Background
The Independent Electricity System Operator (IESO) published the 2024 Annual Planning Outlook (APO), providing an outlook on Ontario's electricity system plans and future system operations. This year the APO has been merged with the Annual Acquisition Report (AAR), Section 9, which was previously a separate document that followed the APO six months later.
This note provides Power Advisory’s summary and commentary on the 2024 APO. In this year's APO the IESO has modelled one demand scenario and references the IESO Pathways to Decarbonization (P2D) demand scenario to reflect higher potential demand from more aggressive decarbonization efforts. There are two supply scenarios – ‘As is’ and ‘high case’ – where the predominant difference is the buildout in nuclear capacity.
The APO provides stakeholders with the data and analysis to make informed decisions based on future system needs (i.e., over the next 20 years). It also provides policymakers with the information they need to craft policy for the province’s electricity sector. The 2024 APO includes nine sections: demand forecast, supply and transmission outlook, resource adequacy, transmission system reliability, operability, risk and uncertainties, integrated reliability needs and planned actions.
Demand Forecast
The latest forecast from the IESO highlights a trajectory of significant and sustained electricity demand growth driven by economic expansion and electrification initiatives across various sectors. Notably, industrial mineral extraction, steel production, EV battery materials processing, and hydrogen production are identified as key contributors to this growth, alongside the increasing adoption of electric vehicles (EVs) across different vehicle categories. While the forecast anticipates a slowdown in demand growth beyond the current decade due to factors like stabilizing population growth and EV adoption rates, continued economic stability is expected to support steady growth in sectors such as agriculture and commercial activities.
Under current policy conditions, the IESO projects a transition from a summer-peaking electricity demand pattern to dual seasonal peaks by the early 2030s. This shift is attributed to managed EV charging, increased electrification of building space heating during winter months, and advancements in conservation and demand management strategies. Overall, the system-level net annual energy demand is forecasted to increase from 154 terawatt-hours (TWh) in 2025 to 245 TWh in 2050, representing a 59 percent increase over 25 years, with an average annual growth rate of 1.9 percent. Similarly, system-level net peak demands for both summer and winter seasons are expected to see significant growth, with average annual growth rates of 1.4 percent and 1.7 percent, respectively.
The forecast underscores the changing dynamics of daily load profiles, influenced by evolving consumption patterns such as year-round EV battery charging, increased electric space heating during winters, and heightened demand during evening-to-dawn periods. Furthermore, the expansion of agricultural greenhouses, characterized by higher consumption during winter nights and lower demand in summer afternoons, as well as the connection of large industrial facilities, are expected to impact daily demand profiles. These forecasted changes require continued adaptation and planning in the electricity sector to ensure the reliability and resilience of the grid amidst evolving consumer behaviours and technological advancements.
Supply Outlook
Ontario installed capacity reduced from 41.2 GW in 2022 to 38.7 GW in 2024. Nuclear generation, gas-fired generation, and hydroelectric generation resources represent roughly a quarter of installed capacity each. The remaining installed capacity comes from wind generation (14%), solar generation (7%), and bioenergy generation (1%).
For the 2024 APO, the IESO prepared two supply outlooks. The first case, the As Is case, includes all existing and committed generation operating until their end of the contract term. Rate-regulated assets are expected to operate throughout the forecast period. The As Is case includes newly contracted resources under the Expedited Long-Term (E-LT) RFP and three Small Modular Reactors (SMRs) that were adopted through regulation. The IESO excluded any future expectations of resources to be acquired through Capacity Auctions and Long-Term (LT) procurements.
The second case, the High Nuclear case, includes the policy decisions to construct new nuclear capacity at Bruce Nuclear Generation Station (NGS) (~4.8 GW) and to pursue refurbishment at Pickering NGS (~2 GW). The existing Ontario nuclear generation fleet will continue to undergo significant change over the outlook period. Six generation units at the Pickering Nuclear Generation Station (NGS) will retire between 2024 (2 units) and 2026 (4 units) and only four will potentially undergo refurbishment. In addition, the ongoing nuclear refurbishment program will see 7 generation units refurbished (G2 & G3 at Darlington NGS and G6 at Bruce have had their refurbishment completed).
The steep drop in operating capacity is due to the IESO assuming no continued operation of existing resources after the expiry of their contract term.
Transmission Outlook
Growing demand across the province and resulted in the IESO initiating or planning significant transmission system expansion. Over $7B in new or expanded transmission system investments are expected over the forecast period with more being planned.
Figure 7: Transmission Zones and Anticipated Transmission Projects
Table 1: Planned Transmission Projects
The IESO is exploring a potential transmitter selection framework, involving stakeholders, transmitters, and communities. With the energy transition and electrification, significant transmission expansion is needed. Introducing a selection process aims to manage costs, encourage innovation, and involve new parties in transmission development. By the summer 2024, the IESO plans to present options to the Minister for a transparent, competitive framework for constructing future transmission lines.
Transmission studies: In addition to transmission expansion underway, there are a number of other transmission needs identified in the 2024 APO that the IESO is exploring.
Resource Adequacy
Resource adequacy metrics ensure there are enough resources available to supply demand in any given hour, particularly during peak demand hours. The IESO performs a probabilistic resource adequacy assessment in comparing the demand forecast to the anticipated performance of supply resources to arrive at a Loss of Load Expectation (LOLE). The IESO maintains sufficient supply capacity in the system so that the LOLE is not greater than 0.1 days per year (one day of outages every decade).
The IESO also uses a reserve margin calculation to determine the amount of supply capacity above peak demand during normal weather conditions needed to maintain system reliability. The 2024 APO continues to demonstrate a growing resource adequacy need in Ontario as demand grows and resources reach the end of their commitment period. Many of the procurement activities undertaken by the IESO over the past year has been focused on addressing the near-term capacity need.
The provincial energy adequacy outlook in Ontario assesses the province's capacity to meet electricity demands and understand the nature of those needs. It excludes economic imports or exports, assuming self-sufficiency. An energy gap starts in 2029, similar to past forecasts. The emergence of long-term energy adequacy needs depends on available resources after contract expiry. Even with the addition of baseload nuclear power, the energy gap persists in 2029 but gradually levels out over time. In the long term, the extent to which an energy adequacy need emerges will depend on the availability of existing resources post-contract expiry as well as the ongoing acquisition of new energy resources. The energy adequacy outlook yields the measure of unserved energy, representing the energy deficit that the system cannot fulfill. In the scenario where existing resources exit the market post-contract expiry (As Is case) and the capacity shortfall escalates, the potential for unserved energy would notably rise, exceeding 132 TWh by 2050. However, with the addition of nuclear units (High Nuclear case), the unserved energy could be reduced significantly to approximately 74 TWh.
Even with the continued operation of existing resources to the end of their operating life and the High Nuclear case, Ontario’s need for new energy is fast approaching and growing rapidly. This is a key driver for the LT2/LT3/LT4 procurements and for additional resource needs in the future.
Operability
As the energy landscape evolves, ensuring reliable operations is critical. The IESO foresees a shift towards valuing attributes like dispatchability, frequency, voltage support, and flexibility in future procurements. While these services were traditionally obtained through ancillary contracts, alternative acquisition methods may be considered going forward.
Potential future regulation requirements (i.e., the ability to maintain frequency and respond to imbalances on a second-by-second basis between demand and supply) may be influenced by updates in demand forecasts, alterations in the timing or scale of industrial load expectations, or heightened integration of variable generation resources. The IESO will persist in evaluating these evolving factors and adapt regulation needs accordingly.
Integrated Reliability Needs and Planned Actions
Ontario’s growing demand, climate change policy and shifting supply mix all support growing system needs for new and existing resources. For both capacity and energy, the IESO expects to operate future procurements to meet system needs which will require investments from the private and public sectors. By 2040, as much as 13 GW of new summer capacity may need to be procured by the IESO from existing or new resources. Future procurement for energy needs could reach 70 TWh by 2040.
To meet the future energy needs, the IESO resource adequacy framework is expected to pursue acquiring resources under short-term, medium-term and long-term contracts. For short-term contracts, the IESO will rely on their Capacity Auction for summer and winter capacity with both targets exceeding 1 GW over the next 5 years.
The medium-term procurement mechanism focuses on 5-year contracts for existing and new-build projects. The primary mechanism for acquiring new resources to meet growing system needs is through long-term contracts such as the completed E-LT procurement, ongoing LT1 procurement and recently announced LT2, LT3, and LT4 procurements. Overall, the IESO predicts significant opportunities for procurements of existing and new build resources.
Power Advisory Commentary
While delayed in publication, the 2024 APO is another excellent planning document from the IESO that provides important insight into the electricity needs of the province. The APO is not an integrated resource plan that determines system need, develops a resource plan, assesses contingency solutions and presents a plan of investment action. Instead, the APO is a snapshot that attempts to project how the power system is growing based on known economic, policy and customer influences. The outcome of the APO is an assessment of what the system may need in terms of investment or actions based on assumptions of demand, resource mix and operational life. Further, by consistently producing an APO, the IESO provides a story with checkpoints that demonstrate the evolution of power system needs, government objectives and framework for the operation of the electricity system. Therefore, during a time of significant industry changes, it is important to not only assess the conclusions of the 2024 APO, but to also assess how those conclusions have shifted over the past APOs.
The start of any power system assessment begins with the Demand Outlook that defines the IESO’s assumptions for electricity consumption, as well as how customers are expected to use the power system over time. The 2024 Demand Outlook continues the trend of increasing electricity consumption presented in the previous APOs (Figure 16).
The 2024 APO Demand Outlook is higher over the forecast period than the 2022 APO Demand Outlook, but below the P2D demand outlook beyond 2032. The IESO’s P2D forecast rapidly grows beyond 2032, noting a key take-away is there is a potential inflection point in the 2030s for electricity demand growth that could see massive fuel switching that has been predicted by many decarbonization models. Power Advisory is skeptical of certain IESO assumptions on demand growth in the P2D which put significant upward pressure on the forecast. Particularly the assumptions on fuel switching to heating. IESO assumes in the P2D the switch from gas to all-electric heating over the forecast period. Power Advisory on the other hand views hybrid heating, which puts less of a strain on the electricity grid during peak demand hours, is not only more cost-effective but also more practical. However, Power Advisory agrees that many unknowns within the demand forecast could push demand higher or lower than the 2024 APO Demand Outlook is forecasting (Figure 17).
One of the key takeaways of the 2024 APO is that the Ontario system need now firmly revolves around energy adequacy needs. Within a power system, it is common to be adequate in energy while having a capacity need; it is very rare for a system to be adequate in capacity and short on energy, this is a function of new and emerging adoption of technology. Therefore, the process of addressing any energy adequacy need will directly impact the capacity need; in other words, the capacity need is a second-order system need when there is an energy adequacy issue. To that end, Power Advisory believes that the remainder of the decade will focus on the energy need while addressing capacity needs following energy resource procurements (i.e., after determining the impact on capacity need from new energy resources) or focusing capacity procurements on specific power system constraints (e.g., regional power system needs or operability challenges).
For the Supply Outlook, the IESO has adopted two cases. An overly conservative As Is Case and a High Nuclear Case. Neither case represents a realistic outlook for the power system and instead offer relative ceilings for system needs based on committed resources and government policy announcements. A comparison of inputs into each case is provided in Table 2.
Table 2: Case Assumptions
While the cases developed by the IESO provide insights into the impact of continued nuclear generation, their selection generally obscures many key uncertainties facing Ontario. For example, new SMR development has been committed through regulation and therefore is reasonable to include within other committed resources (e.g., contracted gas-fired generation and energy storage through E-LT RFP), the timeline risk and final installed capacity could be generally grouped with the Pickering refurbishment and Bruce C development; all of which are complex, resource intensive and time-consuming undertakings. While Power Advisory’s analysis strongly suggests that achieving a net-zero electricity supply mix must include new nuclear generation development, there are risks to resource adequacy and system operability that could lead to additional resource needs not identified in the 2024 APO. Longer timelines or difficulty in achieving the magnitude of new nuclear capacity anticipated by the government direction could result in increased system needs.
The As Is case provides clear insights into the committed generation from a contractual or rate-regulated viewpoint. The As Is case is helpful in understanding the timeline and magnitude for when there are opportunities for renewal and potential for market entry. Unfortunately, the 2024 APO presents no case that provides a reasonable outlook based on the expected operating life of existing facilities. A majority of the existing resources have operating life beyond their contract term. For example, wind and solar generation have contract terms of 20 years but operating lives ranges from 25-40 years. Continued operation beyond contract term could shrink the energy adequacy need 2030s by 6 TWh to 17 TWh. How many renewable resources will continue to operate without a contract from the IESO or other buyers (e.g., thru Corporate Renewable PPAs) is a key uncertainty for Ontario. Further, beyond the 2030s, almost all of Ontario’s existing renewable generation fleet will need to be repowered through some mechanism. A more reasonable case to assess would be to assume all renewable generation resources operate until the end of their operating life to determine when an investment decision will need to be made between repowering, retiring or new build.
For gas-fired generation, the assumptions for continued operation are more complex. Primarily through the same technology upgrade procurement, the IESO has generally extended major gas-fired generation contracts to 2035 to meet resource adequacy and operability needs. Past 2035, the gas-fired generation output drops significantly from 24 TWH to ~6 TWh in late 2030s before falling to 0 TWh in 2040s. While the steep drop in carbon-intensive output aligns with net-zero objectives, the outlook ignores the other pillars of electricity market principles including reliability, affordability and cost. Both IESO analysis and Power Advisory’s conclude that gas-fired generation will continue to play a role in Ontario’s supply mix for the foreseeable future until technology innovation offers a competitive alternative. This aligns with analysis by other system operators across Canada that have concluded that until alternatives are available, thermal generation will be needed. A steep drop in 2035 in the 2024 APO likely reflects previous assumptions related to the federal Clean Electricity Regulation (CER). The most recent direction for the CER suggests that continued operation of gas-fired generation may be an option based on an updated and unit-specific emission performance standard. Further, there are considerations that may allow the IESO to operate and assign emissions credits on a fleet-wide basis, similar to how other system operators in a vertical utility are expected to operate under the updated CER framework. To be clear, Power Advisory expects gas-fired generation output annually to fall over time as new cost-effective non-emitting resources come into service. However, under rapidly growing demand and volatile climate conditions, dispatchable resources are essential to maintain a reliable power system. In short, Power Advisory agrees that gas-fired generation energy share will fall over the forecast horizon as a percentage of total supply, but when and at what pace is very uncertain and will be influenced by economics, policy, and societal preferences.
Returning to nuclear, the extension of the forecast horizon to 2050 brings an interesting and important consideration for future electricity planning in Ontario. For the last decade, much of Ontario’s supply outlook has focused on the substantial refurbishment investments underway at the four units at Darlington and 6 of 8 units at Bruce. The original refurbishment program will conclude in 2033 with Bruce Unit 7 and 8 and the government intends to extend the program to 4 units at Pickering with units being returned to service through the 2030s. This appears on the surface as a once in a lifetime re-investment in nuclear generation capacity to prepare Ontario for the net-zero future. Looking more closely it can be observed that Ontario is beginning to establish an ongoing and enduring nuclear generation fleet that will both provide consistent high energy output from a small land use and a rotation of refurbishment across all units. By early 2040s, Unit 1 and Unit 2 at Bruce will have reached the end of their 30-year operation following their early 2010s refurbishment. In addition, Darlington Unit 2 will approach the end of its refurbished life in the early 2050s. In short, refurbishment of nuclear generation is will become a common activity that must be incorporated into planning activities. The positive of this outcome is the ongoing availability of firm generation capacity and energy output. The drawback is that it is highly unlikely that all of the nuclear generation capacity will be available during any one time and could expose Ontario to certain pinch point years where multiple generation units are offline at the same time. Assuming Ontario’s nuclear operators can continue to expertly manage timelines and keep costs reasonable, it is not unreasonable to assume Ontario’s nuclear fleet could achieve a significant net-zero objective for Ontario. Delivering new nuclear generation technology (i.e., SMR and new Candu reactors) could further enhance this advantage for Ontario's long-term economic future.
Concerning the transmission system, the expansion expectations and ongoing bulk and regional system studies are significant and will fundamentally alter how the Ontario power system operates compared to the last decade. With growing demand and new transmission transfer capability, many expansions will enhance the internal interface capacity which will reduce congestion risk, particularly across Ontario. Expansions in Northwest Ontario and Northeast Ontario will also address system constraints that have restricted the development of new supply resources historically. In short, the IESO continues to act prior to system constraints materializing, leading to a power system with minimal congestion overall. This is commendable since many other jurisdictions are struggling with transmission system expansions that can support clean, cost-effective and reliable resource expansions. That being said, the IESO power system planning and procurement activities continue to struggle with coordination. The IESO, following the conclusion of LT1 in May 2024 that procured ~2.5 GW of new energy storage capacity; roughly 10% of the existing Ontario peak demand. This massive energy storage capacity expansion has had limited focus beyond provincial wide peak demand service and has resulted in significant missed opportunity for rate-payer savings and added operability value. For example, the IESO restricted any development of new energy storage capacity in Northern Ontario due to deliverability concerns but did not consider or assess the ability of energy storage resources to defer or avoid investment in expensive reactive power support devices in northern Ontario. This is a clear missed opportunity and should motivate the IESO to review its planning and procurement activities to explore these challenges. Similar missed opportunities exist with respect to transmission system expansions, challenging connection capability and coordination with distributed energy resources.
Overall, the 2024 APO is a good snapshot of the Ontario power system and its status in the energy transition. As with other Canadian jurisdictions, Ontario’s electricity system is entering the next big build cycle which will require investment, planning and coordination between many different stakeholders and interest groups. The potential for non-emitting resource development in the 2030s is clear and should motivate developers to seek out accommodating sites and connection locations. Gas-fired generation assets will continue to play a critical role as dispatchable resources to meet reliability criteria even as their annual energy output will begin to decline over the forecast period. Ontario has made one of the largest net-zero generation investment commitments through their nuclear expansion program and the rest of the country, and global community, will watch with anticipation to see if the early successful results of the refurbishment program can be replicated with new builds. Many challenges lay ahead including shifting political priorities, local community engagement, operability issues and market design changes. Power Advisory is always available to support clients navigating the risks and opportunities in Ontario.