Prime Minister Mark Carney stated he wants to “double” the electricity grid. But how can he do that without driving up rates and bills for people and businesses?

Expanding the electricity system with fixed-cost infrastructure is a recipe for higher costs and more pollution. The amount of electricity produced and infrastructure built matters far less than if electricity is doing useful things and displacing less secure fossil fuels. The key to affordability is understanding the potential to get more value from the electricity system already built by increasing efficiencies and utilization.

Below, I propose a five-step “ladder” of solutions to guide public investments that will grow the electricity system affordably. The first steps of the ladder rapidly support affordability and efficiency, as well as enabling the cost-effective development of the technologies in the upper steps.

The ladder starts with saving electricity because it is lower cost than producing it. Utility “demand-side management” strategies offer incentives to customers to save electricity at a cost of 3 to 5 cents per kilowatt-hour. Compare that to BC Hydro’s recent renewable energy procurement (7.4 cents) or Hydro-Quebec’s estimate that new supply will cost 13 cents. 

Increase grid utilization

Because utilities traditionally plan for the worst-case scenario of almost all customers demanding high amounts of electricity at the same time, they build power plants, poles and wires to meet demands that might only exist a few times a year. This means that most of the time, these fixed-cost assets that everyone pays for are underutilized. Before spending a lot of ratepayer or taxpayer money on new infrastructure, we could make better use of the existing grid by using modern communication technologies.

Electricity systems can avoid overbuilding by matching customers’ demands to the existing grid. Utilities frequently offer large energy customers incentives to shift energy use and new loads (such as data centres) increase this potential. Electric vehicles, hot water tanks, air conditioners and solar panels (when equipped with batteries) also represent new opportunities as they can shift to reduce grid constraints and/or put more energy onto the grid when it is underutilized. This is low cost because customers have already paid for this equipment. Utilities just need to pay customers a little more to time equipment used to benefit the grid.

There are also technologies that enable more power to flow over existing wires that provide faster and lower-cost alternatives to new poles and wires. These include conductors that can operate at high temperatures, optimizing carrying capacity with weather conditions (dynamic line rating) and intelligent software power flow controls.

Better grid utilization turns new uses of electrification — such as heat pumps and EV charging — into an affordability benefit instead of a burden. More customers using the fixed-cost infrastructure everyone already paid for will help lower costs for ratepayers. This avoids a situation where more electricity use requires expensive new fixed-cost infrastructure, which will increase those same costs.

Increase interregional transmission and utility-scale storage

Enabling increased electricity trade within Canada is another way to make better use of resources already built. Resources such as power plants, storage and electricity savings in one region could support the grid in another. In many cases, better planning rules and coordination are needed to make use of existing lines.

Batteries can act as an alternative to transmission or be placed on either end of transmission lines to increase their utilization. Canada has a lot of storage potential in large hydroelectric reservoirs and finding seasonal storage solutions to meet winter heating demands is especially important.

Build zero-emission renewable energy

Wind and solar energy can be developed incrementally to match energy needs, which reduces the risk of customers paying for overbuilding. They are also increasingly the lowest-cost source of new supply.

More renewable energy can be developed because of the first three strategies, which enable flexibly matching demand with renewable energy supply, electricity storage and transmitting renewable energy across regions when it cannot be used locally.

Build large-scale, low-carbon generation

Resources such as hydroelectric, nuclear and gas plants produce lots of electrons, but their large scale and complexity result in delays and cost overruns. All the strategies earlier in the ladder thus play a critical role in creating the time and space for these large projects to be better planned and executed. 

The first steps of this ladder also create space to ensure big generation projects are truly value-added. For instance, some gas plants might be required as insurance against rare peak demand periods, but they should be rightsized to actual need.

The challenge for the Carney government is a bias toward doing the most expensive things.

Utilities count power plants, poles and wires as capital costs, while demand-side management, software and optimizing solutions offered by customers or third parties are often treated as operating expenses. For investor-owned utilities, this creates a powerful incentive to spend more on capital: the more they spend, the more they profit. Governments can direct their crown corporations to follow different objectives, yet they have a similar reward structure and also demonstrate a capital bias.

Another cause for imbalance is that ratepayers are charged operational expenses in the same year, while capital expenditures can be spread out over a longer period. That means that even though energy efficiency and grid utilization solutions reduce overall costs, paying for them can produce an immediate impact on rates. Large supply projects have a bigger undesirable impact, but the costs are pushed off into the future. The solutions in the first steps of the ladder provide benefits over several years, and so it makes sense to finance them over time.

Federal electricity policy has largely reinforced this high-cost bias. The Canada Infrastructure Bank funds transmission and utility-scale batteries, but not demand-side management or better grid utilization. The clean electricity tax credit is geared toward supply projects.

The federal government could rebalance its policy by supporting change on the customer side of the electricity meter. It could make low-cost capital available for customers' investments in insulation, smart equipment, heat pumps and batteries, while expanding funding for existing programs that support industrial customers, low-income customers and transformative building retrofits.

A federal strategy can also tilt utility planning and spending toward more efficient and affordable strategies by reserving the most preferential financing terms from the federal government for demand-side management and improved grid utilization instead of high-cost fixed infrastructure. This could encourage utilities and regulators to make larger investments in the most efficient and affordable strategies and pay for them over time, like a power plant — putting immediate downward pressure on customers' bills and rates.

We will not grow our electricity system affordably if our strategy is narrowly focused on physical infrastructure and risky megaprojects. The federal government could instead transform traditional high-cost utility biases while empowering customers to save energy and optimize energy use in their homes and businesses.

Brendan Haley is the senior director of policy strategy with Efficiency Canada, a Carleton University-based think-tank dedicated to creating an energy efficient economy, and adjunct research professor at Carleton’s School of Public Policy and Administration.

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