Ken Silverstein
EnergyBiz Insider
March 10, 2008

Energy policy isn’t just consuming U.S. lawmakers. It’s also dominating the Canadian agenda and particularly the province of Ontario.

The current government there recently unveiled its long-term supply roadmap that plans to double the amount of renewable energy by 2025 and refurbish or replace the province’s base-load nuclear capacity. But it also expects to phase-out the use of coal-fired generation by 2014 — a strategy that had to be put off for seven years.

The 20-year outlook, which will cost tens of billions to implement and be updated every three years, is necessary to accommodate electricity growth rates of 1.3 percent a year. At least 10,000 new megawatts are now under construction, on top of the current 31,000 total. Plans are also in place to build new transmission lines. Still, the gap between what Ontario needs and what its own generators can provide will remain formidable and according to some estimates will fall short by 15,000 megawatts by 2025.

“The plan must be founded on prudence-cost effectiveness and feasibility of options,” says Amir Shalaby, vice president of power system planning for the Ontario Power Authority, which addresses the province’s supply picture in the face of aging and inadequate infrastructure. “It must also have flexibility-the ability to respond and adapt to what actually happens and changes in our assessment of the future.”

Many experts say that Ontario’s stated goal of phasing out its existing coal plants would result in massive energy shortages, noting that coal provides 16 percent of the province’s electricity. Instead, they say that Ontario ought to implement new clean coal technologies. Natural gas, meanwhile, supplies about 8 percent of the province’s energy mix — an amount that is expected to double by 2018. But flat production and increasing demand are putting upward pressure on those prices and could diminish its appeal.

The province’s energy issues are compounded even further because of its aging nuclear fleet, which provide about 51 percent of Ontario’s daily requirement. The power authority has suggested the modernization of almost all of its nuclear stock of 12 power plants at a cost of $18-$30 (U.S) billion.

It also recommends that Ontario install wind, solar and biomass projects. Altogether, the use of renewables would rise from 23 percent today — that includes 22 percent hydro sources — to 43 percent by 2025. Without a holistic solution, the power authority warns that significant shortfalls will occur by 2025.

Ontario’s regulatory scheme evolved from one of being closely monitored to a more liberalized version. To get there, the Conservative government in 1998 separated the generation and wires businesses. While provincially-owned Ontario Power Generation and Hydro One still control those respective businesses, private companies are now allowed to supply electricity to the energy market there.

Sustainable Focus

When rates were regulated, consumers had been largely oblivious to supply and demand. But such protection served to counter Ontario’s mission — to use fewer resources to deliver increasing amounts of power and to subject consumers to market conditions. As such, the province has steadily raised rates to reflect the increased demand. Independent analysts are furthermore predicting that rates will rise by 6.5 percent a year to pay for new generation, infrastructure and conservation programs.

Wholesale producers can now sell their power at market rates. Consumers, meanwhile, can lock in prices by buying long-term fixed contracts from private suppliers. Overall rates, however, are not expected to rise as fast because the nuclear and hydro generation plants will remain regulated. Regulators there would “blend” the regulated and unregulated components to come up with a quasi-free market rate.

To maintain stability, nuclear power may be the most viable option for Ontario, says Ontario’s Premier Dalton McGuinty. It is efficient, he notes, pointing out that a small amount of uranium is both more productive and more environmentally-friendly than coal. Unlike other alternatives, nuclear provides continuous power and the uranium used to fuel plants is plentiful and the nuclear waste can be safely contained. He acknowledges that there is no perfect solution to fixing the province’s energy dilemma.

“As older reactors come to the end of their life cycle, refurbishment and new generation of nuclear must take over,” says Murray Elston, chair of the Canadian Nuclear Association. “Nuclear is the only technology capable of producing the large quantities of reliable and affordable carbon-free electricity” in an industrial economy like Ontario.

Canada-based Energy Probe, however, admonishes the nation and Ontario in particular to pay heed to the risks surrounding nuclear power. Taxpayers in Ontario, it says, are footing the multi-billion bill to refurbish two nuclear plants there — a process that is now 60 percent complete and which will add 1,500 megawatts of capacity. The group also says that large and centralized facilities use imported fuel from outside the province that leaves open the question of where to bury the radioactive waste. More of the province’s finite resources, it concludes, must be directed to solar and wind.

Like the United States, the province needs a diversity of fuels to meet its future energy needs. The projected growth rate there means there’s room for nuclear power, green energy and natural gas. And while is seems unrealistic that Ontario can phase out its coal units, global pressures to curb climate change will ratchet up the cost of releasing carbon and will make it imperative that it focus on sustainable energy production. No matter how they dissect it, policymakers there are facing the same vexing issues as those in the United States and elsewhere.