Canada: Ontario's Long-Term Energy Plan and Draft Supply Mix Directive

On November 23, 2010, the McGuinty government released its Long-Term Energy Plan and draft Supply Mix Directive. Once approved by Cabinet, the draft directive will be issued to the Ontario Power Authority (OPA) and sets the goals to be achieved through the OPA's long-term energy plan (known as the Integrated Power System Plan or IPSP).

By way of background, the OPA is responsible for developing the IPSP and an appropriate procurement process for managing Ontario's electricity supply, capacity and demand in accordance with the approved IPSP. In August, 2007, the OPA submitted a 20-year IPSP to the Ontario Energy Board for approval, but the process was suspended in September, 2008 by a Minister of Energy's directive that the OPA consider, among other matters, the amount and diversity of renewable energy sources in Ontario's supply mix. The OPA was also directed to undertake an enhanced Aboriginal consultation process. The Minister's directive stated that the revised IPSP would be provided to the Ontario Energy Board by mid 2009. However, the introduction and implementation of Ontario's Green Energy Act significantly delayed the IPSP process and, in September, 2010, the McGuinty government announced that it was preparing a long-term energy plan and revised supply mix directive.

The Plan and Directive include the following key goals:

• Nuclear - Nuclear power will continue to be relied upon for baseload generation and maintained at approximately 50 percent of Ontario's supply mix (or 12,000 MW). By 2025, 10,000 MW of existing nuclear capacity is to be refurbished and modernized at Darlington and Bruce. Two new nuclear units are to be procured at Darlington to generate an additional 2,000 MW. The government indicated that this is subject to a cost-effective deal being reached with Atomic Energy of Canada Limited.
• Coal Free - Coal-fired plants will cease to burn coal by the end of 2014. Atikokan will be converted to biomass by 2013 and Thunder Bay will be converted to natural gas by 2014. Plans for the remaining coal units at Nanticoke and Lambton remain unclear. Natural gas will continue to play a strategic role by complementing intermittent supply and ensuring that adequate capacity is available as the nuclear units are modernized. A natural gas plant is planned for Kitchener-Waterloo-Cambridge bringing total capacity of natural gas generation, with Thunder Bay, to 8,400 MW.
• Renewables: Hydroelectric - Hydroelectric generation will account for approximately 20 to 25 percent of Ontario's supply mix. Hydroelectric power currently makes up about 90 percent of Ontario's total renewable energy supply (8,100 MW). By 2018, hydroelectric capacity is to reach 9,000 MW. Large-scale hydro projects, usually in remote locations, are not considered economically feasible due to high capital and construction costs. However, cost-effective Northern options will continue to be studied.
• Other Renewables - Renewables, excluding hydroelectric, will account for approximately 10 to 15 percent of Ontario's supply mix by 2018. Wind, solar and bio-energy will continue to be developed under Ontario's Feed-in Tariff Program ("FIT") with up to 10,700 MW in capacity to be available by 2018. In particular, wind generation is anticipated to grow to approximately 10 percent of Ontario's supply mix. FIT prices will be reviewed in 2011 with the expectation that price incentives will be decreased for any new FIT contracts (as has been the experience in other jurisdictions such as Germany, France and Denmark).
• Transmission - Perhaps the most anticipated portion of the draft directive is the enhancement and expansion of transmission facilities to accommodate a growing mix of renewable sources. However, the proposal likely falls short of expectations. An investment of approximately $2 billion is planned over the next seven years, focusing on five priority transmission projects. In addition to the Bruce-to-Milton line, these projects will enable approximately 4,000 MW of additional renewable energy.

Comments on the draft Supply Mix Directive may be submitted until January 7, 2011. The OPA's revised IPSP is expected to be submitted to the Ontario Energy Board by mid 2011. The Ontario Energy Board's review of the IPSP is expected to be completed sometime in 2012.

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