LTEP 2017: Good news for Ontario's burgeoning renewables sector

14 November 2017

The recently released Long-Term Energy Plan (the “LTEP”) had much to say about the renewable energy resources sector in Ontario. The LTEP clearly identifies renewables as the key to helping the province meet its energy goals.

Some of the LTEP takeaways on renewable energy include:

  • The need for more renewable energy capacity due to the phase out of nuclear and fossil fuels while facing steady demand through the next two decades;
  • A focus on maximizing current assets and upgrading existing renewable energy facilities;
  • The expansion of net-metering and virtual net-metering and a general increase in distributed energy resource (DER) technologies;
  • A likely decrease in large-scale procurement in the near term; and
  • Confirmation of carbon pricing, which could further drive investments in renewables.

Future Demand and the Need for More Renewables

The Ministry of Energy (the “Ministry”) has forecasted a relatively steady demand growth for the next 20 years, fluctuating around 30,000 MWs. While Ontario’s electricity supply is adequate in the near term, the LTEP projects a significant shortfall in supply by the mid-2020s due to a decrease in nuclear supply. The decommissioning of the Pickering nuclear plant and the temporary shutdown of the Darlington and Bruce units for refurbishment will lead to a need for additional system capacity. The Ministry plans to close this gap, in part, by increasing distribution-connected clean energy. Local growth of distribution-connected wind and solar power is expected to reduce system-wide demand and the need for LDCs to draw from transmission networks.

In addition, the expected retreat from fossil fuels in other industries will likely accentuate the need for additional clean energy capacity to fill the gap in supply. In particular, the LTEP proposes that further electrification in the transportation sector will be essential in order to meet demand and; it also assumes the electrification (and timely completion) of the GO rail system and other light rail projects in Ontario. Further, the LTEP demand projections assume that approximately 2.4 million electric vehicles will be in use by 2035—a target largely dependent on automotive manufacturer action and consumer demand.

Upgrading of Current Renewable Energy Facilities

The power purchase contracts applicable to over 8,000 MW of renewable energy generation capacity, accounting for over 25% of Ontario’s supply, will expire between 2026 and 2035. The Ministry expects that the expiry of such contracts will not coincide with the expected lifecycle of wind, solar and hydro plants and that these facilities will continue to generate power beyond their expiry dates. Such an expectation was expressed as a common theme throughout the LTEP: to get more from existing assets, particularly wind, solar and hydro facilities.

However, the Ministry has recognized that there will be a need to upgrade (‘repower’) existing wind and solar plant in order for existing facilities to continue operating efficiently. As new technologies come to the market, increasing efficiency will likely lead to increased output and reduce capital investment costs of building new capacity. This approach is also endorsed in the LTEP for waterpower assets, such as hydroelectric facilities –where the interplay between the evolution of technology and market energy prices may now justify large-scale equipment replacement.

Increase in Distributed Energy Resources

The LTEP emphasized the Ministry’s intention to increase distributed energy resources and expand net-metering. Indeed, the Ministry has proposed to work with the IESO to develop and support innovation in renewable distributed generation through demonstration projects in certain localities. In particular, the integration of distributed generation, energy storage and micro-grids across networks are expected to be evaluated by the demonstration projects. Additional demonstration projects are also envisioned for net-metering initiatives, such as virtual net-metering. In the LTEP, the government has voiced its intention to propose legislative and regulatory amendments to enable the deployment of such demonstration projects.

One of the proposed changes to facilitate the implementation of distributed energy resources is the modernization of the Ontario grid. In particular, the LTEP outlines how smart communications and control systems can improve electricity allocation and increase efficiency. The net-metering and distributed generation demonstration projects are expected to specifically inform future decisions regarding grid changes, net-metering policies and regulation of distributed generation.  Although DER technology is moving apace, the pants-before-shoes approach of the Government in this case is likely prudent.

One important factor in the decision to push distributed generation and net-metering is the continuing decrease in price of renewable generation components, such PV panels. The LTEP recognizes this trend and attempts to capitalize on the favourable economics for ratepayers to purchase renewable generation systems. As prices continue to drop, it is likely that more Ontarians will make the shift to net-metering and adopt distributed generation technologies. The benefit for LDCs, as stipulated in the LTEP, lies in the decrease in costly upgrades to their networks.

Temporary Decrease in Large-Scale Procurements

The Ministry’s clear intention, conveyed in the LTEP, is to decrease in large-scale procurement in the near term. The last decade has seen a surge in procurement to build up Ontario’s renewable energy capacity. However, the gradual phase-out of nuclear and the electrification of both the transportation sector and built infrastructure, planned in the LTEP could mean that that additional large scale renewables procurement will be necessary to further build renewable energy capacity in the long-term.  Whether these future procurements will call for centralized utility scale plant, more distributed resources, or some combination of the two, remains to be seen.

Reaffirmation of Cap and Trade Program

The Ministry of the Environment and Climate Change introduced the cap and trade program in January 2017 in order to reduce greenhouse gas emissions. The LTEP reiterated the government’s intent to price carbon in an attempt to lower emissions and, more importantly, promote renewable alternatives. As renewable energy becomes more attractive through carbon pricing, further investment in renewable energy generation and adjacent technologies should be expected. In addition, the LTEP provides for the disbursements of all cap and trade proceeds to fund further initiatives to reduce greenhouse gas emissions, such as supporting new and emerging clean technologies.  Significant cap and trade proceed disbursements, made via the Green Ontario Fund (GreenON), are expected to be made in the next few months.

Going Forward

The LTEP articulated the Ministry’s intent to work with the OEB and the IESO to implement its plan. Additional emphasis was put on the need to remove regulatory barriers to utilities innovation in order to drive efficient, cost-effective solutions. The continued implementation of the LTEP by the OEB and the IESO in the coming months will, therefore, determine the extent to which the LTEP’s predictions and ambitions are made reality.

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