Canada: The Energy Storage Procurement Framework – Phase I Commencing In March 2014

Conservation through innovation is an essential component of the Long-Term Energy Plan (the "LTEP"), released by the Ontario Ministry of Energy (the "MOE") on December 2, 2013. In the LTEP, the MOE commits to including 50 MW of storage technologies in the procurement process by the end of 2014.

On December 16, 2013, the Minister of Energy (the "Minister") requested that the Ontario Power Authority (the "OPA") and the Independent Electricity System Operator (the "IESO") jointly propose a design and outline for an energy storage procurement framework by January 31, 2014 (the "Framework").

In response, the Framework submitted by the OPA and the IESO to the Minister proposes a design and outline for the procurement of 50 MW of energy storage through two complementary procurement phases led by the IESO and the OPA. The IESO and the OPA engaged sector representatives in the development of the Framework and will continue to work with stakeholders as new procurement processes are developed.

The following briefly summarizes each of the phases as outlined in the Framework, inclusive of the Minister's comments on the Framework as set out in his response to the OPA and the IESO by letter dated February 20, 2014 (the "Minister's Response"):

  • Phase 1 – Ancillary Services Stream
    • Phase I will be led by the IESO, will procure up to 35 MW of storage resources and will consist of a competitive RFP for energy storage solutions for specific system needs.
    • The competitive procurement of energy storage solutions will focus on end-uses that provide ancillary services as a method of addressing power system issues.
    • The procurement is expected to range in size from 2-8 MW for each of 5-8 different energy storage solutions.
    • In addition to the focus that will be identified in the procurement, the selected energy storage solutions are expected to provide additional end-use services, thereby allowing for greater learning potential.
    • The Phase I procurement stream will build on the IESO's Alternate Technologies for Regulation framework.
    • Eligible participants may be new or existing market participants that have electrical energy storage technologies that are not currently under contract with the IESO for other purposes.
    • The RFP will specify the evaluation criteria.
    • The IESO is expected to release an RFP by early March, 2014. 
  • Phase II – Capacity Services Stream and Remote Communities
    • Phase II will follow Phase I, will be led by the OPA and will procure the remainder of the 50 MW that was not procured in Phase I.
    • The competitive RFP will be for technologies that satisfy system locational requirements and primary end service uses.
    • Phase II will mostly consist of procurement for capacity services, although consideration for remote communities may be included.
    • The procurement is expected to result in 2-3 projects.
    • The RFP will specify the evaluation criteria.
    • The OPA will engage in stakeholder consultations and communications with interested proponents before and during the procurement.
    • A pre-qualification process will narrow the number of proponents on the basis of financial capacity and experience, and/or by projects.
    • The OPA expects to release the pre-qualification materials in the first and second quarter of 2014, with consultations on the RFP and contract design to commence in the second quarter of 2014.
    • The Minister has indicated an intention to issue a directive to the OPA enabling the Phase II process, with an aim to have the contracts awarded before the end of September 2014.

The Minister's Response recommends that the Phase I and Phase II procurements should support the LTEP goal of achieving a diversified portfolio of energy storage technologies by aiming for the broadest possible range of such technologies and projects. In addition to the procurement process, the Ministry will undertake an independent study evaluating the projects that result from these procurements in an effort to better understanding the value of and barriers to energy storage projects in Ontario. Meanwhile, the OPA and the IESO are directed to regularly update ministry staff on the procurement process and the examination of regulatory barriers to energy storage.

If you have or intend to develop, acquire or finance an energy storage project or technology which could qualify for either Phase I or Phase II, you should consider preparing your consultation submissions, proposals, bidding structure and market participant documents as early as possible in order to have the greatest chance of influencing the design and rules for these RFPs, and therefore the greatest chance of securing a procurement contract from the IESO or OPA.

In addition to extensive experience advising clients with respect to procurement design, McMillan's Energy Group has a long track record of assisting proponents of energy storage and other energy projects as well as advising on commercial and regulatory matters in the electricity and energy storage sectors. For further information on the opportunities presented by the energy storage procurement process, please contact your regular McMillan lawyer or any member of McMillan's Energy Group.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014

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