Ottawa is pushing forward with its clean energy regulations (CER) to decarbonize the remainder of Canada’s electricity grid by 2035. But renewable energy companies are struggling to keep up with their fossil fuel counterparts, a challenge said to be jeopardizing the green transition. Furthermore, some Canadians will see energy bills rise sharply as cheap, low-emission natural gas gets marginalized.
Northland Power, a Canadian company focused on renewable energy, has seen its share price cut in half in the last year. For its second-quarter results, president and CEO Mike Crawley said it was a “challenging time” for renewable power projects globally.
“The renewable sector has been impacted by high interest rates and inflation. And our share price has certainly been impacted because of the materiality of our two large offshore wind projects,” Crawley said in prepared remarks during Northland Power’s Aug. 11 investor call.
While offshore wind makes up a small part of Canada’s renewable energy mix, it is an important component for Ottawa to achieve its decarbonization plans. Budget 2023 provided $100 million to promote offshore wind development.
“Unless offshore wind developers can renegotiate electricity prices for projects currently under development or receive additional tax credits to compensate them for these significant project cost increases, the credit quality of these project owners is likely to weaken,” said Kevin Beicke, VP, Project Finance and Infrastructure at DBRS Morningstar, in an Aug. 2 report.
In July on the Toronto Stock Exchange, oil and gas stocks thoroughly outperformed clean tech and renewable energy stocks regardless of market capitalization and were the top-performing segment of the index.
Threat to Net Zero
The Energy Industries Council (EIC) in its “Survive and Thrive“ report published July 25 said “the energy supply chain is shifting into oil and gas, triggered by a lack of consistent and profitable work in green projects, raising concerns that net zero 2050 commitments will also be delayed.”
The EIC interviewed 96 leaders and senior executives of energy supply chain companies from around the world for its report.
“The much lower level of funding for green projects, compared to hydrocarbons, highlighted in this report, is having a direct impact on energy supply chain businesses. They are not seeing enough renewable and transition-related work cascading down into their order books,” said Stuart Broadley, CEO of the EIC, in a July 26 statement.
“They can’t wait for policy pledges anymore, so they look to more active markets like oil and gas to support their growth plans.”
Net zero jeopardy is a key result of the EIC’s research.
The good news for Canada is that it is ranked No. 2 in the world given its diverse mix of energy sources and high self-sufficiency, according to the Euromonitor International’s first-ever Global Energy Vulnerability Index (GEVI).
Canada already has one of the cleanest electricity grids in the world, with more than 84 percent generated by non-emitting sources like hydro, nuclear, and wind, according to Environment and Climate Change Canada in an Aug. 10 news release.
However, the one GEVI score that is not stellar is Canada’s “energy efficiency,” which means a relatively greater amount of energy is needed to produce goods and services.
“Higher energy efficiency can help to reduce energy consumption, and therefore reduce costs and reliance on imports, boost competitiveness and environmental benefits,” according to a Euromonitor International Aug. 2 press release.
A key point for Ottawa is the anticipated cost savings in the distant future from using electricity from renewable sources—by 2050, as Canadians use more green energy, they are expected to spend about 12 percent less on energy.
But for four provinces that currently rely on coal and natural gas—Alberta, Saskatchewan, New Brunswick, and Nova Scotia—the cost of green electricity will be as much as 15 percent more, according to an article by Blacklock’s Reporter.
On the road to 2050, the feds say the proposed regulations would increase national average residential electricity rates very slightly—by less than one cent per kilowatt-hour, in comparison to the current average residential electricity rate of 17 cents per KWh. Ottawa is saying that support announced in Budget 2023 will reduce the provinces’ and territories’ costs of complying with the proposed regulations, further reducing impacts on consumers.
Natural Gas
The CER will require the gradual phase-out of unabated fossil fuel power generation—including natural gas, a key export for Canada.
Alberta depends heavily on natural gas, and its premier, Danielle Smith, is fiercely opposed to the CER, saying that it will never be adopted in the province.
In a press conference on Aug. 14, she reiterated that Alberta will “pursue its own better path” toward reducing emissions. Central to Alberta’s path is incorporating abated natural gas generation to the grid and incentivizing carbon capture utilization and storage.
The Canadian Association of Petroleum Producers (CAPP) has its concerns with the draft CER regarding natural gas.
“CAPP is concerned that the proposal, as currently drafted, will limit the ability to use natural gas as a back-up to renewable energy post-2035. Canada produces some of the world’s lowest-emitting natural gas and is a critical part of our country’s energy security, including acting as a back-up for the intermittency challenges of renewable power,” CAPP CEO Lisa Baiton said in an Aug. 10 statement.
The challenge for governments and corporations alike is to balance the medium-term imperative to decarbonize the energy supply against the near-term demands for affordable and consistently available energy, said Jason Graffam, VP, Global Sovereign Ratings at DBRS Morningstar, in an Aug. 15 note.
“The longstanding recognition that fossil fuels, especially natural gas, will for the foreseeable future continue to play a key role in the energy supply mix was made more apparent following the pandemic and Russia’s invasion of Ukraine,” Graffam added.
“All provinces and territories will have to make very large investments in their electricity systems over the coming decades to support the growing demand for electricity,” Environment and Climate Change Canada said in its Aug. 10 news release—more than $400 billion nationally through 2050 to replace aging facilities and expand generation capacity. This estimate holds irrespective of implementation of the regulations, the department said.
The feds announced publication of draft regulations on Aug. 10. A 75-day consultation period begins Aug. 19, with the final regulations expected in 2024.
Baiton said the CAPP “intends to actively participate in the consultation” to address the concerns of its members.
