We wish to congratulate the…

We wish to congratulate the government on moving forward with the corporate power purchase agreement amendments. We see this as a first step in reducing the reliance upon the IESO for the contracting of new supply and the first opportunity to truly remove costs from the global adjustment rather than merely transferring such costs between ratepayers.
The pillars of our comments rest upon flexibility, certainty and simplicity. In our view, each of these philosophies must be embodied in the regulation. Recommendations are listed at the end.
Flexibility
Our understanding is the Province is short on both capacity and energy depending upon the time horizon considered. As such, the amendments must encourage both the construction of new generation and the demonstrable extension of life of existing generation facilities. In our view, all renewables should be eligible to participate in the program, if they meet minimum capacity factors. It may be the regulation does put a 250kW minimum nameplate capacity on the program.
Given the limited ability of renewables to deliver capacity, it is suggested that capacity certainty can be advanced by multiple fuels; e.g.,combining solar to hydropower or adding batteries to solar. Further, we would suggest additional capacity may be available through existing underutilized natural gas generators, which could purchase the Renewable Energy Credits (REC) from new renewables to meet net-zero requirements. By allowing the combinations of resources, we can provide developers with an incentive to make projects work rather than be stuck with a single fuel and allow the more efficient use of existing assets.
Further, it may be that flexibility requires different rules for projects of different size, say a large and small program where the large is greater than 5MW. We chose 5MW as the connection and payment details in current IESO contracts tends to change at that threshold. This would permit the policy to be targeted to different scales and thereby better match the prevalent technologies and development requirements (e.g. EASR) at that point.
Further, we would suggest that the program should remain available on an ongoing basis, limited only by the physical ability of the local grid to accept power delivery. LDCs would need to continue to maintain capacity availability information and this physical restriction should be one of the restrictions on participation. Project capacity factor could also be a screening criterion with all projects needing to meet a suitable capacity factor to connect to the distribution and transmission system. LDC could set the minimum capacity factor, which we believe should be at 50% or higher.
Municipalities should be allowed to participate , in two ways, which may require a modification of section 142 of the Electricity Act or express authorization through the Municipal Act. Municipalities should be allowed to purchase new renewable electricity to meet their net-zero targets and build renewable generation within their boundaries.
Local Distribution Companies (LDC) should also be encouraged to defer capital obligations by connecting new renewable generation to their distribution system. If there is a system benefit, LDC should also be allowed to partner with the generator and build storage that can be assigned to the rate base. LDC should also be allowed to purchase renewable energy within Ontario to meet its net-zero targets but constrained to building its own generation to withing it boundaries.
Federal government should also be allowed to purchase renewable electricity to meet its net-zero targets, especially if the generation is located on Federal lands. As an example, the author’s estimate there is 100+ MW of hydroelectric potential at federally owned water control dams in Ontario, with a capacity factor of +50%. Efforts to develop this capacity have struggled in the IESO processes. Very little is needed other than allowing the Federal government to procure electricity using a Bilateral PPA, federal procurement is a mature organization that can manage the rest of the process. An additional benefit of this step is it allows projects to acquire PPA from the federal government, which will then enable federal funding.
Municipalities and Federal purchases will enable the market to develop long-term contracts, which will encourage the construction of hydroelectric. Hydroelectric has not aligned well with the IESO programs because the market is challenged by a prolonged period to build the hydroelectric, and then its 150-year operational lifespan before refurbishment. However, municipalities and the Federal governments both have needs to reach net-zero and can see the value in securing a stable source of renewable electricity over the long-term.

Certainty
We know new generation will not be constructed if the generator is only able to receive the HOEP. As such, we understand the generator will have to rely upon the value of any emissions related attributes (e.g., REC) and a portion of the global adjustment that the customer will save in addition to HOEP. The difficulty, especially in a market with so many uncertainties, is how to assess the value of such to convince lenders to support the project.
Global Adjustment charges are predicated on the relative demand of the customer during the 5 peak hours specified in the regulation. These 5 hours are not fixed and will certainly move over time. For renewable generation, the production is dependent upon the nature of the fuel source and the magnitude of that resource during the particular 5 hours. To address the uncertainty, we would suggest the appropriate and necessary way to alleviate this problem is to provide a minimum Global Adjustment capacity reduction based the fuel source and capacity of the generator. This would ensure that both the customer and the generator understand the potential benefit of entering into the contract that can be relied upon.
Second, ICI program is a regulation that can be cancelled. Transfer of costs from large to small consumers caused by the ICI program is not sustainable. Providing the Class A customers, the opportunity to transition to purchasing their electricity from new renewable sources is a way for the province to move away from the ICI program.
Third, we know that both HOEP and Global Adjustment are somewhat inversely related to each other. As such, there should be a minimum amount – a floor amount – for the average combination of these amounts. This would provide some certainty on a minimum revenue.
Finally, if the policy requires that certain capacity be online during the five hours then the province will be making the renewables reliant upon battery storage based upon our understanding of the proposal. Reliance upon new batteries will further add to the cost of the new generation. We would suggest the province consider natural gas co-generation in order that the capacity be available, with the natural gas reaching net-zero by purchasing REC or sequestering. This would make the capacity availability at the most affordable price while stimulating new renewable energy One option for the province to consider is purchasing the REC at a set price from new renewable generation and then having the new natural gas co-generation purchasing the REC required to reach net-zero from a provincial pool.
Simplicity
In order for there to be uptake on the potential, the implementation for generators, customers, the IESO and local distributors must be simple. An overly complex system, will be burden to all participants and inhibit the achievement of the objective. The intent should be to improve the efficiency with the electricity industry.
As such, we would think the settlement process for market participants will differ from that with non-market participants. In our view, smaller projects should only have to deal with a single LDC for settlement as well as the customer. Further, filings should be the minimum required. Larger projects may have the ability to manage more complicated settlement processes.
Summary
We recognize that this could be a complicated regulation to draft. It may be the province would seek to rollout the regulation for smaller projects and build on the program after seeing it implemented. We have also summarized our recommendation below.

Summary of Recommendations:
1. Divide the Bilateral PPA program into large and small, with Small being 5 MW or less.
2. Coordinate the program with IESO procurement efforts and allow Bilateral Power Purchase Agreement to transfer to IESO programs. The purpose is to gravitate to a real price for new electricity and meet demand and capacity requirements.
3. Allow a Global Adjustment capacity reduction based on the fuel source and capacity of the generator. If 100% of the Class A customer’s electricity is purchased from new renewables, then the Class A customer would be insulated from any changes or cancellation of the ICI program.
4. Capacity Factor of the Bilateral PPA projects should reach a minimum.
5. Allow Municipalities to purchase new renewable electricity from generators.
6. Allow Municipal government and/or their LDC to build renewable generation within their borders and sell to a Class A customer.
7. Allow LDC to enable private generation by adding storage to a renewable energy project. Pending OEB approval the Storage is then paid through the rate-base.
8. Allow LDC to purchase renewable electricity from generators within Ontario – could be capped to the small projects.