Earlier today the Honourable Glenn Thibeault, Ontario’s Minister of Energy, released the 2017 Long-Term Energy Plan (LTEP). Entitled Delivering Fairness and Choice, the LTEP was assembled over the past year following extensive consultation with affected stakeholders and communities, and building on the findings of the Ontario Planning Outlook (OPO) released by the Independent Electricity System Operator (IESO) in 2016.
The LTEP refines the policies, plans and priorities of the Ministry of Energy and directs the Independent Electricity System Operator (IESO) and Ontario Energy Board (OEB) accordingly. It is also intended to serve a dual purpose:
While the LTEP comes at a time when the electorate’s anger over perceived high electricity costs has diminished (according to a September survey released by Innovative Research Group), public interest in how the government is managing the system and the electorate’s expectations for low-cost, low-emitting resources remains high. From a political perspective, we believe that the Liberals want to not only demonstrate the rationale for the decisions to-date, but also the benefits that have been accrued from a reliability, environmental and human health standpoint, and how emerging changes in the production and consumption of energy (electricity and fuels) is profoundly impacting the energy landscape today and in the future (making the predictability part of planning all the more challenging and volatile).
The LTEP also points to providing greater flexibility to consumers – in how they pay for energy, what is shown on their bills, what types of products and programs they can access – encouraging tools to change behaviour with the objective of lowering costs, lowering energy use, and lowering GHG emissions.
Where previous planning documents took an overly prescriptive approach, this LTEP is more thematic – outlining a view on these shifts and trends but deferring to the OEB and IESO on filling in the details.
This is not to suggest that the LTEP pushes the proverbial electron down the line. Delivering Fairness and Choice is a significant policy document that aims to get ahead of arguments that the Liberals are bereft of ideas. But it is more evolutionary than revolutionary. It builds on previous measures to move away from long-term centrally procured contracts, and towards market-based and regulatory measures to support behind and in front of the meter resources.
The LTEP fundamentally establishes that the Ontario electricity system will not remain static. While we can depend on the foundation of nuclear and renewable resources in the province, the development of new supply is predicted at the distribution level (through net metering, virtual net metering and behind-the-meter applications, increasing district energy applications, etc.), and at the bulk system level, to keep the lights on in the coming decade (including optimizing existing wind and solar assets, and support for new technologies in energy storage and potentially small modular reactors). It extensively discusses the mix of generation, conservation and demand management resource in the mix, and how we can better use new innovative technologies to better integrate resources in the system. The LTEP suggests that natural gas should only be used as a peaking resource when other, cost competitive and low-emitting technologies are not practical.
We anticipate that the media will focus on how all of this will impact regular resident and business customers. Indeed, a considerable portion of the LTEP is intended to address impacts to rates in the near to longer terms, somewhat coincidentally coming a little over a week following the release of the Auditor General’s Report admonishing the government on its Fair Hydro Plan. The government counters this by disclosing detail on bill projections in the near to longer terms. But the LTEP also aims to strengthen consumer protection, enable new products and services to be provided by distributors and third parties, contain costs and drive efficiencies amongst utilities, and ratchet down system costs by $5.2 billion in estimated savings to be accrued through the IESO Market Renewal Initiative. More on this can be found below.
The LTEP also pays significant attention to emboldening the culture of conservation in Ontario, community planning and natural gas expansion to rural and remote communities, and supporting Indigenous communities in better accessing programs and connecting to the provincial transmission system. Speaking of transmission, there are significant changes plotted in the LTEP, including the need to develop a new competitive transmitter selection process, a new 230kV line in the Greater Toronto Area, and opening doors to further intertie development.
The Opposition response was expectedly critical on the LTEP. The PC party has been taking a focused approach to-date on how they would govern the energy file, recently releasing nine energy-related policy resolutions that will be tabled for consideration at their November Policy Conference. As we recently distributed to clients, the resolutions range from a new home renovation tax credit for energy-efficiency improvements, to repealing the Green Energy and Economy Act and the CCAP and cap-and-trade system, to canceling power contracts that have not been permitted to build or that breach key dates in their Power Purchase Agreements, to devising a “Made-in-Ontario” approach for industrial electricity prices, and introducing measures to “stop the spilling of inexpensive water on clean renewable water-power projects that have already been bought and paid for.” Important to note, the PCs and Energy Critic Todd Smith have raised the merit of taking a pause and placing a moratorium on new energy developments or contracts until a value for money assessment can be taken. Today, they lashed out at the credibility of the Liberals on governing the electricity sector, and the legitimacy of this LTEP given the close proximately of the election. This was a sentiment echoed by Peter Tabuns, NDP Energy Critic.
The next election will take place no later than June 7, 2017.
What happens next? Directives will be issued to cause the OEB and IESO to go away and work on implementation plans to bring all of the elements in the LTEP to fruition. Embarking on a process defined by the Energy Statute Law Amendment Act, 2016 (Bill 135), those implementation plans will be brought back for Minister Thibeault’s consideration and approval by the end of January 2018. There will also be a mandate to consult with affected stakeholders on those plans. Further, one traditional ministerial directive will be issued to the IESO to amend the Conservation First Framework (CFF) and the Industrial Accelerator Program (IAP) to subset the use of fossil fuels eligible for behind-the-meter incentives, by July 2018.
The government has heard from consumers across Ontario that electricity costs have become too high, that high prices hurt competitiveness and in some cases quality of life, and that immediate, meaningful action was needed to address the situation. The OFHP and all of its constituent measures, including rebating the provincial portion of the harmonized sales tax (HST), the expansion of the Rural and Remote Rate Protection (RRRP) regime, the refinancing of Global Adjustment (GA) over a longer period of time, and the shifting of certain ratebase funded programs to a fiscal obligation have served to reduce the costs that RPP customers including residential, small businesses and farms, can expect to pay over the coming decade substantially. While those customers are experiencing a significant decrease in 2017 and annual increase are being indexed to the rate of inflation for four years, following 2021 annual bill increases (nominal) ranging from 3-8% can be expected until 2031 when prices stabilize. Notwithstanding the larger average annual increases over those years, the overall forecast for average residential electricity bills remains favourable compared to prices projected in the 2013 LTEP.
Industrial customers (Class A) can expect to see annual increases which cumulatively will average just less than 2% over the forecast period. This compares favourably to the 2013 LTEP which projected cumulative annual increases averaging 2.8% between 2013 and 2032. While the 2013 LTEP projected that a typical Class A customer would be paying an all-in electricity price of $100/MWh in 2017, rising to $121/MWh by 2030; Delivering Fairness and Choice indicates that the same customer today is paying $83/MWh and is expected to pay $107/MWh by 2030. While measurably less than the forecast all-in, average Class A prices of the 2013 LTEP, the updated price forecast anticipates a 29% cumulative increase between 2017 and 2030.
The LTEP recognizes that not all customers are the same and will ask the OEB to examine innovative pricing plans for residential and business, urban and remote customers. Likewise, in the interest of consumer protection, the government intends to increase OEB oversight of sub-metering companies and introduce new measures for sub-metered multi-residential customers including greater bill clarity, protection from winter disconnects, and an appeal mechanism with OEB. As well, the Ministry of Energy announced a $100 million Affordability Fund which is designed to assist electricity customers who do not qualify for low-income conservation programs. The Affordability Fund will be funded by an independent trust set up by the government and offered to residential electricity consumers through their utility and local community services.
Delivering Fairness and Choice indicates that Ontario will seek to limit future cost increases while maintaining resource adequacy by maximizing the utility of existing assets. While previous LTEP documents would in many cases prescribe specific targets, both size and timing, for technology specific footprints in the supply mix, the 2017 LTEP does not and is quite deliberate in that respect. The process going forward will be that future incremental supply needs will be met through initiatives identified within the IESO’s Market Renewal Initiative (although we believe that there could be changes made to this Initiative by the IESO following the release of the LTEP). Existing uncontracted and unregulated generation facilities may compete with clean imports, demand-side resources and innovative technologies to fill future needs on a more flexible and cost-effective basis. In parallel, the IESO will consider mechanisms to value environmental benefits to enable investment in existing and new renewable energy resources as part of CCAP. This includes the potential to upgrade existing clean generation assets such as hydroelectric, wind and solar facilities to increase their output or provide additional system benefits without expanding their footprint.
Consistent with the commitment of the 2013 LTEP and the assumptions of the OPO, Ontario intends to refurbish 10 nuclear units over the next 15 years; four at Darlington and six at Bruce ensuring that nuclear remains the foundational baseload of the province’s supply mix. To manage multiple overlapping refurbishment outages between 2020 and 2025 while keeping GHG emissions low, Ontario intends to operate units at the Pickering Nuclear Generating Station through 2024 pending regulatory approval. Pickering’s six units provide approximately 3,100 MW of capacity and 20 TWh annually of baseload energy. The current plan is to operate all six units through 2022 and four units through 2024, bridging an important period in the refurbishment schedule.
Nevertheless, the LTEP indicates that a supply need begins to emerge by 2022 and grows substantially over the next several years as the remaining Pickering units come offline and large supply contracts begin to expire.
New supply resources will need to be examined to help fill this need.
Ontario’s demand forecast assumes 2.4 million electric vehicles in the province by 2035 and transit electrification including Metrolinx’s Regional Express Rail (RER) and Light Rail Transit (LRT) projects in the Greater Toronto and Hamilton Area (GTHA) as well as LRT development in Ottawa and Waterloo. Overall, demand is expected to remain flat over the next several years, increasing slightly over the course of the 2020s as the electrification measures contained in the CCAP manifest in the building, manufacturing and transportation sectors. Renewable distributed energy resources (DERs) will reduce demand on the bulk system over time. Couple that with an aggressive conservation target of 30 TWh by 2032 means that most new growth in demand can be managed by conservation and demand management (CDM) undertakings and embedded generation.
Unlike the OPO, the LTEP looks at gross demand before the impact of conservation is taken into account. For reference and comparison purposes, the chart below reflects the four demand outlooks from the OPO.
OPO Annual Net Summer Peak Demand Across Demand Outlooks
In the case of the OPO, planned conservation savings are deducted from the gross demand forecast to derive a net demand forecast across the various outlooks, with about 50% of savings projected by 2035 coming from regulatory measures like building codes and equipment standards, and not from ratebased incentives or subsidies from the CCAP. With the LTEP, conservation assumptions remain unchanged from the OPO, through its impact on gross demand must be derived. Looking forward, demand response capacity for peak reduction will depend on system need and the ability of demand-side resources to compete with other forms of supply.
Planned/Forecast Conservation Savings to 2035
Delivering Fairness and Choice recommits to the Conservation First principal, and indicates that looking forward much greater alignment can be expected between the CDM programs funded within the electricity sector and those funded by the Green Ontario Fund (GOF). Ontario is also committing to expanding Green Button provincewide and intends to table legislation that would, if passed, required electricity and natural gas utilities to implement Green Button “Download My Data” and “Connect My Data”. Beginning July 1, 2018 and phased in over three years, owners of large commercial, multi-residential and some commercial buildings will be required to annually report their buildings’ energy and water use, as well as their GHG emissions to the government.
The LTEP also commits to exploring how to increase access to corporate financing for energy efficiency projects and to continuing to set advanced standards for energy efficient products and appliances, while working with the federal government and other provinces to harmonize and improve energy and water efficiency standards. Specifically, Ontario will look at updating energy efficiency standards for large electricity consuming equipment at the province’s drinking water and wastewater treatment plants. Local Distribution Companies (LDCs) will be encouraged to make their networks more energy efficient by using the energy savings associated with in front of the meter conservation (IFMC) technologies, while the OEB will identify steps for pursuing additional energy efficiency measures on the distribution system.
In the interest of integrating CDM with the CCAP, and of providing a consistent approach to both conservation and climate change policy, current incentives for combined heat and power (CHP) projects that use fossil fuels to generate electricity will be sunset beginning July 1, 2018. This includes those offered under the Conservation First Framework and Save On Energy such as Process and System Upgrade (PSU) and the Industrial Accelerator Program (IAP). Behind-the-meter waste energy recovery projects and projects that use renewable energy, such as solar thermal water heating or biomass fuel for boilers will continue to be eligible for funding under these programs, and new incentive programs for energy storage systems that are integrated with renewable generation will be developed to replace those currently available for CHP.
The LTEP indicates that the government will direct the IESO to establish a formal process for planning the future of the province’s integrated bulk transmission system which will include active engagement with stakeholders, partners and communities. While the current demand outlook suggests that the transmission projects already planned or underway are adequate to meet needs within the planning window. These include the Wataynikaneyap Power transmission expansion to Pickle Lake and to connect remote communities North of Pickle Lake, the Northwest Bulk Transmission Line, which will run from Thunder Bay to the Manitoba border and proceed in phases, the East-West Tie from Wawa to Thunder Bay, the upgrade of circuits between Hawthorne TS and Merivale TS in the City of Ottawa, the Lake Erie Connector project which will connect Ontario with the PJM market by way of a 1,000 MW high voltage direct current (HVDC) underwater line, and a new Clarington Transformer Station.
In the Greater Toronto Area (GTA), the GTA West Bulk Reinforcement, which is required to serve regional demand growth, contemplates new transmission lines along the existing Parkway Belt West corridor between Milton SS and Hurontario SS as well as expanded station facilities at Milton SS. The LTEP acknowledges that a long-term need for expanded transmission exists in the northwest GTA due to urban growth. The intended corridor would cross parts of York, Peel and Halton Regions and it has been determined that supply alternatives to additional transmission are neither technically feasible nor economic. While an area has been identified, further studies will determine a more specific corridor.
The province has also established the ability for the IESO, by way of the Energy Statute Law Amendment Act (2016), to use a competitive process for the construction of new transmission lines. Further to that legislation, the government will direct the IESO to develop a process for the competitive selection or procurement of transmission and identify potential pilot projects. These pilots will then inform an updated, competitive procurement process for future transmission.
The LTEP indicates that equipment reaching its end of life present an opportunity to “right size” new or refurbished facilities, and consider technological advances or the downsizing/decommissioning of assets to reduce system costs where appropriate. The government will look to the OEB and IESO to promote a coordinated approach to the replacement of transmission and distribution assets that have reached their end of life, and that is consistent with the beneficiary pays principle.
The LTEP acknowledges that innovation and technological change will be significant drivers of consumer choice, utility adaptation and variability for both supply needs and demand forecasting. With that comes greater expectations for the services that utilities provide and demand from customers for data and correspondingly tools to manage their energy use. As a result, the government will work with the OEB to provide more consumer choice in electricity pricing plans. The OEB is using its review of the RPP to test different time-of-use (TOU) price structures. These pilot projects will run for one year and the results will inform OEB decisions on potential new price plans. In addition, the government and the OEB will consider changes to the way GA is charged to non-RPP Class B commercial and industrial consumers, with any changes being preceded by stakeholder consultation.
The province will undertake changes to the net metering framework to give individuals and businesses more opportunity to generate and store clean energy. Specifically, the government will bring forward legislative and regulatory amendments to allow third-party providers to own and operate net-metered renewable generation systems, including enabling the deployment of demonstration projects for virtual net metering (VNM). The goal of these demonstration projects would be to evaluate the impacts of VNM and to guide future policy decisions on net metering. In terms of timing, proposed legislative amendments are expected to be brought forward before the end of 2017 and pending passage of prescribed legislative amendments, regulatory changes would be made in mid-2018.
The government has acknowledged that the unique aspects of energy storage conflict with many of the rules governing the electricity system, and is committing to identify market and regulatory barriers and adjusting remove those inhibitors to the cost-effective deployment of storage systems, including addressing how GA is applied to storage facilities. Likewise, government will look to the IESO and OEB to undertake similar measures in their respective areas of responsibility. Market Renewal will consider the mechanisms that are required to allow new technologies, like energy storage, to compete equally with traditional resources for the ability to serve the grid and customers, including in the areas of managing surplus baseload generation (SBG), regulation, operating reserve and flexibility.
In the interest of exporting Ontario’s energy expertise, the government will expand its assistance to Ontario companies by working with the federal government and other provincial governments as well as industry and academic institutions to undertake trade initiatives new market entry and business opportunities. This will include participating in energy-related trade missions internationally and supporting companies with market intelligence gathering and promoting Ontario’s technical expertise at relevant international forums. Working with industry and the federal government, Ontario will develop a $10 million pilot program that provides direct financial support for the demonstration and penetration of domestically developed technologies abroad. Part of Ontario’s collaboration with the federal government will include supporting and promoting the energy and non-energy applications of nuclear, such as small modular reactor (SMR) technologies, fuel research, medical isotopes and the production of hydrogen as a low-carbon energy source.
The LTEP commits to further exploring innovative uses for the province’s natural gas infrastructure. Part of the CCAP involved Ontario pursuing the capture and use within existing natural gas distribution system of renewable natural gas (RNG) for transportation, space and water heating, power generation and overall GHG mitigation. Similarly, government intends to work with the IESO to develop a pilot project that will evaluate the energy system benefits and GHG reduction potential of using electricity to create hydrogen through electrolysis, or power-to-gas.
One of the most active areas in the LTEP is in the distribution area. Broadly speaking these can be defined as changes affecting the distribution sector in two areas (1) scope of services, and (2) regulatory oversight.
On scope of services, the LTEP envisions considerable change in the landscape of how we use and produce power, ranging from electricity vehicles, changes in building technologies, the adoption of microgrids and storage, net zero communities, net metering and virtual net metering, a new pilot project for hydrogen and transportation, renewable natural gas and low carbon fuels, etc. Ontario will bring forward legislative and regulatory measures to allow third-party providers to own and operate net-metered renewable generation systems. Changes will also be made to allow virtual net metering demonstration projects and government with work with the IESO to support those projects.
The LTEP recognizes work that the distribution sector, through the Electricity Distributors Association (EDA) and articulated in their Vision Paper, Power to Connect.[§] It foresees the deployment of strategically located renewable distributed generation systems, paired with other distribution-enabled resources and smart grid technologies to demonstrate value to the grid and customers. It also takes the industry recommendation to reduce barriers to innovation, and the need for work with LDCs along with the IESO and OEB to build a stronger culture of innovation in the sector, the use of innovative non-wires solutions that help LDCs manage their systems better and encourage customer choice, a cost-benefit framework that addresses the diffuse benefits issue, and ability of LDCs to participate in market opportunities that reduce ratepayers’ costs associated with capital or other investments including partnering with customers on in-front and behind-the-meter applications to address system need. Ontario will encourage LDCs to develop modernization plans and incorporate these into asset management plans.
Clearly the Ministry sees that there will be a rapid raise of embedded generation and other distribution-enabled resources that will cause great opportunities – and yet challenge – in plugging in these technologies. To address these challenges, the system will need better communications tools and a smarter grid. Ranging from peer-to-peer frameworks and transactive energy, to a focus on Blockchain, to the introduction of another round of the Smart Grid Fund, there are ample nods to considerable activity that local distribution companies and third-party service delivery agents (for net metering, CDM and beyond) should take note of.
On the regulatory side, there are a range of new measures envisioned – including innovative pricing plans, improved access to customer data through the Green Button program (to allow for the development of new products to meet customers’ needs), and mandating the OEB to consider how to change the allocation of the Global Adjustment for non-RPP Class B customers. There are also new consumer protection measures that will be mandated through the OEB affecting sub-metering providers as well as related to winter disconnections, bill redesign expectations and other tools such as social benchmarking and behavioral products to assist consumers in managing energy costs.
Beyond regulatory restructuring, there is also an acknowledgment of the need to modernize the distribution and transmission sectors. The LTEP quotes an independent study that found a potential $6.3 billion in efficiencies through grid modernization. Ontario will look to the OEB to consult with LDCs on strengthening accountability measures, including incentives to cut costs and make annual improvements to productivity and cost-efficiency, and to hold utilities account when expectations are not met. Businesses and other large customers should also have a timely and predictable process to connect to the grid or to modify their existing connections. In this vein, the OEB will develop an enhanced framework for the reliability and quality of service of transmission and distribution utilities, including the potential for incentives and consequences to hold LDCs to account for under-performance, and greater transparency into local reliability. The OEB will also review standards for reliability and quality of service and recommend options for improvement, and IESO will review its planning and policies with respect to reliability.
In 2013 the LTEP went into detail on various measures to support First Nations and Métis communities. This LTEP is no different. Connecting remote communities and how this can help address unreliable service and improve quality of life and economic development in the north is again highlighted as a priority.
Through the Wataynikaneyap Power project, communities in the northwest will be connected to the grid with a new line to Pickle Lake targeted to be in service by 2020. The LTEP also reinforces the desire to grow Indigenous equity and ownership in these types of projects, and enhancements to the Aboriginal Loan Guarantee Program (ALGP) and other measures to remove barriers to financing Indigenous-led or partnered projects. We are proud to be supporting Wataynikaneyap Power.
The LTEP also highlights the elimination of on-reserve delivery charges, funding assistance for community energy plans, CDM programs better aligned with community needs (including enhanced CDM initiatives amongst communities serves by Independent Power Authorities), and opportunities for new renewable energy development.
Delivering Fairness and Choice recognizes the important planning decisions and investments that Ontario has made over the past number of years to support the global fight against climate change and the transition to a clean, low-emission economy. Through the passage of the Climate Change Mitigation and Low-Carbon Economy Act, the design and inception of cap and trade program which sets a price on carbon, and the implementation of the CCAP, Ontario has sought to design measures to reduce GHG emissions from all sectors of the economy. The 2017 LTEP builds on these important initiatives and positions the energy sector as a key facilitator of Ontario’s continued progress in meeting its climate change abatement goals.
Over the past decade, GHG emissions within the electricity sector have dropped dramatically, from over 35 megatonnes (MT) in 2005 to under 5 MT today, today accounting for only 2% of the province’s total GHG emissions. Over the same period, the sector has invested billions into clean generation, improving infrastructure, and modernizing systems to ensure that it is ready to meet the challenges of today’s environment. Building on this success, the LTEP acknowledges that are opportunities to both leverage the province’s robust electricity system and focus on how to achieve deep reductions in emissions from other sectors, from transportation to building technologies.
Consistent with the CCAP’s commitment to a technology-neutral Renewable Fuel Standard for gasoline, the LTEP recognizes the importance of encouraging an increased use of renewable and low-carbon fuels across the transportation sector, from early in the refining process through to end use at the pump. The LTEP also envisions considerable opportunities for increased electrification of light-duty vehicles.
Highlighting the need to lower the carbon intensity of natural gas used in spacing heat, domestic hot water systems and process heat the LTEP looks to increase use of renewable natural gas produced from organic sources from landfills, forestry and agricultural residue as well as waster from sewage and wastewater treatment facilities. Ontario will look to the OEB to bring in requirements to include renewable content in natural gas. Consumer support mechanisms, through investment of cap and trade auction proceeds, will help with the cost shift to renewable natural gas.
Increasing the use of renewable and low-carbon technologies in integrated energy systems is also a central theme of the LTEP’s climate change planning. It foresees increased use of solar, air and ground source heat pumps to heat and cool homes and business across the province while recognizing the value of district heating and cooling on a more macro level.
New programs to support near and net zero homes and building will be encouraged through the Green Ontario Fund. Updated building codes and standards will be explored to support the development of high efficiency, low carbon buildings while expanded and enhanced regulations will encourage further deployment and integration of on-site renewable generation and net-metering opportunities.
Finally, the LTEP recognizes the need to support LDCs and system operators in ensuring an energy supply that is resilient to the forces and impacts of climate change. Protecting generation, transmission and distribution from the threats of extreme weather event such as intense heat waves, high winds and rain, and ice storms is critical to ensure the province’s energy system is prepared to meet these challenges. Industry collaboration will be key to ensuring that best practices and knowledge are shared and the government will help to facilitate this knowledge transfer between utilities, municipalities and operators across the system.
Please contact your Sussex associate should you require any further information or clarification.
Ref. The Fair Hydro Plan: Concerns About Fiscal Transparency, Accountability and Value For Money released—October 17, 2017, www.auditor.on.ca.