Canada: Assessing Curtailment Risk In Ontario


Stretching back to the all party "Select Committee on Alternative Fuel Sources" in 2001, the province of Ontario's commitment to renewable energy has been strong and, for the most part, unwavering.

By the mid-2000's, with the launch of Ontario's Renewable Energy RFP I and II, renewables had begun to be seen as a viable offset to generation from the province's massive coal-fired generating plants – the largest single source of air pollution in Canada. Ontario's once gigantic coal-fired generating capacity will be closed by the end of 2013.

By 2009, with the launch of the Green Energy and Green Economy Act and the province's open-ended Feed-in Tariff, the move to renewables was portrayed as an economic stimulus tool.

Despite its vast size (1.1 million km2), Ontario's population is only 13.7 million (about the size of a tier two Chinese municipality). The total generating capacity of Ontario is less than 34,000 MW at any given time, and peak demand requirements now fluctuate below 26,000 MW. As a result, the addition of 10,700 MW of renewable generation to the existing supply mix, as contemplated in the province's 2010 Long-Term Energy Supply Plan, constitutes a revolutionary change.1

Ontario has a relatively high proportion of base load generating capacity which is inflexible (nuclear and large scale hydro) and relatively minuscule amounts of energy storage capacity. The province is interconnected with neighbouring jurisdictions of Quebec, New York, Minnesota, Michigan and Manitoba; however, export/import capacity is limited to approximately 4,800 MW. As a result, when the province generates more electricity than it can consume, and neighbouring jurisdictions do not take the surplus, market prices for electricity fall until they reach negative values as generators compete to stay online in order to avoid high cost facility shutdowns.2

With the launch of Ontario's Green Energy Act in 2009, the Ontario Government started what some might characterize as the biggest single change in Ontario's electricity system since the founding of the Hydro-Electric Power Commission of Ontario by Sir Adam Beck in 1906. Anyone who has driven along Highway 3 between Rondeau and Amherstburg, or visited a solar farm in Eastern Ontario, can attest to this.


It is this context of government policy support for large scale, rapid energy system transformation in the face of quite limited system flexibility that makes the ongoing dialogue between contract-holding renewable energy generators and the province's Independent Electricity System Operator (IESO) so interesting. What makes it even more intriguing is the fact that a significant proportion of Ontario's base load nuclear generating capacity is scheduled to start coming offline after 2015 for refurbishment – changing the baseload supply characteristics of the province quite significantly.

In anticipation of the radically increased amounts of renewable energy generating capacity being added onto the provincial electricity grid, in 2009 the IESO announced a stakeholder initiative to seek input on guidelines and policies regarding the integration of renewable energy generation into the grid. The actual stakeholder engagement process was launched in 2010 with the publication for comment by the IESO of its draft Design Principles. After a lengthy stakeholder feedback process, the IESO released a final version of the Design Principles in March of 2011 and proposed amendments to the Market Rules shortly thereafter. These Market Rule amendments impose reporting requirements on variable generators and make variable generators that are market participants dispatchable on an economic basis. The Market Rule changes were approved by the IESO in November 2012 and came into effect in January 2013.

Curtailment – Why's and How's

Dispatch refers to the ability of the IESO to direct renewable generators to dispatch their facilities on or off irrespective of wind or solar resource availability. At present, the proposal is for all renewable generators which are: (a) connected to the IESO-controlled grid or (b) registered market participants to follow a dispatch procedure based upon a 5-minute dispatch interval.  The understated goal is to manage wind and solar generation in much the same way as conventional resources such hydro and gas generators are managed, using existing market rules, processes, and protocols.3 Wind and solar power project operators face an obvious round-peg/square-hole technology challenge trying to fit into a dispatch paradigm dating from the 1990s and developed for very different generation technologies. As a result, the process of modifying Ontario's Market Rules to contemplate renewable energy resource integration has been somewhat protracted.

Setting emergency circumstances aside, curtailment will occur with varying levels of frequency in different regions of the province. Whether a project faces local congestion challenges or larger system-wide congestion challenges will, to a certain extent, be a matter of engineering analysis. In theory, the development of transmission facilities should eventually match the development of generation facilities. That said, there are jurisdictions all around the world where renewable and non-renewable generating facilities sit idle because transmission has failed to catch up with generation.

A certain degree of local congestion and general oversupply is often planned into the system. However, given the relatively narrow operating margins of wind and solar projects, typical project leverage ratios and the debt service coverage ratio covenants by which most projects are bound, an annual curtailment of generating capacity of more than one percent can have a devastating impact on project viability – particularly if it occurs in combination with other operational challenges such as weather anomalies. The real problem with figuring out how to economically integrate renewables is that they are not only not "rampable", but they are also intermittent.

Resolving the Public Policy Challenge

The public policy challenges which have yet to be fully resolved in Ontario are: Who will bear the costs of curtailment and curtailment risk? And, how will renewables, which now form a significant and integral part of our electricity system, be fully integrated into an updated set of Market Rules and in a fashion that preserves project economics?

Renewable energy project proponents and potential acquirers will want to take a careful look at curtailment risk in Ontario from both an engineering perspective (assessing local and system-wide curtailment risk) and from a legal perspective (assessing the Market Rules, reviewing the applicable sections of the FIT Contract, RESOP Contract or other PPAs to determine indemnification rights). Doing an appropriate assessment of both the physical risk and the legal risk is essential because more recent versions of the FIT Contract do provide broader authority for Market Rule changes and some uncertainty as to cost recovery by generators.

Given the significant changes which are occurring in Ontario's electricity mix, it seems surprising that the current Market Rules, which are based upon and designed for an electricity system with minimal intermittent resources, are continuing to be used. Ideally, the reality of significant non-dispatchable assets, most of which are being built in the next 12-36 months, would justify a complete revision of the Market Rules. With the shutdown of Ontario's coal plants and the prospective shutdown of significant nuclear assets, dispatchable renewables will be relied upon for a significant portion of electricity needs in the province. Accordingly, the reality of renewables should ideally form a fundamental pillar in Market Rule design rather than an add-on. All this being said, Ontario's Market Rules remain fundamentally unchanged and, as a result, significant risk is borne by generators and acquirers of dispatchable resources. This risk translates into higher transaction costs and, for the time being, greater uncertainty for project proponents, equity investors, lenders and ancillary market participants.


1 Since 2000, Ontario has seen summer peaks, primarily due to the growth in air conditioning use. Since the advent of the 2008/2009 economic downturn, load has fluctuated between 11,000 MW in the early morning hours and 25,500 MW on hot summer afternoons. With 11,446 MW of installed nuclear capacity and 7,947 MW of installed hydro electric capacity and very little storage capability, Ontario has limited flexibility (considering the size of its system) to ramp generation.

2 For obvious reasons, the simultaneous outflow of both electricity and public money from the province has attracted negative media coverage.

3 What is interesting to note is that, much like Ontario's growing renewable fleet, Ontario's vast nuclear assets are also somewhat inflexible with extremely limited and slow ramping capabilities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
8 Nov 2016, Seminar, Ottawa, Canada

The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.

22 Nov 2016, Seminar, Ottawa, Canada

From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.

7 Dec 2016, Seminar, Ottawa, Canada

Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.