Ontario can eliminate natural gas electricity generation by 2050 at $400B cost: IESO

Ontario can fully eliminate natural gas generation in its electricity system by 2050, starting with a moratorium in 2027, but it will require about $400 billion in capital spending and new, large-scale nuclear plants, a report said Thursday.

The Independent Electricity System Operator released a series of publications Thursday, including a study on pathways to decarbonizing the grid, which it said will be a complex task as electricity demand is projected to rise over the same time period.

It said work should start now to assess the reliability of new and relatively untested technologies and fuels to replace natural gas and to set up large, new generation sources such as nuclear plants and hydroelectric facilities.

"Ontario will need all of the resources available to it to simultaneously expand and decarbonize," the report said. "While many options are already available and understood -- wind, solar, hydroelectric and large nuclear -- others options such as (small modular nuclear reactors) and low-carbon fuels will require support, and their availability is not guaranteed."

Energy Minister Todd Smith said in a statement that he will launch a consultation in the new year on next steps from the report, including the potential development of major nuclear, hydroelectric and transmission projects.

An interim report it released in the fall said that Ontario would need more natural gas in the short term, to provide flexibility and fill a supply gap as electricity demand grows and nuclear plants are refurbished or retire.

But beyond a new 1,500 megawatts of natural gas generation the energy minister directed the IESO to procure, the system operator said a moratorium is feasible and the province can then start a phase-out.

The report identifies a number of risks, including that large electricity infrastructure can take 10 to 15 years to build. As well, a potential sixfold increase in the workforce to build thosetypesof projects may be required, meaningful consultation will be necessary with Indigenous communities, and small modular reactors and low-carbon fuels such as hydrogen -- while important to decarbonization -- are still in development.

"If low-carbon fuels do not materialize, replacing natural gas will be an even more complex task, requiring more research and analysis into understanding how generation, demand, transmission and storage can be combined to replace gas," the report said.

"It may be possible to overcome all of these barriers, but it will require concerted effort by government and innovators."

The report also highlights the politically sensitive issue of the cost to ratepayers. The former Liberal government faced widespread anger over high hydro bills, driven up in part by long-term contracts at above-market rates with clean power producers secured in order to spur a green energy transition.

If consumer costs become too high, it could jeopardize the plan to decarbonize, the IESO said. Chuck Farmer, the vice-president of planning, conservation and resource adequacy, said the pacing of adding new, non-emitting electricity generation is very important.

"If we build, but the demand maybe emerges a little bit later, then we would have a lot of resources that we have to pay for and that will increase costs, and that may derail the transition from a customer point of view," he said.

"Rapidly rising electricity costs could discourage electrification, stifle economic growth or hurt consumers with low incomes," the report added.

The IESO said decarbonizing the electricity system by 2050 would require between $375 billion and $425 billion in capital costs over 23 years, resulting in annual operating costs of about $60 billion by 2050 -- three times the current costs.

There is no precise plan for exactly how much of each generation source would be needed to replace natural gas and meet rising electricity demand, but Farmer said it will involve a "significant" amount of nuclear, both large plants and small modular reactors.

Currently, Ontario has about 10,000 megawatts of natural gas generation capacity. That will increase to about 12,000 megawatts in 2027, then drop to 8,000 megawatts in 2035, which would lower greenhouse gas emissions by 60 per cent, the IESO said. Natural gas generation would still be needed for a while after that to meet needs in the Greater Toronto Area, the operator said.

The report also urged further investment in conservation programs. Smith recently announced new programs set to roll out next year at a cost of $342 million, though critics said they don't replace energy conservation programs the Progressive Conservatives cut several years ago.

Ensuring the maximum amount of energy savings will require "sustained investment" in conservation and demand management programs -- and supporting marketing -- at a cost of about $6.25 billion over the next 12 years, the report said.

Environmental groups said while it's positive the IESO took the step of studying the issue, the pathway to decarbonization is not nearly aggressive enough.

Canada has committed to a net-zero electricity sector by 2035 and it's difficult to see how Ontario's plan fits in, Environmental Defence program director Keith Brooks said in a statement.

"It is good to see that the IESO is planning on increasing renewable generation, but the province should be planning on procuring much more wind, solar and storage, rather than relying on gas and a massive build-out of nuclear power," Brooks wrote.

"Ontario's competitiveness depends on clean power. Committing to gas until 2050 will deter investment in the low-carbon economy."

This report by The Canadian Press was first published Dec. 15, 2022.