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, as follows:

Background

Ontario has plans to create new infrastructure, expand electrification, unlock opportunities for development in Northern Ontario and build 1.5 million homes by 2031. Amongst other drivers, this unprecedented growth is expected to cause an increase in electricity demand.

In anticipation of this increase in demand, the IESO has forecasted electricity supply needs that emerge in 2025 and grow through the latter part of the decade.

To meet these needs, the government of Ontario is taking action today to procure electricity products and services from both existing and new resources. The government is committed to a procurement framework that ensures Ontario maintains its reliable, affordable and clean electricity system.

Biomass Electricity Generation

Biomass electricity generation facilities serve an important role in Ontario’s clean electricity system and forestry sector. The government of Ontario also recognizes that these facilities present additional value as industry considers a longer-term transition for alternative uses of waste biomass.

To support these facilities, Ontario’s Forest Biomass Action Plan commits to ensuring that existing biomass electricity generation facilities that are approaching the end of their electricity procurement contracts are provided the opportunity to negotiate new contracts with the IESO for terms of up to five years. These contracts are expected to balance the benefits to the forestry sector with the value for electricity ratepayers and taxpayers.

In line with previous directives, the IESO has negotiated and signed new contracts for the Calstock Generating Station (GS), Chapleau GS, and the Thunder Bay Condensing Turbine Facility.

Atikokan Generating Station (GS)

Atikokan GS is a 205-megawatt biomass electricity generating facility owned by Ontario Power Generation Inc.nc. (OPG), located eight kilometres north of Atikokan, Ontario. As part of Ontario’s commitment to phasing-out coal, OPG successfully converted the facility from coal to biomass in 2014. Atikokan GS is now the largest 100 per cent biomass facility in North America and the largest consumer of industrial wood pellets in Canada. Atikokan GS’s 10-year contract with the IESO is set to expire on July 23, 2024.

Without a new contract, the facility is likely to be decommissioned. The absence of Atikokan GS, as well as the loss of generation capacity, would eliminate a source of renewable electricity generation and have a substantial economic impact on the local community. Specifically, the mills that supply biomass for pellet fuel manufacturing would need to find alternative solutions for wood waste, including the possibility of diverting to landfills or reducing forestry operations.

IESO and OPG have negotiated the terms for a new contract. This new five-year contract achieves the right balance between satisfying OPG’s requirements to continue operating the facility and providing ratepayer value and wider economic benefits.

Hornepayne GS

Hornepayne GS is a biomass electricity generation facility whose fuel consists primarily of biomass from an adjacent sawmill. Hornepayne GS is owned by Hornepayne Power Inc. (HPI). This is the only biomass power plant in Ontario with Indigenous ownership.

Following the issuance of a directive to IESO in February 2024, as approved by the Lieutenant Governor in Council pursuant to Order-in-Council 207/2024, IESO entered into a contract extension with HPI for a period of approximately three months, which expires on May 14, 2024. This extension was given to allow for work to continue between IESO and HPI on a new five-year contract.

The re-contracting of the Hornepayne GS would provide system benefits and provide a source of renewable electricity generation. In the absence of the Hornepayne GS, the adjacent sawmill would need to procure steam for process operations from other sources, possibly including natural gas-fired boilers. In addition, there would be a substantial economic impact on the local community. As is the case for Atikokan GS, the mills that supply biomass to the facility would need to find alternative solutions for wood waste, including the possibility of diverting to landfills or reducing forestry operations.

Update to the Small Hydro Program (SHP)

In line with the Minister’s Directive that was approved by the Lieutenant Governor in Council pursuant to Order-in-Council 1257/2023 dated August 23, 2023 (the August 2023 Directive), the IESO launched the Small Hydro Program (SHP) to sustain investments in small hydroelectric facilities that can help meet Ontario’s electricity objectives.

Hydroelectric facilities of all sizes play an important role in meeting Ontario’s electricity needs, as well as providing benefits such as flood control, irrigation, tourism and facilitating local employment and economic development. The SHP was established in recognition of the fact that most smaller hydroelectric facilities are municipally-owned or owned by conservation authorities and, given investment horizons and asset lifespans, require a customized program to re-contract these existing facilities.

The SHP provides an opportunity for existing hydroelectric facilities with capacities of up to 10 megawatts (Small Hydro Facilities) to obtain new contracts that will expire on April 30, 2043, subject to meeting program eligibility requirements. This program has been designed in a way that provides value for ratepayers while sustaining these important assets.

Under the August 2023 Directive, Small Hydro Facilities whose existing contracts with IESO aggregate multiple other facilities are not eligible to participate in the SHP. However, following feedback received from stakeholders, I have determined that this requirement is unnecessary and sufficient ratepayer value would be obtained by allowing such facilities to participate in the SHP, should they otherwise be eligible and meet the additional requirements set out in this Directive.

Directive

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

  1. Atikokan Generating Station
    1. The IESO shall finalize and enter into an amended and restated contract with Ontario Power Generation Inc. for the Atikokan GS that expires on or before July 23, 2029, with contract terms that are substantially consistent with the term sheet dated April 9, 2024.
  1. Hornepayne Power Inc.
    1. The IESO shall enter into an amended contract with Hornepayne Power Inc. for the Hornepayne GS, on terms that are materially consistent with the draft amended contract submitted to the Ministry of Energy on April 16, 2024, provided that the amended contract shall expire on or before February 14, 2029.
  1. Small Hydro Program
    1. Clause (a) of paragraph 6 of the August 2023 Directive is deleted and replaced with the following:
      “a. Facilities whose existing contracts with IESO aggregate multiple other facilities are eligible to participate in the Small Hydro Program if the following requirements and all other program eligibility requirements are met:
      1. All facilities under the same existing aggregated contract that seek to participate in the Small Hydro Program shall be required to apply to the Small Hydro Program concurrently.
      2. If the existing contract for a facility whose application to participate in the Small Hydro Program has been approved by the IESO (Eligible Aggregated Facility) aggregates that facility with one or more facilities that are not eligible for the Small Hydro Program (Non-SHP Facilities):
        1. The Eligible Aggregated Facility shall be disaggregated from the Non-SHPSHP Facilities in its existing contract prior to participating in the Small Hydro Program.
        2. Notwithstanding anything to the contrary in the Minister’s Directive that was approved by the Lieutenant Governor in Council pursuant to Order-in-Council 231/2020 dated February 14, 2020, the IESO shall use commercially reasonable efforts to facilitate the disaggregation of such Eligible Aggregated Facility from the Non-SHP Facilities by removing the Eligible Aggregated Facility from its existing aggregated contract and entering into a new contract in respect of the Eligible Aggregated Facility. The new contract shall provide for commercial settlement terms that are substantially similar to those under the existing aggregated contract in respect of the Eligible Aggregated Facility.
        3. In facilitating such disaggregation, the IESO shall also use commercially reasonable efforts to amend the existing aggregated contracts in respect of the remaining Non-SHP Facilities, provided that the amended contracts shall provide for commercial settlement terms that are substantially similar to those under the existing aggregated contract in respect of such Non-SHP Facilities.”

General

For greater clarity, all other terms of the August 2023 Directive shall remain in full force and effect.

This Directive takes effect on the date it is issued.

Order in Council 168/2024