Ontario adds natural gas to its energy mix as it prepares for major grid overhaul, facing federal pushback
Ontario is preparing for its largest-ever energy procurement, which will reshape the province’s electrical grid for decades.
This initiative, however, may conflict with federal policies aimed at phasing out natural gas by 2035, according to the Financial Post.
Last week, Ontario Energy Minister Stephen Lecce announced an “all-of-the-above approach” to energy procurement, adding natural gas to the list of acceptable energy sources, which already includes nuclear, hydroelectric, renewables, and biomass.
Ontario is facing rapidly increasing energy consumption and plans to roll out long-term contracts over the next year and a half, potentially adding 5,000 megawatts of power—enough to supply five million homes.
Lecce's “technology-agnostic” approach could lead to natural gas contracts that extend beyond the federal government's planned 2035 phase-out. The question remains as to who will cover the costs if natural gas is banned before those contracts expire.
Reena Goyal, an energy lawyer at Blakes, Cassels & Graydon LLP, notes the ongoing debate between federal and provincial governments over the continued use of natural gas.
Ontario’s decision is the latest development in Canada's pursuit of a net-zero electrical grid, raising questions about natural gas's role as a transition fuel.
Environment and Climate Change Canada (ECCC) has drafted Clean Electricity Regulations (CER) that would phase out most natural gas by 2035, with some exceptions allowing limited use until 2040.
These regulations are part of the federal plan to decarbonize the electrical grid and reach net-zero emissions by 2050. However, the CER has not yet been finalized or passed into law, leaving its timeline uncertain.
The cost of transitioning away from natural gas has caused friction between Ontario and other provinces, such as Alberta, Nova Scotia, and Saskatchewan, which rely heavily on fossil fuels for electricity and would require significant investment to adopt clean energy.
Ontario’s grid, managed by the Independent Electricity System Operator (IESO), is considered one of the world’s cleanest, with 90 percent of electricity generated from non-carbon-emitting sources.
Phasing out natural gas, which currently supplies 10 percent of Ontario's power, is expected to be more difficult than the coal phase-out in the 2010s.
This challenge is compounded by the projected 60 percent rise in electricity demand by 2050, driven by population growth, the energy transition, and new technologies like electric vehicles.
The IESO's Long-Term RFP 1 (LT1) procurement last year secured nearly 2,200 megawatts of additional capacity, including new natural gas projects and the largest battery storage procurement in Ontario’s history.
The upcoming Long-Term 2 RFP (LT2), set to address energy needs through 20-year contracts, will start in 2029 and continue into the 2030s.
Lecce stressed the need to balance affordability and reliability, stating, “Our government is stepping up to deliver our province's largest-ever competitive energy procurement with a focus on keeping costs down for families.”
He also voiced opposition to federal mandates that could undermine grid reliability and increase costs for Ontario families and seniors.
Critics argue that expanding natural gas could lead to higher costs over time. Keith Brooks, program director at Environmental Defence, pointed out that solar and wind projects are more cost-effective as they do not require fuel.
He emphasized that the province's response to market uncertainty could determine the success of renewable energy investments.
The IESO’s contracts with natural gas providers in the LT1 procurement include a clause that makes the government responsible for paying natural gas companies until the end of their contracts, even if natural gas use is phased out before then.
However, the government will not make payments after April 30, 2040, even if contracts extend beyond that date.
Despite these challenges, the IESO expects natural gas to remain a part of Ontario's energy mix until 2040, especially as nuclear plants undergo refurbishment. The grid requires flexible generation capacity, such as natural gas, to manage daily fluctuations in electricity demand.
The CER regulations also allow for natural gas use with carbon-capture technology, though this remains a relatively new approach in Ontario.
The response to LT1 highlights uncertainties about natural gas's role as a transition fuel. While battery storage procurement was oversubscribed, the natural gas procurement fell short of expectations.
This shortfall raises questions about market interest in natural gas as Ontario moves toward LT2, which is scheduled to conclude in February 2026.
