Ontario Ministry of Energy Issues Guidance to Address Electricity System Needs

Today the Independent Electricity System Operator (IESO) posted a letter, that Ontario’s Minister of Energy, Todd Smith, issued yesterday providing guidance on several supply-side decisions that will begin to shape Ontario’s future electricity grid. The letter comes amidst the increasingly important procurement decisions needed to address Ontario’s growing capacity requirements over the next 10 years.

Until now the IESO has been leading discussions on resource adequacy, most recently in the 2021 Annual Acquisition Report (AAR) and through the ongoing Resource Adequacy stakeholder engagement initiative. This letter confirms support for the overall procurement approach and provides additional clarity on procurement and supply decisions for various resources.

The Minister’s letter comes as welcome news in providing a view into the government’s priorities while the whole sector works to address projected capacity shortfalls. The Minister’s intervention clearly signals that investment certainty, economic recovery, reliability, ratepayer protection and decarbonization will form the pillars of the government’s energy policy objectives as Ontario approaches the Provincial election on June 2, 2022.

Minister Smith provided the following guidance to the IESO:

Competitive Procurement Mechanism Under the AAR – Report Back: December 17, 2021

Design for Medium-term Request for Proposals (MT RFP)­

The Minister has requested the conclusion to stakeholder engagement and for the IESO to report back with a MT RFP design. Specifically, the Minister has signaled support for 3-year contract extensions with an option to extend by 2-years (at the sole discretion of the contract holder) for already existing assets. The Minister has also requested the IESO to facilitate investments in new build/existing energy storage facilities, hybrid projects, and renewable facilities.

Engagement on Long-term Request for Proposals (LT RFP)

The Minister has asked the IESO to initiate an expedited stakeholder engagement process on design and timelines for the LT RFP, stressing the creation of technology-agnostic incentives for new development and inducements for major upgrades to existing resources.

Sussex also anticipates further consultation from the IESO related to two recent mandates, one related to a potential moratorium on new-build gas-fired generation to meet electricity system needs, and the request to report on a pathway to full decarbonization of Ontario’s grid.

Short-Term System Reliability – Report Back: February 28, 2022

The Minister has underscored the importance of addressing local short-term reliability challenges ahead. He has asked the IESO to enter preliminary discussions with Ontario Power Generation (OPG) for bilateral re-contracting at Brighton Beach GS (540MW facility in Windsor, ON).  This confirms the recommendation first announced in the IESO’s AAR.

The Future of Biomass Generation

In no uncertain terms, Minister Smith has signaled the government’s support for the forestry sector in Ontario by continuing to support biomass generation while reducing costs to the rate base. To this end, the IESO has been asked to explore 5-year contract extensions to expiring contracts at Calstock, Chapleau, Thunder Bay Resolute, Hornepayne and Atikokan.

Regarding the two imminent contract expirations next month at Calstock and Chapleau, the Minister has recommended preserving the benefits of these facilities, including the jobs therein, while negotiations continue.

Re-Contracting Small Hydroelectric Facilities – Report Back: December 17, 2021

Minister Smith highlights the important role of small hydroelectric facilities in supporting Ontario communities and addressing system needs. He has asked the IESO to report back on a design that will allow these facilities to continue operating beyond the term of existing Power Purchase Agreements, emphasizing the balance between ratepayer interests and revenue certainty.

Energy Storage and Decarbonization – March 31, 2022

Referencing the IESO Energy Storage Report, the IESO has been asked to work together with the Ministry and Ontario Energy Board (OEB) to update the implementation status of solutions for barriers to storage identified in the report and how these barriers are being addressed. Minister Smith has specifically requested the IESO to explore the role of storage in Ontario’s decarbonization efforts.

Projects Under the Unsolicited Project Proposal Framework (UPPF)

Pumped Storage – Gate 2 Analysis Due: January 31, 2023: the IESO has been asked to advance (i) OPG/Northland Power’s Marmora (ii) TC Energy’s Meaford; and (iii) Oxford Power’s Schreiber pumped storage projects into Gate 2 of the UPPF. Minister Smith has indicated that during this phase of study, significant improvements to ratepayer value are required.

Other Projects: the report back on the status of contract negotiations regarding (i) Oneida Energy Storage Project (NRStor and Six Nations of the Grand River Development) is due back on November 30, 2021; and (ii) the Lake Erie Connector (ITC) is due back on December 31, 2021. These two projects are the first to make it to Gate 3 and into contract negotiations marking significant progress in enabling innovation in the energy sector.

Ontario’s electricity sector is undergoing rapid transformation to meet growing energy needs. Policy discourse over the upcoming months led by Minister Todd Smith, IESO CEO Lesley Gallinger, and OEB CEO Suzanna Zagar is certain to lay the groundwork for the next decade.  

Happy to help.

Our team of experts are ready to help you navigate the increasingly high-stakes environment. As always, please reach out to your Sussex consultant to discuss how these developments impact your business and how you can achieve your objectives.

Chris Benedetti, Managing Partner
cbenedetti@sussex-strategy.com

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

Mark Olsheski, Vice President
molsheski@sussex-strategy.com

Patrick Gajos, Director and General Counsel
pgajos@sussex-strategy.com

Alex Simakov, Associate
asimakov@sussex-strategy.com