RBC Says Canada’s Economic Engine May Soon Face Energy Shortages

Energy consumption is expected to surge 50% in the next decade but the country’s ability to meet that demand is constrained by its commitment to a net zero grid by 2035, Royal Bank of Canada said in a report Tuesday. Ontario, the most populous province and the country’s economic engine, could face power shortages as early as 2026, the bank warned.

Major infrastructure upgrades are needed to deliver energy between provinces, and to store power to ensure a reliable supply, RBC said, and it’s far from clear where that electricity will come from.

Meanwhile, Canada faces global competition for critical minerals and other materials as countries rush to decarbonize in the wake of a broader energy crisis triggered by Russia’s invasion of Ukraine.

“Canada shouldn’t just keep up — it needs to accelerate the expansion of its electricity system or risk falling behind in a renewed Net Zero grid race,” economist Colin Guldimann said in the report.

RBC lays out the pros and cons of various options for meeting demand, including trade-offs between cheap versus reliable clean energy. “To stay in the race, Canada needs to expedite its big push on electricity: between provinces, through decades, and across the country,” the bank said.

Its other conclusions and recommendations include the following:

Shorter Term

• Existing natural gas plants will likely need to keep operating in provinces facing major energy shortages until at least 2035
• More focus on conservation is needed
• New renewable solar and wind assets should be built to “plug the gaps”
• After 2030 provinces need to decide if they are willing to “gamble” on expensive carbon capture solutions to build new gas plants or retire gas plants by the mid-2030s

Longer Term

• Solar and wind power are now the cheapest sources of new electricity though solutions are needed to provide reliable power in times of darkness or calm weather
• Some of the best solar and wind sites are in the Prairies, where phasing out coal power is most challenging
• Hydro is Canada’s “trump card.” The country should invest in hydro and nuclear development as a way of adding baseload power to the national grid
• Longer-term, using fewer batteries and more hydro and nuclear power to displace generation may be more affordable, adding C$4 billion ($3 billion) to costs versus C$7 billion for an all-renewables storage solution
• Current subsidies favor wind, solar and carbon capture; subsidies to encourage hydro and nuclear investment also should be considered
• Major projects should be coordinated across provinces to cut costs