Ontario’s UNCERTAIN and Costly Electricity Future

Contributed by Robert Lyman © 2025. Robert Lyman’s bio can be read here.

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EXECUTIVE SUMMARY

The Ontario Independent Electricity System Operator (IESO) periodically publishes an updated electricity planning forecast. IESO’s 2026 Annual Planning Outlook projected that provincial electricity demand will rise by 65% to 2050, a major increase. Demand forecasts are important, because they set the targets that the utility and the government will endeavour to meet in terms of added electricity generation capacity.

Over-estimating electricity demand can have severe financial impacts for Ontario, leading to billions of dollars in hidden system costs. Because the grid must be capable of meeting maximum demand, over-forecasting demand results in over-building generation infrastructure. Consequently, ratepayers and taxpayers shoulder large financial burdens. The consequences of this can include billions of dollars in stranded assets, high and increasing taxpayer subsidies, and reduced economic competitiveness.

The stranded assets result when the province signs long-term contracts for generation that turns out to be excess to needs. Especially in the case of wind and solar power generation and the storage capacity needed to protect consumers from the unreliability of these generation sources, Ontario must pay above-market rates to producers even when the power is not needed. The industries that are most affected by higher electricity rates are the “energy-intensive, trade-exposed” ones like manufacturing (especially automotive and auto parts), iron and steel processing, pulp and paper, and mining.

IESO and its predecessors have a history of misjudging demand trends and justifying excessive investment in generation. Throughout most of the period since 2000, electricity planners have predicted higher levels of demand than actually occurred. The difference between what was predicted and what has happened reflects, in part, the uncertainty and risk underpinning the IESO forecasts.

Looking to the future, the pace and volatility of economic growth has generally been considered to be the most important factor in determining how much electricity Ontario consumers will demand in 2050. Environmental policy, and especially the pursuit by successive Ontario governments of greenhouse gas emissions reductions, also has had an increasingly important influence on electricity policy and planning. The pursuit of net-zero emissions has led to the politicization of electricity planning and regulation under successive governments. Ontario’s electricity system is already 94% emissions-free and contributes only 3% to the province’s GHG emissions. Ontario’s GHG emissions in 2022 were 157 million tonnes, or about 0.4% of the world total. The climate effects of eliminating them would be too small to measure. Yet, the Minister of Energy, the IESO and the Ontario Energy Board are all committed to support the net-zero goal. The checks and balances and regulatory oversight that should stand in the way of a single-minded approach to electricity policy and planning is missing.

The belief that the economy will increasingly electrify seems to be based more on political aspirations than on the actual trends. Electricity now accounts for roughly 18% of total end-use energy consumption, a decline from around 22% in 2010. The majority of the province’s energy needs continue to be met by refined petroleum products and natural gas.

IESO’s most recent Annual Planning Outlook assumes that there will be a major shift to “cleaner fuels” for vehicles to decarbonize the transportation sector. Overall, the Outlook projects transportation sector level net annual energy demand to grow from 3 TWh in 2026 to 44 TWh in 2050, an enormous increase of 41 TWh (i.e. 1,324 per cent) in just 24 years, with a compound annual growth rate of 11.9 per cent. IESO’s projections verge on the impossible.

Unfortunately, neither the IESO Annual Planning Outlook nor any of its other publications provides an analysis or projection of how the unprecedented addition of generation capacity will affect the overall costs of the system or the rates that different classes of customers will pay. Similarly, no other organization of the Ontario government has provided a projection of the economic and financial costs that Ontario electricity ratepayers and taxpayers will incur. Voters will not know the truth about these matters until it is too late to voice their anger at the polls.

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