July 2, 2024 / By Current Affairs

Electricity Canada releases new report “Always On”

It is no secret that the Canadian electricity grid is going through big changes, faster than ever before. Electricity Canada’s new publication “Electricity in Canada: Always On” discusses the new age definition of ‘reliability’ and how it will affect the energy transition from electrification to aging infrastructure. Joe McKinnon, Manager, Economic Regulations & Standards at Electricity Canada sits down with Current Affairs to explain.

Why is reliability so important?

Reliability is one part of “energy trilemma” as we call it. As we pursue a decarbonized and expanded grid to meet our net zero goals, we must consider how to achieve reliability, affordability, and sustainability - the trilemma.

In recent years, sustainability has become the larger buzzword of the three for policy impacting the electricity sector. Even so, electricity providers have not forgotten the importance of reliability. It's a pressing issue that is consistently integrated into modelling and investment planning for service providers. However there are diverging priorities between utilities, regulators, and policymakers. That, and the rapidly shifting energy landscape, has led to the relegation of reliability considerations. Ultimately, everyone needs to understand that fundamental priority for electricity providers is ensuring that the lights are “Always on”!

Tell us about who was involved to create this report and why?

Tom Chapmen and Dr. Kathleen Spees from the Brattle group developed the report though primary research gathered from our membership. The substance of the report was developed though the industry expertise of Electricity Canada’s network. Thanks to the practical knowledge of our membership, the authors at the Brattle group were able to bring theoretical concepts to a practical level.

What do utilities need regulators to do most when it comes to making the grid ready for net zero?

Net zero is a huge challenge. Policy is driving this massive shift in our economy which is changing the energy landscape dramatically. This requires major investment and innovation from the electricity sector, but change can't be facilitated at the rate required through outdated and rigid regulatory frameworks.

Regulators across the country need to provide utilities with greater flexibility when it comes to rate submissions and rate design, as well as hold a progressive understanding of what should be considered reasonable investment for cost recovery through the rate base. While the principles behind rate design in Canada aren't outdated, interpretations of these principles can be.

Clean energy investments often require incremental reliability investment beyond typical replacement capacity cost. So, we need flexible application periods for utilities to manage evolving trends in supply and demand. And we need forward-looking, multi-year revenue plans with profit and loss sharing mechanisms that would provide utilities with greater ability to manage the considerable risks associated with investing to meet uncertain future needs.

In addition to flexibility, we need clarity. Regulators need to provide clear guidance for those utilities seeking to invest in grid modernization and develop distributed system operator capability.

What were the big recommendations made in "Always On"?

Always On makes the case for the importance for prioritizing reliability as the central consideration of planning our energy future.

Some of the big takeaways include:

  • That we need greater coordination between utilities, policy makers, and regulators to set a strategic direction that optimizes the utility business model. Enhanced industry engagement for policy planning and implementation is required. There needs to be opportunities to engage in greater regional planning. Early and active industry engagement in policy development not only orients policy and planning goals towards achievable targets, it reduces inefficient regulatory burden.
  • We need to meet energy needs across all hours – and not just peak times. In order to determine full resource adequacy needs, new assessments will be required to ensure that all potential grid disturbances are captured.
  • Regulators need to develop more flexible financing mechanisms that allow utilities to seek approval for and recover prudently incurred net zero transition costs.
  • Regulators and utilities need to proactively mitigate extreme weather risk by facilitating grid hardening investment. This needs to be based on long-term future projections, rather than historical events.
  • Targeted funding is needed to address utility capital constraints, facilitate investments in infrastructure, and support the most impacted provincial economies. The current financing frameworks, which focuses on incenting efficiency and maximizing asset utilization, have recently had an impact on utilities access to capital for long term reliability investments. Targeted public funded can bridge this gap in capital.

Where should we start?

Regulators and policy makers need to provide more opportunities for regulatory innovation, experimentation, and flexibility. This can be done by establishing regulatory working groups and innovation sandboxes that look to coordinate policy preferences, regulation, and needs to utilities.

Across all jurisdictions regulators and policymakers should establish rate frameworks that acknowledge that reliability investments are “used and useful” allowing easier cost recovery for utilities.

Target funding from governments needs to be available to utilities given the capital constraints for these net zero investments. An expanded and decarbonized grid, pushed for by government policy, needs to be supported through ample government incentives.