On June 8, 2016, Ontario released its $8.3 billion Climate Change Action Plan (CCAP),1 which lays out the province’s climate strategy for the next five years. In the plan, the provincial government lists a series of targeted policies and action areas that will be further elucidated in the coming months and years through regulation.2
Although Ontario’s published CCAP policy is relatively light on details, what is clear is that the provincial government will put incentives in place to encourage retail, commercial and industrial demand for renewable energy installations and that there will be increased emphasis on consumer-owned solutions.
Rather than being a potential boon for multi-megawatt scale project developers, under the CCAP megawatts will instead be built through consumer uptake, net-metering, enhanced incentives to electrify and de-carbonize Ontario’s various transportation modalities, disincentives for carbon-based heating, and support for the widespread electrification of energy systems across multiple industries. This will result in there being not only more renewable megawatts in the system, but also a better chance that those megawatts will be constituted by distributed energy generating systems, net-metered consumer-owned systems and, eventually, storage-enhanced micro-grid networks. These systems will replace carbon-based heating, charge electrical vehicle batteries, and, potentially, continue to threaten the traditional business model of Ontario’s 70+ remaining local electricity distribution companies.
Under the CCAP, some portion of the tax windfall from the sale of greenhouse gas emission permits will be put to use in supporting “low carbon innovation.” By our reading, this means incentives for technological research into greenhouse gas mitigating technologies across a number of industries. Ontario already has a global leadership position in energy storage, smart-grid technologies, micro-grid technologies, and renewable energy to grid integration. Further support in these areas—particularly in the MUSH sector, in industrial settings, among aboriginal communities, in remote communities, and in key innovation hubs—is very likely to hold promise. The challenge for the Ontario government, as for all governments, will be to utilize market forces to make the selection of winning technologies while simultaneously creating the right environs for growth.
As evidenced by the CCAP, renewable energy will be a “lynch-pin” technology in Ontario’s future climate change initiatives.3 Indeed, the key areas of emphasis in the plan—which include energy efficiency, net zero energy buildings, changes to building codes and regulations, as well as transportation system electrification—make Ontario’s well-established renewable energy industry and its rapidly growing energy storage industry uniquely situated to assist in the province’s transition to a less carbon-intensive economy.
The CCAP can therefore be seen as generally beneficial to Ontario’s well-established solar manufacturing, development, and operations industries. However, the CCAP has also made incentives to use renewable energy less direct. For Ontario’s solar and wind industry project developers and manufacturers, as well as pension investors and life-co lenders, the game has thus slightly changed. Large-scale, long-term, fixed-price offtake arrangements, such as those available under the RESOP and FIT programmes of previous years, are going to become less frequent.
Turning to the federal level, Canada’s federal climate strategy should complement, or at least supplement, Ontario’s CCAP. When the federal parliament ratifies the Paris Accord on climate change it will be committing to cutting Canada’s greenhouse gas emissions to 30 percent below 2005 levels by 2030. This number is similar to Ontario’s goal under the CCAP: the province aims to reduce greenhouse gas emissions to 15 percent below 1990 levels by 2020, and to 37 percent below the 1990 baseline by 2030.
When creating a plan to reduce emissions country-wide, economists will debate the relative merits of the cap-and-trade system, which Ontario has adopted to reach its aforementioned goals, versus a simpler, more market-neutral carbon tax. The province’s selection of a cap-and-trade system is workable and by no means unprecedented. However, at the very least, both of these policies are preferable to technological or output standards.
As Ontario approaches outlet parity within the next 2-3 years, the CCAP should form a complementary mechanism to support solar and wind installations at or near point of use. At the consumer level, plug-and-play solar solutions which drive down peak period usage will begin to be thought of in a manner similar to led light bulbs: a safe, simple way to save money. At the commercial and industrial scale, roof-top and parking lot solutions are already a cost effective investment –even without an offtake contract or net-metering arrangement. If the incentives are set right, the CCAP should ideally accelerate the decline in renewable energy installation costs in the Ontario market through market mechanisms and bring the province closer to storage-parity within a few years. It should also result in continued innovation-led industrial growth as new power-sector-related industries take off. The trick, as indicated above, will be for government agencies to set the theme (climate change mitigation) and then to create the conditions for innovation, growth and market competition without hand picking the winners and the losers. If this is done well, the result should be continued evolution and growth in Ontario’s vital renewable and storage tech sectors.