COMMODITIES 2025: Electrification, data centers push Canada to boost procurement

This is part of the COMMODITIES 2025 series, where our reporters bring to you key themes that will drive commodities markets in 2025.

Canadian provinces are working to combat demand growth and drought conditions with increased renewable energy procurement in 2025, but new large loads and regulatory concerns could challenge system operators.

Overall, Canada is seeing increased wind and solar generation that largely offset a decrease in hydropower generation in October, according to the latest Statistics Canada report. Wind power generation surged 24%, or 0.8 TWh, year on year. Solar generation also soared 53% year on year to 417 GWh in October.

Demand growth

The Alberta Electric System Operator and IESO point to industry, transportation electrification, and new data centers as key drivers of electricity demand growth.

The AESO said in its 2024 long-term outlook report that energy load growth projections over the next 20 years have increased from an annualized average rate of 0.4% predicted in 2021 to 1.2%.

"In the short term, this demand would be created by macroeconomic factors, such as GDP, employment rates and population trends, oil sands production and the initiation of new load connection projects," Jorden Dye, director of Business Renewables Centre-Canada, said. "They're also watching for potential shocks to load growth from data centers through the mid-term of the forecast."

In Ontario, lower interest rates are likely to increase economic activity, causing underlying energy demand to strengthen and gain momentum, said Andrew Dow, senior manager of public relations at the Independent Electricity System Operator.

"There are also steel manufacturers electrifying their operations, electric vehicle manufacturing plants being built, and data centers forecast to connect to the grid," Dow added.

IESO's 2024 capacity auction secured more than 2 GW of supply for summer 2025 and 1.5 GW for winter 2025-2026, with a "significant amount" coming from demand response, Dow said.

"While the auction contracts supply from existing generation resources and demand response, we also expect to have 1,732 MW of new supply coming online over the next 18 months, including energy storage," he said.

IESO saw its demand forecast soar 75% over the next 25 years. Overall electricity demand could increase by about 2.4% in 2025, Dow said.

Dow said data centers that are looking to connect to the grid is one of the largest drivers of future demand. He also mentioned the electrification of transportation and industry.

IESO projects data centers will consume 8.4 TWh, or about 4%, of projected electricity demand in the province by 2035.

Drought conditions

Ongoing drought conditions have put pressure on Canada's hydropower generation in 2023 and 2024, but the government's drought tracker expects some relief coming to parts of the country in the short term.

Canada's hydroelectricity takes up 60% of the country's electricity generation. Overall annual hydraulic turbine generation fell 8% from 2022 to 2023, and some utilities, like BC Hydro, said conditions continued into 2024.

Canada's hydroelectricity takes up 60% of the country's electricity generation. Hydropower provided 94% of total electricity generation in Quebec in 2021, the US Energy Information Administration said. The share of hydropower generation in IESO in 2024 averaged at 24.2%, but Alberta relies much less on hydropower, with it taking an average share of 1.8% of total generation in 2024.

The government's Canadian Drought Outlook showed significant parts of the country still experiencing "abnormally dry" drought conditions, with parts of the Northwest Territories, British Columbia, Alberta, Quebec, and most far eastern provinces facing "severe" drought conditions as of Nov. 30.

The outlook for December showed some potential relief coming especially to the Northwest, according to government data accessed Dec. 30. About 48% of the area in the forecast is expected to see "drought removal" and about 14% is forecast as "improved" drought conditions. About 26% of the area tracked is forecast as "no change in drought," with most of that area in the eastern provinces.

Corporate PPAs

When it comes to wind and solar production across Canada, Alberta is second only to Ontario, according to Dye. Renewable energy development in Alberta faced "deal-stopping" uncertainty in 2024, however, which could continue into 2025, Dye said.

In 2024, BRC-Canada tracked just one public corporate renewable power purchase agreement, which Dye called a "distress signal." This year saw 52 MW added from this type of agreement compared with more than 1 GW added in 2023. BRC-Canada said that 34% of new installed renewable generation since 2019 were made possible by corporate renewable energy procurement.

"The Alberta government's moratorium on renewable energy approvals last August poured cold water onto the market and resulted in an immediate slowdown," Dye said.

Dye said, however, "there are more shovel-ready projects without announced deals at this time compared to any other year," including 2.7 GW of solar and 0.5 GW of wind "waiting in the wings.

"It will be a breeze for 2025 to surpass 2024, our worst year for deals on record," Dye said. "But while we might see a handful of PPAs next year, without a course correction in policy we do not expect to see the market rebound to previous levels."

Market mechanisms "need to be defined" to help further reduce these trends, Dye said.

"Energy producers need to know how the day-ahead market will work, the scale of risk on negative pricing, and whether or not the government will sign long-term contracts or invest public funds directly in its preferred technologies," Dye said.