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 (Act) with regard to procurement of electricity resources to ensure the reliable operation of Ontario’s electricity system in response to ongoing and growing electricity needs expected in the future, and require IESO pursuant to section 25.4 of the Act to report back on certain questions respecting electricity as set out in this Directive, as follows:

Background

After more than a decade of stable electricity supply, and at times, a surplus, IESO has forecasted a capacity need that emerges in 2025 and grows through the latter part of the decade. This is a result of increased demand due to expanding electrification and increasing business investment in the province, refurbishment schedules at the Bruce and Darlington nuclear facilities, and expiring contracts.

Fulfilling this forecasted supply need will require IESO to procure electricity products and services from both existing and new resources.

The government is committed to a procurement framework that ensures Ontario has a reliable, affordable and clean electricity system. This is achieved when resources are procured largely through competitive processes and in a transparent and cost-effective manner.

The IESO’s Resource Adequacy Framework sets out a long-term competitive strategy to acquire products and services from resources while balancing ratepayer and supplier risks and recognizing the unique characteristics and contributions of different resource types. The framework consists of competitive procurement mechanisms, as well as special programs and bilateral negotiations with resource-providers that are essential to meeting reliability needs or broader government objectives.

The Ministry of Energy and IESO have received several unsolicited energy project proposals from proponents prior to the development of IESO’s Resource Adequacy Framework. In response, the Ministry of Energy and IESO developed a project assessment framework to determine if the unsolicited proposals could provide ratepayer and system benefits that are unique or innovative and which did not at the time have a clear pathway to be acquired through a competitive process.

The Oneida Energy Storage Project (Oneida Project) is a proposed 250 megawatt (MW), 1,000 megawatt-hour (MWh) Lithium-Ion based energy storage project that aims to provide capacity, energy and operating reserve services to Ontario’s power grid.

On January 27, 2022, through a Minister’s Directive that was approved by the Lieutenant Governor in Council pursuant to Order-in-Council No. 137/2022 (January Directive), I directed IESO to enter into a procurement contract with Oneida Energy Storage LP (Oneida LP) for the Oneida Project substantially in the form of a draft contract submitted by IESO to me on November 30, 2021 (November 2021 Draft Contract).

On April 14, 2022, through a Minister’s Directive that was approved by the Lieutenant Governor in Council pursuant to Order-in-Council No. 990/2022 (April Directive), I directed IESO to enter into a procurement contract with Oneida LP for the Oneida Project based on proposed changes to the November 2021 Draft Contract that were submitted to me on April 1, 2022.

Subsequently, Oneida LP and IESO could not execute a contract due to supply chain and macroeconomic changes and further revisions have been proposed, including a mechanism to reduce capacity price to match the outcome of IESO’s Expedited Long- Term Request for Proposals. The government supports the changes because Oneida LP is in an advanced stage of project development (i.e., it has secured favourable financing from the Canadian Infrastructure Bank (CIB) and a substantial grant under Natural Resource Canada’s (NRCan) Smart Renewables and Electrification Pathways Program), which would allow the Oneida Project to more expeditiously provide services to Ontario’s electricity grid while ensuring that the project provides a benefit to ratepayers.

The government also recognizes the importance of the forestry sector in northern Ontario and supports a longer-term transition plan to find alternative uses for waste biomass, however, this transition plan will take time to implement. Ontario’s Forest Biomass Action Plan commits to ensuring that existing facilities that consume biomass for electricity generation and are approaching the end of their contract are provided with the opportunity to negotiate new contracts with IESO for 5-year terms, balancing the benefits to the forestry sector with the value for electricity ratepayers and taxpayers.

In line with the January Directive, IESO negotiated and signed a new contract for Calstock Generating Station (GS) in March 2022. Following the issuance on October 6, 2022 of the Minister’s Directive that was approved by the Lieutenant Governor in Council pursuant to Order-in-Council No. 1348/2022 (October Directive), IESO also negotiated and is expected to sign a new contract for Chapleau GS in December 2022.

Resolute FP Canada Inc.’s (Resolute FP) Thunder Bay Condensing Turbine Facility is a biomass-based electricity generation facility whose biomass fuel consists primarily of by-products from Resolute FP’s Northern Ontario sawmills. The facility’s current contract with IESO is set to expire on March 20, 2023.

In the absence of this facility, the required electricity supply would have to be procured from other sources, and there would be a substantial economic impact on the local community since wood waste would likely have to be diverted to landfills.

Currently, IESO is working to negotiate a longer-term contract extension with Resolute FP. Given that the facility is undergoing a sale process, more time is needed to negotiate a possible longer-term agreement. It is desirable to extend the facility’s existing contract for six months to allow IESO to continue negotiations for the longer term which would provide better value to ratepayers. IESO and the Ministry of Energy will continue to work together to ensure Ontario’s electricity system continues to be ready to meet the needs of Ontario’s residents and businesses.

In the October Directive, I asked IESO to provide a report to me by December 15, 2022, containing a draft of the first Long-Term Request for Proposals (LT1 RFP) and a draft contract for the LT1 RFP (LT1 Contract), a summary of feedback received from stakeholders during consultations to date, and IESO’s plans to update the design of the LT1 RFP and LT1 Contract based on feedback received and IESO’s experience to date from the Expedited Long-Term Request for Proposals. I understand IESO has updated its timelines for the Expedited Long-Term Request for Proposals and would therefore require additional time to account for the feedback before reporting back.

Directive

Therefore, in accordance with the authority under sections 25.32 and 25.4 of the Act, IESO is hereby directed as follows:

  1. Oneida Energy Storage Project
    1. Paragraphs 1 to 3 under the heading “i. Oneida Energy Storage Project” in the April Directive are revoked.
    2. Paragraph 8 of the January Directive is revoked and replaced with the following:

      “8. I hereby direct IESO to enter into a procurement contract with Oneida Energy Storage LP for the Oneida Energy Storage Project (“Project”), substantially in the form of the draft contract submitted by IESO to me on November 30, 2021, as revised to reflect the proposed changes submitted to me on April 1, 2022 and further revised to reflect the proposed changes submitted to me on November 22, 2022, that includes the following:

      1. A term of no more than twenty years;
      2. Provision of contracted capacity services to the grid through the Project; and
      3. A contractual provision that allows IESO to reduce the capacity price set out in the contract in accordance with the outcome of the IESO’s Expedited Long-Term Request for Proposals established in accordance with the October Directive.”
  2. Thunder Bay Condensing Turbine Facility
    1. IESO shall enter into an extension of its existing contract with Resolute FP Canada Inc. for the Thunder Bay Condensing Turbine Facility, on terms that are materially consistent with the existing contract, provided that the extended contract term ends on September 20, 2023.
  3. Long-Term I Request for Proposals
    1. Paragraph 10 of the October Directive is amended by deleting “December 15, 2022” and substituting “March 31, 2023”.

General

For greater certainty, all other terms of the January Directive, April Directive and October Directive shall remain in full force and effect.

This Directive takes effect on the date it is issued.

Order in Council 1577/2022