Canada: Market Disruptors And New Investment Opportunities In The Canadian Power Sector

On Dec. 7, Gowling WLG and IJGlobal joined forces for a live webinar to set the stage for the 9th Annual Canadian Power Finance Conference.

In this webinar, our very own Paul Harricks and Thomas Timmins along with Ron Dizy,  Managing Director of the Advanced Energy Center and Tim Stoate, VP of Impact Investing with the Toronto Atmospheric Fund, will explore market disruptors and new investment opportunities in the Canadian power sector.

Webinar transcript

Chris Hutchings, IJGlobal:

Good morning everyone and thanks for joining us for today's webinar, which is going to be examining market disruptives and new investment opportunities in the Canadian power sector. My name is Chris Hutchings. I work for IJGlobal and this webinar is part of the buildup to the Canadian Power Finance Conference, which is taking place at the Ritz Carlton Toronto on January the 18 and 19. More details for registrants of the conference will appear at the end of this webinar. 

Before introducing, and handing things over to our speakers, I'd encourage the audience to ask questions using the question function on GoToWebinar. I'll put any questions to the speakers at the end of the webinar. The webinar is being sponsored by Gowling WLG, which will also be participating in the event in January. Representing Gowling WLG will be Thomas Timmins, who's the partner and leader of their renewable energy group at Gowling WLG, and Paul Harricks, who's a partner and leader of the energy sector group. Guest speakers who are joining us today are Tim Stoate, who is vice-president of Impact Investing of The Toronto Atmospheric Fund, and is a member of the Green Ontario Fund, as well as Ron Dizy who is the managing director at the Advanced Energy Centre at MaRS. I'm now going to hand over to Paul in Toronto, so thanks very much. Paul, you take it away. 

Paul H. Harricks, Gowling WLG:

Thank you very much Chris and good morning, slash afternoon, slash evening everyone. Welcome to our webinar. As Chris mentioned this is effectively a prequel for the 9th Annual Canadian Power Finance Conference, which will be held here in Toronto on the 18 and 19 of January, run by our good friends at IJGlobal. For the next hour or so we're going to be exploring, as Chris said, the market disrupters in the Canadian power sector and some of the new investment challenges and opportunities that they present to the Canadian finance community. As Chris said, my name is Paul Harricks, I'm the head of our energy sector group. For those of you who aren't familiar with our firm, we're a global law firm with about 1,500 lawyers across 19 cities and 10 countries around the world. Our energy practice encompasses all aspects of the power sector, generation, transmission, distribution, regulation and, most relevant to this webinar, all aspects of technological innovation. We have a significant practice here in Canada and in the UK, and indeed just last week, our UK practice was voted Energy and Infrastructure Team of the Year at the British Legal Awards. We also have a very large finance practice acting for sponsors and lenders in the energy sector. 

Before I introduce our panelists and a bit more detail let me just set a bit of a background for today's discussion. We all recognize that the energy sector is undergoing a massive transformation driven by what we sometimes refer to as the "Four D's". Decarbonization, Digitization, Decentralization, and Democratization. All of these factors are going to be relevant to our webinar this morning. In the developed world, including Canada, our delivery infrastructure for energy was designed, for many decades, for essentially a one-way flow of power and information from large generating plants to a largely passive consumer. Until as recently as 8 or 10 years ago, if Thomas Edison came back to earth, he would have easily recognized the power system that he had been so instrumental in creating a century or more ago. But now, with connected devices, smart meters, smart grids and distributed generation, the advent of storage and more, the days of mega projects of the type with which the finance community had become so familiar seemed perhaps to be numbered, and at the same time power is quite literally being put into the hands of consumers, both individuals and businesses. The challenge for the finance sector, of course, is to assess how these developments will unfold and how the new technologies will be paid for, and that, then, is the focus of today's panel. 

Leading the discussion will be my partner, Tom Timmins, who's the head of our renewal and sustainable energy practice with more than 20 years' experience in the area. Tom is well known in the Canadian renewable sector. Just this week he was elected Chair of the Canadian Solar Industries Association. He's a member of the federal caucus of Energy Storage Canada. He lectures, and is interviewed regularly, on the subject of renewable energy and energy technologies. He also heads up our China desk and is active on projects in Canada, the Caribbean, Latin America, Africa, Asia and Western Europe. 

With us as well is Ron Dizy who is Managing Director of the Advanced Energy Center, which as many of you will know, is a public-private partnership with the MaRS Discovery District, the Ontario Ministry of Energy and Siemens Canada. The mission of the centre is to foster the adoption of innovative energy technologies. Ron spent nearly 10 years as venture capitalist, both as a direct investor and a pension fund manager, and was previously President and CEO of Enbala Power Systems, a smart-grid technology company. His thought leadership on innovative technologies has led to his election to the executive committee of the Ontario Energy Association and is Chair of the Ontario Smart Grid forum, among other positions. 

We also have Tim Stoate, who's VP of Impact Investing with The Toronto Atmospheric Fund. With over 30 years' experience in corporate finance, Tim oversees tasks and impact investment, and he designs and tests new financing options in support of low carbon solutions. He focuses on structuring and capital funding for energy efficiency projects and oversees tasks investments in low carbon enterprises. He's also a director of the Green Ontario Fund, which is an agency of the Ontario government, managing programs to reduce energy costs and combat climate change. With that let me turn the microphone over to my partner, Tom Timmins, who will lead us through the discussion. 

Tom Timmins, Gowling WLG:

Thank you Paul. Welcome everyone. In particular, Ron, Tim, thank you for being here. I think it's indicative of the level of knowledge and expertise that we have in the province, that we have the two of you in the room, and that we're talking about these things. We're certainly at an inflection point, as Paul said, in the energy system. In fact, I think we're actually at that point here today and tomorrow. This week is actually a critical point. The next 30 days probably are just incredibly important for the province. But before we get into that, Ron, wondering if you could tell us a little bit about what you do and what keeps you busy. 

Ron Dizy, Advanced Energy Center:

Sure. I'll give you a little background. MaRS is actually one of the world's largest urban innovation hubs. That's our focus. The high level provision driving us to helping entrepreneurs change the world. We operate across four sectors: finance and commerce, work and learning, health sciences, energy and the environment. We do it in kind of two dimensions. One is actually helping the companies. There are about 1,200 companies that are clients of MaRS. But a number of years ago, 5 years ago, we recognized another challenge, which was that certain sectors, energy and health, would be two obvious ones that are big, are not great at adopting innovation in and of themselves. This is for structural reasons. We said that if we're really serious about helping innovators change the world we've got to try to change that too. We created the Advanced Energy Centre as a partnership between the sectors the government, so yes, we have corporates but we also have a dozen utilities as partners. The whole goal there is to find ways to adopt innovation faster in our domestic markets and then share those successes internationally. That's turned into something that's more symbiotic than I think we might have thought. We do work, for example, in Chile and India and in Colombia and Mexico and across the US. We actually learn as much going to those markets as we share with them. Part of it is an unabashed attempt to do some economic development to introduce Canadian technologies to those markets. But we also learn a lot by getting to work with those market constructs that we can bring back to the Ontario market. 

Tom:

Excellent. Tim, what's keeping you busy? Maybe tell us a little bit about your role in TAF.

Tim Stoate, Toronto Atmospheric Fund:

Sure. So, just a little bit more about the Atmospheric Fund, we actually changed our name to The Atmospheric Fund from the Toronto Atmospheric Fund, that's okay, last year at about this time, because we were endowed with some additional money from the Ontario government. TAF was started about 25 years ago. We were endowed by the City of Toronto with 23 million dollars where we like to call ourselves the ... organization. We're not on the tax base. But that endowment gives us some independence, allows us to take on projects and ideas that fail, and we learn from those failures. Hopefully we have more successes than failures. But we invest our money in both the equities market, the bottom market place, private equity and directly in either projects or enterprises. We have been doing that for, as I said, for about 25 years. We evolved from a pure bonded vested organization and now we believe we have much greater impact on where we'd like to see the market transform and that's to a low carbon economy. 

That particular focus allows us to use our tools quite effectively. Especially as we see more and more interested parties and our core tools, our policy, granting to not-for-profit organizations that could help us achieve our mandate and again, as I said, making direct investments. That means that we see a lot of new technologies. We see a lot of different types of ideas. We've spent a lot of time investing in energy efficiency in buildings. We've created a new product, or adopted from other products, but created a new product which potentially provides 100% financing for a comprehensive energy retrofit in the high-rise residential sector. That's getting some traction. We actually rolled out a for profit company to help us deliver that in the market place called Efficiency Cap Corp. Between us we've got about 12 million dollars, which is not enough yet, but the total revenue streams for that are about 30 million. There are successful projects doing that side in depth that is at present value positive. We are not here to, in my area that our team controls, we are there to earn a readable rate of return on our investment or be able to make ourselves a sustainable organization. With that we have now started to branch into non-energy efficient registered buildings. We are looking far more deeply into different kinds of renewable energy products as they emerge and we are working very determinedly to adopt new products here from other jurisdictions, those that have proven elsewhere so that we can help them move through the market place very quickly. That means work with a lot of partners and those partners include government and for profit organizations. With the GreenON board, that role is fairly new, I was appointed June.

Tom:

Congratulations on being appointed. That's a very exciting opportunity. 

Tim:

It's a ground breaking organization in Canada. It's the first free bank of its kind. We are the recipients of a significant portion of the Cap and Trade revenue streams that are being generated. We are still without a CEO. That tells you how new we are, but with these processes we aren't going to be able to be in a position to announce somebody early in January.

Tom:

Just for people listening, Ontario, of course, launched its Cap and Trade program, the climate change action program, back 14 months ago. Where are we? Or 18 months ago. A lot of that revenue, we're talking about $380 million approximately, give or take, and is being plowed back in -- Tim just correct me if I'm wrong -- being plowed back in, and a lot of it has gone to the Green Ontario Fund, or the GreenON as it's being called, and you and your other board members are charged with reinvesting that. 

Tim:

That's exactly right. 

Tom:

Okay. Okay. That is excellent. Maybe tell us just a little bit about the status of the board and the organization and where things are, just because I'm sure people listening are quite curious about that.

Tim:

This is a very experienced group on the board, both that of industry as well as that of government and the NGO sector, are covered -- both the renewable sector, individuals who have significant knowledge of building code -- as well as those who have investment backgrounds as well. The composition of the board, I think, has been well designed, and right now we are in the process of using a significant number of ministry of environment and climate change staff to help us deliver what we're trying to achieve. Again, our mandate is to reduce greenhouse gas emissions and our role is to ensure taking those funds, thinking long term, and also trying to assist every sector in the province and provide them with the opportunities to talk about energy costs which are pretty much related to greenhouse gas emissions. 

Tom:

Excellent. Okay. In Ontario, those listening and been active in Ontario, we have certainly decarbonized our energy system over the last 10, 12, 14 years. We've developed tremendous know-how across the province, in intellectual property across the province, in renewables, and all of the ancillary technologies and adjacent technologies that go with renewables. In solar alone we have more than six thousand jobs associated with that industry. We know how to do that. Ontarians are around the world the right now. But as of this year we are coming to the end of our feed in tariff programs. Both the FIT, and the microFIT, which has created a lot of investment opportunity. A lot of employment. Built a lot of energy systems. What next? A lot of people on the phone, or listening here, are wondering, I think in January when we get to the conference, a lot of people are going to be like, "Where are our investment opportunities?" Maybe Ron you want to take that, and run with that. I don't know if you know all the answers but I bet you know a few of them.

Ron:

I don't know if I have the answers. I have some views. I think we're going to see, it's interesting, we use different words but your Four D's -- it's a clever way to say it. Decarbonization, Decentralization, Digitization, and Democratization. The way we usually talk about it is we've got energy costs that are rising that come from a central grid. Essentially in Ontario, those costs are now being dimmed for the next 15 or so years. Right? There's very little that can be done to not have that happen. The one thing that could be done is to move more of those costs into the tax space which would have a tariff impact, obviously. A downward tariff impact. But in general the cost of supplying electricity and the system will go up. At the same time the costs of alternatives are coming down at a pretty aggressive rate. I think we're getting to the natural point where things like solar don't need subsidies anymore. I think that's the government's view and, in fact, what we're seeing them do, at least in the Ontario market, is introduce net metering rules.

I think the other exciting thing that we're going to see next year is the exploration of what does virtual net metering look like. The idea is that 85% of people who live in Toronto, not in a single family dwelling, so in some sort of a high-rise, have not been able to participate in solar even if they wanted to. I think the current government, which uses the word "fair" a lot lately, I think there will be pressure to allow that to happen. I think however we end up doing virtual net metering, and the devil ends up really being in the details, that drives an opportunity. The third trend is tighten the cost of tech going down. The last one, of course, is the continuing pressure of decarbonization. If you look at what happens next in this sector, I think it's the rise of the consumer is maybe the way I'll say it, right? It'll be consumers somehow taking more ownership over how they receive energy. I think that will create a new set of opportunities that I think they will tend to be smaller than the very big ones we've seen in the province lately. I think they'll be more rooted in newer approaches and maybe newer business models. I think investors are going to have to think about being comfortable with things changing like that. I think there are some big businesses, we talked before the call about Ansell or Cape Roger, right, who's actually working on a very large solar-plus storage project that's going to help the City of Parry Sound, I think, decarbonize. That's an economic trend. That's an economic project, right? That's not being done with support. I actually, you know, I think Tim would really agree with this. I'm excited that we don't have better microFIT. Means that we've actually achieved the level of maturity and I actually think we'll see more of it happen when we have to go through processes of applying for things, you know, the money's nice but there's also these inherent barriers to things happening quickly. I think we'll see the evolution of regulation to make it easier for DERs, distributor and energy resources, to connect to the grid. I think we'll see them in more places. I think they will create ways for people to play outside of traditional utilities business models. I think it will be bigger than ever, actually. I think it will start at large C&I customers where there's a commercial investor. There's a very strong, just simple economic impetus for those people to look to alternatives and they have the professionals to evaluate it. I still think we need new operators to come into market for this to be effective for the average consumer. 

Paul:

Where are you seeing that? Here at Gowling WLG we're seeing in the C&I space, commercial and industrial space, we're already seeing factories, plant owners, putting solar on their roof, and not just to peak shave to avoid the global investment, but just simply to have, in the middle of the day, to have a little break on energy prices. That's incredible to me, and those are not small projects. Those are getting into the tens of megawatts. 

Tom:

Tim are you seeing that, those types of -- it doesn't have to be generation -- it can also be on the demand response side.

Tim:

What we're seeing is that lot's more profits ... than the renewable natural gas side. At the industrial level and that is, I think, really exciting. What we need to have is a policy change. Right? Because we don't have a policy on delivery on that type of methane into our system. 

Tom:

Is that post-industrial methane or is that coming from digesters?

Tim:

Digesters. And also comes from natural. 

Tom:

Okay. 

Tim:

We're seeing a significant interest in biodigesteran. We are looking at a number of projects in that area right now. We believe that there'll be some great demonstration projects. Both of these projects are, again, things that we really like to see are those assets that are being used elsewhere, in other jurisdictions that are already proven, so we're not reinventing the wheel. Only setting it up in a gain setting, right? You know, where the weather might be different or there's regulations that are different as well. 

Tom:

One thing, and it's on storage, which I think the other thing that people often go to when we think about what sorts of investment opportunities there will be. Again, I think we've been going through this transition in Ontario where we went from purely subsidized projects, right? The IESO, the ministry encouraged the IESO to do a 50 megawatt purchase of storage to learn about it. So entirely outside of market. What we're seeing today, not at super high levels, but we're seeing the start of is the use of storage to avoid GA which is a tariff concept in Ontario that is worth -- numbers vary -- but it's sort of 400,000 to 500,000 dollars of megawatt here. So the value of that is very big for so-called "Class A customers". Customers that are now, on an optional, anybody over 3 megawatts or 2 megawatts, I guess, then optionally customers bigger between 500 kilowatts and 2 megawatts, they can choose the tariff. We've got this opportunity for storage to come in under a storage, you know, under a tariff cost you could call it. I think we'll then see storage being deployed at scale in combination with things like solar simply as an alternative to grid supply electricity. Right? You add those things together and you sort of say, "If I can do this for 15 or 20 cents, 15 cents, 10 cents," then this starts to become economic relative to the alternatives. And again, I think we'll see that happen at scale for some customers.

Ron:

That's really interesting because that's like instead of having a PPA at Hartford agreement from a government agency, like our IESO, our Independent Electricity System Operator, you're going to get a synthetic PPA from a commercial counterparty. 

Ron:

Which you can finance. You can bill. 

Tim:

That's something that TAF is wading through right now on a couple of projects. We actually believe that, as you just rightly put it out, that is the next place to play. It's all about the counterparty who's bearing what ris,k and how do we offset those risks, and I think they're all manageable, just like any commercial situation, right? So, one of the things that is very important to understand, if you don't understand the Ontario ... marketplace is that, which has been pointed out, the grid's fairly old. How much more grid they're going to be building, I don't know. But there's also a couple of projects where they're going to be attacking the City from the water versus from the land. Those will be large power generation projects that will have some very, very interesting ... using public compressed air that bubbles up and generates 

Ron:

That's Cam Lewis and Hydrostor.

Tim:

Hydrostor guys. Right. 

Ron:

You probably know all about that. 

Tim:

But leading all of that, the reason the City is where it's at today, is that there are only two power lines -- two trunk lines -- that come into Toronto. And for a city this size that is really quite inadequate. Except for the fact that what's happened over the past 15 to 20 years is that there has been a huge push on conservation. The only reason we're able to build 60 new condominium buildings a year is because the conservation part is playing. It's the conservation investment, and therefore storage and therefore technologies, that drive out energy costs. That's what we believe is being one of the most important places to concentrate. The number of new technologies that we see, that one either oversees are local or American, coming through the door are significant. We are hoping to see that the standard over time building code keeps driving the whole idea of net zero buildings and so forth. But that's not an overnight success. That's going to be a long-term play. But conservation is absolutely critical to the overall power grid, right?

Paul:

To maybe follow on that, what we may see happen in the future, what people in this call, might not have heard of, but Toronto has a very big waterfront. The world's largest waterfront to be redeveloped. We have an organization, The Waterfront Toronto, that's responsible for that and a really compelling new Chief Executive named Will Fleissig, who's got a vision for that. You will see that becoming a model for what a city should look like and, in fact, Google has just signed an agreement with them, notionally for a piece of it, but really, really to plan what that waterfront looks like and everything that Tim is talking about and more. How do we do that in a way that's low carbon? Actually the target is carbon positive. But as a fantastic place to live and work and let's think about infrastructure and transportation. It really is an opportunity to say, "What if you could plan everything from scratch?" What if you didn't have to go, "Well, we've already got the grid so we're just going to plug into it." What if everything could be planned from scratch and that's the really exciting opportunities. So Google has actually committed $50 million US to the planning part. I mean it's really quite compelling. Over the next couple of years it a massive commitment on their part and a really fascinating redevelopment and I would encourage people to be watching for that because that's obviously just the start. This will be billions of dollars that will be required, ultimately, to deploy the vision and I think it's going to be really, really exciting. The transformation for Toronto I think, assuming we get this right, but we really do have the things in place to get it right. 

Speake3: The number of the ministers, the pen is in their hand to write the future right now, which is really interesting. As I mentioned at the outset we have actually done a great job squeezing the carbon out of our energy system in Ontario. We shut down our coal. We were the first jurisdiction in North America to do that. 

Tim:

TAF was very much involved in doing all of that by funding the groups that helped work through those challenges.

Tom:

Excellent. So things are happening. We've got the energy system somewhat tamed, from a carbon point of view, at least. Now a lot of it is moving to the built infrastructure. That seems to be where a lot of your focus is, Tim.

Tim:

That's exactly right.

Tom:

Yeah.

Tim:

Any, you know, I think that you'll find both the, hopefully, the Canadian Infrastructure Bank that is being launched and they're in the process of hiring their CEO as well, and also GreenON and TAF will continue to drive funding into those market places, looking for innovative potential models. There's at least 10 billion dollars, easily, in infrastructure renovations through energy efficiency in the province of Ontario, which is not a small market but it's also not the biggest market in the world. But it's still a significant market and the thing about energy efficiency is that it's not a household word, really, and therefore it needs a lot of education. A lot of work with the consumers themselves, as you've mentioned, and the consumer meaning the building owner, the owner of the cooperative, the owner of the condo, the owner of the high-rise residential property, apartments, as well as all the government buildings. 

Ron:

I was just going to say, so we're sitting here at Cayman Bay in Toronto, just off the University Avenue from us is the University of Toronto, a collection of beautiful, 150 year old red limestone and sandstone buildings, just an incredibly beautiful place, but it's highly inefficient and leaking carbon left, right and centre. All of those buildings, including Queen's Park, our beautiful legislature, are going to be at least energy neutral, or carbon neutral, potentially carbon positive, and I'm hoping that you're going to tell me that someone's out there aggregating those opportunities.

Tim:

There are groups doing that. You've got Efficiency Capital Corporation, as one of those aggregators. You've also got large organizations as such as the Honeywell's and ... controls are also focusing on those areas as well. The beauty of energy efficiency investment is that if you do it properly it's always net present value positive. Therefore there is an investment opportunity there. That return is significant for the perspective of both the equity box as well as the senior debt box in the full stack. It's all a matter of getting it done right and it's getting done properly in terms of the customer understanding what's occurred. That's the tough part. The tough part in this model is the end user of the actual, both financing as well as the technical products, that are installed and understanding how it all works together. 

Paul:

Well, what do you think?

Ron:

I think we've got three challenges in this energy efficiency space. The first one is the impetus to act because at the end of the day, actually, energy is not that expensive. Especially heat energy. Which in our climate is actually 2/3, maybe a little more, of the energy that we use. So how do we get it to act and I think rules like Transport TO, etcetera, are one of the ways you get to do that. The second thing becomes what I do with it when I'm ready to act? Right? So what are the things that I should do and I don't think that's a slam dunk. One of the things that we're doing, actually I'll give Tim's organization credit, because they funded us about 2 years ago to explore something called ICP. Which stands for Investor Confidence Project and is actually created out of environmental defense in the US. The concept there was to say the reason that these things don't often get aggregated is because they all look a little different. I can't just add them up. 

Paul:

Ask Sean Conway, who is the former Minister of Education. He'll tell you that of all of the elementary schools in Ontario, there are really only three batches. 

Ron:

That may be. 

Tim: There are homogeneous types of building. Absolutely. But they may all weigh in different hands, those that who control those. 

Ron:

You may have some clout where you could do something. The reality is, the problem is, that if we do a building retrofit, it's a little different than the one in Bay Adelaide or something, and the problem is that it's hard to add them up to something of scale. If I go meet with the people at teacher's pension fund that I used to work they'd love the idea of energy efficiency at 12%, right? Tell me how I can write a 500 hundred million dollar cheque? That's a problem, right? So, ICP has this promise of saying, "Let's create a standardized process to say we'll run this energy efficiency project through the ... We have a project under a common set of assumptions that gives you, as an investor, confidence -- hence the name -- that I will, all else being equal, get this rate of return." Because otherwise what happens is, I have a project and the first thing I do as a building engineer is say, "Well this guy said I'm going to get 12% but I gotta go check with the final guys." So I add friction and I don't have this ability to add up these things. We are in now in the process to support the Ministry of Energy, actually, of bringing this ICP certification to Canada and I think that will be done over the next year or so. That will be another step in that process so that we can kind of stepwise take the steps that turns these into investable financial assets. Which is really what's required. 

Tim:

You're also going to see the advent and the growth of installation of new policies such as benchmarking. I'm a big fan of the carrot, carrot, carrot, carrot, carrot, smaller carrot, smaller carrot, stick [approach]. I think that starts to be required and that starts to come into policies that are good for you that you don't necessarily understand that are good for you. Right? 80% of the challenge is 30% of the bills. The large organizations like BMO and organizations like that, and First Canadian Flights, and big shopping mall companies, are starting to understand this issue and got their arms wrapped around it. They're not going to be the problem. Right? It's the transformation is in the fact that you have this aggregated market. That's a challenge in the transformation, as Ron quite rightly says, and only these kinds of things with the Investor Confidence Project, combined with the policies around building code and financing that comes in at reasonable levels, and where the financiers understand what the project looks like, in the first place, and understands that, again, net present value positive. These are not "set them and forget them" projects. They're similar to your different kinds of power projects and different kinds of solar and renewable, natural gas, etcetera, where you have to monitor the actual work that's going on, on a daily basis or a weekly basis, which can be done remotely. 

But there's costs on all of that associated with these projects as well. So it's not a "set it and forget it". Constant maintenance has to be done in order to be able to protect that investment. There are a bunch of different hands on these things and you have to have enough capacity, enough hands to be able to make these things consistent as well. That's also a challenge in this marketplace. Not quite enough capacity. 

Ron:

I'll tell you one thing, to the extent this sector has the opportunity to influence government, and they do. They write big cheques, right. Is to encourage government to set the right conditions but, you know, we once did the math and said we probably need a hundred billion in upgrades to build this, right? And the government comes with two billion. Right? You know, it needs to leverage that in a really, really big way. Two billion's a lot of money but it's not going to get us there. 

Tom:

But it's happening without the government. That's the thing. People are putting solar on their roofs because it actually makes economic sense to do it today and just to shave the 11 to 4:00 p.m. 

Ron:

It happens but we still see many buildings would have 5 year payback projects for energy efficiency that aren't up. So, we're doing the 1 year paybacks. We're doing the 18 month payback. I'm not even sure we're doing all of those. We're getting into the policy side which is, why don't we get more activity in this? We think that one of them, you know, impetus to act, what do I do once I do it and is it investable, right? Make it really, really easy. The third one is measurement and as Tim says we now have an energy and water recording benchmark in Ontario. I think it's a good first step. It's, to me, too delayed in the recording but it's a good first step. I think we're getting noise from the federal government that there may be interest in creating a building recording centre. Again, if that happened, if you think about that that creates this really phenomenal data platform that would allow investors to understand how buildings relate to each other. It creates a very rich environment for innovators to create new paths to markets. For investors to understand buildings relative to other buildings. 

Tim:

I just wanted to backtrack on one point that Ron made which is really, really important to understand. Is that when you look at a large project, and you're going to do a large power project, I've never talked to anybody who's ever used the word terminology payback. They talk about sophisticated investment analysis tools and methodologies, okay? Payback has been used in the building sector forever and it's a wrong measure on its own, completely, and that's one of the barriers that already exists in the whole process. You've got to be able to get the building owner and the engineer groups and everybody past that simplified, particular type of investment analysis. If the reinvestment analysis is at six different measures and it's all about net present value and the general rate of return, and it's all kind of things that you need to do and all that education it's going to take to actually move the market as well. 

Tom:

ICP delivers that. It gives you, not simplistic ventures, but sophisticated measures. Where you understand that the underlying function, as in any of those projects, there an underlying function. Of course.

Ron:

People have heard me say this, we're kind of turning to 1905 and we've got the horses and the buggies and we've got two automobiles. Remember, people in history didn't know what was going to happen. We're at a similar point here. We're at this inflection point, and I'm from Southwestern Ontario. That's my heritage. 

Tim:

I speak for Missouri.

Tom:

But there's an opportunity here to build, to create something, creating economic conglomeration and what's next? What are we going to be building in Chatham and Tilbury and Windsor and down the 401 corridor here in new energy systems? You see a future for economic development?

Ron:

In rural areas?

Tom:

No. Just in Southern Ontario. Anywhere in Ontario, more generally. EVs? What are people coming to you with?

Ron:

The two big things are where are the opportunities for Ontario, that's the question? 

Tom:

Yeah. For companies.

Ron:

I mean I think, certainly we look at MaRS. I think there's a big energy efficiency opportunity here, right. We do this chart sometimes which shows average consumption by country and it's just an amazing chart that has Canada and the US, almost off the charts requiring a different scale. Compared to other places. As I said we spend a bunch of time in Chile and Colombia. Average consumption in those countries under 200 kilowatt hours a month. Ours is 800 after Tim's great work on energy efficiency. It was 1,000. We've still got some way to go. I think if you look at the decarbonization plan in the very big picture. The two things we have to address, as you quite rightly said, we've essentially done it in the electricity system, and that's it not that we couldn't get the last out, but I don't think it would be cost effective. We should spend our money differently. Climate change is a big problem. We should spend the money well. The next two things are transportation and building heating. Right? That's for our environment here. Those are the things we have to address. It's AVs and it's clever ways to think about the AV infrastructure. I happen to believe that AVs are going to happen, I'm on the fast side of that. I know that's always the question. I think there's some risk with going too fast.

Tim:

You'll have to say AV ... acronym.

Ron:

EV, sorry. Autonomous vehicles (AVs) versus electric vehicles (EVs). Autonomous vehicles which will be electric vehicles and it has some very serious implications to me for how you build charging infrastructure. We want to think about because there's the risk of stranding assets and we talked a little bit about that at the beginning. I think we have this risk of stranding assets in this looming world that we haven't really had for the last 75 years. Right? It's been the very rare occurrence where that happened. But we actually have the risk that if you think about the rise of the consumer, the democratization, the decentralization, the digitization, that creates alternatives and we create some risks. I always encourage utilities and planners to, in a world where technology is changing so quickly, I would want to be very, very careful spending on a lot of money on 50-year assets.

Tim:

Or 30-year assets?

Ron:

Or 30-year assets.

Tim:

Yeah. Okay. Interesting.

Ron:

Right? 

Tim:

Yeah.

Ron:

When you think of about it, you go, "Do you really want to commit to that, or do you want to kick the can and see what's available in 5 years?" So anyway, I think the two things become transportation and heating. The challenge we have in heating is the electricity -- at least in our climate is -- 4 to 5 times more expensive one a fuel basis than gas, which is how we predominately heat. The solution is more expensive and the fuel's more expensive. We have this challenge and I think, I suspect, the answer is going to be very clever hybridization systems. Just like we use gas as a peaking resource in our electricity system, maybe we should think about using gas as a peaking resource in our heating platform. Think about ways to use electricity in between. Heat pumps or something, where they're most efficient. Right? Size of the matter. That technology, although they say it exists, is not really brought to market in a consumer-friendly way yet. So hybrid systems, I think and you know, you go, "Where would I spend time as an entrepreneur?" Figure out how to make that easy, the right size, right size properly for a consumer so that when they replace that old boiler, or furnace, you've got a very clear solution for them. I don't think that exists today.

Tim:

And there is one?

Ron:

It's not easy to buy. Right? It's not out there and it's not clear.

Tim: It'll happen. These things are always quizzical. You ask a kind of Southern Ontario and also rural question. I think Ron nailed it. You're talking two big issues and those big issues are transportation and heating. They're somewhat integrated. I mean transportation is definitely integrated into the grid. Obviously that goes without saying. But you look at what is available in rural Ontario space and therefore geode change systems are probably the most sensible units to install based on the fact that there's also electricity available and therefore gets rid of natural gas. Also gets rid of oil. A lot of places in rural Ontario are still heating with oil. 

Ron:

And the math works.

Tim:

And the math works. Right? Adopted it. Math really works. Then you combine that with two or three other things such as solar storage to enable you to store hot water. Store hot water depending on your application, right? In buildings, in a more centralized place like Toronto, or more dense places, driving out hot water heating with natural gas is absolutely critical. The challenge is going to be, what Ron has quite rightly said, is that you need a 4-to-1 ratio on your average of input to output versus the other way. Which is completely the opposite, right? That's where the math doesn't work unless you go more ... you start driving more and more passive approaches. That's the part that people have to start thinking about is the fact that we have, buildings are designed in a particular way. The mechanicals inside those buildings are designed to deal with flawed properties. That's what they're designed to deal with. And they're always overbuilt in this country. We've got to think passive and active approaches to dealing with all of those things. 

On the transportation side, well, if you envisage autonomous vehicles on a decarbonized grid and the autonomous vehicles are now electric, that's fantastic. Right? That's not tomorrow. That's 15 years from now, but, I envisage that and the issue is that, you've quite rightly said, how do you deal with all of that charging? That's when you supplement with all of the renewable natural gases. You choose larger district energy groups. Those district energy groups then distribute electricity to the grid and that grid then delivers that to the charging stations. And mobile charging stations. 

Paul:

Let me, Paul Harricks here, I'm going to interject with a question that has to do with, again, a somewhat Ontario-centric question, but in this jurisdiction the electricity distribution systems is owned by municipalities, almost exclusively. The gas distribution systems are not. Municipalities have no money. What opportunities are there for the electricity distribution community to actually get access to the capital they're going to need to bring to fruition some of these changes that we need to bring about?

Tim:

I think, I mean I can't speak for the Canadian Infrastructure Bank, but I'm thinking that those are the kinds of focuses that organizations will have out of the gate. I can't tell you if that's right or wrong and if I knew it was right I couldn't tell you anyway. But I think if I was in their shoes that's the kind of approach I would be taking. I think that there's opportunity for GreenON to play in that area as well. But that's necessarily the focus because, again, our focus is to decarbonize. Right? But that's where I think the Canadian Infrastructure Bank will be playing a role but I can't tell you otherwise. 

Ron:

My two cents on that is that we spend quite a bit of time thinking about this exact problem. I think if I was a utility CEO in an area right now, you've kind of got two paths. You can either be a great regulated utility and I don't think your business is going to go away. I think we're going to have a grid for some time for the reasons we just talked about. There's tons of different wires coming to your house to supply the energy you need. It's just pretty attractive. I think there's still some opportunities to grow because I think that, assuming EV infrastructure happens, you're going to need storage, for example, in that grid to balance it out. There's going to be some opportunities for investment. That would be one path.

The other path is to say, "I actually want to own the customer. I want the heart and mind of the customer. I'm not happy only selling them electricity." We don't really have that many that have really aggressively done that. We've got a few that are certainly talking about that but that requires a different level of investment. It probably requires, you know, [more funds] so you're capital limited. Lots of companies are capital limited, you know, that probably requires partnership in this market, maybe. I think there's ways to bring that next set of offerings to the customer. I've been curious. The utilities are not really players, let's say, in EVs. They haven't partnered with EV manufacturers who are charging things to say, "Come to Toronto Hydro for all your EV needs." Right? That's not a narrative. Or they haven't partnered with me to go, "Let's figure out how to make your home the home of the future." Right? We do some of those things, right, with programmatic offerings that are frankly paid for out of CDM, but they're not strategic around, "I'm going to own this customer and make them want to only deal with me for their energy needs." I think those are the two paths and I think, in a way, you raise an interesting question, Paul, which is the gas utilities in some ways are better placed to do that. They could make an interesting decision to say, "I also own that customer today. And I'm going to make a play for that customer to do anything energy-related with me." I don't think it's fatal for the utility to lose the customer but I definitely think it's possible. With green button legislation now put in place there's no reason that Enbridge can't go to that customer and say, "You know what? Send me your sign up for green button. Send me all your information. From now on I'll pay your bill for you and, not only that, for 500 dollars up front, I'll make some investments in home automation and we'll make sure that we're monitoring what's going on in your house. I'll guarantee you a 5% reduction in your bill. No problem. From now on all ... it all effectively becomes part of your Enbridge bill but it will actually explain it in a way that you can understand it."

Tim:

Interesting.

Ron:

That doesn't require very much technology for that to change that. It's possible today and one really interesting thing is the utility will say, "I'd love to do it but I'm not allowed to because of the OEB, the Ontario Energy Board, the regulator, you sort of go if you've got a business where you have to ask somebody for permission every time you want to do something, that's not a place I'd want to be -- a place where the customer leaves.

Tom:

Tim, this is right in your wheelhouse. Any thoughts on that?

Tim:

Well, in terms of just following on with what Ron said, it's a compliment for him for doing such a great job on the question that these organizations have to be asking themselves -- and I think they're beginning to do so -- is "What business are we in?" It's been something that they haven't asked themselves for a long period of time. They're also, right now, mainly going through a consolidation process. I think that will help frame their strategy and it'll also help frame which path they take, and the CEO of that particular [mindset]... comes out on the other side of that strategy. 

Tom:

Those LDCs, those liquid distribution companies themselves, are also potentially investment opportunities or are listeners as well. I have a few more questions but before I ask my questions, Chris, I just wanted to go back to you to see whether there were any additional questions from our audience.

Chris:

Hi. Yes. Thanks so much. Well, I've got a couple here but I'll just ask one then if you've got one question to finish off then hand back to me and we'll go from there. But the one that's come through here that I wanted to ask was, what was the role of project finance banks associated with the power sector be as we move away from the grid focus and more towards distributed energy? We don't have any project banks there so maybe...

Ron:

I do think we're going to see fewer of these really big, you know, we're spending 26 billion dollars on nuclear plants, you know. I think there's going to be, the one place and the other place we're reasonably well transmissioned, if I can use that as a word, in the province right now, although the signal in the LCAP is whatever else we build will become competitive so there may be project finance opportunities there. But I actually think the trend ends up being more in these, I think the rewards will go to the people who are willing to pursue different business models and do more aggregation; at least that would be my view. So, this idea that budgets themselves are smaller, I'm not saying small, [because] smaller, as you say, you can reach into the tens of megawatts but that's maybe not the same as the 1,000 megawatts. 

Tom:

That 1,000 megawatts was aggregated as well and if you're talking about tens of megawatts, you're talking about 100 megawatts, so you're talking about the project and if you're talking about storage you're also talking about big projects. As we talk about the MUSH sector, or the MASH sector as people call it as well, the municipalities and academic institutions and schools and hospitals, etcetera, ... is aggregation. I would argue, and you guys can disagree with me, but I would argue that you are going to see, the getting up to that, those project finance, they want to cut 30-, 40-, or 50-million dollar cheques. I think no problem. We're going to see. It won't be as easy as it was, it's not like a PPP, classic PPP model, project finance kind of stuff, but still, business is not supposed to be that easy. 

Tim:

But you also may see that they're cutting government cheques and taking spreads on the way through. What the larger infrastructure banks are used for. That's part of the process and the projects are different but they have the same kind of, it's A to Z, you know what I mean? And it generates something. Or it stops something from being generated. 

Ron:

It seems to me to, and we're sitting in a Gowling boardroom drinking from Gowling's mugs but, the good news for the lawyers is, I would think that it becomes much more important to think about how you are apportioning risk because I do think that what happens in these different kind of counterparties is allocating who's picking what sort of risk. It becomes more complicated than it was when it was very simple, [and] effectively the counterparty is the government, they sort of take all risk. Right? I think we have to think a little bit more about where do some of the eventualities come from in terms of risk, drafting things, not having to use them etcetera, that we maybe don't have to think this much about on some projects.

Tom:

That's no different than the real world, right? We're dealing with companies that are innovating all the time, creating things. Here at Gowling WLG we're excited by this change. So we've been doing project-finance style work for decades but, oh! We're talking about innovation? Oh, we're one of the largest IP firms on earth. We do innovation. We understand innovation. We're excited about it. Our clients are excited about it. We're seeing deals -- deals are coming down. Even before Green Ontario was announced we were starting to see things happening so we're definitely excited. Just before we wrap up, are there any final thoughts, Tim, in terms of what you want to communicate to the audience, in terms of where the puck is going and opportunities we're seeing? 

Tim:

I think that we're going into three different areas. Reduction of use of power and moving away from complete ... bridge systems to much more centralized systems and also that transportation roll-ons are really yet to be completely thought out, and how transportation will be so disruptive that I'm not sure we really understand all the answers. 

Tom:

Very exciting. Ron, any final thoughts?

Ron:

You know, I do think there are going to continue to be big opportunities. I think they're going to look a little different. I'm a big believer that what's going to change from the first sort of 100 years of the electrical revolution is going to be a bigger role for the customer. At least we talked about them like customers and not meters. But I think they'll buy things, and I think they'll buy things from different actors. I guess maybe my one lesson I'd like to leave is don't assume that they people who were the suppliers before are the [same] ones going forward -- that there are going to be some different actors involved. 

Tom:

That's great guys. On behalf of everyone listening, and on behalf of Gowling WLG, I'd like to thank you both for your comments and your wisdom. With that, Chris, I'm going to pass it back over to you.

Chris:

Thanks very much. Thanks Tom. Thanks Paul. And thanks to Tim and Ron as well for joining us. We are obviously heading towards the hour mark. We're going to leave it there. I'd just like to say, obviously, thanks to the speakers and thanks to Gowling WLG for sponsoring this and helping to run this webinar. Obviously, like I mentioned earlier, Gowling WLG will be joining us at the Canadian Power Finance Conference and that's going to be a good place to kind of see more similar in-depth discussion on the future of the Canadian power industry, and I think that's kind of topical after what's been discussed today, but also given the kind of movements within the industry, potentially, away from that typical kind of long term PPA model. There are details on the screen there in terms of how to register for the event and if any of your colleagues couldn't listen to the webinar today, it has been recorded and it will be distributed by ... and it will be hosted on our website and I'm sure the on the Gowling WLG website too. Thanks very much for listening and thanks to you guys for speaking too.

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