For as long as I can remember, politics in Ontario have been dogged by the debate on energy policy. Politicians of all stripes have made it commonplace to sling mud at their predecessors for failed energy planning and policy initiatives, firmly placing the blame on the opposition for increasing energy prices at the meter, increasing blackouts due to a deteriorating electrical grid, and cost overruns in in the procurement and construction of centralized generation assets. However, what these individuals fail to mention is the fact many of these challenges are a clear example of the consequences that ensue from a centralized planning and procurement model that is both slow to adapt to changing trends and exposed to the inefficiencies that result from successive governments who choose to, instead of build upon, unwind the policies of their predecessors in order to make a political point. This status quo has resulted in over 30 years of bi-partisan neglect of an aging energy infrastructure in a province where energy policy gets discussed every election cycle, but little gets accomplished.
Ontario’s electricity system is not simple and “fixing the energy problem” is not a trivial task. Electricity is delivered through a hybrid system, both regulated and market-driven, with a wide array of both public and private stakeholders from the planning level all the way through to distribution. Generation assets comprise primarily of an aging fleet of nuclear reactors, gas-fired generators and hydroelectric plants with some renewable energy recently added to the mix. Long-term planning is made at the ministerial level with directives and operation carried out primarily by crown corporations. The myriad of issues that arise from such a complex system is vast and I won’t pretend to I know the ultimate solution. What I would like to focus on, however, is the centralized nature of the electricity system and the positive impact decentralization will have on it.
With the recent emergence of distributed energy generation in Ontario and the widespread adoption of electric vehicles and blockchain technology around the corner, the way in which electricity is used, generated and transacted in this province is slated to change. With this change consumers will play a more central role in what was historically a sector managed by monopolies and quasi-government institutions. Government will consequently need to invest time in understanding these new dynamics and the planning implications that go with them.
Whether or not you support the legislation, it is hard to deny that the Green Energy Act, introduced in 2009 to stimulate the development of renewable energy generation assets, paved the way for a domestic green energy industry made up of both global and local companies. Over time, these firms have entrenched themselves in the Ontario electricity sector across the value chain, with many graduating the greenfield development of solar and wind projects to energy storage and electrical vehicle charging infrastructure. As a result, Ontario’s electricity system has evolved to include not just the traditional centralized generation plants, but also a whole new array of decentralized distributed energy infrastructure. As the cost of equipment and labor continue to plummet, Ontario will continue to lay down the foundation for an electrical grid that operates in a fundamentally different way than it does today.
It is predicted that by 2040, more than half of the vehicles on the road will be electric. While this is exciting from a greenhouse gas reduction perspective, it will not come without challenges. An electric vehicle added to any given home could represent an increase in energy demand as high as 50%. While there may theoretically be enough energy being produced in the province to supply this increase at each charging point, the challenge of delivering that amount of electricity to each household, likely at the same point of the day, through a strained electrical grid is an entirely different proposition. Electric utilities will either need to plan for this eventuality and make the necessary infrastructure investments to accommodate for this change in usage or consider a more decentralized model whereby energy is consumed closer to the source of where it is generated. This decentralized model can be facilitated through the combination of rooftop solar and energy storage.
To take the aforementioned use-case one step further, software can be used to enable microgrids which increase grid reliability, reduce end-user costs and facilitate the decentralized trading and purchasing of energy. Microgrids are distribution level networks connecting various energy resources and consumers. Think of a neighbourhood of electric vehicles, rooftop solar installations and battery banks. Software can be used to optimize the load and demand profiles of these networks and in some cases, enter “island mode” – a state that operates completely independently from the grid. Through the use of blockchain, complex transactions at the microgrid level (and beyond) can occur securely between users, producers, and utilities. Imagine a situation where instead of charging your EV using the central grid, you can choose to purchase energy directly from your neighbour who’s solar/battery installation generated and stored more energy than they needed for the day. The bypassing of middlemen such as energy utilities and retailers becomes possible with this model, which poses the question of how they will respond to its emergence.
Certain jurisdictions have chosen to fight against distributed energy technology, arguing that it is burdening late adopters with a disproportionate base of fixed costs. While these objections do have merit, it is important to note that this is a reality of innovation is that architectural disruption is rarely fair to incumbents. Governments and regulators would do well to invest in understanding these trends and ultimately adjusting their energy policies to accommodate for decentralized and consumer-driven future.
Strategy in the Age of Decentralization 