provinces still might not move quickly to build new long-term supply, especially as broader cost-of-living concerns make them reluctant as ever to pass down costs to ratepayers. So there is growing recognition of the need to use carrots along with sticks – leveraging federal dollars to entice provincial, municipal and private capital investment.

“You can’t simply regulate this,” Mr. Wilkinson said. “There has to be a way in which we are working collaboratively with the provinces to move this forward in a manner that ensures affordability for consumers and that can convince provinces and territories that it’s in their long-term economic interests.”

One option is to expand existing but relatively modest funds, such as the Smart Renewables and Electrification Pathways Program, which offers up to $964-million over four years in grants for relatively established electricity sources (wind, solar) and emerging ones (such as energy storage and geothermal).

Ottawa is also still counting on the Canada Infrastructure Bank, including for interprovincial transmission projects, despite its financing having flowed slowly. Another vehicle could be the Canada Growth Fund – a new $15-billion arms-length financing agency, promised last budget, with details supposed to come in this fall’s economic update.

Mr. Wilkinson and his colleagues could get insights about provinces’ hopes for support whenever they launch a pan-Canadian grid council, after promising it in last year’s election campaign.

But national programs may only go so far, because every province and territory has a different scenario.

Although even hydro-rich provinces (Quebec, Manitoba, British Columbia, Newfoundland and Labrador) will need investment, they start from a better place than others (especially Nova Scotia and Saskatchewan, struggling to get off coal). And systems range from entirely public in some places to Alberta’s open market.

That has some advocates calling for Ottawa to separately negotiate tailored funding agreements with each province.

“The federal government would provide provinces with funds,” said Jason Dion, a research director with the Canadian Climate Institute. “In exchange, provinces would produce their own plans to grow affordable, clean and reliable electricity systems – and set their utilities and regulators to the job.”

Mr. Dion compares the idea to recent deal-making to create a patchwork national child-care system.

While he did not commit to that model, Mr. Wilkinson repeatedly invoked Regional Energy and Resource Tables that he’s setting up – in which Ottawa is supposed to work with each province individually on clean-economy goals – as a way to collaborate on electricity. Ideally, that means both shared spending and attempts to synchronize regulatory processes.

That sort of urgency is what Mr. Bradley, of Electricity Canada, lamented is lacking now. Getting a project sited and approved, he said, can take up to a decade.

And on spending, he wants not just new programs, but existing ones to get money out the door faster.

Mr. Bradley offered this assessment in his Ottawa office, which features a clock counting down the days until 2035.

It’s a fitting reminder of the race in the capital to make up for lost time in readying a clean-electricity future – and to rally other governments across the country toward that imperative.