Will the new version of Ontario Energy Minister prove to be Smitherman 2.0?

"Minister Lecce needs to step back and gain knowledge on the existing costs to us Ontarians of our electricity needs instead of charging ahead..." -Parker Gallant

Parker and I have been communicating on Ontario’s electricity sector for over 13 years. We both started due to the wreckage of a brash new minister casting aside the policy of a professional planners to boldly undertake a new direction intended to make Ontario a leader in wind and solar energy. Back in 2009 an Integrated Power System Plan (IPSP) was cast aside and a directive from a freshman Energy Minister, and trusted Deputy Premier, signed an enormous 2,500 MW deal with a Korean consortium that was supposed to kick off the rush to 10,700 MW of non-hydro renewables. There is not, anything certain I wish to communicate today, but I have collected and formatted data throughout, so I thought I’d collect a number of the graphics and data sources I’ve been using on social media to communicate the concerns I have about returning to a GEA-era procurement debacle.

“With energy demand growing rapidly, our government is stepping up by advancing our largest energy procurement in our history.” -Stephen Lecce, Minister of Energy and Electrification  [emphasis added]

I don’t generally focus on semantics, but “energy” is used very poorly in Lecce’s communication. Let’s look for “growing rapidly” in annual electricity supply in Ontario over the past 88 years.

I’ll return to annual electricity consumption later, but it’s important to note that the system operator (IESO) is forecasting growth in electricity as it displaces other energy sources – such as natural gas, heating oil, propane and gasoline. There are multiple reasons that’s important:

• ·         greenhouse gas emissions could grow in the electricity sector but overall emissions drop by far greater amounts as other energy sources are displaced;
• ·         the disappearance of growth in 1980’s corresponded to the death of “live better electrically” marketing seeking to push electricity in areas including home heating;
• ·         for those of us unaccustomed to electricity demand growing the argument for increasing supply ought to be built on showing the corresponding decreases in other sources, and;
• ·         if this is to be a rational ongoing policy it needs a coherent way of measuring need, progress, shortcomings, etc.

“With energy demand growing rapidly…” -Stephen Lecce

Lest a reader feel there’s some trickery in showing only annual totals through 2023, here’s July-year-to date summary data for both “Ontario Demand”, which is demand for supply from generator operating on the IESO-controlled grid (ICG), and, since 2011, consumption as per the global adjustment reporting (basically it’s the denominator for distributing charges volumetrically and will capture supply embedded in distribution networks but omit some transmission line loss and consumption by generators themselves).

August data won’t look a lot different than this, but the consumption figure won’t be available for a couple of weeks yet. There is a wee bit of growth: rapid it ain’t.

Over the years we’ve had a lot of forecasts – and I’ve captured that data, and here show it with actual consumption (as best as I can estimate with reporting on the ICG and far less reporting of distributed generation). Actual annual demand has not been far off the forecast from the 2013 long-term energy plan, and more recently 2020’s Annual Planning Outlook’s Energy Efficiency scenario. Demand has remained well below that forecast in 2007’s IPSP, but that might be forgiven due to the surprising industrial demand destruction experienced from 2006-2011.

Recent forecasts show the impetus for adding supply, but recent data does not show any impetus for accelerating, nor enlarging, procurements.

History shows the cost impacts of adding supply, and other policy shocks. As the reactors of the Darlington nuclear station entered operation in the first half of the 1990’s (demand had been stagnant), they also entered the rate base sending electricity rates up during a recession. The Rae government responded with a rate freeze (and cost controls at the public generator), which were kept in place by the subsequent Harris government as it structured for privatization. Results of declining performance (particularly in the nuclear division) and a week supply position when the market opened, saw rates spike once we arrived at a market in 2002. The pricing moderated in the later 2000’s after the early market price shock, policy changes (introducing regulated pricing for much of public generator’s portfolio, and the global adjustment mechanism to allow the government to contract resources to replace coal-fired generators), and particularly a decline in industrial electricity consumption.

I had hoped the repercussions of the McGuinty government’s decision to launch a large energy procurement in the midst of years of decline in consumption while in the grips of recession were now well understood.

I am not surprised to see new supply being procured: we’ve had limited amounts of generation enter operation since 2016 which has led to a period where provincially supply costs have had no real increase (even before subsidy). A worrier might note a similarity to the rate freeze period of the 1990’s, which could be seen as leading to the rapid increase of the early 2000’s. An extensive program of refurbishing nuclear units has also essentially reduced generation capacity starting in 2017, and that reduction continues to accelerate. Within the next week the output of Ontario’s nuclear output is scheduled to drop below 10,000 megawatts (MW) – a level it may return to briefly later in the year, but essentially this will be the highest level throughout the remainder of this decade. By the end of 2026 nuclear capacity is likely to be reduced to 8,500 MW, and it won’t get back to today’s level until 2032 (if all goes as scheduled). But the system operator has not been idle. After a decade with little procurement of new capacity, in recent years 4,000 MW of capacity (mostly batteries, with some natural gas) has been contracted since 2021 and is expected in service before the Pickering B units cease operating in 2026.

The processes for planning and procuring supply are not something I wish to be expert in, nor is that something I’d wish on others. My perhaps cynical impression has been that the IESO creates outlooks and determines needs, then communicates to the government that it ask the IESO for such information once the IESO decides to pursue a procurement. The government then orders the IESO to do the procurement as per the suggestion from the IESO. I say perhaps cynical as I think this has somehow been functioning alright – but it does seem a cover-your-ass heavy approach. It’s not clear to me that the new directive from the new Energy Minister, delivered concurrently with a news release and news conference, substantially impacted procurement plans – but it did, specifically, ask for a quick report to the Minister from the IESO, “on options with accelerated final targets, timelines and design elements of the LT2 for energy and capacity procurements, as well as the procurement of resources requiring longer development lead times.” Just to be clear, the IESO had implied a series of procurements would be needed for approximately 5,000 MW, and was well on the way to designing procurements for much of it. The IESO’s July 24^th presentation to stakeholders showed 3,000-4,000 MW of procurements underway, plus more in the form of shorter 5-year re-contracting that may have taken the total up to 5,000: 2,000 MW in the LT2 Energy stream, 500-1,000 MW in the LT2 Capacity stream, and 500-1,000 in the LT2 Long-Lead Time stream. Elsewhere in the same presentation the IESO indicated LT3 Energy (2027) and LT4 Energy (2029) future procurements, each at 1,500 MW. 

Two months after the IESO published the presentation showing upwards of 5,000 MW of contracts to be awarded in early 2026 the IESO received new Energy Minister Lecce’s directive is that: “the IESO should work with stakeholders to consider how the procurement can be accelerated and concluded by February 28, 2026.”

Given the absence of changes in the quantity or timing of upcoming procurements, I may be mistaken in looking for meaning in other aspects of the marketing being done through leaks about returns to renewables under the current Ford government, or the compilation of the press conference participants, or the criteria laid out in the directive. For instance, I probably should not conclude that the process is being rigged to favour wind contracts being awarded for projects on crown land in unorganized territories… in the near north. But that is what I read into the directive and perceive from the presence of former IESO Vice President at the news conference of former IESO Chief Operating Office Leonard Kula , representing a renewables lobby group, promising in front of the neophyte Minister that he’d be, "working with the [IESO] to refine and finalize the procurement process."

It's unlikely that Lecce’s intervention in the procurement process will prove as detrimental as George Smitherman’s 15 years ago, but since he’s chosen to perform a communications exercise as groundwork for a procurement that is being gamed stakeholdered throughout its design, I’ll communicate with some questions a curious person handling a new energy file might want to think on:

• ·         Why do we have energy procurements separate from capacity procurements?
• ·         Why oppose a carbon price when proceeds could reduce the global adjustment while contributing to a more meaningful market price signal?
• ·         Why are we pretending demand is growing more rapidly than expected when it is not?