Ontarians could soon be facing a massive energy bill.
Electricity demand between now and 2050 will likely double, according to projections, and to meet it Doug Ford’s government intends to spend hundreds of billions of dollars on new nuclear reactors alone. Throw in anticipated refurbishments of existing reactors, plus new transmission lines and other power generation projects, and the costs stand to be unprecedented.
Luckily for Ontario, the federal government is considering stepping in to help. It sees large-scale power investments as essential to the country’s economic prosperity and security. And a hint in its new national electricity strategy about how it could try to make these investments more affordable should have gotten more attention than it did.
When it was released last month, the new strategy didn’t exactly take the country by storm. And this aspect of it was especially easy to miss.
At one point, the document says “the current generation should not have to bear an unfair burden in shouldering the upfront investments for electricity system costs that will deliver energy to future generations.” At another, it says Ottawa will now begin consulting on “developing long-term, sustainable financing mechanisms.”
And that’s about it.
But based on recent conversations with sources in government and the electricity sector, there’s a lot more happening behind the scenes. In fact, there’s now an effort underway in federal Energy Minister Tim Hodgson’s department to have the concept for a new financing model ready by next fall’s budget.
It was seemingly prompted by industry association Electricity Canada, which was arguing for months before the strategy’s release that traditional financing models, won’t suffice for the coming build-out. That case especially applies to projects with very high upfront costs and then long lifespans, like nuclear stations and hydro dams.
Normally, provinces tend to spread out those costs by amortizing them over 30 or 40 years.
The argument is that the amortization period should really be more like 70 or 80 years, better reflecting how long the infrastructure could operate, and spreading the debt burden to people who won’t even be born until later this century.
Maybe provinces could try that on their own. But it would be easier with Ottawa, because its greater fiscal firepower gives it more ability to take on unusual financing structures and get lower interest rates.
Electricity was, until recently, an area of provincial jurisdiction that Ottawa mostly avoided.
That changed under Justin Trudeau. His government brought in a series of measures, highlighted by new investment tax credits, aimed primarily at encouraging investment in wind and solar power, plus energy storage. (It also forced a phaseout of coal and tried to force a phaseout of gas for power generation, the latter of which Carney has abandoned.)
What’s different and extra challenging about this new venture, though, is that some provinces could benefit much more than others.
Nuclear projects would likely get the most financing. That would make Ontario by far the biggest beneficiary, with a few other provinces that are considering nuclear investments (like Saskatchewan) benefitting to a lesser extent. Maybe the financing would support the odd new or expanded hydro dam as well (perhaps in Newfoundland and Labrador), and help with transmission lines. But with any other form of power generation, the payback periods aren’t long enough for this approach to be needed.
No wonder then, that while Ontario is already engaging with Ottawa, there are whispers of other provinces expressing reservations. Since nobody is forcing Ontario to go big on nuclear when there are less costly options like greater reliance on wind and solar, why should all Canadians have to spend nearly the next century helping pay for it?
There are decent answers to that question, provided Carney and Hodgson have the nerve to push back.
For one thing, both seem as bullish on nuclear as Ford. Like him, they consider it not just an energy play but also an economic one, with the chance to reclaim an international lead in nuclear technologies and expertise. By that measure, it’s a national opportunity, not just a provincial one.
For another, there is a need to avoid a more worrisome potential consumer backlash than anything over regional imbalances.
All the extra grid capacity is meant to help us transition off fossil fuels, which should make driving cars and heating homes cheaper. However, history shows how much anger there can be when electricity bills shoot upward.
And if Ontario keeps homeowners’ energy bills down by subsidizing them through general government revenues, as it does currently, it could add historically large sums to the provincial deficit. That could force horrific sacrifices, as the province is already strained by dealing with the needs of an aging population.
So there’s good reason not just to proceed with this plan, but to do so boldly.
Realistically, it’s hard to imagine a complex new electricity financing structure rising to the top of Canada’s national unity challenges.
It’s easier to envision some much worse consequences if Ottawa idly stands by.
