Minister’s directive

To: The Independent Electricity System Operator

I, Todd Smith, Minister of Energy ("Minister"), hereby direct the Independent Electricity System Operator ("IESO") pursuant to section 25.32 of the Electricity Act, 1998 (the "Act") with regard to procurement of electricity resources to ensure the reliable, cost-effective and efficient operation of Ontario’s electricity system in response to ongoing and growing needs expected in the future, as follows:

Background

On April 7, 2022, Ontario released its Low-Carbon Hydrogen Strategy (“Strategy”) to accelerate the development of the low-carbon hydrogen economy in the province to create jobs and reduce emissions. The strategy leverages the province’s strengths including a highly skilled workforce, clean and affordable electricity, existing storage and pipeline infrastructure and an innovative industrial sector that is poised to collaborate on hydrogen.

One of the immediate actions in the strategy is to support hydrogen storage and grid integration projects by asking the IESO to report back on program options to support pilot projects to help develop and advance these opportunities. The Strategy noted that hydrogen producers are very well suited to provide electricity system benefits and have previously worked with IESO to provide ancillary services such as grid frequency regulation. The Strategy also noted that projects to support hydrogen electricity storage and grid integration pilots will help to improve Ontario’s experience and understanding of the potential benefits and limitations of hydrogen in supporting Ontario’s provincial electricity grid.

On April 7, 2022, the Minister sent a letter to the IESO, asking it to investigate and propose program options to integrate low-carbon hydrogen technologies into Ontario’s electricity grid for the purposes of balancing and strengthening its reliable electricity system and contributing to broader decarbonization. The letter also asked the IESO to report back to the Ministry of Energy (“Ministry”) by October 31, 2022, with program options, timelines, costs and any additional advice the IESO may have on how to proceed.

The IESO’s October 31, 2022 report highlighted potential roles for hydrogen to benefit Ontario’s electricity system, including the use of hydrogen storage and generation to efficiently balance supply and demand on the grid, and the possibility of blending hydrogen into natural gas-fired turbines for peaking capacity.

Based on a jurisdictional scan of comparable programs, discussions with stakeholders and the identified potential projects, the IESO proposed a total program budget of $15 million over three years. The IESO proposed funding for three streams of project types:

  1. Projects at existing facilities that are already built/operational and ready to participate in projects to demonstrate/evaluate reliability services;
  2. Projects at new facilities that are not yet constructed but could be in-service by a certain date; and
  3. Research/feasibility studies that could investigate the feasibility of different hydrogen approaches or support future hydrogen project decision-making.

Ontario already has one of the cleanest and most flexible electricity systems in the world, with over 90 per cent of the electricity generated in Ontario in 2021 coming from non-emitting resources. The use of low-carbon hydrogen, and other innovative technologies currently funded through the Grid Innovation Fund, for balancing and strengthening the grid, will ensure the province continues to build on that foundation. Recognizing the importance of integrating new technologies the Ministry will also seek opportunities to raise the profile of these important opportunities to advance the reliability, affordability and cleanliness of the provincial grid.

Directive

Therefore, in accordance with the authority under section 25.32 of the Act, the IESO is hereby directed as follows:

  1. The IESO shall commence developing a “Hydrogen Innovation Fund” with the goal of investigating, evaluating and demonstrating how low-carbon hydrogen technologies can be integrated into Ontario’s electricity grid for the purposes of balancing and strengthening our reliable electricity system.
  2. Projects and research/feasibility studies procured through the Hydrogen Innovation Fund to support electricity supply, capacity, storage and demand management could involve hydrogen technologies applied to:
    1. Clean energy integration (e.g., hydrogen storage and generation for smoothing of intermittent renewable generation, or for utilization of surplus or constrained clean electricity);
    2. Peaking generation capacity (e.g., blending hydrogen with natural gas in gas- fired turbines, hydrogen fuel cells, electrolyzers as a dispatchable load to provide capacity services);
    3. Ancillary services (e.g., adjusting electrolyzer load and/or fuel cell electricity output to respond to grid conditions); and
    4. Long-term / seasonal storage (e.g., hydrogen storage of surplus wind or hydroelectric generation during shoulder seasons for use in peak summer or winter needs).
  3. The Hydrogen Innovation Fund:
    1. Will have a total budget of $15 million over three years;
    2. Will have funding for three streams of project types:
      1. Projects at existing facilities that are already built and/or operational and ready to participate in projects to demonstrate and/or evaluate reliability services;
      2. Projects at new facilities that are not yet constructed but could be in- service by a specified date; and
      3. Projects undertaking research and/or feasibility studies that could investigate the feasibility of different hydrogen approaches or support future hydrogen project decision making.
  4. The IESO may determine how the total program budget is allocated among the project streams outlined in paragraph 3 b. above, in order to ensure the best projects move forward.
  5. The IESO is expected to implement the Hydrogen Innovation Fund on the following timelines:
    1. Commence developing program rules in Q1 2023;
    2. Issue a targeted Request for Proposals (“RFP”) in Q2 2023;
    3. Report the successful RFP applications to the Minister by Q2 2023; and
    4. Aim to have:
      1. Demonstration projects at existing facilities commence by Q4 2023;
      2. Demonstration projects at new facilities commence by Q2 2025; and
      3. Receive reports on research / feasibility studies by Q4 2023.
  6. The IESO shall work with the Ministry on a communications plan for the Hydrogen Innovation Fund that includes a plan on issuing the RFP, the selecting of projects and the announcing of successful projects.

General

This Directive takes effect on the date it is issued.

Order in Council 106/2023