Limited coordination with gas utilities, low estimates of future power demand, and a failure to put demand-side resources on a par with new supply are all impeding Canada’s electric utilities from preparing for a net-zero future, Efficiency Canada warns in a scathing new analysis released this week.
“Utility resource planning is central to Canada’s ability to achieve its climate and energy commitments,” the Ottawa-based think tank writes in an online introduction to the report. Without it, “the country risks falling behind its net-zero goals, increasing consumer costs, and missing opportunities to leverage demand-side solutions for a more efficient and resilient energy system.”
But the report, co-authored by Efficiency Canada Director of Research James Gaede and Senior Director of Policy Strategy Brendan Haley, says gaps in the system could hinder the sector’s progress at a crucial moment in the net-zero transition. The organization warns that:
• A siloed planning approach, with “little collaboration” between electrical and gas utilities, “prevents a holistic view of system-wide needs, making developing comprehensive strategies for net-zero energy transitions harder.”
• Even as utilities prepare for a wave of new demand to serve data centres and support power-hungry artificial intelligence models, utilities are actually underestimating future consumption compared to net-zero pathways. “This underestimation limits electrification potential, leading to inadequate system expansion plans and potential energy shortages in the long term,” Efficiency Canada writes.
• Utility planning models generally undervalue energy efficiency and demand response options. “Instead of being included as selectable resources within system expansion models, they are pre-determined and subtracted from load forecasts, reducing their potential impact.”
The report [pdf] reviews an integrated resource planning (IRP) process that Efficiency Canada deems essential to manage the business and affordability, resource/system, and societal risks that power utilities face. Those risks will play out in the shift to a net-zero future that will require “major structural and behavioural changes in how we produce and use energy,” particularly as buildings and transportation are electrified.
“In the context of a net-zero transition, there are clear societal risks associated with a failure to adequately plan for electricity systems to support the decarbonization needs of other sectors,” Efficiency Canada writes. That failure will “at best make it more difficult and costly to hit national or international policy goals by 2050, or at worst make it nearly impossible.”
Even though electrification has become a “common theme” in energy futures models, the report adds, “electricity load forecasts used in utility resource planning are generally conservative. While the range in load forecasts across all plans and scenarios was quite broad, most utilities are not modelling scenarios with electricity load growth approximating those in net-zero pathway studies.”
And none of the seven Canadian utilities and system operators in the review—with the partial exception of Manitoba Hydro—gave demand-side resources equal importance in its modelling. “The potential of demand-side resources is systematically undervalued through modelling methodology, outdated assessments of avoided costs, and the use of total resource costs to screen measures,” Efficiency Canada states, with the result that the stated capacity to draw down peak demand is limited to 11 to 14%. “A result of understating the potential for demand-side solutions to meet peak demand needs is that several scenarios increase natural gas generation under more aggressive load forecasts.”
The report concludes that:
• All seven entities in the study—BC Hydro, FortisBC/FortisBC Energy, Manitoba Hydro, NB Power Nova Scotia Power, Ontario’s Independent Electricity System Operator (IESO), and the Alberta Electric System Operator (AESO)—have published future scenarios that comply with federal and provincial policies. But only the IESO and AESO factor in “known but yet-to-be-implemented policy” or scenarios that backcast from a net-zero future. And only Fortis and Manitoba Hydro have modelled electrification levels that approach the estimates in national net-zero pathway studies.
• Only BC Hydro, NS Power, and to some extent Manitoba Hydro give “comprehensive consideration” to the potential for demand flexibility, and only Manitoba Hydro and to some extent NS Power incorporate demand-side resources as selectable options in their modelling. None of the utilities or regulators fully acknowledge the market potential of demand-side resources or factor in practical considerations like construction lead times and scheduling flexibility in assessing those resources.
• None of the entities’ risk management plans account for uncertainties on the road to a net-zero future.
“These can include a planned resource not being available, extreme weather conditions, technology cost reductions, or increased availability of flexible demand resources as customers seek greater independence by investing in onsite energy generation, efficiency, and storage,” the report states. But none of those considerations show up in utility modelling, despite “considerable evidence that large supply-side projects experience cost overruns and delays.”
That gap is unfortunate as utilities enter a period of heightened uncertainty, where “early actions that increase future flexibility should be prioritized over those that could lock utility systems into a resource that can be difficult to exit,” the authors write. But “most IRPs did not develop an action plan that included higher levels of demand-side management earlier in the plan.”
While many of the IRPs in the review claim to offer a feasible emissions reduction path, a net-zero future is about more than just reducing emissions, Efficiency Canada concludes. While “good utility planning appropriately manages the risks associated with an unavoidable and necessary energy system transition” current utility planning in Canada “is not managing disruptive change, but minimizing it.”
