Ontario’s Independent Electricity System Operator (IESO) is due to report back to the province on Friday about its progress on a major push for new electricity production capacity, which was requested by Energy Minister Todd Smith in late January to satisfy the demands of an increasingly electrified future — one without the Pickering Generation Station.
But one electricity policy expert fears that in its haste to get as much fresh production online as quickly as possible, the province is avoiding a much-needed discussion about what the future of the energy grid should look like.
Ontario Power Generation is slated to begin decommissioning Pickering’s reactors in 2024, with the plant ceasing commercial operations in 2025. The facility currently provides 14 per cent of the province’s electricity.
Adding to the crunch is the ongoing Darlington nuclear plant refurbishment project, which currently has three of its four reactors offline and won’t be completed until 2026. Bruce Power, the producer of 30 per cent of Ontario’s electricity, is also slated for refurbishment in the coming decades.
Since January, the IESO has been working on two massive requests for proposals (RFPs) involving hundreds of interested companies. One RFP seeks firms to build large energy generation projects producing a minimum of 10,000 megawatt-hours per day that can be ready for operations by May 2027.
There is another “expedited process” for smaller projects that can produce 2,000 to 4,000 megawatt-hours and be ready to go by May 2025.
This comes as demand for electricity is expected to soar alongside the adoption of electric vehicles.
EV use is expected to increase the amount of electricity Ontario uses for transportation from 900,000 megawatt-hours in 2023 to 26 million megawatt-hours by 2042, Smith’s office said in an email to Queen’s Park Today. Ottawa has set out a mandatory target for all new cars to be zero-emission by 2035.
“Minister Smith has announced our government’s plan to competitively procure electricity and the government’s first new-build electricity generation procurement is planned to launch this fall,” said a spokesperson for the energy minister, pointing to “increasing electricity demand due to industrial electrification and EVs.”
Shortly after taking office in 2018, the PCs cancelled 758 renewable energy projects that already had energy production contracts with the IESO — a decision Premier Doug Ford continues to stand behind, suggesting the projects were the result of Liberal-era corruption.
‘Technology agnostic’ and shovel-ready
New electricity production projects being considered by the IESO this time around do not have to be green energy projects; the RFPs are seeking “technology agnostic procurement.”
Minister Smith has asked the IESO for guidance on whether new natural gas plants should be added to the mix, requesting that it “evaluate a moratorium on the procurement of new natural gas generating stations as well as report back in November 2022 on a pathway to net-zero emissions in the electricity sector.”
Last fall, the IESO responded to a similar request from 31 municipalities about phasing out natural gas-produced electricity by 2030, determining doing so would cost $27 billion, hike monthly residential bills by 60 per cent, and cause rotating blackouts and an unreliable grid.
Mark Winfield of York University’s Sustainable Energy Initiative is skeptical the PCs are actually interested in moving away from natural gas, arguing much of the criteria set out in the RFPs “pretty strongly” favours natural gas projects over other generating technologies.
“The IESO has been floating ideas about [increased generating capacity] for some time, and the constant criticism has been that their designs end up favouring natural gas,” he said. “I also don’t understand why they are framing this as such a rush given that there are so many alternatives out there.”
He said the province appears to be falling back on conventional energy generation options, while ignoring environmental concerns and other options that don’t necessarily require the construction of new facilities.
“This can’t be the best we can do,” he told Queen’s Park Today by phone yesterday. “This is destroying the village to save it.”
The most cost-effective, “no-regrets” option in the short term would be improving efficiency in the system, said Winfield, as well as ramping up renewable energy projects and building on Ontario’s energy relationship with Quebec, which is flush with hydro electricity.
For the moment, the IESO is not worried about evaluating project proposals. First, it is evaluating companies via a request of qualifications (RFQ), the results of which must be reported back to the government by November 30.
The regulator says it is looking for firms with the means and experience to build and operate projects with the necessary generating capacity as quickly as possible, while also meeting the other requirements the IESO has been workshopping for the past six months.
“[We are running] on a very short time frame and really focused on projects that are shovel-ready, from developers that are experienced and have built projects in Ontario before,” the IESO’s director of markets and procurement Barbara Ellard told prospective operators during a webinar in June.
“This first RFQ is really focused on pre-qualifying developers. I know that in the past we have pre-qualified [both] projects and developers. We recognize that from a timeline perspective, it was somewhat challenging to do both.”
IESO moving at a rapid clip
According to the most recent draft of timelines, the finalized RFP for projects due to start operations in 2027 is scheduled to be issued on December 15, with the deadline for proposals set for July 3, 2023, and contracts to be awarded by October of that year.
Expedited smaller projects intended to launch operations in 2025 will get their final RFP on October 1, with proposals due one month later and contracts awarded by December 15.
Those two RFPs will not be the only ones. Ellard told developers last month that another long-term RFP will be coming “on the heels” of this one, and — in an attempt to “streamline” the process — those who are pre-qualified this time around will be able to apply to that one as well.
Although the province isn’t specifying what kind of technology it wants to see used in the new power generation projects, there are several other criteria the IESO has been gathering feedback on — some of which have been built into a points system that will be used to evaluate projects when the final RFPs are issued.
When it comes to the bare minimums, the IESO wants projects that will be operational for two decades — 22 years minimum for the smaller projects and 20 years for the larger ones — with the potential for an additional term afterwards. The regulator also wants them to be new builds rather than existing ones, constructed at greenfield sites or co-located at existing sites.
All projects must also be capable of four hours of continuous energy output, but those that can go eight hours or more will receive the most points under the IESO’s project rating system.
The regulator also wants more projects built in western Ontario, with those getting the most points. The lagging energy supply in that region recently made headlines when it appeared to disquality Ontario from a bid to host a $2.5-billion LG Chem plant in Windsor.
Projects proposed near Toronto, Barrie, Ottawa and in eastern Ontario will receive the second-highest point bump. Those proposed anywhere else get no points based on location.
The points structure also favours projects that local Indigenous communities have an “economic interest” in — usually meaning equity of some kind. Those where Indigenous communities have a financial stake of 50 per cent or more will be rated highest.
Winfield notes environmental criteria seems to have been “completely excluded” from the decision-making process, with no emphasis placed on lowering greenhouse emissions, smog generation or waste production.
“How could you do an RFP and not be thinking about greenhouse gas emissions? It’s pretty obvious, especially when we are considering, potentially, fossil fuel resources,” he wondered. “It’s more than passing strange that this would not be built into the decision you were going to make. But they just aren’t.”
Ontario Power Generation agreed. “IESO should consider adding another category to the rated criteria that would include emissions in order to facilitate the transition to net zero and meet the proposed Federal Clean Energy Standard requirement,” it said in its submission.
OPG also raised questions about the feasibility of the IESO’s tight timelines, warning the May 2025 deadline for the smaller projects “will be very hard for proponents to work with.”
Looming municipal elections and “condensed” RFPs prompted the IESO to drop a requirement that developers obtain evidence of support for their projects from local municipalities, although they will be required to do so “after contract execution.” Projects will also need to be subject to at least one public consultation meeting.
Due to the uncertainty surrounding energy prices, the IESO is proposing to pay producers based on their “capacity contribution.” Proponents are being asked to submit how much capacity they are “confident” they can add to the grid when called upon. Facilities will be paid using that figure, although the IESO will “claw back” payments if there are shortfalls.