Where's energy efficiency in the new Clean Electricity Strategy?

On December 17, 2024, the federal government released Clean Electricity Regulations alongside Powering Canada’s Future: A Clean Electricity Strategy.

What follows is a review of some implications for energy efficiency and demand-side solutions.

Overall, the new strategy shows that the federal government has acknowledged our previous calls to recognize the importance of demand-side management (DSM). The strategy’s third principle is that “Electricity Demand and Supply Must be Considered Equally.”

Strengthening policies to help us save energy and shift its timing and location will be more important for Canada to avoid unnecessary costs and fossil fuel pollution.

Regulations set up demand side as better way to get flexibility

The Clean Electricity Regulations aim to achieve net-zero emissions. The regulations relax performance standards for natural gas plants due to the perceived need for gas plants to provide flexibility during peak demand periods and/or low renewable energy generation.

This introduces the opportunity for demand-side solutions to act as a preferred choice to achieve a truly net-zero grid. Making demand flexible with smart controls on water heaters, thermostats, electric vehicles, batteries, and commercial energy management systems is a cost-competitive and cleaner alternative to relying on gas plants for flexibility.

The more people save energy and shift energy use to lower cost times for electricity systems, the more they can get paid by demand-side management programs.

This characteristic of the regulatory framework makes all the other demand-side-related initiatives in the Clean Electricity Strategy both essential and urgent.

Modernizing the Energy Efficiency Act

The strategy includes modernizing the Energy Efficiency Act, mainly updating it for today’s “complex, virtual environment” by broadening its reach to online retailers and creating digital energy efficiency labels.

This priority is listed under the heading of improving efficiency and “making demand more flexible.” However, nothing has been written about the potential for the federal government to embed demand flexibility into equipment by requiring smart controls and interoperability. Efficiency Canada’s Clean Heat Policy Research Associate Sarah Riddell worked with international efficiency standards experts from CLASP to provide several ideas on how to modernize the Energy Efficiency Act.

The Fall Economic Statement was one potential way to introduce legislation to modernize the Act, but it wasn’t included. Hopefully, the government will soon introduce legislation to bring energy-efficient equipment and appliance standards into the 21st century.

Prioritizing demand side management and energy efficiency in federal supports

Increased federal support for the demand side is critical because the incentives provided by the clean electricity tax credits are largely weighted toward supply-side solutions.

The Strategy notes that the federal government has taken a step toward supporting energy efficiency through the Utility Support Stream of the Smart Renewables and Electrification Pathways Program (SREP) and the Green Industrial Facilities and Manufacturing Program.

This shows that federal programs have already pivoted to support demand-side solutions. However, the SREP program requirements seem to be fairly restricted to equipment-based demand response and high-tech, supply-oriented solutions. A principle of the Strategy is to have tailored approaches for every region, recognizing diverse “generation mixes, market structures, and industrial needs.” Such an approach might not just include things like demand control and batteries but also acknowledge that upgrading insulation could effectively reduce peaks while producing other benefits or that sending behavioural signals could play a role, for example.

In a pre-budget submission, I suggested the federal government match-fund utility demand side management, taking an approach that encouraged a portfolio of energy savings and demand flexibility solutions tailored to each jurisdiction. Under such an approach, the federal government would outline priority objectives that are often insufficiently encouraged through utility DSM strategies, such as reliability, deeper retrofits, equity, distributed energy, and longer-term market transformation, but provide flexibility to meet these objectives. The recent Fall Economic Statement pointed to the new low-to-moderate income program’s approach to “get up and running as quickly as possible,” which is similar to what a federal strategy to support DSM could look like.

Given the importance of demand-side management in the new strategy, creating a funding stream that enables comprehensive demand-side portfolios to be developed in each region makes sense.

Building codes and standards

The strategy also includes a section on codes and standards for modernization, development, and adoption. This consists of an action item to “leverage investments announced in Canada’s Housing Plan to advance more ambitious building codes and broader energy efficiency design options.” 

It isn’t entirely clear what this means. However, it is relatively substantial language supporting investments linked to the performance levels found in Canada’s tiered model building codes. 

In a June 2024 letter, Efficiency Canada joined with 85 other organizations to suggest federally funded housing construction meet net-zero energy-ready and net-zero emission performance, as defined in the top tiers of model building codes, and that provinces accessing the Housing Infrastructure Fund progressively adopt tiers to arrive at net-zero aligned codes by 2030.

Will energy roadmaps neglect demand side?

The Fall Economic Statement and the Electricity Strategy documents state provincial and territorial crown corporations accessing the Clean Electricity Tax Credit will need to produce Energy Roadmaps to achieve net-zero emissions by 2050. The federal government intends to work with provinces and territories on a bilateral basis on these planning exercises.

Efficiency Canada is working on research now that suggests planning details matter as much as establishing net-zero goals. For instance, a “net-zero plan” might have assumptions on electrification that are unaligned with economy-wide needs; the modelling approach might not be able to select energy efficiency and demand flexibility, even if it is lower cost; there could be an incomplete assessment of risks of large power projects experiencing delays and cost overruns; and the bill reducing benefits of energy efficiency might be neglected from action plans.

The Fall Economic Statement section on the Clean Electricity Investment Tax Credit condition to include “all energy sources” appears to neglect demand-side solutions and energy efficiency. Other conditions appear to focus on electricity rates, while all fuel energy bills matter to people’s pocketbooks and revenue requirements (i.e., the total bill) of an electricity system matter most from a total cost perspective.

If these are the rules that will govern roadmaps and tax credits, the Electricity Strategy is not achieving its principle of considering the demand and supply side equally.

Efficiency Canada originally suggested that provinces accessing tax credits should require energy regulators to prioritize energy efficiency and demand-side solutions as resource options if they are lower risk or lower cost than supply-side options. This might have provided concrete guidance to make immediate progress for affordability and make a tangible change to resource planning protocols that fail to consider energy efficiency equally.

Better data

The Electricity Strategy includes items to improve data sharing and monitoring, including greater modelling transparency across Canadian jurisdictions.

It mentions tracking social indicators for energy poverty. Consistently produced data on energy poverty could be part of a larger national agenda, as described in this blog. Efficiency Canada has also collected and published the latest census data on energy poverty in Canada.

Energy efficiency accountability

The Electricity Strategy notes Canada’s commitment to “doubling annual global energy efficiency improvements yearly through to 2030”. This is an often neglected commitment.

The Strategy promises to “ensure robust accountability” using channels like a federal Report to Parliament on reaching efficiency targets and via the Energy and Mines Ministers Conference.

This is in response to the Clean Electricity Advisory Council’s call for an accountability framework that applies the “Efficiency First” principle, which includes regular progress indicators such as the annual rate of building retrofits.

A clear theme in the new Electricity Strategy is that it is time to work on improving energy demand now that the Clean Electricity Regulations are finalized. The details matter. To achieve affordable and clean energy systems, we should see movement on things like modernizing the Energy Efficiency Act, re-designing federal programs to complement demand-side management, and prioritizing demand-side solutions in energy planning.