The State of the Canadian Electricity Industry 2023: Build it

Build it

The state of the Canadian electricity industry 2023

The state of the Canadian electricity industry 2023 is produced by Electricity Canada

1500-275 Slater Street, Ottawa, ON, K1P 5H9   electricity.ca

Prepared by Francis Bradley, Daniella Bidin, Graeme Burk, Diana Dominique, Daniel Gent, Rewa Mourad, Channa Perera, Michael Powell, Mohit Shah, Jay Wilson

Edited by Graeme Burk

Designed by Patrick Farley

Front cover photo by Francis Bradley © 2023 Electricity Canada

Preface – June 2023

Since the publication of Build It – The state of the Canadian electricity industry 2023 at the end of February 2023, there have been some significant events in Canada’s electricity sector. While the issues raised in this report are still as relevant now as they were in February, such issues are now in active conversation.

2023 Federal budget: Investment in electricity is a public good

The first of these events was the March 2023 Federal budget. The investments proposed in the clean electricity space occupied a chapter of the government’s clean energy mandate. This budget signals a massive transformation to the electricity sector. Almost $1 in every $8 of anticipated new spending going to clean electricity projects through a variety of means.

The budget reflects the recommendations Electricity Canada made in the original version of this report. Important initiatives include:

• A Clean Electricity Investment Tax credit for 15% of most clean generation and interprovincial transmission investments, available to non-tax paying entities.

• $3 billion to recapitalize key funding programs including Smart Renewables and Electrification Pathways, Smart Grids and offshore wind.

• An expanded role for the Canada Infrastructure Bank to provide $20 billion in investments to support clean electricity and clean growth infrastructure projects

• Beginning investments with the Canada Growth Fund, including carbon contracts for difference (CCFDs), to help provide certainty to major investments. The government will also consult on a broader approach to CCFDs to make the system more predictable.

• A commitment to create a concrete plan to improve efficiency of impact assessment and permitting process for major projects by the end of 2023.

Where this budget truly succeeds is in understanding that supporting investment in the electricity sector and a clean economy reflects the public good. These important investments will make sure that the financial burden of modernizing the electricity system, not be shouldered by electricity customers alone. More importantly, infrastructure work— that will ultimately help the future of Canadian economy—won’t be passed on to the monthly bill of customers, which will help keep electricity affordable for all.

Build Things Faster

Since the publication of this state of the industry, Electricity Canada has published two reports that look at the challenges to building the infrastructure necessary for bringing the electricity grid to net zero by 2035 and the Canadian economy to net zero by 2050. Both of these new reports investigate the problems from two different, but interconnected, perspectives: the perspective of the regulators, and the perspective of those who are doing the building.

The first of these reports, Back to Bonbright: Economic regulation fundamentals can enable net zero brings regulators back to first principles, literally. Namely, the principles enshrined in 1961 by James C. Bonbright’s book Principles of Public Utility Rates, a work that has informed public utility investment and building for the past 60 years. This new report states that Bonbright’s principles can indeed work in a world driven by concerns around climate change and net zero. It then explores different options and regulatory mechanisms to enable regulators to support technologies that can help the world of 2023— and into the future.

The second of these reports, Build Things Faster identifies the barriers to building infrastructure quickly in Canada, which range from the limited capacity of permitting and regulatory bodies to assess and approve applications, to problems with planning large-scale interprovincial projects. In it, Electricity Canada offered several recommendations that we feel are simple, practical and achievable.These include:

• Coordinating federal project permitting and approvals through a single central federal office.

• Building capacity for regulators to deliver on net zero goals in their decisions, promptly and effectively.

• Implementing the “One Project, One Assessment” framework described in Budget 2023.

Getting to Work

Throughout Build It , we discuss the need for a Canadian Electricity Strategy to help make building, and building things faster, a reality. The recent budget advances the elements of such a strategy, which could coordinate new and existing programs, help provide regulatory clarity and offer a clear path for getting projects built faster. We are still advocating for this strategy and we remain confident the work the government has committed to doing will advance that.

Canada’s electricity grid was the marvel of the 20th century. It helped birth the 21st century we now live in. We want the grid to create the 22nd century – carbon-free, reliable and affordable. The challenges for doing this are considerable. But with this budget, they are not insurmountable.

It’s time to come together, roll up our sleeves and get to work. Let’s build it. And build it faster.

Francis Bradley President and CEO

Introduction

by Francis Bradley, CEO Electricity Canada

Build it.

These are two words that say everything about the ambition, the anxieties and the dream of the electricity sector in Canada in 2023. Build it.

The work we have to do has been clear for several years. In order to reduce the impact of climate change, we need to turn away from carbon-emitting energy, and use electricity as a primary power source. To do that we need to build capacity on our grid. We need to make our grid almost completely non-emitting by 2035 so we can help Canada become net zero by 2050.

We have twelve years to get the grid ready for this. We need to start building now.

We can do this.

Before 2020, the rollout of a vaccine took years. Then COVID-19 happened. Government, industry and civil society worked together and fast-tracked the research, development, production and distribution in mere months. This was a public endeavor of the magnitude seen during the 1960s, when U.S. President John F. Kennedy said, “We choose to go to the moon in this decade” and a human stepped onto the moon seven years later.

The COVID-19 vaccine rollout was a moment where everyone worked together and made the seemingly impossible happen. We need a similar effort right now to avert the effects of climate change.

Electricity is the enabling technology of our efforts to minimize the impacts of climate change. Our grid is already over 80% nonemitting. We need to get closer to 100%, and still ensure that the grid is reliable and affordable.

Make no mistake, this is a mammoth task. But it is possible. It just needs everyone – federal and provincial governments, electricity providers, consumers, other stakeholders and Indigenous Peoples in Canada – to work together to build it.

And yet… we are not building fast enough.

Spring 2022’s federal budget and last fall’s economic statement have made some important and crucial spending commitments. The government’s Clean Electricity Regulations are on Canada’s regulatory agenda for 2023. We have made important gains.

But we are still in neutral.

Canada’s electricity grid was the marvel of the 20th century. It helped birth the 21st century we now live in. We want the grid to create the 22nd century – carbon-free, reliable and affordable. To be sure, there are immense challenges facing everyone who wants this: regulations, the time to site and approve projects, the differences from province to province in how electricity is generated and distributed.

These challenges are considerable. But they are not insurmountable. It’s time to come together, roll up our sleeves and get to work.

It’s time to build it.

Canada needs a cross-government strategy to coordinate these efforts, pool resources, coordinate funding and work with the electricity sector to implement the planning and building process.

Build a net zero future

Climate change is caused by humanmade greenhouse gas emissions, of which carbon dioxide is one of the most important.

Net zero means reducing carbon emissions to stop or address climate change.

On January 1, 2023, there were 4748 days until the end of December 31, 2035 – the point by which Canada’s electrical grid is meant to achieve netzero greenhouse gas emissions. At the end of this year, there will be 4384 days left.

What happens during 2023 will be make-or-break for Canada. We need to make these 365 days count when it comes to making Canada’s grid a greener one.

Canada has announced an ambitious emissionsreduction plan outlining its commitment to “Net Zero by 2050.” Under net zero, Canada will reduce its reliance on fossil fuels by mid-century. However, by the government’s own estimation, to do so Canada will need two to three times the amount of electricity it produces now to decarbonize other sectors of the economy. Furthermore, the government wants the electricity sector to be net zero by the end of 2035.

The good news about net zero

The good news for Canadians is:

• Canada has the advantage of having one of the cleanest electricity grids in the world – less than 20 per cent of our power comes from fossil fuels.

• Since 2014, Canada has implemented performance standards on natural gas-fired electricity generation, moved to phase out coal generation by 2030, developed carbon pricing and offered incentives for a number of emerging non-emitting technologies.

• Electricity Canada members have unveiled a variety of net zero commitments over the past year. In some cases, electricity companies offered targets that far exceeded the government’s Net Zero by 2050 goals.

The “net” in net zero is important. While we are continuing to make significant progress in reducing emissions in the electricity sector, being able to "net out" hard-to-abate emissions can help to ensure that we continue to offer clean, affordable, and reliable electricity during this monumental transition. This is important, because there are regions in Canada that rely on fossil fuels for much of, or nearly all of, their dispatchable, on-demand generation. And there are remote communities that aren’t connected to the grid, that will continue to use some form of carbonemitting generation.

Consequently, the path to a net-zero grid will be an “all of the above” approach. It won’t be one technology or the other, it will be all of them. We need to lean on all available options to achieve this goal, including more renewables, traditional hydro, small modular reactors, carbon capture and energy storage and transmission.

The regulatory quandary

An effective investment and regulatory environment will be needed for Canada to move to a more resilient, low-carbon economy. The Conference Board of Canada has estimated that to increase capacity of the grid to the levels recommended by the government would cost as much as $1.7 trillion by 2050.

The problem is that much of Canada’s electricity regulations were devised in the middle of the 20th century, when terms like “climate change” and “net-zero emissions” didn’t exist. It is often difficult for modern utilities to invest in innovative technologies such as battery storage and smart grids because the need for such spending wasn’t conceived of when the current rate regulatory system was created 60-70 years ago.

There are other huge complications when it comes to electricity regulation in Canada:

• Canada gives responsibility of natural resource management to the ten provincial and three territorial governments.

• Each province tends to do their own thing, and has their own individual approach to electricity policy, ownership, industry structures, and generation technologies.

• This has also resulted in each province having its own economic regulatory system. In many cases, federal and provincial priorities on energy are not aligned, complicating policy development.

At the federal level alone, the electricity industry is affected by over 90 different regulations that are either in force or pending. These stretch across 31 different statutes, covering issues as diverse as greenhouse gas emissions, species at risk, migratory birds, navigation protection and more. The Impact Assessment Act and the Fisheries Act , both amended in 2019, have added to this growing level of regulation in Canada.

The electricity sector is also often hampered by Canada’s cumbersome infrastructure permitting processes. Last fall, a wind-to-hydrogen project was announced in Newfoundland and Labrador. This will take only two years to build… and yet it will take 8-10 years to permit.

A hydroelectric plant can take 25 years to plan, get approved, and construct.

Transmission lines — the big powerlines that move electricity long distances — are hugely complicated to survey and then build. Even making sure the electricity infrastructure on your street is ready for the increased load will take years of investment. Unsurprisingly, the World Bank recently ranked Canada 64th in the world for ease and speed of obtaining construction permits.

If you build it… well, that may take a long time

What needs to be done

Create a Canadian electricity strategy. There is a lot to be done that needs coordination between Federal and Provincial governments, not to mention local and Indigenous governments. Canada needs a cross-government strategy to coordinate these efforts, pool resources, coordinate funding and work with the electricity sector to implement the planning and building process.

Regulate for outcomes, not process. Right now, a series of regulations hinder our ability to achieve our net zero targets. During the COVID-19 pandemic, governments and industry worked together to facilitate vaccine development and deployment and we succeeded. We need the same level of determination and commitment from all levels of government. Governments need to work to speed up development, not slow it down.

Build things faster.

If Canada does not find ways to allow new electricity infrastructure to be built faster, Canada will fail to meet our 2035 and 2050 climate goals. This year, 2023, Electricity Canada will release a report on behalf of the electricity sector that will propose innovative solutions to allow for electricity infrastructure to be permitted and approved faster.

Meeting the timelines set by the government requires both significant investment and efficient and effective regulatory and permitting systems in Canada. These investments are crucial for growing Canada’s economy and reducing our carbon footprint. They create good jobs, promote clean economic growth, and ensure that businesses and households can continue to benefit from access to affordable, sustainable, and reliable energy. Addressing the regulatory barriers and the investment required will pay dividends in the future.

Electricity Canada member projects

Small Modular Reactors (SMRs) are all the buzz right now – and deservingly so. SMRs are critical to getting Canada to a net-zero economy by 2050 and have a strong potential to replace fossil fuel-based generation. Each 300 MWe SMR could displace one megaton of CO 2 emissions, when compared to natural gas, or two megatons when compared to coal.

SMRs will be particularly useful for powering remote communities. As it will provide a reliable, low-carbon source of electricity for communities that often rely on diesel generators and where other clean power alternatives like wind, solar, and hydro, are more variable and more difficult to implement due to the remote location and harsh climate conditions.

With a preliminary target to have the first SMR operating as early as 2028, the project is expected to cut 750,000 tonnes of greenhouse gas emissions every year once it comes online, with approximately 300,000 homes being powered by a 300 MWe SMR.

In late 2022, Ontario Power Generation (OPG) received a nearly $1 billion loan from the Canada Infrastructure Bank to begin building Canada’s first small-scale nuclear power reactor at the utility’s Darlington site.

Electrifying vehicle fleets have become one of the most discussed forms of environmental upgrades for corporations within Canada and abroad, not only to help reduce their carbon footprint and reduce energy consumption, but also to reduce total cost of ownership and operations. ENMAX is the first utility in Canada to pilot a medium-duty electric fleet. Their plan is to electrify 35 percent of their fleet by 2025 and 100 percent by 2030 (approx. 20,000 tons of CO 2 equivalent). This project, the first of its kind, is supported by Emissions Reductions Alberta, and could save an estimated 4,300 litres of diesel per vehicle each year. The first two medium-duty fleet vehicles hit the streets of Calgary in April 2022.

The problem is that much of Canada’s electricity regulations were devised in the middle of the 20th century, when terms like “climate change” and “net zero” didn’t exist.

Make the grid adaptable

“Unprecedented” has been used so much when it comes to natural disasters of the 21st century, it has become almost meaningless. However, all except for the most lexicographically-inclined meteorologists did not know what a “derecho” was until last May, when 600,000 people in Ontario and Quebec lost power in the wake of that particular wind storm. “Unprecedented” has struck again.

Even if every country meets its greenhouse gas reduction targets, the climate is already changing and will continue to do so. We can make it far more manageable — the less our activities negatively impact the environment, the less the environment will negatively impact us — but the world will continue to be affected by extreme weather, and this will continue to create problems given the age of the infrastructure of Canada’s electrical grid.

Over the past 10 years, the average number of hours of interrupted service has steadily increased — and a significant component of this incline are due to major events, mostly caused by extreme weather. Indeed, there has been a sharp increase in insurance claims due to major storms over the past decade.

The dilemma for Canada’s electricity companies is this: the more we rely on electricity, the more reliable we will need electricity to be. At the same time, extreme weather like wind, ice storms, floods and heat waves will put pressure on the infrastructure that generates and delivers electricity to Canadians.

Adaptation is preparing for the impacts of climate change, like more frequent extreme weather, droughts and wildfires, and hotter temperatures.

Adaptation solutions for a diverse country

The good news is that our member utilities are extremely resourceful. Ten days after the derecho in eastern Ontario, the damaged grid, which harnesses and transmits electricity across vast distances, was largely restored. This was aided in part through mutual assistance, which connects utilities in need with neighbouring utilities that can spare personnel and resources. Mutual assistance has been employed for many weather emergencies during the past several years.

Reliability and resiliency are at the core of what electricity providers do. But Canada is a big, diverse country.

The impacts of climate change in Cole Harbour, Nova Scotia are radically different to those in Saskatoon, Saskatchewan, or Trois-Rivières, Québec. One size will not fit all when it comes to managing extreme weather. But there are still things that we can do to ready the grid for more frequent and intense weather.

That’s why over the past decade, Electricity Canada has worked with electricity providers and experts to create A Guide to Adaptation Planning for Electricity Companies in Canada, a resource to help address the risks that electricity infrastructure faces, no matter where in Canada they may be.

* A catastrophic loss = 1 event costing $30M ($25M prior to March 2022) or more in insured damages.

The obstacles ahead

The process of getting customers’ power up and running involves decisions wherein the biggest lines are repaired first, in order to repair secondary lines, all eventually leading to the street where you live. Most utilities keep quantities of spare poles and cables and even transformers. All these are at the ready for a situation when they are needed.

Increasingly, though, there are more and more obstacles to getting the power back on quickly. Lineworkers are critical to the front lines of disaster recovery, but there is a labour shortage that will need to be addressed in the coming years.

The supply chain crisis facing our economy also has an impact. To mitigate long lead times, and to ensure that they have spare poles, and cables and transformers, utilities must place orders far in advance. Indeed, utilities with stockpiles of wooden poles preserved in pentachlorophenol are being forced to be discontinued as of October 2023, rather than phasing out their use as stocks deplete. The current supply chain situation is now affecting electricity companies, which will eventually impact resiliency down the road — and our ability to build the grid as we move toward a net-zero economy.

Adaptation, net zero and electrification

It is important that anything we build in the next twelve years to meet our net zero goals be able to withstand extreme weather. The extraordinary efforts we are about to make to build all this infrastructure will be for nothing if the next major climate-related storm damages it.

Our economy, our health and our safety rely on power we can count on, now more than ever. Making smart investments to work toward our climate goals needs to be informed by smart risk management practices. This will be important

the next time “unprecedented” strikes again.

You can obtain a copy of A Guide to Adaptation Planning for Electricity Companies in Canada from electricity.ca.

Electricity Canada member projects

Torontonians love their urban trees. In many older Toronto neighbourhoods, the powerlines connecting each home to the grid are suspended above ground from utility poles on the street. During storms, tree branches often fall on these overhead wires, damaging the customer’s home and requiring lengthy repairs before the customer’s power is restored. In some cases, live wires can even be downed, and present a hazard to the community. Toronto Hydro has adopted special safe-breakaway overhead lines, so that when a tree branch falls on the line, it disconnects safely from the utility pole, saving the customer’s home, and keeping live wires away from people. When the repair crews arrive, the hydro crews can re-insert the line and get the customer’s power back on quickly.

Not every adaptation needs to be a piece of new equipment. In New Brunswick, periodic floods during hurricane season can wash out culverts and roads, at the same time that high winds can knock out customer’s power. Saint John Energy noticed that certain roads would seem to always be washed out, and repairs to the culverts could take days or weeks - during which the customers power remained off. Hardening the culvert, or building a large bridge was out of the question, so the utility got creative. Before the next storm made landfall, they drove their heavy truck across to the far side of the culvert with all of the repair equipment they expected to need. Then, when the storm washed out the culvert as they knew it would, the repair crews simply took a small dinghy across the stream once the storm had passed, got in the truck, and got customers’ power back on long before the culvert and road had been repaired. Sometimes, just doing things a little differently is better, faster and less expensive.

The dilemma for Canada’s electricity companies is this: the more we rely on electricity, the more reliable we will need electricity to be. At the same time, extreme weather like wind, ice storms, floods and heat waves will put pressure on the infrastructure that generates and delivers electricity to Canadians.

By 2030 – five years before the government’s stated goal of making Canada’s electrical grid net zero in 2035 – one in six people in the world will be reaching retirement age.

Build and retain a strong labour force

There is much we need to accomplish if we want to make Canada’s electricity grid net-zero by 2035. And yet, there is also an important statistic looming near this date as well: according to the World Economic Forum, by 2030 – five years before the government’s stated goal – one in six people in the world will be reaching retirement age.

Even before the pandemic, hiring qualified candidates was becoming a significant problem for electricity companies, especially powerline workers as well as those in fields such as advanced analytics, computing, and information communication technologies to support increased digitalization. There isn’t just a shortage of technical skills and labour; companies are also having trouble finding candidates with leadership skills needed to build resiliency in the workplace and adapt to the changing needs of the industry.

These labour market trends also have been exacerbated by the pandemic and its continuing aftershocks including:

• The lack of immigration during the pandemic, coupled with a low birth rate and retirements have decimated the Canadian “labour pool” to almost a “labour puddle.”

• Inflation and interest rates have risen to record levels since the 1990s adding significant pressure on cost-of-living and compensation levels of employees.

• The rising cost of housing and rental markets in major cities have stifled labour mobility.

• Companies are also struggling with employee mental health and well-being, increased absenteeism, and a desire for more remote and hybrid work.

These ongoing labour and workplace challenges at a time of global energy transition call for bold action by governments, industry, and stakeholders alike.

Electricity Industry Labour and Workplace Priorities

• Talent attraction, retention, and promotion

• Equity, diversity, and inclusion

• Succession planning and leadership development

• Total compensation

• Collective bargaining

• HR analytics and technology integration

• “Human capital” performance metrics and disclosure

• Mental health and well-being

• Future of work

The state of the Canadian electricity industry

Employment in a net zero future

The electricity industry employed just over 91,000 workers in 2021 according to the Canadian Centre for Energy Information. However, the demand for powerline workers and other specialized workers will grow significantly as the industry invests in electrification and addresses growth in electricity demand. Many Canadians will need to up-skill and re-skill. In fact, RBC Capital Markets noted in a February 2022 report that that 3.1 million Canadian jobs will change in some way over the next decade due to the energy transition.

To that end, the federal government must help identify “future” skills based on ongoing technological developments and work collaboratively with provincial/territorial governments, educational institutions, and other stakeholders to develop a pipeline of skilled workers. Governments also have an opportunity to increase financial support for hiring of apprentices, co-op students, and skilled immigrants through tailored programs.

Increasingly, immigration will also become an important part of recruitment efforts. In a global economy and competition for talent, Canada must introduce ambitious programs to attract skilled immigrants. At the same time, we need to incentivize skilled workers to remain in Canada and reduce relocation to other competing jurisdictions such as the United States.

What needs to be

done

In last fall’s economic statement, the Federal government committed $250 million over five years in order to help train the workforce for the needs of a net-zero economy. This is important as governments, in partnership with key stakeholders, must consider a number of initiatives to ensure Canada has the human capital and the skills needed to successfully transition to a net-zero economy:

Improve labour mobility.

Unrestricted labour mobility is important to fill available vacancies across the country. Federal and provincial/territorial governments should take immediate action to align provincial occupational standards to work in key sectors such as electricity.

Identify skills gaps and provide targeted support.

The energy transition requires the identification of key skills and competencies. Several of the federal government’s sustainable job initiatives announced in the fall economic statement will assist with this. Federal and provincial/territorial government should collaborate and introduce targeted investments and tax credits for skills training (up-skilling and re-skilling) for Canadians to ensure people can apply for skilled work and adapt to rapid shifts in the labour market due to the clean energy transition and technological change.

Remove barriers for international students.

New international student graduates can play an important role in Canada’s energy transition. The federal governments should identify and remove barriers to those students seeking permanent residency in Canada, especially people who can support critical infrastructure sectors.

Increase youth employment opportunities.

Development of skills and knowledge through youth employment is a key imperative for meeting our long-term climate change objectives. Government should consider providing financial support to increase opportunities for youth, such as co-op, internships and other work placements so that they can find work rapidly upon graduation.

Support Indigenous workers.

The Indigenous workforce is set to expand significantly in the next decade and all levels of government should make targeted investments to support Indigenous employment in the electricity sector, through financial support for Indigenous students entering university or college level programs.

Remove barriers to foreign credential recognition.

International credential recognition is crucial for filling the ongoing labour and skills shortage. Governments should collaborate to develop a nationally consistent and transparent foreign credential evaluation system which would help identify and remove barriers to recognizing foreign credentials.

Support apprenticeship training. Governments should continue investments in training and workforce development, including providing electricity companies financial incentives/grants for hiring apprentices and providing tailored training and development for existing workers.

Support diversity and inclusion.

Ensuring diversity and inclusion is a business imperative for the electricity industry. Governments can support industry efforts through robust diversity-related labour data collection and dissemination; best practice frameworks for reducing hiring biases (conscious or unconscious); and guidance for establishing corporate performance metrics, especially in the context of environmental, social and governance considerations.

Lack of skilled labour can further delay the clean energy transition. In fact, there won’t be any breakthrough Canadian innovations to meet net zero without highly skilled people or a knowledgeable and educated workforce. Investing in Canada’s workforce is important for us to be able to achieve a sustainable future.

Accelerating learningElectricity Fundamentals in Canada (EFiC)

Our industry is experiencing rapid growth with the influx of renewables, change in consumer behaviours and rapidly evolving emissions targets from the Government. This specially designed course, while energy-agnostic, will ensure Canadians understand the importance of the electricity sector on the path to a net-zero future.

Renewables. Generation. Transmission. Distribution. Power Marketers. The Customer. Billing. Regulations. Conservation. What does it all mean? How does it work? How are they all connected?

Electricity Fundamentals in Canada (EFiC) , a new course developed by Electricity Canada, answers these questions. With over 1,600 student enrollments since the course launched in May 2022, this new online training course explains in plain language how the electricity system in Canada functions and is targeted ideally at those new to the industry or those looking for a refresher.

EFiC includes five hours of core training with an additional 60+ hours of related videos, podcasts and website links. It comes complete with quizzes, testing, scoring, a downloadable student handbook, a glossary of terms and a certificate of completion.

Learn more at electricity.ca/education

The reality in Canada is that people are having to make tough choices between housing, food, and energy.

Keep electricity affordable

Affordability is at the front of everyone’s minds. The past year has seen the return of inflation and cost increases in all parts of our lives: food. Interest payments. Energy. The cost of things is what everyone is talking about.

And let’s be realistic: no one likes getting a bill, electricity or otherwise. We also know that cost increases that are a frustration for some Canadians can be existential for others.

Rising costs, inflation, and affordability are also top of mind for Electricity Canada’s members. Our members are leading the energy transition and are making strategic investments both on the demand and supply side of the electricity system. They also must consider aging infrastructure, grid hardening due to extreme weather and ongoing system maintenance. All that is before any consideration on building out the system to meet the country’s net zero goals and new demand from electrification.

Where affordability begins: our customers

Electricity companies are doing all of this in an environment where there’s limited appetite or capacity for increased rates from the people that actually pay the bills, our customers.

The ability for Canadians to afford increases to their energy bills is a major conundrum. Energy poverty, measured by how much household income goes to paying these bills, is increasing in Canada. According to an article published in Energy Research & Social Science in November 2021, between 6% to 19% of households in Canada experience some degree of “energy poverty” and struggle to pay for their home energy needs.

This is most prevalent in Atlantic Canada, where almost one in three households are considered energy poor.

Energy needs aren’t really discretionary. You need to heat your home and power your fridge. The reality in Canada is that people are having to make tough choices between housing, food, and energy. In the long term, the energy transition can mitigate some of these pressures, but additional supports will be needed to control costs in the near and medium term.

Households that spend more than 6% of their after-tax household income on home energy services (or roughly twice the national median) have high home energy cost burdens, and are said to be experiencing energy poverty.

Rate caps: a short-sighted strategy

As a response to inflation and rising costs, provincial governments are using legislative tools to impose low-rate limits, or rate caps, on utilities which circumvents the process and independence of utility regulators. This happened in Nova Scotia last October as they capped non-fuel rate increases to 1.8% in total until 2024.

The problem with rate caps is they assume that the only problem to solve is one of cost. But the governments implementing such caps are not considering the aging infrastructure and grid hardening due to extreme weather events which in the long term both affect economic growth. There’s no getting around that investing in the grid costs money.

There are other concerns, including:

• The caps will hinder build-out of the grid to meet both provincial and federal net zero goals, as well as create other trickle-down negative economic impacts.

• Rate caps are a detriment to the credit ratings of investor-owned utilities, making it more costly to access capital, which in turn increases the utility’s costs, with no benefit to service, and passes those costs onto customers.

Emera, Nova Scotia’s investor-owned utility, recently stated that they are putting all clean energy projects on hold after the recent rate cap announcement by Nova Scotia’s provincial government.

In the medium to long term, rate caps will ultimately hurt customers, especially vulnerable customers. Deferring needed investments will only make them more expensive in the future and increase the risk of making the grid less reliable.

Ratepayer vs. taxpayer

To preserve customer affordability, Canada will need to consider how tax base funding can support electricity investment. Relying exclusively on the rate base to fund tomorrow’s grid will inevitably put undue pressure on individual customers, especially the most vulnerable.

Electricity bills charge for use: everyone pays the same rate per kWh, no matter their income. That rate covers the cost to produce, transmit, and deliver the power to your house, including all associated infrastructure.

If some of these costs are borne by the tax base – through infrastructure funding, tax credits and incentive schemes – it would provide a wider, more progressive, base for funding.

Government investments would reflect the public good that a cleaner electricity system offers. Low-income families would not be adversely impacted with the burden of paying for grid modernization.

Affordable electricity is important for households and the competitiveness of Canadian industry. Low-cost electricity not only empowers customers to choose electricity over higher-emitting options, it gives them confidence in further electrification. However, if the energy transition is borne exclusively by the ratepayer, it will not be affordable.

What needs to be done

Canadian electricity companies have been ensuring that electricity remains affordable for customers during the energy transition, but there is more that can be done by all stakeholders, including:

Develop a Canadian electricity strategy, centred on affordability.

Part of the work of a federal electricity strategy needs to effectively fund large-scale infrastructure projects to build out the electricity grid to be more adaptable and less carbon-emitting so that customers aren’t on the hook for infrastructure costs.

Exempt regulated utilities from planned changes to Excessive Interest and Financing Expenses Limitation (EIFEL).

Under EIFEL, some companies that deduct interest from their incurred debt will now see that tax deduction reduced, initially to 40% in 2023 and then to 30% starting in 2024. This limit was implemented without thinking about how it might impact a utility’s capital projects, as interest can no longer be deducted and every dollar of denied interest will be passed on to customers or increase the cost of capital. The legislation needs to recognize and reflect the unique situation of utilities and provide a targeted exemption, similar to the United States.

Implement more efficient incentive programs.

Although energy efficient measures are the easiest way to reduce emissions, the upfront costs of implementing home energy retrofits and upgrades are often a barrier for many Canadian households. The federal and provincial governments offer rebate programs for energy efficiency retrofits and for the installation of technology like heat pumps. Programs such as the federal government’s Greener Homes Loan can help Canadians make their homes more energy efficient by offering interest-free financing while saving money on their bills. These programs need to increase in scale, but

also in terms of overall access.

Provide energy efficiency and demandside management services.

Energy efficiency programs have been an important part of utilities’ outreach for decades. However, with buildings accounting for approximately 13% of Canada’s greenhouse gas emissions, demand-side management and energy efficiency are key for Canada to achieve net zero and help customers to save on their energy bill. Utilities are offering innovative solutions like on-bill financing so homeowners can more easily access heat pumps and other energy saving technologies.

For the Canadian economy to achieve net zero by 2050, electricity companies will need to double or triple the amount of of electricity being currently produced, while ensuring that electricity continues to be affordable, reliable, and resilient for Canadians now and into the future. There are outstanding questions on how affordability will be maintained for all customer segments as we build out infrastructure, and how these costs will be distributed equitably. This is a critical issue for the electricity sector as we continue to move down the path towards a netzero future.

Electricity Canada member projects

Heat pumps can heat or cool your home while still using less energy than traditional heating systems because they move existing heat around rather than generating it. Across the country, customers can access these heat pumps through homeowner rebates, and ultimately save money on electricity.

BC Hydro  customers are able to finance up to $7000 of combined rebates from the utility and the federal government to install their electric heat pump. Through these rebates, customers are able to save money to cover the installation, and get the increased savings written on their monthly bill by using less and paying less for energy. More than 10,000 customers have used these rebates on heat pumps since they became available in 2014.

Saving energy isn’t as complicated as it might seem. The less energy consumed; the less customers will need to pay on their monthly energy bill, making it more affordable for families and businesses. In anticipation of increased demand on the grid in the coming years, Hydro Quebec is developing programs to help customers do more, using less energy. Based on the predicted growth of the Efficient Heat Pump Program and the Efficient Solutions Program, customers will save a predicted total of 8.9 TWh by 2032 using this technology. In the winter, demand response tools will also be available for customers to help reduce consumption. By checking an app like Hilo, customers can be more aware of their energy usage in their home and given prompts on how to use less during peak times.

Relying exclusively on the rate base to fund tomorrow’s grid will inevitably put undue pressure on individual customers, especially the most vulnerable.

Communicating with customers

During 2022, on behalf of its members, Electricity Canada conducted a national customer satisfaction survey. Price is the number one priority for customers. The key findings included:

• 67% of customers stated that making electricity prices more affordable are a priority. Strengthening the grid to make it more resistant to severe weather and grid modernization were listed as second and third priorities.

• When answering the question, "How reasonable is the price of electricity,” 51% say reasonable, 12% say very unreasonable.

• However, one of the key findings from that survey is that increasing rates beyond 3% will be challenging.

• 55% say utilities should manage inflation pressures within their current rates, even if that means some decline in reliability or delaying other priorities.

When we look at the issue, “Are people supporting the energy transition?” A strong majority believe that we have to do something about climate change, but environment drops as a priority when price comes into play. 36% of people are focused on price, 30% choose reliability, and only 15% choose the environment.

• 46% said that to keep electricity bills affordable, Canada should focus on using low cost and reliable generation, even if it emits greenhouse gases.

• However, 41% of Canadians indicated that electricity providers should replace fossil fuels generation with non-emitting generation and avoid building new fossil fuel generation even if they have to pay more on their electricity bill.

It’s also clear from this survey is that there is an “education gap” with consumers. The average consumer knows little about the need to modernize the grid, or about electrification. This reinforces how utilities can be more proactive in informing customers about the grid, for example, it's important to educate around rate applications. The more people are familiar with the electricity system, and electrification, the more they are willing to support a rate increase.

Canadian electricity companies are customer-centric and continuously strive to communicate the value of electricity to their customers. The challenge ahead for them is to continue to clearly communicate what ratepayers are actually paying for and where investments are being made to improve the perception of the value for money that electricity offers.

These challenges are considerable. But they are not insurmountable. It’s time to come together, roll up our sleeves and get to work.