The free flow of energy between the two countries benefits suppliers and consumers alike as the arrangement takes advantage of differing demand levels among jurisdictions so that rates remain consistent. But this relationship is changing rapidly as President Donald Trump unleashes a barrage of trade threats and tariffs.

Suddenly, the direction in which Canada’s electricity moves is top of mind. For the first time in recent memory, provincial governments are expressing a shared interest in dismantling interprovincial trade barriers, including those that apply to energy.

Several sub-national governments have already announced plans to allow for unimpeded movement of goods and services between provincial jurisdictions, and some premiers have raised the prospect of increasing interprovincial trade in energy – a proposal that had been put forward in years past but had yet to gain traction until very recently.

B.C. Energy Minister Adrian Dix told The Globe and Mail that since the White House first declared its intention to impose steep tariffs on Canadian goods, he has been in discussions with Alberta’s Brian Jean, minister of energy and minerals, to figure out how regulatory red tape between the two provinces’ energy sectors can be reduced.

On the east coast, Newfoundland and Labrador announced a historic agreement with Quebec to generate more hydropower at the Churchill Falls power plant in Labrador and install more transmission lines to transport the additional power load.

For many business leaders, reducing internal obstacles will be key to surviving the economic fallout of U.S. tariffs on Canadian goods.

Canada’s trade agreement with itself

The Canadian Free Trade Agreement (CFTA), signed by the federal, provincial and territorial governments in 2017, is intended to either eliminate or reduce trade barriers within Canada. But governments are allowed to name exceptions.

Ottawa has said that it will reduce its 39 federal exceptions to 19 in addition to the 17 federal exceptions the government removed last June. Provincial governments, in turn, have vowed to do more to liberalize domestic trade.

Nova Scotia Premier Tim Houston declared that his government will introduce legislation that would ease trade and labour mobility with other provinces, so long as they do the same.

Ontario Premier Doug Ford promised to look at similar legislation. Ford also pledged to remove all of Ontario’s exceptions in the CFTA.

Even a partial removal of interprovincial barriers could deliver considerable savings to Canadians. An RBC report released in February references an International Monetary Fund study that found that the cost of non-geographic interprovincial trade barriers was roughly equivalent to an average tariff of 21%.

Interprovincial grids make electricity cheaper and cleaner

The Pembina Institute, a clean energy think tank, released a report in 2021 on how Canada’s surging energy needs coupled with its decarbonization targets makes the case for constructing electricity interconnections and allowing provincial neighbours to buy and sell clean energy from one another. The report states that interprovincial grids are essential to maximize clean electricity resources, allowing renewable energy to be generated in one jurisdiction and distributed to another.

The cheapest option is to use the infrastructure we have in better ways.

– Kate Harland, research lead, Canadian Climate Institute

According to the Canadian Climate Institute, to achieve net-zero carbon emissions Canadian electricity demand will grow to be 1.6 to 2.1 times larger by 2050 relative to 2022. And to meet that demand, Canada’s electricity generation capacity will need to be 2.2 to 3.4 times bigger than it is today.

Not only would a nationwide grid network deliver more energy; it would also make energy cheaper. A North American Renewable Integration Study released in 2021 concluded that a continent-wide transmission grid, along with storage and flexible operation of different generation technologies, in particular hydropower, could deliver system-wide net benefits of $12.6 to $38 billion.

Ultimately, however, it falls to provinces and territories to determine whether and how much they want to integrate their energy systems. Under a functioning U.S.–Canada free trade arrangement, the path of least resistance has been to buy and sell energy with our U.S. trading partner, and provincial governments have been in no rush to change that arrangement.

Additionally, governments balked at the price tag of big infrastructure projects. On that point, Kate Harland, research lead with the Canadian Climate Institute, says that before making major capital investments in new transmission lines, provincial governments should take a close look at the infrastructure that’s in place now.

“The cheapest option,” Harland argues, “is to use the infrastructure we have in better ways. There are interprovincial connections in place now, but they aren’t used to capacity due to regulatory and political challenges. So step one would be to use what we have. Until recently, north–south trade was so beneficial there was little incentive to break down barriers to east–west trade. This has changed.”

Atlantic Canada leads on interprovincial clean energy

The benefits – as well as the difficulties – of interprovincial trade in energy can be seen in Atlantic Canada. The Muskrat Falls project, an energy trade arrangement through which hydropower generated in Newfoundland and Labrador is sent to Nova Scotia, has helped Nova Scotia Power increase the proportion of clean energy in its grid supply from 9% in 2010 to 35% today.

Nevertheless, warns Brendan Haley, senior director of policy strategy with Efficiency Canada, the Muskrat Falls project can be seen as a cautionary tale. Haley points out that in Newfoundland and Labrador, the cost of the Muskrat Falls project nearly doubled from the initial 2012 forecast of about $7 billion to more than $13 billion by 2021. Fear at the time that electricity rates would also double resulted in two bailouts from the federal government totalling $5.2 billion in 2021. The federal support was part of the province’s rate-mitigation plan limiting annual electricity rate increases to 2.5% until 2030.

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As Nova Scotia Power waited for clean electricity to start flowing its way during the long project delays, the province spent $1.6 billion in replacement fuel costs. “Be wary of technological optimism,” says Haley, who argues that a better approach is to combine microgrid technology and efficiencies with macrogrid build-outs within and between provinces.

Haley notes that making sure buildings are well insulated and instituting demand-side management strategies that reward customers for using electricity during off-peak hours, such as charging an electric car overnight, are the sorts of inexpensive solutions that can be deployed almost immediately. Establishing robust microgrids does not diminish the importance of and need for more infrastructure, he adds, nor does it contradict the upside of more interprovincial trade.

While the Muskrat Falls project suffered from cost overruns, multiple delays and, at times, vigorous opposition among local Indigenous communities, the Atlantic provinces continue to push ahead with interprovincial clean energy projects. New Brunswick and Nova Scotia are set to begin construction of the first phase of a large joint project they say will help them keep their commitment to phase out coal by 2030.

Sometimes referred to as the Atlantic Loop, the project includes building an interprovincial electricity transmission line that will span 160 kilometres. Construction is expected to start in both provinces in 2026. In 2023, the estimated cost was tagged at $1.4 billion.

“There is no question that as demand rises, we will need more interconnections in the future,” Harland says. But it should be done judiciously, she adds, understanding how to minimize new builds, maximize existing lines, smooth out energy demand peaks and enforce energy efficiencies.

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A system increasingly loaded with wind and solar will require customers to send power back into the system. If the traditional grid centralized generation at power plants, experts believe the system of tomorrow will be more distributed, with power coming from what they call the “grid edge” – household batteries, electric cars and other gadgets whose relationship with the grid has been one-way. More people, for example, are installing solar panels on their roofs backed up with home batteries. When electricity demand increases, a utility can draw power from those homes as a vast network of backup energy.

The big question is how to choreograph that electrical ballet – millions of different devices at the grid edge, owned by millions of different customers, that all need to talk to the utility’s systems. To address that problem, a team of researchers from several universities and national labs developed an algorithm for running a “local electricity market,” in which ratepayers would be compensated for allowing their devices to provide backup power to a utility. Their paper, recently published in the Proceedings of the National Academy of Sciences, described how the algorithm could coordinate so many sources of power – and then put the system to the test. “When you have numbers of that magnitude, then it becomes very difficult for one centralized entity to keep tabs on everything that’s going on,” said Anu Annaswamy, a senior research scientist at the Massachusetts Institute of Technology (MIT) and the paper’s co-author. “Things need to become more distributed, and that is something the local electricity market can facilitate.”

At the moment, utilities respond to a surge in demand for electricity by spinning up more generation at power plants running on fossil fuels. But they can’t necessarily do that with renewables, since the sun might not be shining, or the wind blowing. So as grids increasingly depend on clean energy, they’re getting more flexible: giant banks of lithium-ion batteries, for instance, can store that juice for later use.

Yet grids will need even more flexibility in the event of a cyberattack or outage. If a hacker compromises a brand of smart thermostat to increase the load on a bunch of air-conditioning units at once, that could crash the grid by driving demand above available supply. With this sort of local electricity market imagined in the paper, a utility would call on other batteries in the network to boost supply,  stabilizing the grid. At the same time, electric water heaters and heat pumps for climate control could wind down, reducing demand. “In that sense, there’s not necessarily a fundamental difference between a battery and a smart device like a water heater, in terms of being able to provide the support to the grid,” said Jan Kleissl, director of the Center for Energy Research at the University of California, San Diego, who wasn’t involved in the new research.

Along with this demand reduction, drawing power from devices along the grid edge would provide additional support. In testing out cyberattack scenarios and sustained inclement weather that reduces solar energy, the researchers found that the algorithm was able to restabilize the grid every time. The algorithm also provides a way to set the rates paid to households for their participation. That would depend on a number of factors, such as time of day, location of the household and the overall demand. “Consumers who provide flexibility are explicitly being compensated for that, rather than just people doing it voluntarily,” said Vineet J. Nair, a PhD student at MIT and lead author of the paper. “That kind of compensation is a way to incentivize customers.”

Utilities are already experimenting with these sorts of compensation programs, though on a much smaller scale. Electric buses in Oakland, California, for instance, are sending energy back to the grid when they’re not ferrying kids around. Utilities are also contracting with households to use their large home batteries, like Tesla’s Powerwall, as virtual power plants.

Building such systems is relatively easy, because homes with all their heat pumps and batteries are already hooked into the system, said Anna Lafoyiannis, senior team lead for transmission operations and planning at the Electric Power Research Institute, a non-profit in Palo Alto, California. By contrast, connecting a solar and battery farm to the grid takes years of planning, permitting and construction. “Distributed resources can be deployed really quickly on the grid,” she said. “When I look at flexibility, the time scale matters.”

All these energy sources at the grid edge, combined with large battery farms operated by the utility, are dismantling the myth that renewables aren’t reliable enough to provide power on their own. One day, you might even get paid to help bury that myth for good.

This article originally appeared in Grist. It has been edited to conform with Corporate Knights style. Grist is a non-profit, independent media organization dedicated to telling stories of climate solutions and a just future. 

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The added emissions are “equivalent to the total CO2 emissions from the global power sector over the past four years,” enough to put average global temperature rise well above the 1.5°C target in the 2015 Paris climate agreement, the IEA warns.

To support countries’ climate and energy security targets, power grids around the world will have to build or replace an estimated 80 million kilometres of power lines by 2040, the equivalent of all the transmission capacity now in place around the world. That ambitious target makes grid renewal a major challenge on the road to a low-carbon future, the Paris-based agency says, in what it describes as a “first-of-its-kind stocktake” of global grid capacity.

At present, grid renewal is “not keeping pace with the rapid growth of key clean energy technologies such as solar, wind, electric cars and heat pumps,” the IEA says in a release. “Without greater policy attention and investment, shortfalls in the reach and quality of grid infrastructure could put the goal of limiting global warming to 1.5 °C out of reach and undermine energy security.”

Doubling Grid Investment to $600B

The buildout prescribed in the country-by-country analysis would require annual grid investment to double to more than US$600 billion per year. The report also calls for changes in the way grids are managed and regulated.

“The recent clean energy progress we have seen in many countries is unprecedented and cause for optimism, but it could be put in jeopardy if governments and businesses do not come together to ensure the world’s electricity grids are ready for the new global energy economy that is rapidly emerging,” IEA Executive Director Fatih Birol said in a release. “We must invest in grids today or face gridlock tomorrow.”

That gridlock is already happening, the report concludes, with 1,500 gigawatts of renewable energy projects waiting to be connected to transmission. “This is five times the amount of solar PV and wind capacity that was added worldwide last year,” the IEA says.

In the United States alone, congestion cost the grid $13 billion in 2021 and an estimated $22 billion in 2022, according to [pdf] an estimate by Grid Strategies LLC.

Even so, an early October analysis by the Ember climate consultancy showed climate pollution from the global power sector levelling off in the first half of this year with emissions growing only 0.2%, “thanks largely to the planet-spanning embrace of wind and solar,” Canary Media wrote. The numbers showed emissions falling significantly in the European Union, the United States, Japan, and South Korea, while increasing in China and India.

“Power production may be dirty, but it’s a mess we have learned how to clean up: replace fossil fuel generation— in particular, coal— as fast as possible with wind, solar, batteries, and possibly even nuclear reactors or hydropower, if you can get them built,” the news story stated. “That formula has helped create the current plateau in power sector emissions,” with carbon-free sources delivering 40% of global electricity in the first half of the year and solar and wind supplying 14%.

‘Grid Delay’ Could Threaten Emission Gains

But capacity bottlenecks are still emerging as key energy end uses continue to electrify, leading to new and heavier demands on legacy power grids. “The adoption of new technologies such as electric cars and heat pumps means electricity is expanding into realms previously dominated by fossil fuels,” the Paris-based IEA writes. “Meanwhile, countries are adding renewable energy projects at a fast rate—requiring more power lines to connect them to electricity systems and high-functioning distribution grids to ensure reliable supplies for end customers.”

Those prospective gains are at risk, and another 58 billion tonnes of needless CO2 emissions are the result, under a new scenario the IEA developed for this report. The Grid Delay Case projects the result if grid investment falls short or regulatory reforms move too slowly.

The scenario “shows transitions stalling, with slower uptake of renewables and higher fossil fuel use,” states the executive summary of the report. “At a time of fragile natural gas markets and concerns about gas supply security, failing to build out grids increases countries’ reliance on gas,” while increasing the risk of “economically damaging outages” that already cost countries about $100 billion per year, or 0.1% of global GDP.

“The most important barriers to grid development differ by region,” the IEA says, ranging from the financial health of utilities, to limited access to capital, to public acceptance of projects and the need for regulatory reform. But while the solutions may not be easier, they aren’t unknown.

“Financial barriers can be addressed by improving the way grid companies are remunerated, driving targeted grid funding, and increasing cost transparency,” the agency writes. And policy-makers can “speed up progress on grids by enhancing planning, ensuring regulatory risk assessments allow for anticipatory investments, and streamlining administrative processes.”

Straining the U.S. Power Supply

In the weeks leading up to the IEA report, grid operators were on Capitol Hill in Washington, DC to brief legislators on the challenges of decarbonizing the sector while ensuring a reliable power supply. “Appearing before the Energy, Climate, and Grid Security Subcommittee of the U.S. House of Representatives, officials from all seven of the country’s grid operators said multiplying electricity demand will strain the power supply as the sector shifts from burning fossil fuels towards renewable sources,” Reuters reported.

“We are seeing the potential for the rate of electricity demand to significantly increase in the future due to the electrification of transportation and heating sectors,” said Frederick Bresler, vice president of market services for PJM Interconnection. Even with renewable technologies and battery storage coming online, operators said they couldn’t see maintaining reliable operations without continued reliance on coal and natural gas, with Midcontinent ISO’s Senior Vice President Todd Ramey warning that reliability will be “compromised” if polluting generators are retired before they can be replace with clean capacity.

But electricity systems are already up against the accelerating impacts of those energy choices. “Once almost unthinkable, we must now plan for ‘once in a century’ extreme weather events on a continual basis,” said Paul Suskie, general counsel of Southwest Power Pool.

Renewables to the Rescue

About a week later, Sara Baldwin, senior director of the Electrification Program at Energy Innovation, had some advice on how to counter operators’ concerns about the transition off carbon. “Just as the introduction of the first smart phone prompted skepticism about its future in a world dominated by landlines, so do these new resources,” she wrote, in an opinion piece for Utility Dive. “This is especially true when it comes to their ability (and incentives) to provide essential reliability services, or ERS.”

In the era now ending, when grid operators could count on large coal-fired, nuclear, or hydroelectric plants for power generation, “the physical attributes of those machines provided the grid services needed for an AC grid,” Baldwin explained. “Their large, spinning mass provides inertia, which contributes to stability.”

Resources like solar and wind behave differently, connecting to the grid via inverters that convert their output from direct to alternating current. While the change in approach makes many operators nervous, U.S. grids with more renewables and energy storage fared well earlier this year, during the hottest summer on record. “These resources helped balance the grid when demand for cooling combined with extreme temperature stress on grid infrastructure.”

Baldwin said those capabilities will need further study before renewables can replace the aging coal and gas plants on the system. “We need greater focus on strategies to integrate renewables into markets and compensate them in a way that reflects their ability to respond,” she wrote. But “ideally, a combination of carrots and sticks can influence grid reliability and performance by reflecting real-world operating characteristics of various technologies, allowing and encouraging resources to ‘show up’ with the requisite grid services.”

This article originally appeared in The Energy Mix

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But the province is just beginning to ask a question that some other places have been considering more carefully: what if the first step to delivering on our most immediate needs – affordable homes, safety in the next storm, cooling to get through the next heat wave, a power supply we can count on – is to tackle them together with a single set of common-sense energy choices? 

Ontario has announced major investments in non-renewable power projects, including a long-term bet on new nuclear plants. But there’s still time to embrace energy efficiency and smaller renewable– energy options (also known as distributed energy resources, or DERs) as cost-effective, quicker-to-deploy approaches to community resilience. These include rooftop solar panels, small-scale wind turbines and battery storage.  

As cities in Canada’s largest province prepare to face more than 50 days with a humidex over 35°C, our vulnerability in summer is alarmingly clear, especially for seniors. Better air sealing and filtration in buildings and shifting away from natural gas can also improve indoor air quality and health, while lowering utility bills.  

 Today’s power grid was never meant to meet challenges like volatile natural gas prices, more frequent severe weather, rapid population growth or the pressing need to decarbonize. Nor was it designed to capitalize upon the massive opportunity to deliver more reliable, cheaper, cleaner electricity by shifting to smaller, renewable energy sources that generate power closer to where it’s needed. 

That’s why it’s time for Ontario decision-makers – public, private, and community – to make the visionary decision to rethink and reinforce our top-down grid from the bottom up.  

1. Make energy efficiency the starting point.

Nobody wants to waste money or see low return on public investments. Whether you’re battling your home heating bill, looking over your company balance sheet or planning the power grid of the future, energy efficiency is the gift that keeps on giving. In fact, the Canadian Climate Institute’s latest analysis shows average household energy savings of 12% through 2050 as the system electrifies. 

And there are big wins for the power grid. The Atmospheric Fund found that Ontario could save $9.5 billion by maximizing energy efficiency instead of relying more heavily on natural gas power plants. And the Royal Bank of Canada Climate Action Institute concluded that timely conservation could save enough electricity to power three million homes by 2045 and save ratepayers $500 million per year.

2. Build new electrical generation closer to demand.

The surest way to decarbonize energy is to shift heating and cooling, transportation and industrial processes from fossil fuels to electricity. But the need for a major increase in generating capacity has produced eye-popping cost figures in the tens of billions of dollars that may mean burning more natural gas and increasing carbon pollution. 

Installing DERs like solar, microgrids, and energy storage closer to where they’re needed can cut losses from power outages 20% while delivering a 5:1 benefit-to-cost ratio on the investment. DERs coupled with deep efficiency help the electricity system control costs, boost reliability, clear grid bottlenecks, ensure business continuity and keep the lights on. 

A recent Independent Electricity System Operator report found that efficiency and DERs could completely clear the province’s projected electricity shortage over the next decade, eliminating the need for new gas-fired power plants. And Ontario wind and solar farms with battery backup are already cheaper to build than new gas plants. If anything, Ontario is likely to run out of demand for gas-fired electricity during the operating life of today’s power plants, and plant owners will find their assets stranded – unless taxpayers pick up the tab.

3. Make grid reliability a priority.

Ontario’s existing electricity system has served us pretty well for more than a century. But it must evolve as we navigate an era of high costs, severe resilience challenges and the opportunity to embrace more affordable, distributed generation options. For businesses, the cost of those outages averages $100,000 per hour – adding up to billions in economy-wide losses. And climate change is a threat multiplier to the key risk factors for power system failures. 

The grid is an aging system in need of refurbishment and reinvestment. But that’s the opportunity of a lifetime: Ontario can direct those dollars to building a modernized grid that emphasizes energy efficiency and distributed generation. The right choices now will deliver returns for generations to come.

4. Integrate and scale the best solutions at the neighbourhood level. 

We can hit our net-zero targets if we apply all the tools and technologies in our carbon– reduction toolbox, pick the ones that deliver the fastest, best results at lowest cost, and scale them up. 

Until now, options like energy retrofits, heat pumps, battery storage and rooftop solar have mostly been directed to individual households. But we’ll see the fastest gains, highest financial returns and greatest contributions to local resilience when we scale those solutions to whole neighbourhoods. 

That’s where options like mass, deep building retrofits, geoexchange, district energy, microgrids, wastewater energy transfer, community solar farms and electric vehicle hubs move from interesting concept to practical reality. We’ll need new approaches to financing and project management, and deep collaboration among communities, governments and businesses.  

And the neighbourhood scale is where we can ramp up efficient travel choices. Sprawling development can double or triple driving, tailpipe emissions and household transportation costs. With many of us working at home, the need for more “complete,” walkable neighbourhoods where we can quickly access most of our daily needs has never been greater. Municipal and provincial policies that bolster infill housing deliver strong economic, climate and community benefits and can increase housing affordability – and business is onboard. 

5. Get prepared and plan ahead.

Anyone who’s lived through the latest storm, flooded basement, heat wave, power outage or wildfire-driven smoke alert will want to be fully prepared for the next one. And we must plan wisely to minimize costs and maximize economic and community benefits: improved energy affordability, local jobs for retrofits and renewables, reduced business interruption, better health and fewer heat-related deaths. 

The evidence is clear. The economic case is compelling. The community benefits are impressive. As we plan our future energy systems, let’s maximize both ROIs: return on investment and resilience of investment. 

Steve Winkelman is executive director of the Ottawa Climate Action Fund and Mitchell Beer is publisher of The Energy Mix.

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