Yours to discover? New paths forward for renewables in Ontario

11 April 2019

Since its election victory in June of 2018, Ontario's Progressive Conservative government has been rapidly dismantling the energy policies of the previous Liberal government, taking particular aim at renewable energy project procurement programs. But, as the curtains were closing on Ontario's ten year old Green Energy Act framework, renewable markets in other Canadian jurisdictions have advanced in leaps and bounds seeing rapid uptake and highly compelling price points for renewable projects at the consumer, commercial and industrial and the utility scale. Ontario's energy sector has been left wondering how the new government plans to address the inevitable system changes and how the Province intends to remain competitive in an era of rising climate anxiety and falling distributed generation prices.

Some of the suspense was lifted in recent weeks with a series of energy policy announcements from Ontario and from the Province's Independent Electricity Systems Operator ("IESO"). Most notable is the IESO's Incremental Capacity Auction program. This, along with new funding opportunities in the 2019 federal budget and the possibility of a revamp of the Province's net-metering rules (O. Reg. 541/05), could provide a new path forward for renewable energy project development and energy storage development in Ontario.

The end of the Green Energy Act era

Last summer, we reported on some of the Ford government`s early legislative activity: repealing the Cap-and-Trade regime and compelling a contract cancellation with respect to the White Pines Wind Farm project. Since then, the Ontario Government has continued its overhaul, terminating 758 renewable energy contracts made under the Green Energy Act in July before announcing plans to repeal the Act altogether in September.

Targeted projects include Large Renewable Procurement ("LRP") contracts which have not achieved their Key Development Milestones ("KDM"), and Feed-in-Tariff ("FIT") projects that have not received Notice to Proceed ("NTP"). A full listing of contracts can be found among the Ontario Government's Online Press Releases.

The IESO has been making clear in correspondence its intention to be less than lenient when enforcing deadlines and technical breaches. Project owners and investors should expect a strict approach from the IESO going forward, as the IESO circles back on FIT contracts that survived the Green Energy repeal. In recent days, for example, the IESO issued notices to FIT 4 and FIT 5 contract holders advising them that there would be no extensions given to milestone commercial operation dates. This represents a significant departure from previous IESO practice (and possibly a departure from the wording of the FIT contract itself), however, it should serve as a clear warning to sector stakeholders.

Renewables march ahead in Alberta and abroad

While Ontario has been shuttering major projects, renewable markets elsewhere have continued full-steam. Alberta's renewable electricity procurement (REP) program, for instance, continues to procure major projects with some of the most competitive renewable electricity pricing in Canada. In December 2018, Alberta announced the results of their latest REP auction: 363 MW of wind generation contracts at an average bid price of $38.69/MWh.

Meanwhile, in the United States, solar and wind are expected to remain the fastest growing energy sources through 2020. 2018 was a banner year for energy storage in the USA, with exponential growth in utility-scale developments expected to continue into 2019 and 2020. A similar trend in renewables is apparent in Latin America, Southeast Asia, and around the world.

Back in Ontario, provincial energy projections forewarn a shortfall between supply and demand in the next few years. With the Pickering nuclear plant closing in 2024, new generation will be required to bridge the gap.

The promise of capacity markets

The month of March saw a flurry of activity surrounding Ontario's IESO. While Green Energy Act era programs were slashed, the changes left the door open for IESO to step into the policy vacuum with highly innovative initiatives.

By way of Directive, Ontario's Minister of Energy ordered the IESO to wind-down two previously-directed electricity conservation and demand management ("CDM") procurement initiatives: the Conservation First Framework ("CFF") and the Industrial Accelerator Program ("IAP").

In March 2019, the IESO also unveiled high-level details of its Incremental Capacity Auction program, which is designed to allow electricity generators, storage facilities, importers and demand-response providers to bid competitively for grid capacity, all in pursuit of a more flexible, responsive and efficient grid. Similar auction models in European and American jurisdictions have yielded positive results.[1]

Incremental Capacity Auctions present new opportunities for renewable energy and storage. Properly designed, capacity markets allow distributed generation and storage technologies to fill value-generating niches in the grid. Given the rising competitiveness of renewables worldwide and Ontario's looming demand-supply gap, it is a good time to open up the playing field for renewables to compete.

The value of net metered assets

Ontario's 2017 Long-Term Energy Plan committed the Province to reviewing and enhancing its net metering framework in order to give energy consumers greater independence and choice when it came to their own energy needs. For residential customers, this creates exciting possibilities enabling them to gain long term electricity price certainty, reduce household energy costs, self-power their vehicles, reduce their own carbon footprint, etc. For commercial and industrial customers, the prospect of taking control over energy costs and creating better energy solutions on-site opens up a wide array of possibilities.

Expanding the scope of Ontario's existing net metering ownership model to expand power consumer choice and then allow the provincial power system to tap in to unused consumer-owned capacity will drive down net energy costs, enhance system capacity and lever off of the tremendous expertise which the local energy industry now has in renewable and distributed technologies.

A boost from the feds: Budget 2019

Just as these developments in Ontario and the IESO were unveiled, the Federal government revealed an array of funding opportunities in their Budget 2019.

$1.01 Billion is earmarked specifically for increasing energy efficiency. Within this allocation, distributed renewable energy generation is eligible for access to the $300 million Community EcoEfficiency Acceleration program and the $300 million Sustainable Affordable Housing Innovation program. An additional $2.2 billion transfer payment is directed towards municipalities and First Nations, targeting, among other things, community energy systems and electrification. Don't be surprised if this manifests local procurement opportunities.

Ontario-Yours to discover

Ontario is now competing directly with other jurisdictions across North America -and even those in Europe and Asia- to lever the technological promise of renewables + storage, to further decarbonize the energy system and to drive down all-in energy system costs. Supply choices made today will reverberate for 20+ years in the case of renewables and 60+ years in the case of nuclear.

With legacy debt obligations still hanging over the provincial energy system from decisions taken in the 1970's and 1980's, a highly-fragmented distribution sector and the spectre of a system supply gap looming around the corner (just as the transportation system is beginning to shift from fossil fuels to electric), the current government is faced with tough decisions very early in its mandate. Poor choices made now will affect Ontario's economic competitiveness for decades to come.

The steady, continuing decline of baseload renewable energy costs and the ability of renewables to provide enhanced consumer choice, stable supply and energy independence for the Province provides a compelling route forward for provincial energy planners. Building off of Ontario's successful experience with demand response auctions to build out a broader capacity markets, taking an all-of-the-above approach to competitive low-carbon technologies, relying on market feedback signals to reduce red-tape in project development and opening up consumer choice in supply wherever possible (including through the revision of Ontario's net metering regime, O. Reg. 541/05) all represent wise choices well worth exploring.

Thomas J. Timmins is a partner in Gowling WLG's Toronto office and Chair of the firm's Global Renewable Practice

Chris Hummel is am articling student in Gowling WLG's Toronto office.

[1] See IESO's Incremental Capacity Auction - High Level Design at p 2.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.

Related   Energy