3. MOST CONCERNING PROPOSED CHANGES

3.1. Extending the time that existing unabated gas plants can continue to operate, but not proposing what this longer “End of Prescribed Life” period would be.

3.1.1. The Draft CERs approach to “EoPL” was good; Changing it is bad

The Draft CERs created the concept of “End of Prescribed Life” (“EoPL”) to address the issue of how long gas plants would be permitted to continue to operate unabated (ie, without CCS to capture most of the GHG emissions).

The Regulatory Impact Analysis Statement that was published at the same time as the Draft CERs stated:

[U]nits commissioned before January 1, 2025, will need to achieve a 30 t/GWh performance standard starting either January 1, 2035, or January 1 of the year following the unit’s end of prescribed life (20 years after commissioning), whichever is later.^[23]  [Emphasis added.]

Put another way:

The proposed Regulations allow units commissioned before January 1, 2025, to continue operating without being required to meet an emission intensity limit until the end of the unit’s prescribed life, proposed to be set at 20 years, or January 1, 2035, whichever comes later.^[24]

Choosing 20 years for the EoPL in the Draft CERs was a wise compromise.  ECCC knew that the estimated operating lifetime for gas plants (both unabated and abated) is 45 years.^[25]  ECCC was conscious of the fact that “new natural gas units represent a substantial investment that can only be recouped after 10 or more years of operation”.^[26]

The 20-year EoPL ensured that firms that built and/or operated unabated gas plants before the CERs come into force will be able to recover all of their costs and make at least some profit.

3.1.2. Some of the provinces’ complaints about the Draft CERs

In the Public Update, ECCC summarized some provinces’ concerns with the EoPL provision in the Draft CERs:

Provinces whose electricity systems include large portions of emitting units asserted that the proposed 20-year end-of-prescribed life (EoPL) is too short, and could strand assets, increase costs and reduce reliability because it would force emitting baseload units into retirement before sufficient replacement low- and non-emitting units can be built. Other provinces did not comment on this aspect of the regulation.^[27]

3.1.3. Corporations’ and System Operators’ Complaints about the Draft CERs

In their submissions to the online public consultation on the Draft CERs, some corporations and some provincial electricity system operators objected to the 20-year EoPL.

Maxim Power Corp., self-described as “an independent power producer based in Alberta,” told ECCC that it should, “[i]ncrease the Prescribed Life from 20 years to 35 years to better reflect the economic life of existing assets and avoid stranding investment.”^[28]

ATCO Power jointly owns gas plants in Ontario and Saskatchewan. In its submission, ATCO complained:

20-year End of Prescribed Life (EoPL) will create asset retirement cliffs.  With limited compliance flexibility and highly constrained peaker provisions, the   20-year end of prescribed life creates abrupt transitions to a lower emitting grid which increases the risks to public safety and affordability. It will also create tremendous uncertainty and volatility in energy markets and power pools that currently rely heavily on an emitting generation fleet.^[29]

In its submission, the Ontario Independent Electric System Operator (the “IESO”), stated:

The current “Prescribed Life” provision must be extended from 20 to 30 years to ensure Ontario has a realistic timeline to replace the natural gas generation that would otherwise be restricted by the provisions of the CER in 2035. Ontario built the majority of its natural gas generators in  the late 2000s as part of its leading efforts to remove coal from its resource fleet. The 20-year prescribed life provision would severely restrict the use of these natural gas generators, creating reliability risks…

The 20-year asset life provision proposed in the CER would severely restrict the use of available natural gas generation.^[30] 

In its submission, the Alberta Electric System Operator (the “AESO”) states that it “has a public  interest mandate to ensure the safe, reliable, economic operation of the Alberta electricity system.” Notably, its mandate does not include reducing GHG emissions or anything associated with climate change.  In its submission, the AESO stated:

End of Prescribed Life (EoPL)

• 20 years does not allow investors to recover cost plus reasonable return.
• May accelerate power plant retirements once EoPL is reached.^[31]

3.1.4. ECCC is considering extending the EoPL, but they are not telling us by how much

In response to provincial and industry concerns, the Public Update stated:

The EoPL provisions are intended to allow natural gas-fired units that were financed, approved and brought into operation before the CER comes into force in 2025 to continue operating past 2035 for a limited period of time relative to their age. Consideration is being given to slightly extending the EoPL, compared with maintaining the EoPL as proposed.^[32] [emphasis added]

ECCC states later in the Public Update that the change being considered is “TBD”, meaning “To Be Determined”.^[33]

Since the Public Update does not explain what the new EoPL provision would be, it is impossible to assess the impacts of this change.

We don’t know if the new EoPL will be the same for all power plants, or if it might vary for different classes of units (eg, baseload plants vs. peaker plants). Some provinces may try to negotiate an EoPL that varies by jurisdiction, so that the requirements would be more or less stringent in some provinces than others. This could weaken both the emissions reduction impact of the CERs and public support for the transition away from fossil-fuel-fired electricity. As we saw with the reaction to the Atlantic exemption from the carbon “tax” for home heating oil, public support for climate policies depends on a perception of fairness and a level playing field.^[34] 

That said, we can take a look at provinces’ and the industry’s arguments for an extension to the EoPL and assess whether such a change really is necessary. The sections below examine each of the arguments in turn.

3.1.5. Refuting that the 20-year EoPL doesn’t allow gas plants to make enough profit

The argument that a 20-year EoPL just doesn’t allow gas plant operators to make enough profits is easy to refute.

An academic study found that the payback time for gas plants (in other words, how long until a gas plant can pay off its construction costs and become profitable) ranges from nine to 17 years.^[35]  As set out above, the RIAS discussed profitability after 10 or or more years of operation”.^[36]  Under the Draft CERs, the end of prescribed life would be January 1, 2035, or 20 years after the gas plant is commissioned, whichever is later.  Ontario’s gas plants built in the late 2000’s would be able to operate unabated for up to 35 years. At that point, they would not be forced to shut down, they would simply be required to deploy CCS technology to capture enough GHG emissions to meet the emissions intensity standard of 30 tCO2e/GWh.

As such, with a 20-year EoPL or 2035, whichever is later, all gas plant owners or operators will be able to make some profits and some will be able to make considerable profits.

In 2024, knowing what we know about the urgency to reduce GHG emissions to avoid catastrophic impacts from climate change, nobody should be building new gas plants that are unabated, or that are not at least configured to have CCS added within the next decade.  Anyone in 2024 who builds an unabated gas plant, or a gas plant that cannot be converted to CCS abatement before 2035, does not deserve to make any profit.

The world is currently on track for 3oC of global warming by the end of the century.^[37]  “If all countries were to follow Canada’s approach, warming could reach over 3°C and up to 4°C.”^[38] 

Under these circumstances, increasing the 20-year EoPL to some “To Be Determined” longer period because the gas plants will not be able to make enough profits does not make sense.

ECCC – Environment and Climate Change Canada – is the primary government department whose job it is to reduce Canada’s GHG emissions.  With the CERs, ECCC’s  job is to reduce GHG emissions from electricity generation.  It’s not ECCC’s job to help gas plant corporations make more money.

3.1.6. The “Retirement Cliff” argument fails when provinces are not willing to build renewables

The second argument is that the 20-year EoPL will create a “retirement cliff”, meaning there would be electricity deficits in the future because the electricity not being produced by the retired gas plants could not be replaced by renewable electricity. Essentially, the argument is that renewable electricity generation facilities could not be built in time.

This argument is not an intractable problem based on facts that are impossible to overcome, but rather a cover for a lack of will.

Looking at Ontario as an example, the Pathway in P2D (“Pathways to Decarbonization”) that leaves Ontario with 7,840 MW from gas plants in 2035 calls for an increase of only 900 MW of wind power, from a total of 5,533 MW today to a total of 6,433 MW in 2035.^[39]

Developing only 900 MW of wind power in the next 11 years would require very little effort. In the 10 years from the end of 2011 to the end of 2021, the United Kingdom, with a land mass 0.23 times that of Ontario,^[40] added 19,190 MW of wind power.^[41] During that same 10 years, the state of Texas, with a land mass 0.65 times that of Ontario,^[42] added 25,575 MW of wind power.^[43]

The story in Ontario has been drastically different.  “Once the Canadian leader in solar and wind, the province halted construction – and canceled partially-built projects – when Doug Ford was elected premier in 2018.”  Doug Ford’s Ontario Conservative government only announced construction of new renewable electricity generation in December of 2023.^[44]

Ontario’s IESO cited their report Decarbonization and Ontario’s Electricity System – Assessing the impacts of phasing out natural gas generation by 2030 in their submission on the Draft CERs:

IESO modeling and simulations show that a reliable electricity service cannot be maintained, nor can the system support further electrification or accelerated economic growth if gas generation is phased out by 2030. Even under the most optimistic scenario, the IESO would frequently need to resort to emergency actions such as rotating blackouts to manage energy shortfalls.^[45]

In other words, under this scenario a gas-free electricity system could be created in Ontario by 2030, but it would be expensive and would have reliability issues.  But that is more than would be required by the Draft CERs, which only take effect in 2035, not 2030.  Furthermore, under the Draft CERs, gas plants would remain part of the electricity system, but would only be employed when needed to prevent rotating blackouts due to occasional energy shortfalls.

However, that 7 October 2021 report is, at best, highly unreliable and, at worst, false. A “freedom of information” request subsequently revealed that the report omitted modeled scenarios that showed gas power plants could be phased out without affecting reliability.

According to a 15 April 2022 Globe and Mail article:

Retiring Ontario’s natural gas-fired power plants would be cheaper than official estimates released  last fall, critics say, adding that they believe the government suppressed the publication of modeled scenarios that would have supported closing the carbon-intensive facilities.

The Independent Electricity System Operator (IESO) published a report in October that  concluded  that retiring the province’s natural gas plants by 2030 would cause the average homeowner’s monthly  electricity bill to spike $100, or 60 per cent. Moreover, the province would experience “frequent  and sustained blackouts.” The report, a response to demands from more than 30 municipalities to phase out Ontario’s natural gas fleet, dismissed the idea as impossible.

Earlier drafts of that report, obtained by the Ontario Clean Air Alliance under the province’s  Freedom of Information and Protection of Privacy Act and supplied to The Globe and Mail, considered  possibilities beyond a rapid phase-out. One envisioned a scenario in which carbon prices would rise  from $50 per tonne this year to $170 per tonne by 2030, consistent with federal targets. That would cause gas utilization to fall and see Ontario import more electricity from its neighbours. Reliability would be unaffected, and costs recovered from ratepayers would increase by about  $1-billion (3 percent) a year.

Another scenario saw Ontario meeting its generation needs with a mix of energy storage, increased  energy efficiency and additional wind capacity; in this scenario, the IESO predicted that costs recovered from ratepayers would actually decrease by about $2-billion, or 8 per cent. Neither scenario was included in the published final version.

“They were just deleted,” said Jack Gibbons, chair of the Ontario Clean Air Alliance, which has  long advocated phasing out Ontario’s natural gas plants. “If these scenarios had been published,  then people would have said: Okay, well, we can achieve a gas power phase-out at a very low cost.^[46], ^[47]  [Emphasis added.]

3.1.7. Great Lakes offshore wind could provide enormous amounts of electricity for Ontario

Even more importantly, while complaining about a supposed “retirement cliff”, the IESO and others completely ignore the fact that offshore wind turbines in Ontario could provide almost all the electricity used by the entire province.

Helimax has completed a high-level technical analysis of the exploitable offshore wind resource in Ontario’s Great Lakes.  Helimax has identified 64 sites that meet a number of criteria and are thus considered conducive to offshore development.  All selected sites exhibit mean wind speeds above 8.0 m/s, are in water depths of between 5 m and 30 m, and have been filtered for constraints…  Each of the sites has a sufficiently large water sheet to accommodate at least 100 MW of installed capacity.  In all, the sites retained offer a potential total of nearly 34,500 MW of capacity.^[48]

For context, Ontario’s peak demand in 2023 was on 5 September 2023, during the hour ending at 5:00 pm Eastern Standard Time, and was 23,713 MW.^[49]

The Ontario provincial government under Liberal leader Dalton McGuinty announced a moratorium on offshore wind development on 11 February 2011, and it currently remains in place.^[50]

The construction time for an offshore wind project is approximately 12 months,^[51] showing that Ontario could quickly ramp up the supply of electricity from renewable sources.