PDF of Clean Air Council Input to the Electrification and Energy Transition Panel

Submitted in June 2023

RE: Clean Air Council and Clean Air Partnership Input to the Electrification and Energy Transition Panel (energypanel@ontario.ca)

https://files.ontario.ca/energ...

The Clean Air Council (CAC) is a network of 41 municipalities from across the Greater Toronto, Hamilton, Eastern and Southern Ontario Area who work collaboratively on the development and implementation of clean air and climate change mitigation and adaptation actions. Clean Air Partnership, a charitable organization whose mandate is to advance climate action ambition and implementation serves as the facilitator for the CAC.

Most CAC member municipalities have passed climate emergencies and are in the process of either developing or implementing their Climate Action Plans. Ontario municipalities recognize the critically important role that electrification will need to play in their net zero carbon commitments. CAC member municipalities are very keen to work with the Province of Ontario, Ministry of Energy, the Ontario Energy Board, the IESO, and utilities to ensure that we are all contributing to ensuring the decarbonization of our electricity system, alongside electrification of building heating and vehicle charging. Please see below for input from the CAC network for the Electrification and Energy Transition Panel consultation.

The input will focus on energy efficiency, decarbonization and how to increase co-benefits such as local economic development and job creation associated with decarbonization, electrification and energy planning efforts.

Theme One: Energy Planning

There is a fundamental incompatibility between how provincial electricity planning has considered decarbonization and energy planning so far, (ex. the IESO Pathways to Decarbonization Study PDS) in comparison to how municipalities approach energy planning and decarbonization in their Climate Action Plans. While both aim to reduce greenhouse gas emissions, the IESO focuses narrowly on the energy commodity system, and particularly on electricity supply. Whereas municipal climate action plans analyze the community as an energy system in which the electricity system is embedded. In both approaches, the challenge of decarbonization results in transformational strategies that include electrification of heat and mobility, but there are significant differences in the framing, method, and results.

Municipal climate action plans identify steep pathways to decarbonize that yield economic returns, while the IESO PDS envisions massive, centralized investment in new generation and transmission, which requires expensive megaprojects and novel technologies. The electrification envisioned by the IESO PDS and the municipal climate action plans respectively are not only incompatible but mutually destructive. The rate increases that would be required to support the buildout of nuclear and expensive and long lead time technologies in the IESO PDS would set back local government climate action plans by discouraging electrification and disadvantaging lower income households. At the same time, successful local decarbonization and electrification strategies will moderate growth in electricity consumption on a scale that would strand assets in the IESO pathway.

In Ontario, municipalities have been undertaking year-long or longer-term projects to develop detailed climate action plans. This process involves technical analysis and modelling of urban systems, models which are calibrated against observed electricity and natural gas consumption, and development of future scenarios of the energy system. Many of these plans follow established international protocols and are comprehensive in that their zero emissions scenarios show all sources and uses of energy within a community. The future scenarios reflect population growth, new and existing policies, the impacts of climate change on heating demand and actions and policies identified by the community and municipal staff.

In aggregate, these plans project growth in electricity consumption of 1% per year, including accounting for the electrification of heating and transportation by 2050, growth which is limited in large part due to demand side measures that IESO has not considered, such as deep building retrofits. Reduced electricity consumption translates into avoided generation, distribution and transmission investments, a relatively smaller energy infrastructure and, ultimately, units of electricity that need not be paid for by households and businesses. Like the IESO, municipalities envision massive financial investments in decarbonising the energy system, but instead of directing those investments mostly to new generation, most of the funds flow to efficiency improvements in the energy system, which generate financial returns.

Part of the increased electricity demand is addressed through solar PV generation on rooftops, and on parking lots. The whole system, "bottom-up", integrated approach to electrification and decarbonization within municipal action plans leads to a very different outcome and value proposition from the one reflected in the IESO PDS. While electrification figures prominently, efficiency comes first, not just technological efficiency of electricity using devices, but also the efficiency with which services and amenities are provided.

Expanding the boundaries to include the entire energy system in which the electricity system is embedded also expands the decarbonization solution set and the range of opportunities for citizen and company engagement. In addition to resulting in lower growth rates for electricity consumption, this approach also identifies opportunities for local generation that are much larger than are normally reflected in central planning exercises like the IESO PDS.

When combined with efficiency, digitization and the development of smart building and smart grid technologies, reliability can be bolstered at the local level while moderating the capital costs associated with hardening the distribution system to cope with greater reliance on central grid power. The bulk power grid remains critical, but coevolution with modernized local distribution systems shifts the focus to the optimized provision of customer needs for reliable, affordable comfort, mobility, access, and information.

The technologies, regulations, and business models that have characterized the electricity sector for the past century are being challenged by a transition fueled by innovations in technologies and techniques for storage, end use, measurement, analysis, control, marketing, and generation of electricity. Driven by these new technological possibilities, municipalities and consumers are expecting more choice and demanding more control over the cost and attributes of their electricity supply.

Municipalities in Ontario are actively engaged in this transition, and it is integral to their climate action plans with measures that include supporting the development of renewable energy cooperatives, deploying thermal energy storage, installing ambient district energy systems and decentralised renewable energy, and creating microgrids. And as a study for the IESO concluded, these strategies are a cost-effective strategy for addressing capacity increases required in Ontario's electricity system. Provincial energy planning such as the IESO PDS scenario retains the historical generate->one way transmission->customer demand paradigm, which is unable to assess the dynamic relationship between demand and supply that is intrinsic to advancing a cost effective decarbonization and electrification effort that reduces demand as much as economically possible and then meets demand as locally as possible to reduce expense on central generation and transmission.

Recommendations:

1. An Integrated Energy System Analysis: Energy planning needs to be evaluated in a detailed, integrated and bottom-up representation of demand and supply. In the emerging electrification and decarbonization paradigm, the boundaries between demand and supply are dissipating. This means the siloed approach and a heavy focus on supply will undermine electrification and decarbonization efforts because of increased costs of electricity supply over demand reduction. For example, the 2019 Achievable Potential Study is an inadequate foundation for considering energy demand opportunities as it sets a price limit on what it is willing to pay for electricity reductions that is significantly lower than the price the system is willing to pay to generate electricity supply. For example, the 2019 Achievable Potential Study places a cap of 3.9 cents per kWh for efficiency that is far lower than the price Ontario pays for existing nuclear electricity generation. Ontario Power Generation pays 10.5 cents per kWh for existing nuclear, never mind the higher costs associated with new nuclear.

There is the need to level the playing field whereby the price Ontarians are willing to pay to reduce demand should be close to the price for additional supply. There should also be consideration of the value demand reduction provides related to delaying or avoiding infrastructure investments at both the transmission and distribution system level.

2. Comprehensive Economic Analysis: The leading practice across other jurisdiction's electrification and decarbonization studies is to consider both the health benefits and the value of avoided damage from climate change into the calculation of the net present value of each scenario. There is the need for Ontario studies to consider the economic impacts on health outcomes and the social cost of carbon in electrification planning. This wasn't undertaken in the IESO PDS for example, but was undertaken by The National Renewable Energy Laboratory (NREL), which has undertaken a study similar in its focus to the IESO PDS but considering pathways to decarbonize the US electricity system by 2035.

NREL quantifies both the health benefits and the value of avoided damage from climate change to calculate the net present value of each scenario. IESO did not consider either of these benefits in calculating the capital cost in their PDS. More comprehensive analysis of health, avoided damage from climate change, regional impacts on jobs, and local economic development is critical to understanding the true costs and benefits of energy system decarbonization.

3. Regional Disaggregation: The challenges, impacts and opportunities related to energy planning vary across different regions in Ontario; understanding these dynamics is critical to municipal energy planning. Energy planning needs to consider the regional impacts on jobs, local economic development and household energy expenditures.

4. Climate Change Impacts: The impacts of climate change projections are transforming every aspect of society; these impacts need to be incorporated into energy planning. Projections of electrification, decarbonization and risk identification and mitigation opportunities related to system reliability because of climate impacts and extreme weather.

5. Distribution Transformations: The implications of local climate action plans on distribution systems needs to be reflected in the scenarios. Improving consideration of the role demand response can play in transmission and distribution investments deferral or avoidance should be considered. In addition, there is the need to develop an electrification plan for investments in the distribution system that advances a fairer investment framework. For example, at present there can be significant early adopter costs for customers who are reducing their fossil fuel use via electrification, but where an infrastructure upgrade is needed for that electrification. The present framework also leads to incremental investments, which is likely to increase the costs over time in comparison to a more robust distribution system investment strategy to support electrification.

6. Multiple Scenario Planning: Electrification/decarbonization scenarios such as the one undertaken in the IESO PDS are only valuable when they represent distinct visions of the future which can be weighed against each other. In consultation with municipalities, the electrification pathways needs to develop and analyze additional scenarios that include:

a. One or more reference or business as usual scenarios, which incorporate state of good repair;

b. One or more scenarios with increased deployment of wind, solar and storage and decreased deployment of nuclear and hydrogen;

c. A scenario that aligns with the federal Clean Electric Regulations;

d. A scenario that evaluates 24/7 Carbon-Free Electricity (CFE);

e. A scenario that evaluates flexibility, consumption and all cost-effective demand reduction opportunities; and

f. A scenario that directly aligns with the community climate action pathways.

7. Localised Energy Planning: There is a need to develop integrated localised energy systems planning between municipalities, utilities, the OEB, IESO, and the Province of Ontario which includes:

a. Developing a shared governance model for the planning process;

b. Identifying common objectives;

c. Increasing Incorporating community engagement;

d. Ensuring a transparent, evidence-based approach;

e. Increasing awareness across stakeholders, and in particular municipalities, where the distribution system can support electrification without significant infrastructure upgrades being required, and prioritizing those areas for electrification;

f. Developing municipal expertise and capacity on energy systems;

g. Advancing the engagement and role of Local Distribution Companies (LDCs) in supporting the implementation of municipal Climate Action Plans;

h. Ensuring that climate impact scenarios are appropriately integrated into electrical system development policies, operations, maintenance and services;

i. Analysing of peak demand and demand management strategies at the community scale for different scenarios; and

j. Developing programs, incentives and funding mechanisms that advance the above stakeholder's agreed upon objectives.

Governance, Accountability and Oversight

There is a significant need to increase the perspective and stakeholders that are engaged in Ontario's energy transformation. There is no one entity that knows all the right questions to ask, but less what the best answers are to those questions. What is clear is that each of the entities come to the discussion with their own biases based on how they have done things in the past, or how they think things should be done. Our biases need to be recognized and acknowledged. Therefore, the decision-making framework is just as important as who makes the final decision.

Recommendations:

1. The CAC recommends the advancement of an Energy Decision Matrix. An energy decision matrix is a tool to assess and rank alternatives in a decision-making scenario. The process begins by first listing the potential alternatives. For Ontario's energy future, these potential alternatives include the energy pathways identified by the IESO and Power Advisory and Municipal Energy Plans.

A list of desired attributes is then created which serves as the rubric for scoring each alternative. When rating potential energy pathways, the key attributes assessed should be GHG emissions, legal implications, costs, economic and competitive implications, infrastructure requirements, social equity impacts and job creation, among others. These attributes are then weighted based on importance using a numerical rating scale. The weight or importance of each attribute must be determined by a diverse group of stakeholders. Each alternative is then scored based on how well they achieve the desired attributes and multiplied by its weight.

A matrix assesses and compares:

• Lifecycle costs - identifying the value proposition, simple payback periods via operational savings, and the risk of stranded assets.

• Traditional vs. decentralized vs. individual generation options and how they impact or support current transmission and distribution grid infrastructure.

• Costs and benefits associated with each energy pathway.

• Implications related to resilience, climate, local job creation and economic development, equity, social, market transformation, etc.

A transparent and measured approach to energy planning through a careful decision-making process secures positive outcomes for all Ontario energy stakeholders, including the provincial government and its 444 municipalities. Furthermore, using decision-making tools such as decision matrices, help achieve many common priorities for provincial and municipal governments, including finding cost efficiencies, economic development, infrastructure investments, job creation, ratepayer and taxpayer relief, and greenhouse gas reduction. Lastly, bringing economic, social and environmental considerations into Ontario's energy decisions through a transparent decision-making process secures confidence in the government's ability to plan for Ontario's energy future.

Strategic missteps and oversights in such a key file are circumvented when a careful, measured, transparent and collaborative approach is taken.

2. Review of the MOE, OEB, IESO and Enbridge Mandate: The regulatory framework that governs Ontario's energy and electricity commodity market is not aligned with the policy objective of avoiding dangerous climate change. There is a need for a review and modernization of the regulatory framework to include a climate mandate to the role and responsibility of the Ministry of Energy, Ontario Energy Board, Enbridge, electrical utilities and IESO.

3. Transparency: The modelling assumptions used by IESO or others to analyze electrification and decarbonization pathways must be transparent and accessible with an appropriate rationale. For example, in the IESO PDS what is the basis for the constraints on wind generation and associated transmission costs? Increasing the transparency of all upcoming electrification and decarbonization reports is critical to enabling stakeholders to engage in energy discussions. Ontario will be better served on energy planning when a diversity of stakeholders are engaged in energy planning. The older system of big generation and transmission may not have required the diversity of stakeholders that will need to be engaged to enable Ontario to be a participant in the upcoming low carbon energy transformation taking place globally.

4. Risks: The risk of stranded assets because of the forthcoming Clean Electricity Regulations and technology learning curves needs to be assessed for each energy planning scenario, including its impacts on electricity rates. What are the economic implications of energy costs from fossil fuel electricity generation when carbon costs, carbon capture and/or having to retire the fossil fuel electricity generation plants ahead of end of life?

Technologies, Community and Customer Perspectives, Affordability and Energy Sector Objectives, and Facilitating Economic Growth

Rather than focus on one technology over another, the CAC recommends the use of the above-mentioned Energy Decision Matrix to select the right choice to meet the need that provides the most co-benefits. The siloed decision making of the past will undermine Ontario's ability to address multiple policy goals through single interventions. For example, by levelling the playing field between reducing energy demand and increasing electricity supply, energy efficiency can achieve far more economic development, job creation, and energy affordability goals than increasing energy supply. Enabling energy efficiency to address multiple hoped for policy outcomes of the provincial and municipal governments and Ontarians.

The Clean Air Council member municipalities are keen to work with the IESO, OEB, utilities and the Province of Ontario on advancing the above recommendations. Advancing the above recommendations will have a significant benefit for ensuring that Ontario is doing what it needs to do to prepare the province's energy systems for the upcoming energy transformation and advancing synergistic policy goals related to energy affordability, local economic development and job creation, climate commitments and responsibilities, ensuring an electricity system that attracts businesses and meets their economic, sustainability and governance commitments. We all must work together to ensure that Ontario is preparing itself to be a participant in the low carbon energy transformation.