Government of Ontario Launches Consultation on Third Party Net Metering

On November 1st, the Ministry of Energy (MOE) posted proposal 019-4554 to the Environmental Registry of Ontario (ERO) to amend the provincial Net Metering Framework (NMF, O. Reg. 541/05) to provide clarity on the eligibility of a customer who is leasing or financing electricity generation assets for the purposes of net metering, commonly referred to as Third Party Ownership (TPO). The deadline to submit stakeholder comments is December 16th.

This consultation follows the release of a bulletin issued by Ontario Energy Board (OEB) staff on October 25th, conveying their view that an, “…electricity distribution customer can qualify as an “eligible generator” for net metering purposes where the customer operates but does not own a renewable energy generation facility.”

Notably, the bulletin is merely the view of OEB staff and is not binding until determined as such by a panel of OEB Commissioners. The ERO consultation initiates the process that, if endorsed by Cabinet, would legislatively recognize and regulate TPO within the Net Metering Framework – thereby creating a pathway to expand private sector participation and innovation in this sub-sector across the province.

If approved, TPNM could improve accessibility for households and businesses to participate in net metering arrangements. At present, eligibility requirements have restricted enrolment to those with sufficient up-front capital to pay for the entirety of a roof-top solar installation (or, in a minority of cases, another BTM renewable energy asset), that can often require +10 years to recover the costs.

Under TPNM, prospective customers would be allowed to enter into leasing and financing arrangements with third parties to help cover the cost of the installation, either in part or whole. This upfront investment would then be paid back over the contract term through the savings/consumption credits generated by the BTM asset.

The adoption of TPNM may usher a business boom for solar energy companies, who have experienced a marked decline in activity since the repeal of the FIT and microFIT programs. Demand may prove high from a range of customer classes, from households motivated by environmental concerns in the face of growing increasing emissions from Ontario’s fleet of natural gas-fired generators, to Class B customers looking to reduce their exposure to Global Adjustment Charges.

Some Canadian provinces, including B.C. Hydro, and approximately 28 states in the U.S. already have provisions allowing some variation of TPNM in their jurisdictions. Their experiences would no doubt be informative in helping define regulation for Ontario’s approach.

Background:

Ontario’s NMF was first initiated in 2006 through a provision under the Ontario Energy Board Act, 1998, as a billing arrangement between Local Distribution Companies (LDCs) and their customers. The arrangement allows customers to install behind-the-meter (BTM) renewable generation assets – most commonly residential roof-top solar panels – while remaining connected to the grid. The BTM generation would provide some or all of customer’s electricity consumption, and any surplus generation would be sent to the grid. For this, the customer would receive “credits” from the LDC that would offset their consumption from the grid, calculated at same volumetric rate they are normally charged. Credits are valid for up to 12 months and cannot be redeemed for monetary value.

There are a number of long-standing restrictions embedded in the NMF. This includes a limitation on net metering penetration to a maximum of 1% of an LDC’s peak demand, a maximum asset size of 500 kW, and a 12-month expiration of unused credits. Moreover, participation in the arrangement requires customers to qualify as an “eligible generator” as defined by the OEB Act – requiring that (1) the BTM asset is directly connected to the end-load, and (2) that the customer be the owner of the asset.  

The province’s 2017 Long-Term Energy Plan (LTEP) called for amendments to the NMF that would have, among other changes, permitted both Third-Party Ownership and Virtual Net Metering (VNM) – the latter being an arrangement that allows the generation asset to be physically separated from the end-load and connected by a distribution line. However, following the election of a new governing party in June 2018, the Minister of Energy, Northern Development & Mines (MENDM) revoked these changes on account of the province’s ongoing issues withSurplus Baseload Generation (SBG) and in effort to rationalize Global Adjustment (GA) allocation.  

In October 2020, MENDM posted regulatory proposal 019-2531 to the ERO, detailing planned amendments to NMF that would “support the development of innovative projects such as net-zero communities using distributed energy resources.” This culminated in the September 2021 announcement of a new Community Net Metering (CNM) demonstration project at a residential development in London.

Next Steps

If you would like any assistance in preparing a submission by the deadline of December 16th, or are interested in learning more about what these policy changes may mean for your organization, please contact us and would be happy to help.

Alex Simakov, Associate, Energy Practice Group
asimakov@sussex-strategy.com

Robyn Gray, Principal and Environment  Practice Group Lead
rgray@sussex-strategy.com  

Bonnie Hiltz, Vice President and Energy Practice Group Lead
bhiltz@sussex-strategy.com

Christina Marciano, Senior Associate, Environment Practice Group
cmarciano@sussex-strategy.com