Tom Heintzman: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I’m your host, Tom Heintzman. Please join me as we explore today’s most pressing issues with special guests that will give you some new perspectives and help you make sense of what really matters.

Pull Quote (Philippe Dunsky): We need to soften the blow so that electricity rates are held not too far from inflation. I think that’s the single most important thing that we can do for our economic competitiveness to ensure that we can actually build this thing out without blowback, right.

Tom Heintzman: Welcome to our multi-part series on the role of electrification in the transition to clean energy. Through our series, we highlight the trends and market developments impacting electrification value chain. Today’s episode also coincides with our third annual CIBC electrification summit taking place on April 22nd in Toronto.

The summit is our leading energy event in Canada, attracts more than 300 North American leaders in the electricity sector, including project developers, generators, utilities, heavy consumers, large capital providers, and governments and regulators. Today’s episode will explore how Canada can harness its clean electricity advantage to attract capital, drive industrial growth, and enhance economic competitiveness.

I’m very delighted to welcome my special guest, Philippe Dunsky, founder and president of Dunsky Energy and Climate Advisors. Philippe has over 30 years of business and policy experience consulting on a full array of solutions across energy supply and demand. In 2023, he was appointed as the chair of the Canada Electricity Advisory Council. He’s also the co-chair of Efficiency Canada and a member of Electrifying Canada Task Force among other positions.

Philippe was previously a guest on this show back in June of 2024 when he discussed the progress of electrification policy in Canada.

Good afternoon, Philippe, and welcome back to the show.

Philippe Dunsky: Thanks, Tom. Great to be with you.

Tom Heintzman: Philippe, a lot has taken place in the almost two years since we last spoke. Notably, there’s geopolitical conflicts, obviously, that have profoundly impacted the global energy landscape. We’re currently experiencing the largest fossil fuel supply shock in decades. And this is heightening energy security concerns. In many ways, these shocks are also intensifying the push for accelerated energy transition to diversify away from fossil fuel.

When you were last on the show, we discussed Canada’s commitments to accelerate electrification across the country and whether we can transition fast enough. Can you catch us up on what Canada has been doing to accelerate electrification over the last two years? How has Canada’s progress compared with other countries worldwide as well?

Philippe Dunsky: I’m really glad that you framed it with the lens of the oil shock that we’re still in the midst of right now, which I think is just hugely important. That as well as, of course, what’s happened for the past year and a bit, being a big change in the US administration, the US’ positioning and stance toward Canada and others around the world. So, all of that has shifted things to a degree.

When you and I last spoke a couple of years ago, we were just about to embark on some big moves around electrification, around adopting investment tax credits to get costs down. My Council had made a series of recommendations to basically streamline the project approval processes and get more transmission happening between provinces so that we could actually act a little bit more like a country rather than a series of provincial silos. And all that was there, and then all of sudden, boom, Trump arrived. We all know what that did, not just to Canada’s positioning, but I think even culturally to understand, to really seizing the enormity of the challenge that we had and the enormity of the importance of working together.

I’d say that first shock, really put the electricity efforts into overdrive in a way that I’m really happy to see so many of Council’s recommendations now being brought to the fore and being implemented or at least moved on. I’d say, in a much more serious and vigorous way than was going to happen if not for that first shock. And then of course we have the second shock being this, the Iran situation. We don’t know yet how durable that’s going to be in terms of mindsets and decision-making. But, already we do see it accelerating. Certainly the understanding of the value of electrification, the understanding of how vulnerable we are to these commodities whose availability and pricing is set globally.

Just understanding that vulnerability reminds us all of one of the many values of moving toward electricity. Because we produce it here, we price it here, and ultimately we’re much more secure as we move toward electricity.

Tom Heintzman: Just to dig in a little bit into your answer, your Committee produced the report almost two years ago and made a whole bunch of recommendations. You said that some have been moved on. Which ones are you particularly happy about the progress that’s happened? I don’t know whether you put permitting in there or ITCs, et cetera. And are there a few that you are hoping you can see a little bit more momentum over the next year or so?

Philippe Dunsky: Yeah, you know, I kind of feel like the answer is both to most things, right? I mean, most of these things that we recommended have begun moving forward, but haven’t really kicked into overdrive yet. So if we think of the ITCs, right? So the ITCs were just recently adopted formally.

Tom Heintzman: And just for our listeners, Philippe, ITCs are the investment tax credits and they’re basically tax incentives to deploy capital on energy transition measures.

Philippe Dunsky: That’s right, exactly. So those tax credits have now been adopted. They’re now implemented in theory. That being said, we still haven’t figured out all the rules to how they’re actually going to be implemented and applied. So you know we’ve moved forward on them in a significant way. There’s still more work to be done.

Similarly around permitting, we put in a whole series of recommendations around how we can get permitting for clean energy projects to happen much, much faster than the glacial pace that we’re used to in Canada. Honestly, I’m not sure that much of that would have been implemented if not for the sense of urgency that we’ve now had for the past, what is it, like 12 to 15 months since the change in the US administration. But those are now moving forward quite, I’d say, reasonably quickly. Things like equivalency agreements with provinces so that we don’t have duplicate environmental reviews on projects. It’s a whole host of things like that that are gaining traction now in a much more hopeful way from my perspective.

The biggest change, I’ll say the single biggest change in the past year is the conversation around inter-provincial transmission. And I’m sorry to get kind of nerd out on this just a little bit, but this stuff really matters. We have 10 silos plus the territories and we do a little bit of trading in between provinces, but really not much. For the most part, the trading that we do is North South with the U.S. Because of that, we’re leaving so much opportunity to get the right resources, get the resources where they are, let’s say the best wind and solar that’s, for example, in Alberta and Saskatchewan, to where they’re needed most, to get the best hydro resources to where they’re needed most. We’re horribly inefficient at that.

And, you know, in the past year there’s been a lot of movement. It’s still talk, right? But a lot of movement. BC is talking with Yukon and Alberta. Saskatchewan is talking with Manitoba. Ontario with Quebec. Quebec with Nova Scotia and Nova Scotia with New Brunswick. There are a lot of very live conversations about building out interprovincial transmission so that we can trade electricity with each other, not just with our neighbors to the south. I’m heartened by that. It’s still early days, right?

It’s a little bit, you know, Road Runner and Wile E. Coyote. If you remember that. When I was young, I grew up watching Roadrunner. And, you know, Roadrunner, the feet kind of spin for a while before things take off. We’re still in that feet spinning moment. I’m hoping that it’ll propel us forward soon.

Tom Heintzman: That’s good. To put a plug in for our electrification summit, one of the panels will be on decarbonization of mining actually, but it’ll be featuring representatives from the Yukon to talk about the BC Yukon interconnect, which is bringing power up first of all, in the northern BC and then into the Yukon, both for residential population, but also to grow the mining industry up there. So part of that transmission change you’re talking about.

Let’s turn now to a more recent report that you’ve put out. Your team currently published a report called Power at Risk, which finds that companies and investors see clean electricity as an asset, but only, and here I’m emphasizing your report’s words, but “only if it’s available at scale, at predictable prices and on investment relevant timelines”. What challenges do companies face in sourcing clean electricity at the scale required? And in particular, could you comment on whether retail electricity prices are likely to significantly increase as Canada builds the infrastructure necessary to meet the rapidly growing demand?

Philippe Dunsky: Yeah, that’s, wow, a really big, really important, and really complex question, right? So maybe I can break it out a little bit. We do have a big challenge in front of us, right? We thought that we were long on electricity. We woke up and discovered that we’re short.

And that’s true pretty much across the country. So, right now, utilities and system operators are really, for the most part, racing in a bit of a game of catch-up. And because that’s true everywhere, it’s not just in one or two provinces, it’s not just in Canada. It’s across the US, it’s across the world. The result is some real bottlenecks in the supply chain, is some real inflationary cost pressures and some real delays. We don’t have enough of what we need as fast as we need it. So that’s a real issue.

That said, everyone, I think everyone is now pretty awake to how much we need and how much faster we need to be going. So I’m thankful for that. But it is going to put pressure on prices. You just said it, there’s that infrastructure build out, we’re talking about enormous capex. And by the way, that’s on top of like across Canada, we already have maintenance deficits and asset renewal deficits. And so now we’re, we’re adding on top of that big capex needs to build out and grow the systems.

So all that is going to add a lot of cost into the system. We’re already seeing it. If you look in my home province of Quebec, Hydro-Québec has a $200 billion capital plan over the next 10 years just to meet anticipated demand. As a result, we’re looking at probably 4 to 5 % annual rate impacts or rate increases, at least in commercial and industrial and 3 % in residential because politically it was capped. So that’s real pressure.

If I look across Canada, it’s a very diverse place, but by and large, probably looking at power prices rising, you know, something like one and a half to two times the rate of inflation. It’s not wild, but it’s high and that’s going to be tough and I think it’s going to create some pushback as well. So these are the challenges. I said before that it’s a complex one. There are three big provisos to that or big buts that I’ll add in.

The first is that we’re not without levers on this. And one lever in particular is taxpayer money sharing the burden or shouldering some of that burden with rate payer money. And, I fully expect that as we move forward, we’re going to see more and more use of taxpayer dollars to shoulder some of that burden. We’re seeing it in Ontario already. The Ontario Energy Rebates is now covering about a quarter of the price of electricity. You know, that’s sharing the burden. We’re seeing it with those federal investment tax credits that we were just talking about earlier, where the feds are taking a chunk out of the new cost or the cost of the new build through these tax credits. And all of that makes a lot of sense because so much of electricity policy is now economic policy. So it makes sense that the electricity rate payers share some of this with the broader country and the tax base.

The other thing worth mentioning is as much as, you know, we always say the grass is greener, right? The reverse in this case is true. As much as we’re looking at rate increases of 3-4 % a year in most parts of the country. In the US, it’s a lot worse. My firm did a forecast of what would happen to industrial prices in the US. For last year, our forecast was 5.9 % growth. It ended up being 6 % growth. Those are really big numbers. In fact, overall power rates across the US are on average between five and six percent across all rate classes and that’s single year numbers. So we’re looking at cost increases everyone, everyone around the world is looking at cost increases and that’s a result of huge build out to meet data center needs and you know a few other important factors, including in some cases, exporting LNG. It’s especially important in the US, more so than Canada.

Tom Heintzman: That’s sobering. But thank you for that perspective. We started our discussion looking back two years to when we last spoke, and then you were just talking about a report that you just recently issued. Now I’m going to ask you to look ahead, if that’s possible, into the future. Tell us what’s coming. The Canadian federal government is expected to unveil a new national electrification strategy in the next few weeks.

Can you share your thoughts on what you expect the government aims to achieve with this strategy and perhaps what the strategy will entail or involve? And do you anticipate any changes or departures from the government’s previous thinking or approaches to accelerating electrification?

Philippe Dunsky: Yeah, so I mean, obviously I’m not in government. I can’t speak on behalf of government here. What I can do is think a bit about what’s changed since then and how that is likely to impact what the feds will come out with sometime within the next few weeks. So if you think about what’s changed, when Council set out its recommendations and that led to the first strategy, we’re basically talking about a three-legged stool of clean and affordable and reliable. Those are the things that we were looking to get from electricity across the country. Clean, affordable, reliable.

What’s changed now? Probably the biggest piece is some notion of national security. The interesting thing is that when we think of national security, and whether that’s economic security given the trade disputes and pressures coming from south of us, or whether it’s energy security coming from what’s happening in Iran. Either way, that generally moves in the same direction as what we’re looking at and thinking about a year or two years ago.

So, directionally, we need to be adding even more power today. For example, to account for the growth in data centers that wasn’t as big on our list a couple years ago. We need to be moving even faster. We have more pressure still on moving on bringing Canada together as a country and getting those inter-regional transmission systems so that provinces are trading with one another and not so reliant on North-South trade.

Again, that all moves in the same direction that we were at, or that we’re heading toward a year and two years ago. So, what I expect from this strategy is to a degree more of the same, but that comes with a couple of caveats. The first is really speed. And I think that this government has clearly…First of all, prioritized electricity much more than the previous one did. And second of all, prioritized speed, right? I think we all know that. So, certainly I’m looking to this strategy to come out a little bit bolder in terms of what the feds can do, how much they’re willing to lean in and support faster action on building out electricity systems across the country.

And eventually, you know, doubling. We always, my Council, we talked about the need to roughly double the size of the system within a generation. It’s just a colossal undertaking. I expect to see very similar language, very similar goals from this strategy. So really understanding the scope and scale of the need here. I certainly hope and to a degree expect to be seeing some big moves in there.

I can expand on that a little bit, one of the things I’m really looking forward to seeing is discussion around what more the feds can do on the money side. And I don’t necessarily mean net new money, but the feds can play a really important role in helping the provinces spread some of the cost over time. So you can actually match more of the capital needs or at least the impacts on rates with the evolution of that power coming into the system and actually serving needs. I’m looking forward to some really interesting moves and perhaps some more innovative financial mechanisms from the federal government on that front.

Other than that, the one change that I’ll say seems pretty important from the last government to this government is much more emphasis on carrots and less on sticks. And so I’m not sure what’s going to happen to the CER, the clean electricity regulations. Very big contentious debate around that. I thought and quite frankly hoped that it was done and that we could move on. We’ll see if that one comes back in the strategy and whether there are changes made to it to, again, to lean away from the stick side of that equation.

Tom Heintzman: Interesting. So, Philippe, we’re just about out of time, but one final question. We’ve run through lots of different policy levers, some in your initial report from two years ago, some much more recently, and some projecting into the national strategy. I guess, are there any one, two, three specific policies or regulatory changes that in your view would most effectively enhance Canada’s economic competitiveness as it relates to electricity if implemented through a unified national approach? Like what would be your top one, two, three priorities going forward?

Philippe Dunsky: When I had my very first meeting with the Electricity Council, the first thing I said to everyone was, we’re not going to spend 12 months thinking about all the asks that we can put to the federal government in terms of money, right? It can’t just be about money. Today, I actually think that we’re moving forward on some of the softer stuff around streamlining the rules. We actually need to have bigger conversation about money now.

If I had to pick one you know my top one right now would be what the federal government can do to use its financial levers and that’s not just you know dollars it’s not just tax credits, it can be it be financial instruments, but we need to soften the blow so that electricity rates are held not too far from inflation. I think that’s the single most important thing that we can do for our economic competitiveness to ensure that we can actually build this thing out without blowback, right.

The single biggest challenge that we’re going to have is if rates get out of control, the blowback will come socially, politically, and the whole thing gets stopped in its tracks. So that’s my number one priority. And for that, some creative measures around financing, I think, can be really helpful.

Beyond that, it’s all the stuff we’ve been talking about for the past couple of years. It’s everything that we can do to streamline the rules, to make it easier to build faster, not in ways that are not sensitive to environmental needs or indigenous rights, but at least getting rid of all the stuff that’s duplicative and really needless. And there’s a lot of that there. So working on that stuff, absolutely. And then getting to a point where the rules are clear and investors can know what they’re dealing with. I would just love to see the rules stop shifting back and forth and back and forth and just set them, be clear, provide back stops so that we have some degree of confidence that they’re not going to change at the next change in government, and then open things up and let the investment begin.

Tom Heintzman: I look forward to having you back on in another two years and we can look back and see what came true and what we’re still working on. So thanks for taking the time to join in the show today, Philippe. And thank you to our listeners for tuning in.

Philippe Dunsky: Thank you, Tom.

Tom Heintzman: Please join us next time as we tackle some of sustainability’s biggest questions, providing you different perspectives to help you move forward. I’m your host, Tom Heintzman, and this is The Sustainability Agenda.

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What’s next for electrification policy in Canada?

Tom Heintzman

MD & Vice-Chair, Energy Transition & Sustainability

CIBC Capital Markets

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