In this article:
- Ontario’s electricity system shift from a publicly driven model to a competitive market
- The debate over clean and affordable power around coal, nuclear, wind and solar
- How rising electricity costs triggered an affordability backlash
- How growing demand from manufacturing and data centers is changing Ontario’s energy priorities
Ontario’s history of electricity is tied to Nikola Tesla (1856–1943) and George Westinghouse’s (1846–1914) Adams Power Station, one of the first major hydroelectric power plants in North America, built at Niagara Falls in 1895; the plant was on the American side of the falls, not in Ontario. However, a decade later, in 1906, Ontario established the Hydro-Electric Power Commission, which was created to develop transmission and bring electricity from Niagara Falls to municipalities across the province.
In Ontario, electricity was always approached with a strategic purpose by offering affordable utility services and improving residents’ quality of life. That approach eventually produced Ontario Hydro, which became a Crown corporation in 1974.
While throughout the 20th century Ontario’s economy and population grew, the demand for a more efficient and reliable power grid also increased. By the 1970s, the relationship between economic growth and energy demand began to change. Globalization, free trade, higher environmental standards, and rising energy efficiency were among the factors contributing to structural changes in the economy, with electricity demand slowing, although Ontario’s population continued to grow.
In Why the Ontario Energy Market is Regulated we mentioned that “Beginning in the 1970s, rising costs associated with maintaining aging infrastructure, building new generation facilities, and subsidizing electricity prices led to significant financial challenges. To address this, the Energy Competition Act was passed in 1998, initiating the restructuring of Ontario’s electricity market and allowing private sector participation.”
Electricity demand barely grew through the 1990s, increased moderately in the early 2000s, and began trending downward after 2006, while the province was also dealing with the high costs and lengthy delays following its major nuclear expansion.
Somewhere among those shifts in Ontario’s electricity debate, both the government and residents started asking how much Ontario should pay for power and what its source should be, from both ecological and economic standpoints.
From Public Power to a Market-Driven System
Since Ontario’s energy policy gradually became associated with the Liberal government, under the Progressive Conservatives the approach had been largely market-driven. This approach created a competitive electricity market while remaining neutral about the source of supply, letting the market determine what was built. The Liberal government that followed kept much of that framework but took a more interventionist approach by using policy to influence what kinds of generation were built and how the system would evolve.
After the 2002 electricity crisis, which made electricity costs a major political issue, environmental groups, renewable-energy advocates and supporters of conservation gained influence, bringing conservation back into energy policy. This new legislation gave the Ontario Power Authority (OPA) a larger role in planning and securing electricity. The OPA was later merged into the Independent Electricity System Operator (IESO) in 2015, which now carries out that planning and sourcing function. The legislation also sets targets for phasing out coal, expanding renewables, and improving energy efficiency.
As we explain in more detail in Explaining Your Ontario Electricity Rate, electricity prices in the market are determined by supply and demand, with prices recalculated throughout the day.
In that system, the hourly price is determined by supply and demand, but it does not represent the full cost of electricity. Much of that cost is collected separately through Global Adjustment, which covers the costs of contracted and regulated generation, including nuclear, hydro, renewable and natural-gas facilities, as well as conservation programs.
Although Ontario produces large amounts of low-carbon electricity from nuclear, hydro, wind and solar, often at very low cost, natural-gas plants are still needed to balance the system and meet high-demand peaks, especially during hot months. Natural-gas plants remain an important source of flexibility, helping Ontario balance the system and meet periods of high demand.
In this system, large commercial and industrial customers can face costs more closely tied to actual system conditions, including their contribution to peak demand. Medium and large businesses participating in the Industrial Conservation Initiative can have their Global Adjustment costs tied to their contribution to Ontario’s highest demand peaks. This creates an incentive to reduce electricity use when the grid is under the most pressure, with energy efficiency and demand management helping lower both business and energy system costs.
For much of Ontario’s recent electricity history comes down to two competing priorities: clean power or cheap power, where environmental goals and affordability are often treated as opposing sides. However, that division has weakened as renewable costs have fallen, coal has disappeared from the grid, and demand for electricity has begun to rise again.
Clean Power and the Affordability Backlash
For much of the 20th century, Ontario relied heavily on nuclear power alongside coal. Nuclear promised abundant electricity for a growing economy, while coal was relatively inexpensive but came with serious environmental and public health costs.
That changed in the 2000s when Ontario committed to phasing out coal in 2003 and eliminated coal-fired electricity entirely by 2014. Through the 2009 Green Energy Act, it also rapidly expanded wind and solar using long-term contracts and generous incentives. The result was a much cleaner grid, but also higher electricity costs.
Nuclear also changed sides in the debate. Despite critiques for its enormous construction costs and delays, nuclear is now increasingly viewed as an important source of both low-carbon electricity and reliable, uninterrupted power. (Ontario’s recent nuclear refurbishments have shown that nuclear projects remain large, complex and costly undertakings, with the exception of Darlington’s four-unit refurbishment which was completed four months ahead of schedule and $150 million in savings.)
By the 2010s, high electricity bills had become a political problem. The Liberal government also canceled gas-fired power plants planned for Oakville and Mississauga, at a combined estimated cost of up to $1.1 billion. Then, in 2018, the new Progressive Conservative government canceled hundreds of renewable-energy contracts, including the partially built White Pines wind project.
But the debate was already beginning to change, and electricity demand, after years of stagnation, was expected to rise again as Ontario electrified transportation, industry and buildings.
Clean vs. Cheap, Reliable and Affordable Power
The question is no longer simply whether electricity should be clean or cheap. Ontario now has to find power that is clean, affordable, and reliable at the same time.
Renewables have also become more competitive: wind and solar have become far more competitive, reducing the level of government support needed to attract investment. Although integrating more renewable power still requires transmission, storage and backup generation, their falling costs have narrowed the gap between clean electricity and affordability.
Today, electricity policy in Ontario is connected to economic development: the province is trying to attract electric-vehicle and battery manufacturing, data centres, AI projects and other energy-intensive industries. In this new approach to energy, reliable access to relatively low-carbon electricity is becoming an economic goal as much as an environmental one.
That is also putting new pressure on the grid. The IESO now forecasts that Ontario’s electricity demand will grow by 65 per cent by 2050, driven by industrial expansion and energy-intensive data centres. Ontario will need to add significant new generation while keeping costs under control and positioning their power sourcing and distributing as a way to add clean, reliable capacity to meet this rising demand.
The old question ‘clean vs. cheap energy’ now leads to another one: how can Ontario build enough clean, reliable power to support economic growth without making electricity unaffordable?
Key takeaways:
- Ontario’s electricity debate has moved from public power vs. private power to clean power vs. cheap power, and toward finding a balance between clean and affordable electricity.
- The province’s shift to cleaner electricity came with higher costs, contributing to a political backlash.
- Nuclear has taken on a new role as Ontario looks for reliable, low-carbon electricity to meet growing demand.
- Ontario’s electricity system is becoming an economic advantage, with reliable access to low-carbon power increasingly important for attracting manufacturing, data centres and other energy-driven industries.
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