The rush to net zero 2035 and the implications for electrical grid transitions

There were some interesting declarations made this week by  Jonathan Wilkinson, Minister of Energy and Natural Resources. He met with Dr. Fatih Birol, Executive Director of the International Energy Agency for a bilateral meeting in Paris France and subsequently released Canada’s Carbon Management Strategy which advocates for increasing electrification… “Electrifying more activities—from vehicles to heating and cooling buildings to various industrial processes”

This current announcement carries the weight of last month’s federal government announcement of the draft plan to make Canada’s electricity grid net zero by 2035.

Perhaps no one poses the question that comes to mind better than Shaun Polczer, who writes in the Western Standard,  “It’s not immediately clear why Wilkinson would make such a major policy decision in the shadow of the Eiffel Tower in Paris and not Calgary or Ottawa — especially when the IEA meeting was ostensibly to talk about critical mineral supply chains.”

It’s reported that some 110 countries have committed to a net zero emissions target by 2050 with China, the largest emitter, committed to net zero emissions by 2060. So why is the federal government’s pledge for a shorter timeline? What are the implications for the rush to net zero by 2035- what will it mean for energy costs, grid reliability and more? There is lots of optimism to get to net zero based on confidence in a new generation of technologies. Certainly they are promising. However, as technology cost declines materialize or as technologies advance, the underlying infrastructure is still required (and not built yet).

A discussion of the amount of infrastructure required to handle the size of the increased demand is missing from the conversation – just how big is that requirement?

Mark Taylor, principal at Taylor Energy Advisors, who spoke recently at the Banff Energy Summit last week has few answers and noted that there are a lot of pathways to get to zero emissions but they all involve what he calls “mega projects”. Not every individual piece qualifies as a mega project, but the whole scheme of transitioning to a zero-emissions power system qualifies as a mega project.

“It’s not just about how do we generate electricity so that it’s zero emissions, but it’s also a question of can the grid support that much electricity and what do we need to do to build out the grid,” Taylor says. “Then on top of it, how much more electricity do we need to have on our grid to meet the needs of the end-users who we want to go to electric so that we can meet those net zero targets? How much more do we need so end users actually have electricity when they plug in their cars and when they heat their houses with electricity? We need to measure that.”

To quantify the size of the challenge, Taylor references a Canadian Energy Research Institute (CERI) study from February 2020 – an analysis of the implications of electrifying all the cars in Canada and electrifying the heating needs of buildings the size of most of the buildings in Calgary.  In the CERI study, they didn’t try and tackle large transport trucks – just cars and trucks up to five tons in weight. They also included an assumption that there would be a sufficient supply of power being generated. They were simply evaluating transmission needs. Their analysis showed that for a city similar in size to Calgary – the utility would have to install one to two new power lines for every existing power line.

“So they would have to double to triple the grid in a city like Calgary so that we can each plug-in our Level 1 battery cars (which use a regular 120-volt household outlet ) or Level 2 battery cars (which use a 240 volts specially designed home charging unit) that on average we would have in a household,” Taylor says. “This is in addition to heating the house when it’s minus 30 or cooling it when it’s plus 30.  CERI examined data from across Canada and they concluded that we are short the vast number of skilled workers required, which is in the tens of thousands of workers. Canada would not be able to execute the necessary improvements to electrical grids in less than 50 years. This is just the infrastructure piece – just putting in power lines to expand the existing grids so they can actually hold enough electricity for the planned transitions. According to these findings, even 2050 is an aspirational timeline.”

Speaking at the same Banff Energy Summit, Jonathan Oxley, Director of the UK Humber Cluster, elaborated on plans to get to net zero by 2040. At first glance, one might think Humber has advantages because they’re on the coast and can develop offshore wind and build a green hydrogen plant where the power cables come ashore.

“With green electricity and an unlimited supply of water, they could make green hydrogen,” Taylor advises. “ In addition, they are located where pipelines come ashore from old depleted North Sea fields with carbon sequestration opportunities. The solution would seem to be to build a 70 km pipeline right away with a big hydrogen piping and a big CO2 pipe in it. You could either fuel switch by going to hydrogen, or you can capture CO2 and send it offshore for sequestration or do both.”

Aside from the challenge that the project area is densely populated and a pipeline would face fierce opposition, in order to achieve net zero by 2040, the estimate is the UK is 20,000 skilled tradespeople short of what they need just for the Humber Cluster project, not including the rest of net zero projects in the UK.

“So, again, it’s that practicality of what can we actually execute in a reasonable time,” Taylor says. “Historically in Canada, we have a bad track record for executing major projects on time and on budget. One of the worst cases in point is the Trans Mountain Expansion (TMX). So what supports this confidence that we’re going to do hundreds of these big projects across the country to meet the goals of getting to the kind of electrification and clean electricity the federal government is signing up for?”

Another question is – how are the utilities going to manage to double or triple the distribution grid but not bankrupt individuals as taxpayers and ratepayers because somebody’s got to pay for all the expansion? People don’t just have to pay for the new wind turbines or the new SMRs or solar farms – all the new generating capacity. They also have to pay for whatever the backup is. That’s one of the reasons why we’re seeing higher costs now. We are paying for new installations of solar and wind across the province. At the same time, we still have to maintain 100% of our demand in natural gas as backup for days without wind or sunshine. On top of those costs, we’re having to pay for all the new high-voltage lines to tie in those wind and solar projects. So not surprisingly, companies have to charge more for electricity. They have to recoup the money they’re putting into assets. In addition, as Alberta Premier Danielle Smith points out, the province is already in debt for the rapid conversion from coal to natural gas that the NDP mandated. In addition, by 2035,  if you are not compliant and use natural gas as a backup there is another complication.

“Just when you think that couldn’t get more convoluted, Minister Guilbeault has already hinted that noncompliance with these federal electricity regulations turning on the power for Albertans and Canadians could be seen as a violation of the Criminal Code.” Rebecca Schultz, Minister of Environment said in a press conference held with Premier Danielle Smith yesterday.

The Alberta Electric System Operator (AESO) also held a media briefing yesterday on the Proposed Federal Clean Electricity Regulations.  In their technical briefing, AESO listed Reliability/Safety Risks Under CER and referred to the noncompliance consequence as “criminal risk”.

“So not many people are sticking their hands up, saying they want to build any new natural gas generation capacity for baseload in Alberta, or in Canada,” Mark Taylor says. “That’s a business risk you usually don’t have to deal with. Not surprisingly there’s a freeze from companies and investors to even pay for proven technology, which would be what you need to maintain the base load right now. What happens if 2035 comes in and you actually still need that natural gas plant for your base load for the province? Consumers tell you to keep running it because otherwise, we’re going to have blackouts. And the federal government says if you run it, we throw you in jail. If you just started investing in one now, you are going to have a hard shutdown on December 31, 2034. You either have to get paid a huge amount for every electron you generate, because it’s suddenly got a very short life, or you just don’t build it.”  Something that is being referred to as an “asset retirement cliff”.

When it comes to doubling or tripling distribution grids across Canada – that’s going to require a lot of materials and products. Many of the 6,000 products that are produced from refining crude oil are required to build the electrical grid. We have yet to source those components from “green” sources. We may require millions of dollars of these materials, and that would incur increased emissions to produce them. There has not been any conversation about the emissions or the impact on the environment of any of the materials and construction required.

In terms of overall cost, there have been a few estimates of the cost of the energy transition. According to Royal Bank’s RBC Special Report from Oct 2021 The $2 Trillion Transition: Canada’s Road to Net Zero:

“The amounts needed could be hefty: around $2 trillion in the next three decades. Based on our estimates, governments, businesses and communities would have to spend at least $60 billion a year to cut Canada’s emissions by 75% from current levels, which is about as far as we can get with current technologies. That’s a significant jump from the estimated $15 billion a year we currently spend.”

More specifically, the Conference Board of Canada estimated the cost to decarbonize the grid as up to $1.7 trillion.

As Rebecca Schultz stated yesterday in the press conference:

“Now who’s going to pay for a $1.7 trillion transition? Well, it’s Canadians and Albertans- whether it be on their power bills or through their taxes. Make no mistake, these regulations will hurt Alberta more than anyone else. Ottawa’s own modeling shows we will face the largest costs but we absolutely are not alone. Saskatchewan, Ontario and the Maritime provinces will be deeply impacted. And all Canadians right across our country will feel the sting. Now to cram in those enormous costs all before 2035 will mean massive power bill increases for families, seniors and businesses and it will be harder to get the investments we need to reduce emissions in the years ahead.”

Earlier in the press conference, Danielle Smith pointed out that the proposed electricity regulations are intended to force rapid and risky changes on the nation’s power grid by 2035. She noted that Alberta does not have enough non-emitting baseload electricity available from hydroelectric or nuclear, and there’s not enough time to build it out by 2035.  As a result, the tight timelines will result in failures, which will mean grid unreliability, not only for consumers but also for industries that have converted to electricity to decarbonize. She stated that under the proposed changes, the province would be left at risk of blackouts and brownouts.

Mark Taylor points out that since companies won’t build businesses or manufacturing capacity where there’s a lot of uncertainty, whether it’s unreliable energy or uncertain costs, unreliable electricity will have a knock-on effect. if the grid is becoming unreliable and increasingly expensive then investment dollars are going to go somewhere else.

In the AESO media briefing, they brought up the issue that by seeking a longer timeline (2050) there would be cost savings and lower operational risk with less reliance on “first-of-kind” technologies. They also noted the 2035 timeline would create multiple projects across the country simultaneously competing for the same resources which would in turn become scarce and there would be significant escalation of costs, which could be avoided with a 2050 target date.

Mark Taylor recalled an old adage of project management about the pitfall of pushing shorter timelines – referring to the three variables that determine the result of the project as a triangle. One corner of the triangle is high quality. Another corner of the triangle is low cost and the third corner of the triangle is time.

“The old saying in that world is … You can have it good and you can have it fast, but it’s going to cost you a lot of money,” Taylor says. “ Or you can have it cheap and have it good, but it’s going to take a long time. But you can’t have all three. That would be the panacea – every project engineer’s dream of how do I get super high quality and a low cost and really fast? You can get two of them. But by setting that 2035 time target you are guaranteeing that if you’re going to have a good result, it is going to be really expensive. A power grid has to be good quality. It’s essential for life. So it’s got to be good and that means it’s got to be quick and expensive because you just took time off the table.”

Taylor also points out that the 2035 timeline doesn’t consider the rights of stakeholders. The scope of the electrical grid proposed in the draft means there will be many Canadians impacted by electrical generation close to their homes or businesses. You need to give stakeholders enough time to come forward with their concerns and feedback. There’s just not going to be enough time to actually listen, evaluate options, pick the best technology, find the one that resonates with stakeholders the best and then implement it. It’s not a fast process in the best of times. There is also more time needed to develop regulatory guidelines for land use and reclamation for assets built with the new technologies, new hydrogen, SMRs, CCUS etc.

“You need that certainty if you’re going to attract investment,” Taylor says. “If somebody’s going to put millions of dollars into a solar, wind or hydrogen project, they need to know the whole lifecycle. They need to know what they’re signing up for. Otherwise, who’s going to make that investment decision?

Maureen McCall is an energy professional who writes on issues affecting the energy industry.