Ontario’s long-awaited Clean Energy Standard Offer Program (CESOP) is moving forward cautiously, albeit more slowly than expected. The program, focused on cogeneration and officially launched in June 2011, has so far approved only 6 MW of contracts, out of a target of 200 MW. But OPA staff and project proponents remain optimistic: Nearly 300 MW worth of applications are still in play, a large number of which are awaiting clarifications from the proponents. Although initial expectations were that many contracts would be signed in the fall of 2011, it now appears likely that the process will take significantly longer. There are no guarantees, but it’s possible that a sizable number of additional contracts will be finalized during the course of 2012.
The program is a procurement process managed by the OPA to assist the development of Combined Heat and Power (CHP) and Energy Recovery projects under 20 MW in Ontario. Unlike its sister programs, CHP 1, 2, 3 and 4, CESOP uses a standard offer format. In fact, as APPrO Executive Director Jake Brooks notes, having an extended timeline is not unusual for standard offer programs because they are typically intended to identify a range of economic opportunities that may require time to develop.
OPA staff explain that processing CESOP applications turned out to be far more complicated than originally anticipated. One key challenge is the limited transmission capacity in many parts of the province. For example, OPA staff have to weigh the benefits of awarding contracts to some projects that have the ability to connect immediately against allocating the same MW to other projects that may have to wait years to achieve grid connection purely because of their locations. This kind of consideration has to be reconciled with a ranking system that prioritizes projects according to their efficiency in order to be awarded a contract. Furthermore, cogeneration projects have attributes that can be relatively difficult to assess for several reasons. In many cases they are more capital intensive than other sources of capacity because of the thermal energy distribution infrastructure they need to operate – a characteristic that frequently makes them more energy efficient as well. There are sometimes complex risks to assess with fuel supply (to manage supply assurance and costs in a way that meets the needs of the host) and in terms of the contractual arrangements with the thermal host. These considerations and others mean that the contract structure for cogeneration can be relatively complex.
An article in the Toronto Star January 15 suggested that some of the problems are related to engineering challenges in the Toronto Hydro distribution grid. Tanya Bruckmueller, spokesperson for Toronto Hydro, said “There are definite limitations to the system as it stands because of the overall age of our equipment.” The story suggested that the Ashbridges biogas cogeneration plant is held up waiting for a breaker replacement at the Leaside transformer station, which won’t be complete until 2013. The OPA has confirmed that is coordinating with transmitters and distributors with respect to CESOP to ensure projects are correctly integrated into distribution and transmission systems. Each project is subject to a connection availability screen that checks the ability of both the transmission and distribution systems to accommodate CESOP projects.
OPA representative Darryl Yahoda, speaking at the APPrO conference on November 16 2011, summarized the status of CHP applications under the CESOP as follows:
First Tranche Second Tranche
Applications Received: 12 (54 MW) 41 (243 MW)
Contracts Awarded: 2 (5.9 MW) 0
Awaiting Clarifications: 6 (28.6 MW) 41 (243 MW)
Rejected or Withdrawn: 4 (19.2 MW) 0
The first tranche was limited to 4 urban areas where connection capacity was expected to be available, whereas the second tranche was open to any area of the province.
The CESOP program is the latest in a series of initiatives over the last seven years designed to encourage the development of CHP. In 2005, soon after the OPA was established, the provincial government announced plans to procure 1000 MW of CHP competitively and then separately instructed the OPA to set up a standard offer program for small scale cogeneration. The first set of competitively procured CHP contracts were announced in October 2006, totaling 414 MW. Several iterations of the competitive procurement processes were released over the intervening years, known as CHP2, CHP3 and CHP4, but they failed to match the success of the first round, leading to only 3 contracts so far, totaling less than 100 MW. In fact, two of the three contracts were the result of bilateral negotiation that the OPA started with individual CHP proponents after the completion of competitive procurement. (During the same period, the OPA began entertaining bilateral negotiations with a number of individual CHP proponents in parallel with the competitive processes.) Then, in November 2010, the provincial government renewed the OPA’s mandate in the area with a directive to procure 1000 MW of CHP, less the approximately 500 MW contracted to date. Meanwhile, the standard offer program for small scale CHP was discussed with stakeholders and redesigned several times between 2005 and 2010 without finalization. After what was probably the longest gestation period of any procurement process for the OPA, the CESOP program was officially released in June 2011.
Safouh Soufi of SMS Energy-Engineering, speaking at the APPrO 2012 conference, took the view that recent experience has shown that bilateral negotiations for projects larger than 20 MW are more likely to be successful than RFPs when trying to procure cogeneration in Ontario. However, bilateral negotiations will need to operate under a relatively stable and transparent set of principles, he noted.
Observers in the electricity business are likely to compare the progress of the CESOP program with that of the FIT program for renewable energy, in which expected levels of applications were met and exceeded quickly. But such comparisons are inappropriate, many feel, as the two programs were fundamentally different. The FIT program had no upper limits on the volume of contracts whereas the CESOP program had a relatively modest limit to its procurement from the outset. CESOP projects have significant constraints in terms of location: they can be built only where there is a thermal host or surplus energy resource. Other factors favor the FIT program, which CESOP proponents do not enjoy. Notable amongst these are the terms for distribution connection that priorize renewable projects in many cases.
Many people in the generation sector are probably asking themselves, for a sector that’s so well developed like CHP, why is it taking so long for proponents to provide the kind of clarifications expected by the OPA? OPA staff have observed that bilateral negotiations typically take a year or more and, given the large volume and diversity of applicants, it is not unreasonable for clarifications to take six months or more.
Mr. Yahoda noted that once the current applications are assessed, options for proceeding with CESOP in the future include an “open program” phase in which the OPA would hope to bring out further potential projects. Those applications would be evaluated on a timestamp basis subject to the amount of MW capacity remaining in the program. Alternatively, if the program was undersubscribed, the OPA could allocate the unused MW to the CHP4 procurement process.
For more information on the CESOP program, readers may want to review the following pages on the OPA website: http://powerauthority.on.ca/update-chpcesop.
See related story:
Markham District Energy lands two CHPSOP projects