Certainty in Central Canada

With new majority governments in both Ontario and Quebec, energy development can look to the long term 

Two elections, two majority governments. What does this mean for the energy sectors in Ontario and Quebec?

“We’re early in this Ontario government, so we don’t yet know what regulatory issues will surface or what new programs and policies will be implemented,” says Shane Freitag, a partner with Borden Ladner Gervais LLP in Toronto and co-chair of the firm’s Toronto Energy Markets Group. “But the commitment of the Liberal government, the underlying foundation of the energy program, has been to foster a green energy economy. So far, what we’re seeing is a continuation and the implementation of key programs laid out in the Long-Term Energy Plan, Achieving Balance, updated in late 2013.”

Freitag expects a measured approach to initiatives in the energy sector. As examples, “We don’t expect that we’re going to see the same volume of contracts issued under the feed-in tariff program.” As well, “Procurement for large renewables will be through a separate Request for Proposal process and there will be continued limited ability to connect to the transmission and distribution system as the system does not have the capacity to support the connection.”

At the same time, he expects directives for requests for proposals issued prior to the election that support the long-term plan to gain traction, including the Large Renewable Procurement, Procuring Energy Storage and combined heat and energy projects for the agriculture industry and district heating.

Since the Liberal government in Ontario has survived and is stronger than ever, it means the Green Energy Act is safe, says Dianne Saxe of Saxe Law Corporation in Toronto. “Early moves show Premier Wynne is keen to continue on with [the government’s] mandate of clean energy coupled with an important new focus on climate change.”

As an example, on June 24, hard on the heels of its majority win, Premier Wynne unveiled her new cabinet. In doing so, not only did she shift some responsibilities and appoint new ministers, says Saxe, “she renamed the Ministry of Environment as the Ministry of Environment and Climate Change. This is the first time that climate change has been an explicit part of a ministry title.”

The expanded portfolio, said Premier Wynne, naming Glen Murray, former Minister of Transportation to lead the rebranded ministry, “will ensure Ontario can protect the gains it has made in fighting climate change, lead Ontario’s mitigation and adaptation efforts to extreme weather and strengthen its position as a leader in clean technology.”

Saxe says putting climate change in the title of the ministry should mean a change in its focus. Among other things, Saxe expects an emphasis on economic instruments to encourage energy conservation, which she calls “the cheapest form of new energy.”

Saxe also expects incentives to encourage broader adoption of electric cars, which can provide energy storage needed to balance the growth of renewables such as wind, while reducing air pollution and greenhouse gas emissions. In addition, she will not be surprised to see some relaxation in the siting rules under the Green Energy Act, now that so much new wind capacity has been built, both to appease rural voters and to allow the electric grid to catch up.

In Quebec, the April election of a Liberal majority under Philippe Couillard augers well for energy development, says Erik Richer La Flèche, a partner with Stikeman Elliott LLP in Montreal. “The proportion of the economy which is in government hands in Quebec – by that I mean federal, provincial, as well as municipal government – is larger than anywhere else in North America. With the election of the current government, Quebec, for the first time in a long time, has a government that is prepared to enable the private sector rather than act as [the] main proponent. In other words, government is looking to the private sector to lead the way, including in the energy sector.”

Also, the government is not ideological about energy or natural resources, says La Flèche. Far from it. “The government is looking at all forms of energy and saying ‘is this a normal economic activity? Is this something that economies around the world do, and if so, can we replicate that in Quebec and can we do it well?’”

In essence, he says, Quebec is open to entertaining ideas across the board. This extends to oil exploration and production, to shale gas exploration and development, more wind power, solar power, biomass initiatives, as well as exporting power to Ontario or the northeast US — the only exception being, for the time being, uranium mining.

George Vegh, a partner and head of McCarthy Tétrault LLP Toronto energy regulation practice, says in Ontario, “people thinking about investment in renewable energy projects should bear in mind the imminent merger of the Ontario Power Authority (OPA) and the Independent Electricity System Operator (IESO).” The Liberal government’s majority win, he says, allowing for the swift passage of the budget, “could lead to a much different approach to procurement.”

OPA’s practice, says Vegh, a former general counsel of the Ontario Energy Board, “has been to offer long-term contracts for renewable power, some as long as 20 years, which means they are predictable and attractive, particularly to lenders. In contrast, the IESO is more reluctant to support long-term commitments, with a preference more like three years, so that’s very important for lenders and developers to understand.”

Looking longer term, Freitag, a former in-house counsel with Ontario Power Generation and former general counsel of Epcor Utilities in Edmonton, says potentially, there could be major changes as a result of the appointment by Premier Wynne of the Premier’s Advisory Council on Government Assets. The Council, chaired by Ed Clark, CEO of TD Bank Group, has a mandate to recommend ways to improve the efficiency and optimize the full value of government-owned assets such as Hydro One and Ontario Power Generation.

Due to report by the end of 2014, “actions the government might take as a result of the Council’s report could have a profound impact on the energy environment in Ontario,” Freitag says. “It will very much depend upon the nature of the efficiency and optimization measures adopted by the government in relation to Hydro One and Ontario Power Generation as to how profound this impact will be. For example, Hydro One has been active in purchasing some licensed distribution companies in the province, this may or may not change depending upon what measures are adopted.”

Still, in both provinces community support will, to a high degree, determine which projects go forward. Any energy initiative in Quebec “has to be done in an environmentally sound manner and you have to have local acceptance from communities as well as First Nations,” says La Flèche. “This means that project proponents must be prepared to share in a meaningful way the benefits to be derived from projects.” 

For example, “The September call for 450 MW of new wind power provides that projects must be at least 50 per cent controlled by local communities and/or First Nations, irrespective of the actual level of local or First Nation ownership,” he says. “This requirement has not driven the private sector away. Quebec has an enviable track record with its calls for proposal. Once announced Quebec sees them through.”

Community support as a key determinant for a project’s go-ahead in the renewable sector is true in Ontario, too. “It’s not so much government targets, but rather community support that will determine what renewable energy projects get built,” says Vegh. “I think there’s still plenty of room in government targets, but the big driver will be ‘can you get community support?’ I think that will slow down the tide a bit, so we won’t see the kind of development that we’ve seen over the last five years or so.”

As to commercial growth opportunities, says Vegh, “there are a number of large players in the renewable market, which, I expect, will lead to less activity in new development and more in acquisition of existing projects, due to the challenges and need for community support.”

In its June budget Quebec announced it is reviving the Plan Nord and creating the Société du Plan Nord to spearhead the development of the 1.2-million km territory north of the 49th parallel. When it comes to the energy sector, this is a wait-and-see situation. “Although there is about 3,000MW earmarked for possible hydroelectric development it is unlikely that these projects would start before 2025 or perhaps later,” says La Flèche. “Quebec has huge electricity surpluses that it is trying to export or put to use at home. In other words, Plan Nord will for the foreseeable future be a mining rather than an energy play.”