Climate change and ESG goals: What Options do Ontario companies have to source renewables?

May 12, 2021
Power Advisory

Addressing the climate crisis has renewed focus inCanada and across the globe. On the heals of announcing a strengthened climate plan with a goal of net-zero emissions by 2050, Prime MinisterTrudeau announced that Canada will enhance its commitment to the Paris Agreement by reducing emissions to 40-45% below 2005 levels by 2030during the World Leaders Climate Summit.

Canada’s climate targets are ambitious, but they are not necessarily out of step with industry. For example, General Motors has set a goal of carbon neutrality by 2040 and recently announced a $1Billion investment in Ingersoll, Ontario to manufacture the BrightDrop electric light commercial vehicle (EV600).

Similarly, Ford Motor Company has established a goal for carbon neutrality by 2050 and is investing$1.8 Billion in Oakville, Ontario to transform the existing manufacturing line to battery electric vehicles starting in 2024.

Energy companies are also adopting carbon neutrality targets; Enbridge announced it will be carbon neutral by 2050 and will also reduce emissions intensity by 35% by 2030.

Leading companies are adopting environmental, social and governance (ESG) goals, driven by investors and capital markets. And, increasingly, corporate ESG goals are accompanied by targets for renewable energy. As Business RenewablesCanada’s Deal Tracker reports, there has been 268 MW of announced corporate Power PurchaseAgreements (PPAs) in 2021 so far, by Shell, BimboCanada, Amazon and Labatt Breweries, with projects being developed in the Alberta Market.

While Ontario’s electricity market technically enables corporate PPAs, large-scale deals that we see in other markets are impractical in Ontario given the effects of existing Independent Electricity SystemOperator (IESO) contracts, suppressed whole sale market prices and Global Adjustment (GA) cost allocation.

With a need for new resources emerging in the mid2020s, IESO is developing plans to procure and recontract resources. With the retirement ofPickering Nuclear Generation Station, IESO’s plans show an increased reliance on existing gas-fired generators. Power Advisory supports IESO’s decision to consider a mixture of procurement mechanisms alongside Capacity Auctions (i.e.,contracts), however, the centralized approach for resource procurement appears to be disconnected from enabling consumer choice and flexibility to contract for their own supply.

Centralized contracting for resource adequacy may have a permanent role in Ontario’s electricity sector.That said, given demand for renewables which are pegged to corporate ESG targets, in addition to federal commitments to reduce emissions, it is not unreasonable to expect to see customers increasingly vocal, seeking options within Ontario to drive investments in renewables.