Are Canada’s power grids ready for the future?

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Jordan Heath-Rawlings As we move towards a better future, a cleaner future, with falling emissions, renewable resources, and all of the good stuff that is going to happen help us hopefully stave off the worst of climate change, we’re going to need some power. Actually, we’re going to need a lot more power than we currently have. It would be great, fantastic, even if all of that power was zero emission. And in fact, Canada has committed to that by 2035. But right now that power is not and demand is about to rise. So what kind of shape are Canada’s power grids in right now? Are they equipped to meet rising demand? What choices are governments going to have to make in order to meet the demand for electricity that comes with massive switches to electric vehicles or home heat pumps? Can we create that power with clean energy alone? Or what kind of sacrifices might we have to make, both in terms of the type of energy and the prices Canadians pay for it to make sure that nobody is left in the dark? I’m Jordan Heath-Rawlings. This is the big story. Colin Gouldimann is an economist with RBC. He is the author of a new report called the price of how to cut Canada’s net zero electricity bill. Hey, Colin.

Colin Gouldimann Hi, how are you?

Jordan I’m doing well, thanks. How are you?

Colin Guldimann Well as well.

Jordan Excellent. Maybe we can begin because this is a bit of a complicated discussion by just explaining what we’re referring to when we talk about a province’s power grid. What are they?

Colin Guldimann Sure. So the power grid is really, you know, for a consumer, the best way to think about it is it’s all the infrastructure built so that we can get electricity generated, move from where it’s generated to where it’s being used, and then powering our daily lives, our refrigerators, our computers, hopefully, at some point, our cars. So it’s the assets that generate the electricity, whether that be solar panels and wind turbines, nuclear plants or gas plants. It’s the transmission infrastructure. So the big overhead wires that move the power from the generating station to transformers. The transformers and the distribution system, the smaller wires that move the power right to our homes. And then that’s sort of when we connect in all of our appliances and things like that. So the grid is all that back end stuff that people don’t spend very much time thinking about, but maybe should be.

Jordan And I know we can’t go through each province one by one and kind of break them down, but just generally, what is the mix of our power sources? In Canada, you mentioned renewables, there’s natural gas, there’s nuclear. How are we dividing that up?

Colin Guldimann Yeah, so Canada doesn’t really have a monolithic electricity system. It’s really kind of fragmented across provinces. So broadly speaking, there are what I’d classify as hydroelectric provinces. So that would be BC, Quebec, Manitoba as the big examples, Newfoundland and Labrador and the Yukon, where they really get most of their electricity generation from big hybrid dams, a lot of these things being built over the last century. There are sort of hybrid provinces, that’s what I would call them anyway, that use a mix of generating assets. A good example of that is Ontario. We have some hydro dams. We have a bunch of nuclear facilities. We have some natural gas fired power. We have some renewables that would be wind and solar in particular. And so those provinces rely on a broader mix than maybe Quebec and BC would. And then the final set of provinces are places like Alberta Saskatchewan and Nova Scotia, which really rely pretty heavily on fossil fuels. Up until sort of the last couple of years, it’s really been coal. As those provinces kind of look towards phasing out coal, it’s increasingly natural gas that’s providing this sort of firm power for those grids. So there’s kind of three groups of provinces, and each of them have slightly different challenges because of the existing mix of electricity. On the whole, though, Canada, I think, really has an advantage as a clean electricity powerhouse. We’re one of the cleanest electricity systems in the world, and that’s really largely due to the expansion of nuclear and hydroelectric facilities we’ve done over the last century as we speak today.

Jordan And I realize this report is about looking forward to the future, but as we’re talking, are our grids in good shape to deliver the power demands that they get? And maybe we can accept Atlantic Canada for the moment. We just did an episode yesterday. But obviously the infrastructure there that’s just been devastated. But in general, you know, do we have sufficient power?

Colin Guldimann Yeah. So, you know, I mean, when we don’t have sufficient power where there are disruptions in the system, that’s when we get things like blackouts. And so the story, really, of the Canadian electricity system is one that’s been quite resilient and is working well until it doesn’t. And the tragic storm in eastern Canada is a good example of the kind of challenges the electricity grid has always had to face and challenges that are, I think, going to increase as climate change, the impacts of climate change grow. So I would say today we’re in a pretty good space. In the future. There’s sort of a dual challenge. Which is we’ll need to address the impact of climate change. Whether it’s the increasing frequency or severity of storms or heat events which will erode the grid infrastructure. Which is built in a way that is kind of resilient to what we would consider historical challenges. But really probably isn’t up to the future challenges and the way they’re changing today. And then the other thing that we need to accommodate is just a very large amount of electrification as we move away from fossil fuels and towards electric solutions. So as we plug in more and more electric vehicles, for example, that’s going to grow the amount of electricity we need to generate and deliver to consumers. So that’s the other sort of fundamental challenge we’re facing. So today, maybe not so much of a problem, but some individual provinces have some challenges. And it’s largely from two kind of near term things we’re doing. The first is this coal phase that I talked about a moment ago, which is Alberta moving away from coal and into gas, that is really replacing a large source of power in that province. And so building assets or adjusting the mix of generation today to account for the fact that we need to have coal phase out in the next number of years. That’s a near term challenge for those grids. And then the other thing is, in Ontario, a couple of these nuclear facilities coming offline, or perhaps coming offline.

Jordan How much extra demand could we see as the use of electric vehicles and everything else ramps up?

Colin Guldimann Yeah, it’s a good question. I mean, we don’t know for certain because the adoption rate of things like electric vehicles or household heat pumps is highly uncertain. And we’re really still in the early days, the nature of this technological adoption is usually what, you know, kind of wonky people like me call an S curve. So it starts off slowly, and then it sort of hits a tipping point and then really accelerates and then kind of levels off eventually. It looks a bit like an S on a chart. And so we don’t know when we’re going to hit that S curve or how steeply the adoption is going to increase once we hit that tipping point. But the logic is this could really start to change things. So for now, it’s not entirely clear how quickly we get there. But if you look in the long term, some energy modelers, for example, Mark Jacquard and Brad Griffin out of SFU, or Madeline McPherson at the University of Victoria, they’ve looked at this question. And if you aggregate all those studies, other folks have done other ones as well, you get a picture that by 2050, the amount of electricity demanded in Canada could grow two times. So if you think about the fact that it’s taken us 100 years to build the existing electricity grid, we’ll basically need to build another one of those and maybe another one on top of that. If we do it with renewables, or intermittent renewables, like wind and solar in particular, then you really realize the scale of this challenge. We basically have to double or triple the amount of electricity generation we’re doing to accommodate all this additional electricity demand. And so that’s going to be a real challenge.

Jordan And you mentioned that there are dueling problems, including the effects of climate change on the infrastructure and also the demands. There’s actually a third one that you kind of point out in the report here, which is that we’ve committed to a net zero power grid by 2035. How the heck do we double our capacity while also eliminating fossil fuels and other power from that grid?

Colin Guldimann Yeah, I mean, that’s the multibillion dollar question, quite frankly. And I think what we focus on the report is the myriad of uncertainties around that challenge. So the good news is we have a lot of technologies that are none emitting sources. Ten years ago, it would have been much more challenging to make this argument that we can do a lot of this work in the near term with wind and solar deployment. And the thing that’s developed in the last couple of years, decade or so, is that wind and solar costs have come down dramatically, like 70% to 90%, depending on where you’re looking at. So you’ve basically taken a ten full decrease in the cost of solar power and that helps you justify adding more and more of this into the electricity mix. The challenge we still face today is really what happens when wind and solar don’t perform. And that’s really a nature, it’s a fundamental challenge with these generating assets. If you think about a nuclear facility, these assets run all day long at full capacity and they have very little downtime. And so we’re constantly getting electricity out of them. But the sun doesn’t shine all the time, the wind doesn’t blow all the time. And so we’ll need to account for that as we adjust. And that means that we can’t really just like one for one, swap wind and solar in for a nuclear generating station that’s coming offline, or we can’t really swap them in for natural gas or coal, which is really kind of what we need to do. And so in the report we say, okay, let’s take a step back here and recognize canada is kind of uniquely positioned as a country that can build hydro facilities and it does have access to nuclear power in some parts of the country. And because of that approaching, this is a sort of suite of technology options where a new nuclear facility or a new hydro dam might have some specific benefits relative to just going all in on wind and solar. That’s going to be a real advantage for Canada as we kind of tackle this challenge. The other challenge, this is getting a little nuanced here, but there are new technologies emerging as we speak. So people in the electricity sector talk a lot about this kind of nebulous idea of energy storage. Which is. Since wind and solar are so cheap. Let’s generate a bunch of it. More than we need at any given time. And then load up batteries or pump water up a hill and then using that excess electricity and then run it down the hill or discharge the batteries when we need the electricity later in the day when the sun isn’t shining anymore. The problem with that right now is that it’s just very expensive to do that. The battery technology isn’t well enough developed at the moment to make that cost effective. That really could change. And so as we kind of progress forward. It’s useful to think of kind of taking a staged approach here and building things that are inexpensive today. Like wind and solar to meet sort of near term needs and then thinking kind of critically about the role of things like natural gas. Which of course does produce emissions. Or nuclear or hydro in the near and medium term to kind of hedge against this risk that battery technology doesn’t develop and stays very expensive.

Jordan What kinds of choices will have to be made as we navigate that and which provinces are going to face that first?

Colin Guldimann Yeah, so I would say there’s two provinces that sort of are really struggling with the kind of near term impact. The first and one we focus on a lot in the report is Ontario, and this has shifted a little bit in very recent news. When we wrote the report, the key challenge for Ontario was really that a number of nuclear generating stations were coming offline in the near term, partly to be refurbished. So Bruce Power, for example, massive nuclear generating station on the Bruce Peninsula in Ontario that produces quite a lot of electricity, was coming offline for refurbishment on a rolling basis. And so replacing that while those reactors are getting refurbished and the whole kind of guts of the reactor being rebuilt, that’s really a challenge for Ontario in replacing this, like, non emitting base load power that nuclear stations provide. The province just recently announced that they were going to be extending the Pickering facility, which is another nuke that was scheduled to come offline, which I think is a good news story because it keeps this problem kind of held at bay for a little bit longer. And that’s helpful as we kind of think through the consequences of whether we’re going to build new gas plants in Ontario or whether we’re going to seek to replace those reactors with wind and solar, or whether we’re going to actually refurbish those reactors. So that’s a little bit of kicking the can down the road for a couple of years. But the real benefit of doing that, maybe over the longer term, is that it lets us kind of let this technology race with the batteries and the pump tiger and these things take place and then we can build the capacity when we need it rather than right now and do it with better and cheaper technologies. So that’s really the benefit in Ontario, Alberta is the other province that kind of faces a near term challenge, and that’s because they need to get off coal and they’ve committed to doing that. And so they need to replace a huge amount of generating capacity because they’ve been so reliant on coal for so long. Largely what they’re doing now is replacing that coal with gas. And that’s going to work in the near term because, of course, natural gas has a much lower emissions profile. It’s much less dirty than coal, but it still produces emissions. And so the real question for Alberta and the other sort of coal provinces. Not to be too cute about it. But to Saskatchewan and Nova Scotia. Is whether or not they’ll be able to kind of soak up the emissions from those gas plants with this kind of new emerging technology called carbon capture and storage. Where you effectively burn the natural gas and then take the carbon dioxide out of the gas flu before it goes into the atmosphere. And then you kind of bury that deep underground. That technology is also expensive, but the benefit is it maintains sort of the flexibility benefits of a gas plant that can be fired up on a moment’s notice and provide electricity. Very responsively. So the question for those provinces is really how much can we rely on natural gas and this sort of nebulous new carbon capture technology? Or should they really focus on renewables and interconnections to other provinces that have better resources? So for Saskatchewan, that might mean building a bunch of solar plants and then buying hydroelectricity from Manitoba.

Jordan So, so far we’ve talked a lot about what provinces should do in the future and how at some point they may need to build X, Y, or Z. How long do we have to make those decisions?

Colin Guldimann I mean, it’s nice to talk about 2035. It’s not that far off when it comes to things like governments building new power infrastructure. We don’t tend to do those things very quickly in Canada. And I guess I wonder is what’s our runway on this before we have to commit to some sort of pathway forward and actually put shovels in the ground or start burying batteries or whatever it is. Yeah, I mean, that’s a really good question. It’s hard to know exactly how long we have because of that uncertainty on the adoption of these technologies like EVs and heat pumps. The answer, I think that it’s a little bit of a dodge of the question because we don’t know we have some time to do that. But the critical thing I think we need to be having a conversation about is whether or not we have the right sort of mix of policies and the sort of right regulatory environment that allows us to build all sorts of different kinds of things. If you compare a wind and solar installation to, say, a hydro dam or a nuclear facility, the project timelines for these assets are just like totally different. You can build, permit, site build, and connect a wind or solar facility in, like, some people will say one to three years. If everything goes well, you can build it really quickly. The permitting delays, these things are challenging, but you’re effectively purchasing manufactured things when turbines or solar panels and putting them on a specific plot of land and then hooking up some wires to them. It’s a bit of an oversimplification. But it’s a little different than a hydro reservoir where you have to do a lot of site prep and complex engineering. Understanding the hydrology of the area. Or a nuclear facility where you have just like a huge amount of built infrastructure to kind of add. Let alone the sort of complicated regulatory process. Safety approvals. And all these things that are very important. But they just take time. And so something we focus on in the report is really recognizing first the value of these large scale projects, hydro and nuclear in particular, to the grid in kind of helping manage some of these future risks and then noting that they’re hard to build and it takes a long time. So if our planning processes provinces are procuring power one or two or three years in the future, they’re probably not going to be able to compete with wind and solar because these other assets can kind of very flexibly respond to changing demand needs in the province. And that means that we’re kind of hamstringing these legacy assets that we’ve relied on for a century to kind of provide clean power to Canadians before they even have a chance to compete. And that’s a real risk we have to manage. So while we may not need to make decisions about generating assets today in every province, we do need to be thinking eight or ten years in advance, especially if we’re going to meet these 2035 net zero requirements, something folks in the electricity space say is like, yes, eight years from now is like tomorrow, because we need to do these things. So for sure, we need to start today. That doesn’t mean we need to be breaking ground on hydro dams today, but it does mean we need to be thinking about breaking ground on hydro dams today.

Jordan As you think about what the next ten years or so brings as we transition to net zero and as we build up our capacity, what does that mean for consumer electricity prices? I understand Canada has fairly low prices compared to many of our peer countries, but what should Canadians expect in the next decade?

Colin Guldimann Well, here’s the rub, right?

Jordan Someone’s got to pay for it.

Colin Guldimann Yes, exactly. And the more we build, unfortunately, the more expensive it is. If you’re a consumer in Quebec or Ontario, oftentimes you’re getting a lot of your base load power from a facility that was built 50 or 100 years ago. And so these are like depreciated assets. They have very low cost of operation, and so they provide electricity very cheaply. The more demand grows, the more we have to build new facilities. And in some cases, those are going to be on less ideal sites. You’re seeing that in some cases across the world, like in California, where they’ve done a big solar build out. You know, technology improvements have helped offset this. But, you know, the perfect, most wonderful solar sites in California already have solar panels on them. So the additional, the marginal addition is going to be like a less economic solar site. They’re still by a mile, the cheapest for an additional electron. But what that means fundamentally, for residential consumers of electricity is not entirely clear. But it’s going to be hard to kind of do this massive scale grid build out, plus replacement of some of this infrastructure to account for, you know, the impact of storms and heat waves, which are just going to get worse without impacting consumer electricity prices. So there’s a study that was done by the Canadian Institute for Climate Choices, or I think it’s called the Canadian Climate Institute now that looks at exactly this problem. I think it was done by Brett Dolcer at the University of Saskatchewan, and they find that, yes, unfortunately, electricity rates probably need to rise, and I think they have in the range of about 30%, which is sizable. But there’s an important caveat there which I think is really critical to stress, and it’s that what’s driving this rise in electricity rates is a shift towards electricity and away from fossil fuels. And I think there’s nothing that kind of crystallizes this point more than the current high fossil fuel price challenge. We’re going through this sort of energy crisis that was precipitated by Russia’s invasion of Ukraine. And if you think about your residential gas bill, natural gas prices are way up. If you think about how much it costs you to fill up your car at the pump, that’s also way up. And so what’s happening as we electrify is households are paying more for electricity, yes, and consuming more electricity, but they’re also not consuming fossil fuels. You only consume more electricity in an EV by getting rid of your gas bill. And so when you look at both those things in coordination, what the researchers have found at the Canadian Climate Institute is that while electricity rates go up, the actual amount households are spending on energy as a whole share of their consumption basket is lower. And so life is getting more expensive on one bill, but less expensive overall, which I think is really an important good news story. And it’s a function of the fact that an EV costs almost nothing to fill up. And even if that rises 30%, it still costs a lot less than a tank of gas.

Jordan So what should Canadians be thinking about then as we look to navigate this transition? I mean, I may not be able to afford an EV right now or a home heat pump, but should they be getting out ahead of it? Is it that time? Or should they wait and see what we’re going to have to do for so much of this?

Colin Guldimann Yeah, so I think the challenge here is the fundamental change we need to do is get people into heat pumps and EVs, and we need to electrify industry rather than burning coal for steel making or whatever it might be that requires that those individual decisions make good economic sense. So the first step here is making sure the regulations are right in the electricity system to build the kind of assets we need. We also need more sort of EndToEnd support for Canadians on this decarbonisation journey. So governments, yes, governments, I think, need to recognize that if we want people to purchase EVs, they need support in doing that. The problem may not necessarily be the upfront cost. I mean, for some folks it will be, but not for everyone. But there are still other barriers, whether that be EV charging infrastructure, like not being sure you can plug in your EV when you’re at the grocery store. There are things the government can do to kind of facilitate that change and then making sure we have the back end of electricity grid infrastructure set up properly. That’s going to help manage the costs of making those changes. So focusing on the electricity sector is important today because we’re kind of setting a more ambitious goal to decarbonize it by 2035 and it’s going to feed into all these decisions. If electricity is too expensive, then that’s going to hamper the adoption of these electric technologies like EVs and heat pumps. But if we get the electricity sector right and we support consumers, especially those who can least afford higher prices with subsidies and incentives to purchase these cleaner technologies, then we’re going to kind of affect this change across the whole economy, which is fundamentally what we need to do for 2050. The electricity sector is just really the first step here.

Jordan Colin, thank you so much for this. I really am thankful.

Colin Guldimann It was my pleasure. Thanks for having me.

Jordan Colin Guldimann, economist with RBC. That was the big story. If you’d like more, head to The Bigstorypodcast CA. You can find us on Twitter at The Big Story. FPN. You can email us. Hello at the bigstory podcast. Dot CA. We’ve gotten some amazing episode suggestions lately. I want to thank you guys for them to keep me going because some days I don’t have any ideas for this show. And that’s where you come in. You can find this podcast in any podcast player. You can ask a smart speaker to play The Big Story podcast. Bonus points if it’s not your smart speaker that you ask. Thanks for listening. I’m Jordan Heath Rawling. We’ll talk tomorrow.