On October 6, 2022 the Ontario Minister of Energy issued a legislative directive to the IESO pertaining to the future procurement of electricity in the province. Specifically, the Minister has directed the IESO to continue a series of competitive procurements to acquire up to 4,000 MW of capacity to address forecasted needs beginning in 2025/2026, as follows:
- Expedited Long-Term I (Expedited LT I) competitive procurement to acquire approximately 1,500 MW of capacity from new build capacity resources and certain same technology expansions of existing capacity resources, with a target commercial operation date of no later than May 2026;
- Same Technology Upgrades Solicitation for approximately 300 MW of capacity from existing facility upgrades that can deliver a minimum of 8 hours of energy duration, again with a commercial operation date of no later than May 2026; and
- Long-Term I (LT I) competitive procurement for up to 2,500 MW of capacity from new build resources offering commercial operation by May 1, 2027. Drafts of the pending Long-Term I RFP and Contract are to be delivered to the Minister by December 15, 2022.
Consistent with the IESO's recent announcement, the Minister has directed that the LT I procurement include a minimum of 1,500 MW of capacity acquired from standalone storage projects.
This is in addition to the already-closed Medium-Term I (MT I) procurement resulting in six 5-year contracts for a total of 750 MW committed capacity to be available beginning 2024-2026.
While a boost for storage technologies, the directive takes a more measured approach toward continued use of natural gas fired generation in the province. For instance, no more than a total of 1,500 MW of capacity is to be procured from natural gas resources through one or more of the above listed procurements. Where natural gas resources are contracted through the Expedited LT I process, contracts will expire no later than April 30, 2040, i.e. the date of the latest expiring IESO-held natural gas generation contracts.
Contrast this with other (non-natural gas) resources that are to be contracted through the same Expedited LT I process but which will have contract terms of seven additional years to April 30, 2047. Interestingly, the directive permits projects that are unable to comply with future GHG emissions laws and regulations – which will largely likely be natural-gas fired generation facilities – "to allow such project[s] to suspend operations for the balance of the contract term" while still retaining contract payments.
The directive appears to largely mandate the IESO's recommendations set out in its Resource Eligibility Interim Report to maintain a diverse supply mix in order to mitigate against possible project delays (based on IESO's previous procurement experience), current global supply chain disruptions (exacerbated by the war in Ukraine), and tight market conditions (existing in part due to enduring COVID-19 pandemic challenges).
The directive also mandates keeping existing natural gas fired generation in-service to continue to provide system flexibility, at least until storage generation resource participation is developed and implemented at the grid-wide scale needed to address potential reliability gaps. However, at the same time, the directive appears to reflect that the continued use of natural gas fired generation in the province will likely need to take heed of federal government net-zero policy and direction. We expect that this measured approach toward natural gas fired generation in the province will continue to be reflected in the IESO's Pathways to Decarbonization Report to be issued later this year.
Our team at McCarthy Tétrault continues to closely follow the development of the provincial electricity procurements, as well as the IESO's Resource Adequacy Framework generally. If you would like more information about electricity regulation in Ontario, we are here to help. Please contact Reena Goyal, or any other member of the Power Group at McCarthy Tétrault with any questions or for assistance.
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