Findings: The Clean Energy Transition for Utilities Serving Remote Communities

Due to the remoteness of communities and the extreme climate conditions that can exist in these regions, the loss of energy supply can have dire consequences for communities. Ensuring safe and reliable energy for heat and power is much more difficult in these areas as logistical challenges are compounded by the lack of accessible transportation corridors. For example, shipping equipment using seasonal access roads, barges, and planes limits the access to construction and service equipment. Meanwhile, common renewable energy sources such as solar and wind are variable and/or seasonal, particularly in the North, and need to be complemented with backup power sources, such as diesel generators or batteries, to maintain reliability of supply.

Another common challenge faced by utilities is a lack of data on how much renewable energy can be integrated into existing diesel-powered electricity grids without compromising safety and reliability of supply. For instance, diesel generators operate better at higher load^{Footnote 2} levels. Therefore, integrating renewable energy resources on a remote grid can reduce the efficiency of diesel generators by lowering the demand for diesel-generated electricity. Reducing diesel generator demand reduces fuel use, but it does not reduce the need for maintenance of the diesel infrastructure.

Electricity rate structures are based on the cost-of-service model, which allows utilities to recover their operational costs through revenues from ratepayers. However, due to challenges related to remoteness and limits on rates, as well as small rate bases across remote and Northern communities, utilities do not recover all the costs of running isolated microgrid electricity systems. Many jurisdictions provide energy subsidies to help utilities overcome affordability and operational challenges.

Power Purchase Agreement rates^{Footnote 3} in remote communities are typically based on the avoided costs of diesel^{Footnote 4}. These rates, however, are lower than what is needed to make renewable energy projects economically competitive. Some utilities cannot easily increase Power Purchase Agreement rates beyond the avoided cost of diesel, because they lack surplus funds. Utilities are also unable to supplement Power Purchase Agreement rates by increasing costs to ratepayers, who are already facing high electricity prices in addition to the high cost of living and doing business in remote communities.

Utilities and regulators are primarily responsible for providing safe, reliable, and affordable electricity at the lowest possible cost. This primary objective often dissuades utilities from taking risks on novel technologies or taking on the cost of integrating clean energy technologies to reduce diesel use. Ambitious federal, provincial and territorial clean energy and decarbonization goals do not always align with this core utility mandate. To be able to support more clean energy projects, utilities and regulators would require legislative changes and new policy tools to create an enabling environment for further change.

As the vast majority of remote communities are Indigenous, community-led and owned projects are squarely within economic reconciliation efforts. Active community participation and collaboration is required for utilities to engage in project planning. However, willingness and ability to develop, operate, and maintain clean energy projects varies across communities due to competing priorities. In some instances, communities hold existing local knowledge and comfort with diesel energy generation and may be reluctant to transition to renewable energy systems that they are less familiar with. In other instances, where there is the willingness to advance new clean energy projects, communities may require specific technical training which can take time and resources to achieve.

Utilities and regulators have established knowledge and comfort with existing mandates, and operational and business models regarding affordability, safety and reliability. Existing interest and prioritization for expanded mandates to integrate new technologies may be limited as it could require utilities and regulators to learn how to quantify benefits and costs of displacing diesel use that are traditionally outside of their skills and experience. To learn these skills, they may need to collaborate with other organizations or government departments, who may not have experience or understand well the unique challenges of energy systems in remote communities. Many utilities, especially in the North, already lack the capacity to take on additional work or funding to train both new and existing employees.