• Dawn Milne
  • |
  • Aug 11, 2017

Whether providing the rationale for reducing hydro rates or the intellectual foundation for reforms to pipeline approval processes, the Ivey Energy Policy and Management Centre is helping to bridge the gap between academic research and government policy-making.

Recent research from the Energy Centre has contributed to two high-profile government policy issues this year.

Reforming the approval process for pipeline projects

In March, the Energy Centre submitted a report to the National Energy Board (NEB) Modernization Expert Panel, a group charged with recommending to the government ways to improve the environmental assessment and regulatory review of major resource projects. The report outlined the benefits of implementing a new two-step review process for pipeline approvals whereby the government decides at an early stage whether a project is broadly in the public interest, followed by a detailed technical and economic assessment by the NEB. Currently, the government reviews pipeline proposals only after they have completed detailed NEB approval processes, which can cost hundreds of millions of dollars and last for several years, exposing project developers to considerable financial risk. The Energy Centre’s research showed how a two-step process could reduce risks and costs for pipeline project developers, which would in turn help keep investments in Canada. The report said some of the major pipeline developers have already shifted their capital investments to other countries, such as the U.S. and Mexico, because developers perceive these countries as having more favorable regulatory environments.

The Energy Centre proposal – co-authored by Professor Guy Holburn, Suncor Chair in Energy Policy and the Centre’s director, and Margaret Loudermilk, the Centre’s research director – was one of the key recommendations included in the NEB Modernization Expert Panel’s report to Natural Resources Minister Jim Carr.

About 10 per cent of Canada’s gross domestic product comes from the energy sector, so it’s important to foster an efficient and predictable regulatory environment for large-scale energy and infrastructure investments, Holburn said.

Smoothing hydro rates in Ontario

The Ontario government’s plan to lower residential hydro bills by 25 per cent, announced in March, also had contributions from the Energy Centre. Early in February, Energy Centre faculty identified an opportunity to smooth electricity generation costs over longer periods, which they outlined in an op-ed in The Globe and Mail and in a subsequent Policy Brief. The Energy Centre shared its analysis during several meetings with the Ministry of Energy, and this work was partly incorporated in the government’s Fair Hydro plan.

The Energy Centre researchers – including Holburn, Loudermilk, and Assistant Professors Adam Fremeth and Brandon Schaufele – did some calculations on the bottom line for electricity consumers. They estimated the smoothing policy could reduce contracted generation charges by up to $1.7 billion in 2018, equivalent to eight per cent of total electricity system costs. Holburn said the government reviewed the research internally and externally before deciding to subsidize consumers’ hydro bills by 25 per cent.

“The government realized it needed to do something – and not just politically, but from an economic perspective – because many households and businesses have been struggling to adapt to electricity rates that have doubled over the last seven years,” he said.

Why are energy rates so high?

Another related issue is the increasing costs of electricity generation. A recent Policy Brief from the Energy Centre outlines two reasons generation costs have doubled in the last decade:

  • The move away from cheap coal to more costly renewable energy sources, such as wind and solar; and,
  • An increase in the amount of installed capacity in Ontario, particularly in natural gas.

“There’s a lot of confusion over why electricity bills have gone up, so we’re trying to provide some evidence-based analysis about the reasons,” said Holburn. “Energy issues can be highly charged, but a better understanding of the facts can help government develop policies that serve the public interest”.

Making an impact

Holburn said the Energy Centre’s contributions to both the NEB Modernization Expert Panel’s recommendations and to Ontario’s Fair Hydro Plan demonstrate that academics can contribute in a meaningful way to policy development.

“Academics can provide conceptual and fact-based analyses on the impacts of alternative policies, based on rigorous research methodologies. We’re not advocating for a particular type of position or policy. We’re neutral,” he said. “We tend to think about innovation as being technological, but there can be policy innovations, too. If you put enough well-trained experts together in a room, then creative things can happen.”