On September 30, 2020, the Ontario government confirmed a commitment to stay the course on electricity conservation and demand response initiatives by unveiling a new four-year conservation and demand management ("CDM") framework (the "New CDM Framework"). In an advanced energy economy such as Ontario's, the implementation and roll-out of demand response technologies forms a crucial part of the evolving story of made-in-Ontario energy innovation, reduced consumer costs and the transition toward a net-zero economy.
Ontario's Independent Electricity System Operator (IESO) has been delivering a suite of CDM programs – with varying degrees of take-up – since the early 2000's. Our current CDM framework – known as the Interim Framework – is ending on December 31, 2020. The New CDM Framework will launch in early January, 2021, immediately following the end of the current Interim Framework, and it will be centrally-delivered under the IESO's existing "Save on Energy" brand. The New CDM Framework will be in effect for 2021-2024. As readers may recall, the New CDM Framework was posted in draft for comment during July and August of 2020. On September 30, 2020, the Government rolled out the New CDM Framework through a Ministerial Directive from the Minister of Energy, Northern Development and Mines to the IESO.
What has changed since the early 2000's is the technology and the cost of energy (both in dollars and in terms of GHG emissions). CDM now encompasses a suite of distributed energy system technologies available to manufacturers, building owners, plant operators and transportation system operators – many made, invented in or developed in Ontario – which can help reduce or flat-line future energy costs while at the same time reducing climate policy-related risk to business.
The New CDM Framework
Under the New CDM Framework, the IESO is expected to deliver CDM programs to the following consumer segments:
- Commercial, institutional and industrial consumers;
- On-reserve First Nations communities; and
- Low-income and income-eligible residential consumers.
Absent from the new framework are funded programs for non-low income residential consumers, though the IESO is directed to provide information and behavioural tools for this class of consumers.
The new programs are to be designed to specifically address identified system needs and, while they include behind-the-meter consumer generation, they specifically exclude such generation where fossil fuels purchased from or supplied by a third party are the primary fuel source.
The new framework also focusses on the benefits of competition and competitiveness. Competition for program funding, and competitiveness resulting from CDM adoption. The Ministerial Directive emphasizes that the New CDM Framework will "leverage competitive procurements", "increase competition", "support business competitiveness", and create programs "through competitive mechanisms."
The COVID-19 Deferral
To mitigate cost increases during continuation of the COVID-19 pandemic and its aftermath, which has resulted in softening of demand already, the Ministerial Directive focusses on preserving some CDM activity levels and delivery capacity in the early years of the new framework, and potentially ramping up expenditure and activity in 2023 as demand rebounds.
Programs for Commercial, Industrial, and Institutional Consumers
The Directive does not provide specifics of CDM programs targeted at commercial, industrial, and institutional consumers. Instead, it states generally that CDM programs for this consumer segment "will continue to support business competitiveness and the province's economic recovery, helping businesses improve their productivity and manage costs." We will not have to wait long to see details of these programs as the IESO is required to produce a plan for its CDM programs by December 1, 2020.
On-Reserve First Nations Programs
For on-reserve First Nations communities, the Directive states that programs under the Interim Framework that were suspended due to the COVID-19 pandemic will be relaunched, to allow time for committed projects to be completed.
Under the Interim Framework, the IESO was tasked with delivering three First Nations programs: the First Nations Conservation Program, the Conservation on the Coast Program, and the Remote First Nations Energy Efficiency Pilot Program.
The Directive does not contain details of future First Nations programs to succeed those set out in the Interim Framework. Instead, it provides generally that as the projects under the Interim Framework are progressing and concluding, the IESO is to design and deliver new First Nations programs based on input from First Nations communities and the Minister.
Up to $36 million is budgeted for programs targeting on-reserve First Nations communities.
Low-income Residential Consumers
For low-income and income-eligible residential consumers, the New CDM Framework aims to simplify access to energy saving measures by launching a single Energy Affordability Program to deliver the benefits of two existing programs, the Affordability Fund Program and the Home Assistance Program.
The Energy Affordability Program will provide different tiers of support based on income eligibility, with the majority of the support provided to low-income households. The Directive notes that the Energy Affordability Program will provide electricity saving measures to participants based on an assessment of needs and projected efficiency gains in the home.
The Energy Affordability Program will have a budget of up to $156 million.
CDM Plan and Mid-term Review
Although details of the various programs under the New CDM Framework have yet to come, by December 1, 2020 the IESO must deliver to the Minister a plan for the four-year term of the New CDM Framework. The plan must include details of the CDM programs that will be offered, their estimated annual costs, and expected peak demand reduction and energy savings results. The two targets for the term of the New CDM Framework will be the Electricity Target (the expected savings of total energy) and the Demand Reduction Target (the reduction in electricity demand).
The IESO must submit a report to the Minister no later than December 31, 2022 following the completion of a formal mid-term review.
The Energy Efficiency Auction
It is also important to note that the IESO is planning to pilot an Energy Efficiency Auction which will be separate from, but complementary to, the New CDM Framework. In keeping with the tone of the New CDM Framework, the IESO is positioning the Energy Efficiency Auction as a competitive market-based mechanism for procuring energy efficiency.
The pilot auction has a budget of $5 million and will procure up to 13 MW of peak demand reductions. It is expected to take place in March 2021 for capacity delivery starting in winter 2022 and summer 2023.
Animating this government's new CDM framework are; i) a focus on those consumer segments most in need of energy assistance; ii) moderated early year funding in recognition of the impact – economic and electricity related – of COVID-19; and iii) attention to program cost effectiveness and to where energy and demand reductions are most valuable to the Ontario electricity system. Gone is the previous framework's emphasis on achieving "all cost effective DSM". Overall, the new framework enhances economic discipline in the delivery of ratepayer-funded electricity conservation programing.