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Discussion guide: Barriers & solutions to achieving net-zero emissions goals in Canada’s electricity sector

This engagement opportunity is now closed – the Council extends its gratitude to everyone who sent in a submission.

Table of contents

About the engagement

About the Electricity Council

Launched in May 2023, the Canada Electricity Advisory Council has a one-year mandate to provide independent advice to the Minister of Energy and Natural Resources to accelerate investment in and promote sustainable, affordable, and reliable electricity systems. The Council’s work will cover both the actions needed to achieve a net-zero electricity sector, as well as the rapid growth of electricity generation and demand-side solutions needed to power a net-zero-emissions economy in 2050.

Purpose and structure of this engagement process

This document’s purpose is to provide context and to lay out targeted discussion questions on which the Council is seeking stakeholder feedback. Your insights will inform the Council’s final findings and recommendations. This document outlines five focus areas that the electricity sector must address to meet its net-zero emissions objectives.

With less than a year left in the Council’s mandate, we certainly do recognize the short timelines. We also recognize potential engagement fatigue when it comes to informing a variety of similar civil society and government initiatives in the electricity sector – the Council has therefore endeavoured to analyze and build upon previous and ongoing engagements in developing our targeted discussion questions. Initiatives include, but are not limited to:

Next steps of this engagement process

Input on these questions is informing the Council’s final, independent advice to the federal Minister of Energy and Natural Resources, expected to be delivered in the spring of 2024. The final report will summarize the input that our engagement initiatives received from different stakeholders and how the Council has incorporated it into their findings. We will not identify organisations by name, but rather, by type (e.g. “utility company”, “provincial regulator”, “industry association”). Note that the work of the Council is subject to Government of Canada law and policy, including the Access to Information Act. In keeping with Natural Resources Canada policy, you will be consulted if there is interest in releasing your submission.

Themes and discussion questions for response

The Council has identified five themes it is seeking stakeholder feedback on to support its independent advice to the federal government:

  1. How to improve planning and oversight of electricity systems to support net-zero
  2. How to build electricity infrastructure in a timely manner while creating benefits for Indigenous partners
  3. How to attract capital investments and maintain electricity affordability through the transition
  4. How to enhance regional cooperation to take advantage of efficient, low-cost pathways to net-zero
  5. How to enable electricity sector innovations that can reduce the cost and risk of the energy transition while maintaining grid reliability and resiliency  

In your response, please provide written answers to the discussion questions below.

Background 

Electrification is a key component of decarbonising global energy systems and meeting climate targets.Footnote 1 To achieve economy-wide decarbonisation, including industrial decarbonisation opportunities, analysis suggests increases in Canadian electricity demand could necessitate a doubling or even tripling of clean electricity generation by 2050.Footnote 2  This rise in demand has already begun in many regions of the country.

Canada has a diverse range of electricity system profiles in different jurisdictions, with an equally diverse range of market structures and policy and regulatory frameworks which govern its electricity systems. The historical development of Canada’s electricity system has been impacted by Canada’s unique status as a federation, with constitutional separation of powers. Provinces and territories have jurisdiction over generating, transmitting, and distributing electricity within their borders. Implementation of such jurisdiction varies in each province and territory, though each has its own regulatory body that oversees the electricity industry (including electricity pricing) and ensures compliance with provincial and territorial laws and regulation. Some jurisdictions own and operate Crown corporations that are the primary entities that generate, transmit, distribute and sell electricity in their region.

The federal government’s role in the electricity system is in areas of national concern, including interprovincial and international trade and transmission, matters related to Indigenous peoples, environmental protection and setting environmental standards (including emission standards for electricity generation assets), provision of energy data and information, and through tax incentives and  spending (for example, to improve energy efficiency, invest in clean energy infrastructure, and support research and development).

Additionally, Indigenous governments and communities have a critical role to play in advancing the electricity sector, including through the proponent’s duty to consult and accommodate when Indigenous rights and interests are affected. Their role has historically been overlooked, perpetuating colonial relationships and leading to negative impacts on communities. Many Indigenous organizations and communities have already taken steps to advance clean electricity projects, but major economic, social, and capacity barriers still exist to ensuring meaningful and equitable participation in projects.

To meet the Government of Canada’s targets of net-zero electricity generation by 2035 and economy-wide net-zero by 2050, the sector must significantly reduce generation-related emissions, integrate new renewable and non-emitting electricity generation resources and supporting infrastructure, and maintain system reliability and resiliency, including in the face of extreme weather events. Achieving this target poses substantial challenges in terms of scaling up infrastructure build-out, ensuring affordability for ratepayers, and managing economic competitiveness. The existing electricity ecosystem in Canada was designed to maintain the reliability, safety, and affordability of legacy systems built over the last century and requires significant overhaul to support the pace, scale, cooperation and innovation required to transition to net-zero. It will also demand substantial increases in resources and capacity beyond access to capital, including a strong labour force with a new combination of skills and knowledge that the sector has not typically relied upon.

1. Improving planning and oversight of electricity systems   

Regulators, system operators, provinces and utilities must have the appropriate regulatory and planning tools to support the transition to net-zero and enable accelerated investment and innovation. Emissions reductions are currently outside the scope of the legislated mandates of many regulatory bodies. Changes are likely required to the regulatory approach across Canada to achieve economy-wide decarbonization and enable a build-out that may require a doubling or tripling of electricity generation capacity by 2050 to support increased demand.  These changes will require clear government policies that facilitate innovative planning and adapt regulatory frameworks to support a swift transition to net-zero. This includes reassessing traditional regulatory principles and updating regulator mandates to prioritize climate goals alongside economic factors. Moreover, regulators will need enhanced capacity and resources to manage this shift and to evaluate innovative project proposals effectively, all while ensuring equitable access to reliable and affordable energy across all communities, particularly for lower-income and marginalized groups.

New planning tools such as independent pathway assessments and provincial energy roadmaps support utilities, system operators, regulators and government policy makers to identify and pursue least-cost paths to net-zero. These tools can offer a comprehensive analysis of the most cost-effective and reliable paths to net-zero and clarify the paths that the jurisdiction wishes to pursue, reflecting the unique conditions and opportunities within each jurisdiction. Provincial and territorial pathway studies can evaluate a range of solutions (for example, demand-side management, distributed energy resources, and emerging technologies like hydrogen and small modular nuclear reactors). Such studies would need to be credible and independent, updated regularly, and consider risk and uncertainty. In tandem, government net-zero energy roadmaps can set clear signposts that guide technology and investment choices and growth planning. Such roadmaps should involve early input from Indigenous and community stakeholders, balance the deployment of existing and emerging technologies, and set out clear milestones for aligning energy system outcomes with decarbonization goals. Federal support through initiatives such as the Smart Renewables and Electrification Pathways program and the proposed Investment Tax Credits could incentivize and facilitate these efforts. Federal supports should reflect the varying regional challenges and resource availabilities across Canada, as well as respect provincial jurisdiction over electricity systems.

Questions

  1. 1.1 How might the mandates of regulators, system operators and utilities need to change or expand, to meet net-zero? How could net-zero mandates be implemented and operationalized? 
  2. 1.2 How should independent, provincial/territorial pathway to decarbonization assessments be approached and scoped to inform net-zero energy roadmaps and coordinated system planning?
  3. 1.3 What features should provincial governments build into their net-zero energy roadmaps to enable more effective planning and utility regulation?
  4. 1.4 What policy changes are needed to enable accelerated investment in electricity systems and infrastructure, and how does our appetite for risk need to evolve?
  5. 1.5 What conditions, if any, should be attached to provincial and territorial receipt of federal supports in order to facilitate a cost-effective decarbonization and build-out of Canadian electricity systems in line with climate goals?

2. Building electricity infrastructure in a timely manner while creating benefits for Indigenous partners

2A) Improving project approvals

Electricity project approvals must be accelerated if a rapid build out of net-zero-aligned generation, transmission and distribution assets is to happen in Canada. Because regulation and assessment, approval and permitting processes are spread across multiple jurisdictions and institutions, existing processes often have overlaps and lack clarity, contributing to approval delays and creating barriers to investment.

Specific barriers to accelerated project assessment, approval and permitting include a lack of clear, net-zero-aligned energy strategies across regions, inadequate consideration of broader economic and environmental goals in planning, and a critical shortage of skilled labor for regulatory roles. These challenges are compounded by the absence of streamlined processes for emerging technologies and a need for stronger Indigenous and community engagement protocols. Improving project approvals and addressing related resource capacity gaps is critical to keep pace with Canada’s allies and competitors and the energy transition more broadly.

To overcome these barriers, the Council has identified three focus areas to accelerate project approval processes. First, updating regulatory mandates to prioritize net-zero objectives, which would establish clear directives to support investments and planning. Second, there is a need to streamline project approvals, address the federal-provincial overlaps that cause duplication in assessments and in parallel, enhance the capacity and expertise of regulatory agencies to handle the surge of projects expected over the coming years. Finally, fostering effective engagement and partnerships (in particular with Indigenous communities) is vital to mitigate financial risks and ensure thorough assessments.

Questions 

  1. 2A.1 Is a change to, or clarification of, the mandates of regulators needed to enable net zero project approvals? If so, how could this be accomplished? If not, what approaches could enable these projects to receive regulator approval?
  2. 2A.2 What are the most effective approaches to enabling federal, provincial and territorial governments to cooperate to streamline project assessment, approval and permitting, and how can those approaches be quickly operationalized?
  3. 2A.3 What changes are required to help facilitate project approvals at the municipal and local levels, in line with federal and provincial policy? How can the federal government support and convene municipal governments in project approvals?
  4. 2A.4 How can existing solutions and processes such as those provided by Natural Resource Canada’s Major Projects Management Office (MPMO) and the Impact Assessment Agency of Canada (IAAC), among others, provide benefits to project proponents in advancing project approvals?
  5. 2A.5 Should electricity projects with strategic importance to net-zero be provided faster approval processes and, if so, how? How should strategic importance to net-zero be defined?
  6. 2A.6 What initiatives for accelerating project approvals should the Council look to for learning or to source best practices, either in Canada or internationally?

2B) Creating benefits for Indigenous partners

Indigenous participation in electricity projects in Canada is rooted in the historical, legal, and economic contexts of Indigenous peoples and Canada. Historically, electricity development has often negatively impacted Indigenous communities by disregarding their rights and failing to include their voices in decision-making. Legally, the recognition of Indigenous rights and title, including the duty to consult, and recent adoption of the United Nations Declaration on the Rights of Indigenous Peoples, underscores the necessity for active Indigenous participation in the electricity sector. Economically, Indigenous communities can benefit from the transition through revenue-sharing, employment, and enhanced decision-making in projects, resulting in improved well-being and self-sufficiency.

The electricity sector transition has the potential to advance Indigenous economic inclusion and serve as a possible turning point in Canada’s relationship with Indigenous communities. To do so, substantial barriers must be overcome to realize these benefits. Indigenous communities often encounter obstacles in accessing finance, due to challenges such as using assets as collateral and presenting compelling business cases to financial institutions. Capacity building is also essential, as many communities lack the necessary expertise to engage fully in project planning and implementation. Early involvement is critical to ensure that Indigenous perspectives are integrated from the outset, fostering trust and enabling meaningful participation. Addressing education and awareness gaps among non-Indigenous stakeholders is also crucial to facilitate culturally-appropriate engagement and partnership with Indigenous communities. By addressing these challenges, Canada can advance reconciliation and ensure that Indigenous communities play a pivotal role in the transition of the electricity sector.

Questions

  1. 2B.1 What are the information and awareness gaps that, if filled, would help specific stakeholders understand the Indigenous context in Canada to more effectively advance projects in partnership with Indigenous communities, and what mechanisms could be used to address those gaps?
  2. 2B.2 What is necessary to enable proponents to engage earlier with Indigenous communities as active participants in project development, and conversely, what is necessary to enable Indigenous communities to fully engage with proponents in advancing projects quickly, effectively and with full participation, both early on and throughout the project implementation lifecycle?
  3. 2B.3 What mechanisms are most effective at ensuring Indigenous communities can fully participate in financing and equity ownership of electricity projects in their territories, and what gaps are there in existing policies, programs, and other mechanisms?
  4. 2B.4 What additional organizations or initiatives should the Council look to for learning or to source best practices, either in Canada or internationally?

3. Attracting capital investments to clean electricity projects and maintaining affordability for consumers

Unprecedented public and private investments will be needed to decarbonize, expand, and upgrade Canada’s electricity grid to support net-zero emission goals while ensuring system resilience and reliability.

The more low-cost private capital Canada can attract, the lower the expected financial burden on ratepayers and the more affordable the transition. However, several factors hinder Canada’s ability to attract private capital. Global competition for investment means Canadian projects must be attractive not only within the country but also relative to those in other nations, particularly the United States. Policy uncertainty regarding the longevity and specifics of regulations and incentives adds to the investment risk, complicating the financial evaluation of projects. The diversity in regulatory regimes and market structures across Canada’s provinces and territories, coupled with the overall small market size, may deter potential investors. Moreover, there’s a need to balance traditional capital investments in established infrastructure against risk capital for emerging technologies and early-stage projects, with the latter often struggling to secure funding. This challenge is compounded by the difficulties Indigenous communities face in accessing capital and securing debt for project development.

Transition costs will vary across provinces and territories due to differences in existing electricity system infrastructure and carbon intensity, potentially leading to higher electricity rates and uncertain impacts on consumer net energy costs and affordability. Policies and programs may be needed to minimise the impacts of electricity rate increases on low-income households, as well as ensure Canada's industrial competitiveness and investment attraction across all sectors to achieve a successful and equitable transition. Shifting a portion of transition costs from ratepayers to taxpayers may alleviate regional disparities. Implementing demand-side management can mitigate the total investment required, potentially easing the financial impact on consumers. However, certain groups remain particularly vulnerable to energy cost increases, such as households in regions with higher levels of energy poverty and trade-exposed industries that cannot readily pass on higher costs.

Questions

  1. 3.1 What are the policy, regulatory, and other conditions that would lower the capital costs (including risk capital) for clean electricity projects?
  2. 3.2 What can governments do to support creating a competitive investment climate for the electricity grid in Canada and attract sufficient private capital to fund the electricity grid’s decarbonization and expansion?
  3. 3.3 What policies, programs, or other structural changes would support affordable and competitive electricity rates for all Canadians and businesses?
  4. 3.4 How can governments address the cost impact inequalities across and within electricity user groups (residential, commercial, and industrial) and provinces/territories?

4. Enhancing regional cooperation to take advantage of efficient, low-cost pathways to a net-zero grid

Extensive research indicates that Canada's path to achieving its 2035 and 2050 emissions reduction goals requires building interjurisdictional transmission and enhancing regional cooperation for a clean, cost-effective, and resilient electricity grid. Systems in allied jurisdictions like the United States, European Union, and Australia illustrate the benefits of a more structured and deliberate approach to regional integration, planning, and coordination.

Regional disparities in Canada's electricity sector pose a complex challenge to achieving a unified net-zero grid. Each province and territory have historically prioritized its own needs, leading to a mosaic of systems with varying degrees of carbon intensity and renewable energy utilization. This fragmented approach has limited the amount of interprovincial energy trade and cooperation. As part of a broader suite of climate policies to reduce emissions, the federal government has introduced initiatives to move towards deeper regional planning and integration. Such efforts are essential to balance the energy mix across Canada, particularly as provinces more reliant on fossil fuels for electricity generation face the challenge of decarbonizing, while those with greater access to renewable resources encounter supply constraints due to growing domestic demand and export commitments.

Strengthening cooperation and grid connections between provinces and territories could drive economic development, enhance energy security, and provide flexibility to respond to extreme weather events. Factors like the integration of variable renewable energy sources, more frequent and extreme weather events, and the rising threat of cyberattacks underline the need for a robust, collaborative approach. This approach not only has the potential to bolster grid stability through shared resources and backup power arrangements, but could also lead to more strategic infrastructure investments, alleviating transmission bottlenecks and solidifying overall grid reliability. Beyond enhancing grid performance, enhancing regional cooperation would help position Canada more advantageously in United States energy trade negotiations, opening doors to capitalize on the burgeoning demand for renewable energy and placing Canadian provinces at the forefront of the global shift towards electrification and economic decarbonization.

Questions

  1. 4.1 Do you think an improvement in regional integration and cooperation is required to meet electrification and decarbonisation targets? If so, what are the advantages and/or risks of deepened regional cooperation?
  2. 4.2 What general approach do you think could help advance regional integration and collaboration in Canada to meet electrification needs and goals?
  3. 4.3 What specific Canadian regional planning activities would advance the ability of provinces and territories to meet electricity needs and net-zero goals? What steps are required to foster dialogue among key system stakeholders to ultimately advance these actions/solutions? What challenges would need to be overcome?
  4. 4.4 What existing or new organisation/institution(s) are best placed to advance regional integration and cooperation amongst provinces and territories, and why?

5. Enabling electricity sector innovations that can reduce the cost and risk of the energy transition while maintaining grid reliability and resiliency

Innovative solutions can be deployed within the electricity and energy sectors to resolve challenges using new technologies or systems, on a cost-competitive basis with traditional infrastructure that will help to address the reliability, resiliency, and affordability challenges associated with the net-zero transition. The Council is interested specifically in how the above four themes (planning, project design, financing, and regional cooperation) intersect with innovation and reliability.

The evolution of the electricity system toward net-zero goals necessitates embracing regional, market, and system diversity. Innovation and reliability must be tailored to the unique environmental, economic, and social challenges of each region. Understanding the existing operational and market structures is crucial to fostering innovation.

Financing mechanisms for the energy transition must carefully consider the distribution of costs and benefits among taxpayers and ratepayers. While innovation has traditionally not been a ratepayer-funded venture, the transition calls for novel co-financing strategies that can leverage private investment without overburdening consumers. Long-term financial predictability is essential to manage the impact on customer costs and to stimulate broad sectoral changes.

As the energy sector adapts to net-zero imperatives, codes, standards, and operational practices must evolve. The shift requires a rethinking of system operations to use demand and supply resources in tandem, requiring a greater degree of agility and flexibility. Transparent and flexible procurement processes are necessary for affordable service delivery. Simultaneously, workforce development and regulatory understanding must advance to support the rapid technological and operational changes ahead.

Seizing opportunities from emerging technologies can generate economic benefits and enhance customer value. Balancing the investment between ready-to-deploy technologies and those in earlier stages of innovation is critical. It will be crucial to keep ratepayers’ and taxpayers’ experience with the energy transition at the forefront of investment decision-making, particularly as investment decisions that take place today will impact consumers both now and in the future.

Questions

  1. 5.1 How could federal measures (including funding) support the development of new market capabilities, regardless of the local electricity market structure? What measures should be implemented in the short, medium, and long term to drive local system changes to enhance innovation uptake at the distribution system level?
  2. 5.2 How can financing from ratepayers and taxpayers be shared and effectively coordinated to create a more predictable investment context for innovation and operational changes to support reliability in a highly electrified future?
  3. 5.3 Where are the biggest gaps in the electricity sector regulatory structures and policy levers in driving the development of technology innovation? Where would be effective points of intervention for the federal government?
  4. 5.4 What methods, policies, and programs should be implemented to support greater customer participation in the electricity grid (including by local and Indigenous communities), and foster social license for and ensure benefits from electricity investments in Canada’s net-zero transition?
  5. 5.5 What innovative approaches to working should be adapted to enable our scarce resources to deliver on the energy transition objectives. How do we create practitioners in all the needed skills in a reliable, rapid, and scalable manner? How do we organize our currently siloed expertise to be able to better capture and imbed learnings into subsequent projects?

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