Ontario’s Independent Electricity System Operator (IESO) earlier this week released its 2021 Annual Acquisition Report (the Report) providing details on the province’s future reliability needs and how to address them. The Report sets out an approach to address these needs over three planning horizons: operations planning, near-term planning, and long-term planning. The Report is anticipated to lead to demand reductions and increased procurement of lower-carbon power. This bulletin outlines key highlights of the Report:
Understanding Ontario’s Reliability Needs
- Demand side uncertainties. Energy consumption is predicted to increase 1 percent each year until 2040. This prediction may be affected by the pace of economic recovery from the COVID-19 pandemic, demographic changes, changes in government policy, future energy management initiatives, and increasing electrification.
- Energy management. The Report indicates that the Industrial Conservation Initiative program is forecasted to reduce demand by 1300 MW with an additional 2.8 TWh and 450 MW of energy and demand savings from the 2021-2024 Conservation and Demand Management (CDM) Framework.
Planned Actions to Ensure Resource Adequacy
- Flow East Towards Toronto (FETT). With the upcoming planned nuclear retirements and recommissioning, the supply capacity east of the FETT is expected to decline considerably and additional supply will be required as early as 2023. As a result, IESO is recommending upgrading the transmission line between North Oakville and Pearson Airport by 2026, reducing capacity needs by 2000 MW. To meet the increased demand, IESO is negotiating a transitional contract for the Lennox Generating Station which ends in April 2029. The Lennox Generating Station provides large-scale and flexible supply from a dual gas and oil generation facility.
- West of London. Electricity demand in Windsor-Essex and Chatham-Kent is expected to grow from 500 to 2300 MW by 2035. As a result, IESO is recommending development of new transmission infrastructure from Lambton to Chatham and Chatham to Lakeshore, which will require addressing supply gaps until 2028. To address the increased demand, IESO will be seeking to maintain the 588 MW supply from the Brighton Beach Generating Station, a natural-gas fueled generator, which is currently set to be off contract before the new transmission infrastructure comes online.
- Capacity Auctions. The next capacity auction will be held December 2021 with a target capacity of 1000 MW for summer 2022. The IESO is also setting a minimum target capacity threshold of 500 MW until 2026. The target capacity was determined based on the following factors:
- Competition/liquidity: more than 1700 MW of resources enrolled to participate in the 2020 Capacity Auction, and this level of competition is likely to remain.
- Efficiency: the target capacity has been set lower than the need identified in the extreme weather scenario to balance the need to procure enough to meet planning requirements and procuring sufficient resources for extreme weather resilience.
- Implementability: the 2021 target capacity is a slight increase from the 2020 target and below the amount of capacity enrolled in previous demand response and capacity auctions.
- Leveraging Competitive Procurements for Near-Term Planning. In autumn 2021, the IESO intends to move ahead with a series of medium-term RFPs to facilitate resources coming off contract and provide opportunities to leverage uprates, expansions, and emerging technologies. The IESO Medium-Term RFP for 2026-2029 will be seeking up to 750 MW. The first medium-term RFP is meant to retain capacity from the 1000 MW of existing resources with contracts expiring before May 1, 2026. The Report indicates that it is expected that competition will continue to grow as more contracts for large-scale facilities come to an end, which will likely lead to a broader pool of participants and higher targets for the second planned medium-term RFP with a commitment period commencing in 2029.
- Providing Greater Clarity around Ontario’s Long-Term Needs. The Report suggests that a long-term RFP will provide opportunity for new supply and allow longer lead times for resource development. The long-term mechanism may be initiated in autumn 2022 with commitments as early as 2026/2027. The IESO is expected to engage with stakeholders to develop the details of a long-term procurement process with specific magnitude and criteria to be determined in the next Annual Acquisition Report.
- Additional options to address changes over time. The Report notes that the Quebec Capacity Sharing Agreement will deliver 500 MW of summer capacity to Ontario. In addition, IESO will be working with generation operators to alleviate stress on the system during the upcoming nuclear refurbishment and the need to target more than 1000 MW of capacity over the mid- to long-term.
For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.
