Welcome back to Decouple. Today I'm joined by Chris Benedetti, who was a principal with Sussex Strategy Group, and head of its energy and environment practice. I met Chris at the Canadian Nuclear Association annual conference in April of this year. And Chris, I was really blown away by a talk that you gave, where you painted a very clear picture of where we're at as a province when it comes to our electricity system. And he really brought to my attention this. I mean, it really shouldn't be a stunning fact. But the the issue that we're we're facing some supply shortfalls as we move forward with our plans around electrification and with aging of certain infrastructure. So I knew I had to have you on the podcast, this podcast, selfishly, for me is a great way for me to sort of follow up on my own curiosities and educate myself. So thank you very much for making the time to come on today and schooled me a little bit on the context of where we're at in Ontario. And what we're looking forward to, again, this is all happening. We're recording this the day before the Ontario Provincial elections. This will obviously be released afterwards. But I think this conversation is going to provide a great sort of context to this historical moment we're in so again, Chris, thank you for making the time today.
Thank you very much, Chris. It's great to be here. And it was great to meet you in Ottawa a few weeks ago and have listened to the podcast, great guests. And then and I'm really privileged to be here. Yeah, maybe I'll start off. And I think, Chris, to your point, too, we're we're in a provincial election right now, people are going to be voting tomorrow. And, you know, we're in a very interesting time to in terms of how we're talking about things, like climate change in the environment, how we're talking about things like affordability, which, which seems to be the predominant issue that is on the minds of most voters these days. And I think for good reason, price of gas, price of housing, price of food, everything is becoming very stressful for people. So very understandable that affordability is a big of concern. And then on top of that, you know, we're looking at how we're growing our economy and how we're, what kind of industries are we going to be supporting in the future? And what kind of energy are they going to need to fuel those to drive those economic activities? And it's actually interesting. You know, we we've often seen that in election campaigns, energy comes up, it was a big issue in the last election in 2018, people were concerned about electricity bills, people are concerned about how the electricity file had been managed. After 15 years of a liberal government in office. This time around energy did come up if for those people who are watching carefully. You know, we had a bit of an issue in Windsor with that is still going on with some new manufacturing new investment that, that both the federal and provincial governments have supported and gotten behind and came out that, you know, some reliability issues in the area in terms of can we connect new customers? And when is the infrastructure going to be there to support them? So, you know, the government and we often talk about driving issues around affordability, reliability, meeting customer needs, and certainly doing so in a sustainable way. And I think Chris, we are getting to a point where some of those things are going to be tested and difficult to achieve in the in the years to come.
And you know, this, this podcast has a very international audience, I do talk about Ontario, a fair amount. People are aware of some of the issues here, but I just wanted to sort of ground this conversation for our international listeners. You know, why Ontario, something that's interesting to be talking about. And we're gonna get a bit more into what you just mentioned there, the fact that are the most recent election prior to this one was really one that was very centered in that issue of electricity affordability, we saw the ruling majority party reduced to non official party status, really decimated by by that so we're gonna get into that context. But just as a reminder, folks, why Ontario is relevant here. I mean, Ontario was home of the anterior coal phase owed North America's greatest greenhouse gas reduction, measure one of the few jurisdictions large economies in the world that successfully and permanently phased out coal. And these are some of the things that we're going to touch on today with you today, Chris, just to give people a tasting menu of what's to come. Of course, you know, I talk a lot about Ontario as the France of North America. And of course, culturally, that's not the case. We have Quebec next door. But from an energy perspective, we have the second most installed nuclear per capita, here in Ontario with about 61 62% of our grid coming from nuclear. Interestingly, we've also been the Germany of North America. We pursued a, I guess we were taking a page out of the German energy vendor, we had something called the Green Energy Act and attempt To build a whole kind of green economy 50,000 jobs, you know, build a robust supply chain for building wind and solar and installing it. So we've been through that experience. And, you know, we have an issue of a nuclear plant, which is scheduled to close, which is going to have some pretty massive impacts. When it comes to these questions of, you know, Will we have enough juice on the grid to foster the kind of economic opportunities that I think all the political parties are interested in looking at? So that's a very sort of brief contextualization. But yeah, why don't we? Maybe Why don't we jump back to the coal phase out? If you're comfortable with that, Chris? I think that's kind of for me, where things really got interesting in Ontario, I'm sure. I'm younger than you remember, it goes back further. But I just think it's such a relevant piece of history, you know, particularly given given our climate concerns, I think, at the time, the justification was was probably more around smog and clean air and things like that. But can you know, can we take like, five, five minutes or so and just hit us up with a little bit of of that context of that that heady time what the motivations were and how it was achieved?
Yeah, no, absolutely, Chris. And I'm even going to go back actually a little bit further to the late 1990s. Because there was a trend at that point in time, really, across North America, that we had aging assets, we had a system that had accumulated some debt associated with the build out of energy, infrastructure, electricity infrastructure, that had been accumulated in the 1960s 1970s 1980s. And and wasn't just an Ontario story, really, across many markets in North America, a story of how can we induce investment in in new big infrastructure that's required and to fuel our economy and to support electricity and to, you know, replace aging assets, but a lack of really the fortitude of the public purse to do that through, you know, just taking on billions of dollars of additional debt. And so, you know, the late 1990s governments here in Ontario and other places decided to liberalize their their electricity systems, introduce more mechanisms to create markets to bring private sector investors in, to build new new assets and to support communities. And it worked. And certainly it worked here, it worked in a lot of other places. You know, it's really fascinating. If you look at, you know, how different markets have evolved. No two markets, really, across North America are that much the same? They all have their peculiarities, but certainly here in Ontario, going through that exercise came at a time were mixed with how do we introduce new private sector investment in the space? How do we also look to start to transition to cleaner forms of power? And you're absolutely right, Chris, back in those days, the precursors to smog being NOx and SOX, were really the focus of attention. And so when the Liberal government was elected in 2003, and keep in mind, you know, this was right after we had the massive blackout that originated in Ohio, but certainly was felled, here in Ontario testing a lot of those questions about privatization in the market. And what kind of assets are we are we building also created a lot of thinking around energy independence, which has been a big factor in the Ontario market, whereas other markets pursued great trends towards market openness and liquidity. Some markets, you know, went in a different direction, Quebec, for example, over built their system predominantly to serve their own economic interest in selling electricity into the northeastern part of the United States, here in Canada, here in Ontario, excuse me, it was very much to sustain our own population and not get over, out over our skis as it as it were, in terms of making sure that we're building the kind of assets that are going to serve our economy. Well, the decision was made at that time, that coal and getting out of those those assets that were big drivers of air pollution was seen as a human health measure. And, you know, my recollection at the time was the government was talking about $4 billion worth of avoided health care costs, certainly, you know, asthmatic, people and others that, you know, had those kinds of effects from smog. And I remember living in Toronto, when was hot summer days where you would see this layer of smog over the city and quite frankly, we don't have that anymore. So big smoke. Yeah, you know, but what what was interesting at the time is, you know, government came in and there are lessons that we can learn because, you know, government came in in 2003. Good. My recollection was the original pledge was to get out of coal by 2007. I think the last coal units actually shut down in 2014 and Nanticoke. So I think the lesson to be learned there is, you know, it takes time to to facilitate energy transition, you have to do it while maintaining reliability, you know, the keeping the lights on, is something that I think a lot of people take for granted, but there's a lot of technology, and there's a lot of things that go into getting those power, you know, giving the power into our homes and businesses and, and supporting people and economies. And so, you know, it takes time. But yeah, it's certainly that energy transition, getting out of coal was quite a remarkable feat. And it does seem now that we're on the cusp of, you know, similar questions in terms of, you know, decarbonisation, or moving to net zero when and what about the effects of climate change? And how does our electricity system either help or hinder progress that we're making on on improving our environment?
Yeah, I mean, it's, it's, it's a fascinating story, and one that I felt, you know, as someone who has been interested in the environment and climate for some time has not been very well told. Even you know, I started to investigate it, because I heard the crazy claim, think it was a asthma Canada report that was released alongside Bruce Power, making the claim that Bruce had provided 70% of the the electricity supply to supplant coal. And I found that to be pretty, pretty stunning. And then Pickering provided the other 20%. So a full 90% of the, you know, there was some decrease in demand because of the Great Recession of 2008. But nuclear did really the heavy lifting, and is what delivered such a incredible co2 reduction. And really, it's interesting, looking nationally at how we've done as an OECD country, Canada's really bottom of the pack in terms of emissions reductions. And that's largely because the Alberta Oil Sands, you know, added so much in the way of emissions. But Ontario helped us sort of hold the line by dropping off an enormous amount of coal. I mean, we were 25% of our grid was was coal, a couple of things that that I wanted to visit from what you were just saying, this whole question of, you know, having these older assets, a debt load, wanting to build some new stuff, but not really have it on the government books that are real sort of aversion to bringing on debt. And the impulse towards liberalization as a result, I'm just curious about this, because, you know, Ontario Hydro, which is what existed before we liberalized and broke things up in terms of distribution and generation. I mean, we used to build these massive assets. Nanticoke was the largest coal plant in North America. You know, we have these nuclear units like Pickering, eight, eight nuclear reactors, side by side, you know, turbine Hall, that's a kilometer long, Bruce, as well, for two to four packs of candy units. This was at a time when, you know, government wasn't afraid to put out some bonds raised the capital, you know, they were certain that there was going to be more demand that would justify and make it a safe investment, and something that could be paid off. And, you know, to de risk the capital. You know, when things were liberalized, and I think we'll probably shift into talking a bit about the Green Energy Act soon, because this is this is probably pertinent. But this idea of, okay, we're going to attract private investment and in different ways to build these assets. But it won't be on the on the books, as it were in terms of the government taking on debt. Isn't that just a way to sort of transfer that money into the ratepayer? Because that's my understanding is that we issued these these very lucrative contracts through the Green Energy Act. Ultimately, it's now back on the taxpayer, because something else will probably talk to you in terms of trying to alleviate the ratepayer bills that got really out of hand. Maybe we can roll that into talking a bit about the Green Energy Act. But yeah, I'm just I'm just curious about this question. Because we're now facing that we're going to be needing to add new assets, we're gonna need to procure new supply, how do we pay for it? You know, the good old days, that was bonds, and it sounds like there's this interim period where it's, you know, enticing private capital to come in. And I'm just curious what what that vehicle or mechanism looked like,
you know, it's a fascinating thing, Chris, and that we think of electricity is a utility services, it is a utility service. And if you think about in a typical utility service, you try to recover the costs of the operation of your system, and the provision of the commodity from the beneficiaries of that service almost in real time. So if we think about, you know, your electricity bill, you know, your electricity bill traditionally has been volumetric. So, you pay traditionally in a utility concept, you would pay on the basis of that which you consume, fairly close to the period of time that you consumed it. And, you know, the benefit of the grid, we often talk about the grid being good. One of the reasons why the grid is good, is because you can take that that holistic cost of offering the service across, you know, millions of different customers on on a per unit basis. You know, it's far You know, it greater or more cost effective to manage that in a utility type of We'd rather than each customer being responsible for their individual generation, and you know, it's fascinating, if you go back in time, and I'm on University Avenue here in downtown Toronto, there's a beautiful monument to Surat and peck, just down the street from me. And, you know, there was a point in time that, you know, electricity was kind of robber barons, and, you know, electricity was tied to individual plants. And it was a very decentralized system, but that created a lot of winners and losers. And back in the 1920s, you know, there was this view that it's a, it's a common public good and, and that that view of electricity as being a public good, is something that is very pervasive in Ontario. But also, the concept of it being a utility service, what was really happening over time, I think, is two things. One is that the cost of providing that service has gone up. So the cost of infrastructure is, is is quite a bit. The cost of running the system is extensive. You know, as we see, compared to a lot of newer developing economies, you know, when you're retrofitting aged assets, it's often more expensive than building Greenfield in many cases. And so, you know, there's, there's cost to not only maintain what you have, but to keep it modernized, keep it upgraded. And obviously, Ontario is a very large geographic place. And so we want to provide common degrees of service, depending on, you know, if you're in a high density, urban setting in a condo, and that that has its own particular challenges in terms of making sure that everybody has good access to electricity, or if you're a mill operating in northern Ontario, or a mine, and, you know, it's important that they have good access to electricity as well. So so those are costs that need to be managed. But the ability of the rate base to recover those costs is, is difficult, you know, and I think the other thing that's that's happening is that the way in which we're producing and consuming electricity has changed, changed. So for over 100 years, you could directly correlate electrical use to GDP growth, we had a good understanding of what our electrical needs were going to be, where are the factories? Where are the people, you know, what do we need to build the the electricity was flowing predominantly one way, so, you know, you produce it in big power plants, and then you use wires to step it down into our homes and businesses. And now, what we're seeing is that the kind of power that we're producing, or the where it's coming from is different, and how we're consuming electricity is a lot different to and so in a physical space where it's difficult to store electricity in, in, in, you know, in, in, in just its natural state. And we have to use technology to best manage the assets, that is becoming a much more complicated exercise, and it's becoming a much more expensive exercise. And so if we then layer on top of that, that we want the power to look and feel a certain way in terms of we don't want it to be highly emitting, we want it to be low emitting, we want it to have certain qualities and characteristics to it. That just adds to the complexity. So you know, I think that that it is something where policymakers have to think about, well, who is going to pay for that, but there also needs to be an appreciation that as we look to reduce emissions, there is a human health benefit. There's an environmental benefit. And so is it just the electricity ratepayers that should be paying for that benefit? Or should some of that be paid for by the public as a whole as a public good? And that's where I think you see the rationalization of saying, okay, electricity ratepayers are going to pay for something, you know, in a traditional utility sense. But then we also appreciate that the taxpayers as a whole or the public treasury, should pay a sum as well to recognize the benefits that they're receiving for the system being beneficial to human health and the environment. And I think that's what, you know, the last Progressive Conservative government rationalized when they did the comprehensive electricity plan, and now the Treasury is paying a significant part of Ontario's electricity bills.
But I guess just specifically on that question of like bond based funding versus like, let's just move into the Green Energy Act. Sure. i My understanding was that the governing liberals at the time they were, you know, excited to be first movers on renewable energy. They saw an opportunity here they were influenced by the likes of Amory Levin's and the Germans. They wanted to get something going but they didn't want the government in the traditional way. You know, Ontario Hydro, if it had already been deregulated that point Ontario Power Generation to be putting all of this doing all the building themselves or putting these assets on their own books. So they they issued these lucrative 20 year locked in contracts. And can you talk about that a bit? I'm sure that that's provides vital context to our election right now, you know, as as well as the 2018 election, because my understanding is that the Green Energy Act, you know, raised the price of electricity quite a bit. So let's let's Yeah, understand that.
No, it did. And, you know, maybe if I could just take it back a little bit of a step earlier back into the 2000s, you know, going to my comment in terms of, you know, trying to liberalize the market trying to have risk taken by private sector investors, and not the risk taken by the state or state owned enterprises. You know, the the first round of facilities and contracts that were built, were actually gasifier generators. So if you, if you go back into that mid 2000s, period, there were some early stage renewable projects that were actually competitively procured and built. But there were a lot of gas plants built to and in fact, those gas plants were very much in those days. And if you go back and look at a lot of those gas contracts, they were actually called the clean energy supply contracts. And it was largely because of that reduction in NOx and SOX emissions, that the gas plants didn't have co2, or GHG, emissions wasn't so much the focus. And over that period of the 2000s, it was perceived that in order to induce investors to come and build assets, you needed to have good offtake arrangements to solicit and secure that interest. And in the Ontario system, we have what's called a monopsony. And so we have one, predominantly one buyer for the electricity. And that is, at the time, it was the Ontario Power Authority today, it's what we call the ISO of the Independent Electricity System Operator. And so, you know, the the view was that those long term agreements were required with indexation to, you know, for indexation to escalation for inflation and whatnot was was something that was required to really bring the private sector and have them build those assets. What we learned through that period, though, is that, you know, the the the risk was heavily weighted towards the securitizers, in this case, the the Ontario Power Authority, the ISO, and the ratepayers that they represented in that, what happens if the demand doesn't materialize? And what happens if you're building a lot of infrastructure be related to gas or be related to, you know, renewable power, or whatever it might be, and the demand just quite frankly, isn't there. And so really, that story from the Green Energy Act was almost twofold. They were trying to, to bring new investment in the print to the province, creating a system of contracts that would induce investment to come and undertake those activities. But it all happened right around a time when, if you recall, Chris, back in the 2008 2009 2010 period, we went through a global economic meltdown and load, electricity demand in Ontario diminished by 25%. And quite frankly, stayed very low for a decade. And so if you can imagine, while we were bringing on new infrastructure, new assets that everybody has to pay for, the demand for electricity was going down the ability of that rate base to accommodate those costs was was dwindling. And that started to show his pressure on the bills over time.
And was that what was I think, mostly industrial flight in terms of the decreased demand? Was it just a huge deindustrialization?
You know what, it was a massive? Well, it was actually a couple of things. So we had a lot of factories shut down. We had luck. Keep in mind back in those days, two of the main three automotive manufacturers on Ontario were going bankrupt, and required massive bailouts from both Ontario and Canada. So the calamity that happened with the financial economic meltdown was was quite pervasive and severe. And yes, you're right. I mean, it was a lot of factories. It was largely on the industrial side, what was interesting to watch is that, as the demand was starting to come back, so as business started to recover, as the economy started to get going, again, quite often incentives were given for those businesses to invest in new, more energy efficient technologies, Dr. As you know, so. So it was the first time that we actually saw that GDP growth started to pick up but was no longer correlated to electricity demand, demand for a number of years actually continued to go down, even though GDP growth was going up. Even though population growth was going up. Our televisions that our homes became more energy efficient, our appliances became more energy efficient, so we were just using less electricity. You know, when one thing that I think should also be said about that period in time is that the government really felt and to your point about Germany and other places. They have the government really felt at that time that renewable energy and in particular, the manufacturing of solar panels and wind turbines was going to be the new automotive industry for Ontario that they, you know, we were going to replace those those automotive manufacturing plants with, you know, towers and solar modules and wind turbines and all sorts of different things, you know, in that this was going to be a continental economy that Ontario was going to fuel and, and what we now know, history is, you know, didn't exactly play out that way. And and you're absolutely right, Ontario, electricity customers felt that, you know, certainly over time and, and had an effect on on the Liberal government, particularly in that 2015 1617. And then in the election of 2018. But in that moment, I think the government rationalize their thinking around, okay, we need to bring the private sector of the state can't take on the risk, although the contracts were built son in such a way that the state was taking on quite a bit of risk. And we need to incent the manufacturer of technology to replace jobs that we thought that we were going to lose.
And there was, of course, the World Trade Organization. Because I think the part of the Green Energy Act was that a certain amount of the installed capacity here in Ontario had to be made here in Ontario. And that was that was struck down. But I guess also, as we've seen, you know, the supply chain for wind and solar. So modifiable, it tends to run to the areas where the cheapest labor, worst environmental regulations and cheapest energy, which I guess has been kind of places like China and Vietnam.
Yeah, I mean, you know, certainly if you look at solar modules, I mean, it's very similar to televisions, manufacturing, where do we get our televisions? I mean, the technology behind the two is in so dramatically different. And, and I think you're absolutely right, well, we do have manufacturing, and even in Quebec, I mean, Quebec still has domestic content requirements with regards to their procurement for renewables, and we have manufacturing that's taking place still in Canada. Absolutely. There was a global supply marketplace where it it became consolidated in, in places where, you know, we was really not necessarily in North America. And so, you know, the price of panels has has come down the price of wind turbines has come down. And, you know, I remember actually, when, when the Doug Ford government came into office was right around the time that Alberta was, you know, wind assets were being built in, in, in Alberta for as low as six cents a kilowatt hour. Without any real government backstop. They were, you know, the merchant markets and the rec market were significant enough to induce that investment. Meanwhile, in Ontario, we were still, you know, building assets under contracts that were quite a bit higher than that.
It's like 16 cents for wind and 49. For solar.
Yeah, I mean, certainly, depending on the vintage. You know, we've had competitively procured wind in Ontario for under seven cents a kilowatt hour, eight cents a kilowatt hour. But we've also had that the other end of the spectrum, as well as on solar. I mean, I remember when the early days of the Fit program, some residential solar was at 80 cents, or even higher than 80 cents a kilowatt hour. And obviously, those prices came down over time. But yeah, I mean, there certainly was a bounty kind of philosophy at the time that we really want to induce people to undertake these activities, we really, really want farmers to put solar panels on their roofs. And, you know, what's really fascinating, Chris is, if you if you look at, you know, the most of the the megawatts that were actually procured, under the feed in tariff program, were really procured fairly early in that 2009 to 2011. standpoint, while they did continue to procure some smaller solar after that we only really had two rounds of large scale, you know, big utility scale assets. But the lingering effect on that is something that, you know, we're continuing to talk about today.
Now, just quickly, getting back to all these gas plants that were built in the early 2000s. I know there was a policy move, you know, the interior clean air Alliance, which which was a key sort of civil society driver of the coal phase out their policy proposal was that gas be used to replace coal rather than nuclear. But what what's the explanation? Because that's, I think, vital to understanding our current mix, you know, which is that we have a majority of nuclear, a decent amount of hydro, some renewables, but we have a lot of idle gas sitting there. Why was so much built in the early 2000s? Was that just in anticipation of these new market dynamics, was it because there was a plan to actually use gas and nuclear won out in terms of of that coal phase or can you help us understand why we're sitting here with 11 gigawatts of of gas that are sitting almost entirely idle, at least up until pickerings anticipated closure?
Yeah, I mean, it's a great question. And there's so many lessons to be learned. I mean, I'll start with the point that I made earlier around government coming into office in 2003, with a great ambition to get out of coal by 2007. When you start creating expectations around transition of energy in such a short period of time, there's only a few options that you're putting on the table for yourself and at that point in time, with that kind of duration in terms of what can you actually get what steel can you put in the ground? And what can you actually mobilize fast enough to accomplish that it was seen predominantly as gas, as I mentioned, you know, the, the government at the time was investing a little bit in in competitively procured water power, solar and wind. But even back in the mid 2000s, it was commonly viewed that, you know, solar and wind, you would need a few years to go through the permitting and approvals process water power, you would need, you know, several years to go through all the permitting and approvals processes to do that. And then nuclear obviously has its own, you know, permitting and approvals process that is, you know, can often be quite timely, ironically, in those Well, ironically, or maybe not, but, you know, the the thing about gas is, that is a relatively small footprint. And so, you know, to, if you look at the power station itself, and keep in mind that Ontario actually does have a lot of infrastructure under the ground for gas distribution. So, getting gas off, often is not that big of a challenge, obviously, it depends on where you are, it's not great in the north, it's not great in more remote areas, or rural areas, but in the mean, you know, it's it's to put in a gas plant back in those days, you can get up and running within a three year time period. And so that was a big driver in terms of transitioning to gas, as I mentioned, at that time, the main preoccupation was with smog and not so much GHG emissions. And so, you know, moving to gas was was seen as a great tool in order to do that. And I think, you know, it's important to note that with nuclear at the time, there was a great enthusiasm for nuclear there always has been in Ontario. But at that point in time, the you know, there was some questions out there in terms of what the CANDU market had looked like, there were some questions about, you know, the British energies investment in the marketplace, which was there at the time, and, and how that was sort of not so much the Ontario assets, but British energy as a company, some global volatility on that side. And also, you know, the refurbishment of two units of Bruce, and, you know, some challenges that we're seeing there. So, you know, I will say, on the nuclear side, I think we have come a long way in the last 20 years, and largely through the collaboration of Bruce Power and OPG, to get the refurbishment in the build ecosystem in Ontario, just to a place where, you know, there's a great degree of confidence in terms of what that market can offer to Ontarians didn't necessarily exist in exactly the same way back 20 years ago.
And yet, there was six units that were, you know, that were had been mothballed, that were brought back for equity, I guess pretty quickly, not not, not lightning fast. But pretty quickly. That's very interesting, what you're saying about, you know, how fast it is to build gas, because, you know, maybe jumping a little too far ahead here. But, you know, talking about these coming, capacity shortfalls that we're anticipating, of course, you know, the kind of path dependency that you could sleepwalk into doing gas pretty easily. If it weren't for the climate concerns there. You know, we're talking about there's there's ideas at least floating around a gas phase out here in Ontario, not probably not too realistic, given the VSOs you know, assessment of this. But, you know, if, strictly speaking, if we are anticipating a shortfall of three or eight gigawatts of gas by 2030, sorry, of gas of electricity, one of the pragmatically, quick, easy things to do would be to build even more gas plants. Of course, gas is getting expensive. Now, I mean, there are there are other options. And I understand that the government has even been looking at building hydro in northern Ontario. Maybe before we leapfrog to that. Let's let's let's bring in a bit about the extension of Pickering, because there was a plan for Pickering to close in 2018. And I'd love to understand a little bit more about the context of that. And why ultimately, that was done. You know, a lot of people criticize Ford, myself included for things around the green belts and not being the most environmental Premier, but I think I've got this again, sort of sort of heterodox opinion that Ford may be the climate hero of contemporary Canadian politics for keeping, you know eight megatons of co2 Off the Grid every year by having extended Pickering for a number of yours. But yeah, walk us through walk us through that time and that decision to extend the life of that plant.
Yeah. And, you know, it's a, it's a great one to actually point out as well, Chris, because you mentioned Doug Ford. And in fact, if you go back to prior to the 2018 election, and this is actually one of the fascinating things, particularly about nuclear is that, you know, especially across liberals and Progressive Conservatives, there's a high degree of support for nuclear. And in fact, you know, the previous government, you know, was was also very supportive of that life extension, you know, for a couple of reasons. But but, you know, a few, maybe just quickly that I'll touch upon, so what the nuclear units give us, you know, we often talk about it being the backbone, and you alluded to just how much power we derived from Darlington Pickering, and the Bruce asset, and Ken Cardin, and you know, the that is not lost on policymakers at Queen's Park, the absence of those assets, creates great fault lines in the system. And I'm sure we'll get to that in terms of what what the forecast looks like, in the not so distant future. But you know, certainly if you look at, you know, what we get from Pickering, it's a 20 terawatt hour baseload. Very, very successful, proven asset. It's one of the longest serving power plants, quite frankly, while nuclear power plants stations in the world. You know, it provides 3300 megawatts of baseload supply the absence of that baseload supply on, as I see, I'm sitting here in downtown Toronto in a fairly steamy office, even though the air conditioning is on. But it's, it's going to be a hot one not, you know, maybe not as hot as yesterday. But if we didn't have Pickering, you know, that that is a big, big fundamental source that we get for electricity, in addition to other assets that that carry, you know, a lot of responsibility in the system, particularly as we get into those steamies, sort of summer, hot spring and summer days. So, yeah, I think that, you know, it's always a question of both reliability and cost and safety, of course. And I think that the government working with the financial regulator, who's the Ontario Energy Board, and then working with the safety regulator, the Canadian Nuclear Safety Commission really came to the view that, yes, these assets do have life in them, yes, you can continue to run them under these conditions. And that's why we saw the the the units extended once, and quite frankly, extended again, because originally, the the first extension, or the most recent extension, was to take the six units and extend them to the end of 2024. And indeed, four units are going to be extended there to the the end of 2025. So, you know, it's really important to keep these assets going, you know, very important as well, the refurbishment of the Darlington, and the Bruce units as well, which is going really, really well, you know, back to my earlier comment about lessons learned from the past. You know, one of them is that there is cause for a lot of collaboration in the sector, but also a lot of collaboration with the ecosystem of companies that, you know, serve the the nuclear industry and Ontario, and really what we have here is something that the world, you know, should all be impressed by that, that close interconnection that we have, of, of talent in academia and science and engineers, and service providers that keep that sector not only going but growing. And, you know, I think that, that we're now seeing the fruit of all of those learnings. But, you know, we are entering into a period where, you know, Pickering is getting older. I think that the common view is that Pickering will be decommissioned, you know, at some point and then what consequences that have for the rest of the system.
Well, let's Yeah, let's leap straight into that. Because this was again, what really got my attention at CMA was your, your forecasting of what the road looks like ahead. And it's it's pretty bumpy. So yeah, what what kind of shortfalls are we looking at, I guess, within without ambitious electrification? Because certainly, you know, there's a lot of pushing of battery electric vehicles, there's a lot of talk about putting in charging infrastructure. But what really seems to be missing is an analysis of, you know, will we have the juice to keep those electric vehicles on the road? And, you know, we see in jurisdictions like California where there's been, frankly I think, quite poor planning, these flex alerts where they notify the public not to use their washing machines when they get home from from work or you know, when to charge their vehicles or even, you know, please don't charge your battery electric vehicle for the next day or two, because we're in a heatwave and our systems about to blackout. You know, no Ontario politician wants to be, you know, in charge of that on both in terms of having created that policy and probably worse being in government at that time, so, yeah, help us help us understand what what lies ahead in terms of of these anticipated shortfalls?
Well, and you know what, Chris, I should, I should start by recognizing that I think that there's still a few 1000 customers is we're on this podcast in the Ottawa area that haven't had power now, I think, for going on 10 days, and as you know, we we've gone through a heatwave over the next two days, and, you know, it, you know, that that's not only affecting people's comfort, but, you know, it affects seniors, it affects people on home dialysis, it affects businesses it affects, you know, you know, I think we have to appreciate just the importance that electricity plays in our lives. You know, and so having good power there when you need it, is really an essential part of, of living in our society. And you're right, I mean, we're on the cusp of a period now through both aging assets that need to be replaced, as I mentioned earlier, you know, we're starting to see more types of supply coming into the system that function a little bit differently. For example, nuclear likes to be on and likes to be on all the time. Solar likes to be on when the sun is shining, you know, water, you know, so each each one of these assets does a little bit of a different, they're all cruddud producing electrons. But they all do that in somewhat a different way. And then how we're consuming the electricity is changing, you know, used to be that a big industrial load was maybe 10 megawatts, 20 megawatts, maybe 30 megawatts was a really, really big one. We're now seeing large loads of 300 megawatts, 400 megawatts. And so, and those are popping up a lot more frequently.
So what kind of what kind of facilities are those?
Sure, so So I'll give you an example. It's everything from you know, new large mining loads in northern Ontario, certainly, the conversion of industrial processes like Gallo Algoma steel in in Sioux Sainte Marie is is taking 100 year old steelmaking facility where they've used coal for many years to to produce steel, now, they're going to be manufacturing steel, using electricity, instead of using coal, greatly reducing our GHG emissions footprint, huge contributor to, to combating climate change, even just that one industrial transition will take the equivalent of a million cars off the road. But they need about 300 megawatts of electricity to do that. And they're going to be consuming that 300 megawatts pretty much all the time. And so if you think of it from a physical standpoint, you're essentially taking Northeastern Ontario particular Sioux Sainte Marie, and you're doubling the electricity demand, and you're doing that in a relatively short period of time. So how do you do that? What technology do you do, what kind of wires and what kind of support is needed to actually accomplish that objective, so things are getting more complicated. And, you know, if we look at both the broad sort of provincial electricity forecasts, but then we also look at some of these regional needs, it's fragile. So from a provincial wide standpoint, the ISO who plans and forecasts or electrical demand for the provinces estimating that by 2026, we're going to have a deficiency of about 7000 megawatts of of what we call capacity in our system. Now, to be clear, you know, that deficiency, we are going to in Ontario continue to have more electricity than we need most of the time. Sorry, in the winter. Correct. So in the winter, overnight, we have lots of resources, and everything is okay. But for you know, the days that gets very, very hot, the days that, you know, the electricity demand goes up quite a bit. The ISO is identify that there's a bit of 7000 megawatt gap, we can fill that gap with re contracting certain assets, maybe we expand certain assets, certainly people are looking at what might you be able to get from from imports. But you add up all of those things together, and there's still a fairly sizable deficiency. And so how do you fill that bucket with what kind of resources and similar to back in that 2000s period? You know, we're at a bit of a time crunch. So we're only talking about a few years away, and a lot of people now we're thinking about what are the resources that you can do to fill that, that gap? And of course, Chris, it's not just the 2026 and even a little bit earlier than that, there's there's some gaps showing up in 2025
That seems like such a coincidence, though. Chris, why could that be why? 2025? rhetorical question rhetorical question, my
friend. Yeah, no, no, no, fair enough. Like, you know, I think that you know, it is it is fascinating when you think about how we're intersecting policies or Round decarbonisation and the federal government was working on a clean electricity standard, you come away from it and saying, in the next 10 years, let's say between 2025 and 2035, you know, the federal government has suggested moving to a clean electricity standard where we have a netzero electricity grid in Canada, in roughly speaking about a decade, the the, the reality is that in order to do that, it's going to be a heavy lift for a lot of places, but even here in Ontario, which is 40%, of our national economy, you know, that's, that's going to require a lot of different assets, doing a lot of different things. And, and we don't have a lot of time to spare, to be quite honest.
And to be clear, I mean, so we're talking about having a 7000 megawatt shortfall, probably in summer heat waves, like we're experiencing now. And that's with our gas fleet just going all out, you know, running those gas plants hot when it's time to, certainly right. And still be short.
Yeah, that's correct. And then if we look at over time, you know, that 7000 megawatt deficiency, the current forecast has that we get up to about a 12,000 megawatt deficiency in the in the 2030s. And so, now, a couple of things. Note to know, Chris, forecasts are never accurate. So reality is always going to be different from the forecast. But you know, if you kind of step away and look at it as objectively as possible, do we think we're going to use more electricity in the future than less and, you know, if you think about the direction of the electrification of transportation, electric vehicles, but you know, large industrial loads, like Algoma, steel, not to mention data centers that are going in Amazon, Microsoft and whatnot, population growth, we're using a lot more power, our neighbors, New York, Manitoba, Quebec, mass, Michigan, Minnesota, they're all using more power to, you know, a lot of different markets are going through similar dynamics. So we do, it does be the question. I mean, what kind of resources do we need for the future? How much investment in them?
It seems like everyone wants a piece of Quebec? Everyone's like, factored into their planning in this part of Northeast North America, that they'll be getting some of those clean hydro electrons from Quebec. I mean, are we in a situation where, you know, Doug Ford's or the new night license plates are occurred on our cars that used to be yours to discover now it's open for business? It is, is the promise of open for business add threats, because of these projected capacity shortfalls? And will will companies be with these large drawers on the grid be moving to Quebec, which in turn, I guess would mean that Quebec would be using more of its own clean energy assets at home and have less to export? Is that Is that something that you're anticipating or seeing?
Well, a couple of things there? I mean, first off, we're already starting to see fishers popping up. And I mentioned earlier, even though this election campaign, how the the topic of being able to power a new manufacturer, and Windsor, in particular LG Chem associated with the new Evie manufacturing facility going into Windsor, is on the ropes. And so, you know, media have reported that they're not moving into the market because they can't find enough access to power. Other media reports who said that? No, no, no, it's still a, you know, being contemplated. I think the point here, though, is that, you know, there are places in this province that that don't have good adequate supply of electricity, and that needs to be addressed. The other thing too, is that what we're certainly seeing from the investment community and for large manufacturers is that they have ESG requirements, that they want the power to look and feel a certain way. So they want characteristics, particularly on the E side of the ESG component to be reflective of those core values. And that's all going in in a particular direction. That I think utilities and system providers are going to be cognizant about. In terms of Quebec, though, they have their own challenges too. And so Hydro Quebec came out with their own strategic plan that shows that so, you know, Ontario we consume most of our electricity in the hot summer months, largely because of an air conditioning load while in Quebec, most of their home heating is is electric and not gas. In Ontario, it's mostly gas in Quebec. It's mostly electricity, a whole topic for another podcast session in terms of the historical you know, how to different markets pursue different technologies. But whereas we have challenges in the summer, they have challenges the winter, so So Quebec, you know, and I could say the same thing about, you know, New York and other markets that are typically competing with us for siting new fabrication facilities, new manufacturing facilities, whatever it might be. They Have their issues too. And I think that it's incumbent upon all of these provincial markets and utilities to be thinking about what are the customers going to need? How do we get it to them? And how do we do so as quickly as possible or as quickly as the technology will allow us to do that?
And, you know, I'm always surprised, like this seems to be maybe I'm off on this off base on this. But in terms of this turnaround in thinking about demand forecasting, I mean, is this is this a sudden wake up call people going, Holy shit, we're gonna need more power. And the six months ago, we weren't thinking this, like, how quickly has this turnaround reached this sort of policymaking consciousness?
Well, I mean, it certainly has reached it, and people are aware of the fragility of the system, but again, you know, for for many, many decades, it was a lot more straightforward in terms of that direct correlation between GDP growth and electrical growth. And, you know, you kind of knew where the factories where the factories were in these areas, and people lived over here. And, and you kind of you had a good sense of where all of that was, and in the last 20 years has become a lot more complicated. You know, where we have high electrical loads happening in, you know, high density urban areas, or in other places that you didn't necessarily back in the 1950s, or 1960s, or even in the 1970s, when you lay down the transmission infrastructure and where your power plants were going to be? Well, you know, the, the loads aren't necessarily, they're all very quick example, in Toronto, you know, the electricity system that was effectively built around the, the City of Toronto was built for a population of around 250,000. And this was in the 1950s. And yes, we've, we've upgraded it, and we've invested in it and whatnot, but where the wires are and how it's configured, is certainly not what you would build now to serve a population of several million people in a Greater Toronto Area. And so you know, you have to it always requires some, some maintenance and some management, but then fundamentally, you have to be make big capital investments. You know, I think that that part of the challenge with system planners is that, how do you define prudency. And one way in which you could look at prudency, particularly as we become so reticent to put too much obligations on repairs, because the effect that that has on bills is that we don't want to get out of our skis. So we don't want to spend too much on infrastructure that we might not need, where the load might not materialize, or maybe we have another global meltdown. And you know, the the electrical demand diminishes. And I don't think we want to repeat that situation that we had, you know, 1015 years ago. But at the same time, you know, you look at the projections and say, Well, if we know that the electrical load is going to be there, this is a big issue down in the southwest part of the province, where you have big agricultural loads, big greenhouses and whatnot that have been built and often can't get access to get electricity. You know, do you wait, then until it's a problem, but recognize that to address the problem could take several years? Or do we as a society? Or do policymakers make the decision to say, no, no, no, I'm going to build it in anticipation of the need going to be there, or the need being there, recognizing that that investment is going to be large and will take several years for the the assets to actually be in service. It's a real difficult thing for policymakers to go through. But you know, I will say, Chris, that I think this government, you know, they recognize the fragility, they recognize the intricacy of getting the planning, right, and getting the, you know, how do you induce assets? Right. And I think that, you know, we've seen over the last few months, a lot of actions taken around procurement of new resources. And I think that that will continue that, the reality is we need to spend a lot of money to make sure that the light stayed on, and we want to do so in an affordable way. And I think we want to do so in a way that has a certain environmental footprint to it as well.
And so what are those options? Now? We mentioned that you could probably bang up some gas plants if you had the social and political license, which you don't, but those can get built, you know, in a two to three year timeframe and bring a significant amount of power onto the grid. In an earlier conversation, you'd mentioned that there had been an investigation of hydro capacity in Ontario's North certainly we're nothing like Quebec, but there's some gigawatts of potential hydropower lurking around there what what are the ideas on the table there's been media stories, fevers, media stories, saying well, because Ford canceled the Green Energy Act, we're never going to be able to meet increasing demand. So so what what are people talking about what's being investigated as as a means to fill to fill in this this shortfall?
Yeah, so I mean, if we look at what the the government and the ISO have have, set the wheels in motion on over the last few months, it's a bunch of different things. So you know, certainly The government is very interested in how do we better optimize the existing infrastructure that we have now that could be, you know, how do we get best use of the renewable assets that we have to look to things like energy storage, there's a new 250 megawatt energy storage facility that is, has been motivated to get going down. Near Brantford, you know, they're very interested in improving the liquidity of the Ontario market, there's a new 1000 megawatt transmission line that will connect Ontario to a very, very large electrical market in the United States that we call PJM. So it'll tie in under Lake Erie to Pennsylvania. They're certainly interested in the gas fleet. And I think that there's been an exploration of what about hydrogen? What about fuel switching? What about renewable natural gas? What about CCUS carbon capture storage, CCS technologies? Government's actively looking at that as well? You know, certainly the government is interested in hydroelectric development, and both, you know, what is the future of existing 100 Electric assets that we have? How do we procure more of it in the future, and indeed, you know, asking OPG, and the Ontario water power association to look at the potential for hydroelectric build out in the north, acknowledging that there is a great requirement of load in northern Ontario, but then as you get into, you know, the southern part of the province, particularly around the Greater Toronto Area, you know, you you would have to get the electricity from there to here. And so, you know, what about our transmission system? And how do we build it our transmission system to to accommodate load growth and where the businesses and where the people are going to be? You know, they're they're certainly looking at nuclear as well, we we've had some great announcements over the last several months on small modular reactor development, and micro modular Modular Reactor development, both at Darlington, as well as a chuck river. And so I think there's a lot of interest in terms of what nuclear is role in the future is going to be, you know, when I shouldn't say, too, they're also looking at energy conservation of demand response. And, and, you know, what kind of loads do we have in Ontario? And what kind of tools are we providing to manage those loads, for example, coming out with an ultra low overnight charging rates, you know, which really is intended to encourage customers not to come home at four o'clock in the afternoon, and plug in during a heatwave when you're on that peak? But how do we get people to plug in and get charged, you know, starting, say, at seven or eight o'clock at night, when when the system can accommodate that. So, you know, I think, I think the reality, Chris, is that the needs are so great, and the needs are so endearing. Over the next several years, this is a little bit of an all hands on deck kind of approach. You know, I think that most people would say, there isn't really a silver bullet, you know, that there is certainly value that certain assets can give more than others under certain circumstances. And, you know, to your point, social licence is of big interest, right. So I think, not only having social licence in the communities in which assets are built, but also the inclusion of indigenous partners in projects is something that is very, you know, common now. So forming collaborateurs, forming partnerships, looking at it from a more holistic perspective, all of that is on the table. And and, you know, if we look at where the needs are going to be, and we look at how do we support companies in Windsor, or companies in Sioux Sainte Marie or steelmaking in Hamilton or wherever it might be, and also to deal with, you know, power and weather changes that seem to be getting more severe, you're going to need a lot more of a resilient system. How do we do all of those things?
I guess, you know, with my interest in Pickering, one of the questions, you know, I've been advocating for the refurbishment for three years now and early on, it was you know, and I'll fully admit it, it was a fool's errand. It's it's a useful talking point to talk about the benefits of nuclear when examining a vital piece of infrastructure, whose loss will result in again, the loss of all of Canada's progress on on its national emissions reductions, for instance. But of course, it seems like policymakers never really make their decisions primarily around issues of climate, at least those aren't the ones foremost at their mind. So when I started learning about the anticipated capacity shortfalls, this really actually started making me a lot more hopeful for refurbishment. And mostly because I just I can't see another way to bring on 550 megawatts of carbon free baseload power in two to three years. We know that's what a refurbishment is taking now will be sort of 10 refurbs in by the mid 2030s. I think we're going to be about six and by the time at which we could feasibly begin to refurbish and at Pickering and I know that's for now not on the policy agenda. But I just think when looking at out, okay, let's let's commission the Ontario water power association to look at dams up north. I mean, that's gonna take a long time to get the social licence for that to flood those valleys to get the indigenous permissions for that to build the infrastructure. Whereas a two to three year refurb, that can can buy that that baseload power and get it on the grid. As quick as possible, it seems to me that we've gone from a sort of one in a million shot for, for creating the conditions refurbished Pickering to at least something like one and 100. Now, I'm not sure if you can throw some water on my, on my opinions that or not, but do you think that there's any foreseeable way in which that that becomes part of serious policy conversation after this election?
Well, I mean, I think nuclear refurbishment is a serious part of the conversation. And, you know, I think, as we've seen now for at least a decade, if not more than that, the refurbishment of our existing assets on the nuclear side is absolutely a priority for the government. And, and, you know, it should be noted, too, that, you know, we've seen time and time again, through different colors, if you will, of government, them supporting the the refurbishment exercise, you know, I my sense with these things is that it's always a bit of a conversation of cost, safety and efficacy. And, you know, I think that on, you know, is is the needs sort of crop up in the system, some of those will become more important or less important, I think that the efficacy and, and the safety elements are pretty, you know, paramount in the equation. And, and I would have to defer to others that are much, much smarter than I in terms of what you can do with some of those assets. But, you know, I do think, Chris, that what we should be taking from this situation is, you know, I'll go back to that whole question of pregnancy, what is prudent to do in the system? And I think that, you know, one thing that I've observed over the last few years is that I think that we have overwhelmingly defined pregnancy as taking a very sort of small c conservative approach and saying, no, no, no, I don't want to spend money on something, I don't want to do something. Because I'm not absolutely sure that I'm going to need it. And I think when you start going down that path, you are taking on certain risks, that when you come to the the epiphany moment and say, Oh, actually, no, I'm really going to need that. The consequence of you not having an in place is that the lights might not be on. And, you know, I think that that is something that has to be paramount, we have to keep the lights on. And so, you know, I do think that we need to work progressively to redefine prudency and say, what do we want our electricity system to look like? No fault of necessarily the current government in Ontario. But, you know, one thing to point out about Ontario is that we're one of the few if not the only jurisdiction market in North America, that doesn't have a plan for electricity systems. So, you know, we don't really have anything right now that says in 20, whatever year, I want my electricity system to look this way. And then I'm going to work my way backwards from that and say, Well, what do I want that mix to look like? What what are the assets that I have? What investments do I need to make in the assets? I do have hope? I mean, the government has asked the ISO and has struck a special panel that will be headed by a gentleman by the name of David Crowley, very experienced individual in the sector. That is the electrification and energy transition panel that will be reporting to the government, I guess, you know, the listeners will know who the government is where a day before the election, but but will report to whomever the government is, I suppose. But I think most likely the Progressive Conservative government. On what, you know, how do we support electrification? And how do we support energy transition, but fundamentally, I think it does lead one to conclude that we really do need a plan. And hopefully some of these things will guide us on what a plan is, because I think to your point about Pickering, or be it other assets are being new nuclear potential for new SMR development for new even can do development. You know, what kind of value with those assets bring to the system? When do we need to start motivating action on those assets? And my gut instinct is that the answer to that last question was yesterday, you know, we're behind the eight ball. But but, you know, I also think it's important to underscore, Chris that it's really folly to put too many eggs into a single basket. Our system is complex is fragile, and it's diverse. And I think that, you know, you do need a bit of an all hands on deck, there is going to be a role for a lot of different resources in the system. And I think it's really mapping out how can All of those assets work together in such a way that we're trying to make the system as affordable as possible, as reliable as possible and as sustainable as possible.
Well, Chris, I think we're gonna leave it here. But I do appreciate you using home dialysis as a reason for why keeping the lights on is so vitally important. It's not something that I've thought about recently, I, my own baby was in an incubator for five weeks. So this issue of electricity reliability is important. Of course, hospitals and neonatal intensive care units have diesel backup generators. But that's a that's a real frightening idea, you know, folks that do do dialysis at home and need that electricity to do that. That's a real life and death situation. So thank you for enriching my, my understanding yet further with that anecdote and so much more. In this episode, I've come a long way. So thank you so much for your generous donation of your time here. I guess we're all on a
little bit of a nice day, sure, in terms of what's gonna happen in tomorrow's election, but that'll all be determined by the time this goes out. So again, thanks for making the time at this. Such an important time in our province. And we look forward to hopefully having you back one day, Chris.
Absolutely. Chris, a lot of fun. We really appreciate it. And yeah, no, that's great. Thank you very much.