Ontario Energy Minister Bob Chiarelli issued a directive to the IESO on December 14 instructing it to negotiate PPAs for three renewable energy facilities, and addressing several generation-related issues in the power sector. The directive was titled “Non-Utility Generator Projects, Combined Heat and Power Standard Offer 2.0, Chaudière Falls Hydroelectric Generation and Whitesand First Nation Biomass Cogeneration.”
With respect to NUGs (Non-Utility Generators), the Minister indicated, much as had been stated previously, that the IESO should discontinue negotiations for new contracts for NUGs, with two qualifications: the IESO should continue to consider NUGs as options to help maintain regional reliability, and the IESO should continue engaging NUG representatives “as relevant” in the IESO’s efforts to develop “an Ontario capacity auction, and rules and protocols for Ontario-based capacity exports.”
Similar directions were issued with respect to the Combined Heat and Power Standard Offer 2.0: The IESO is not to proceed with the second CHPSOP 2.0 application window but should continue engaging CHP proponents “as relevant, in IESO’s development of an Ontario capacity auction.”
It appears that the Minister’s office believes NUGs and CHP facilities represent promising participants in future capacity auctions, but should not necessarily expect to have traditional types of negotiations with the IESO for power purchase agreements to supply additional wholesale power going forward. The directive did not explain the reason for this distinction but the Minister did provide some indications of the government’s thinking in a speech on September 16.
At that time, speaking about NUGs in particular, he said, “As a result of Ontario’s strong supply situation and the goal of moving towards a competitive, capacity procurement model, the former practice of sole-sourced, direct negotiations with non-utility generators, or NUGs, will come to an end. These existing NUGs, whose 20-year contracts expire in the years ahead, will now need to compete for re-contracting using capacity procurements to ensure best value for ratepayers. Simply put, for these facilities, moving forward – the price must meet or beat the competition.
“When you’re bidding power into the grid, it must be on commercial terms, in the interest of our ratepayers. … Contract rules and terms that reduce risk for IESO and protect ratepayers have been introduced and will continue to be explored. ... This policy for NUGs relates to IESO’s ongoing and upcoming renewable energy procurements, with new competitive tension and price bid down tools that haven’t been used in the past but will now become the norm.”
In the December 14 directive however, the IESO was directed to negotiate power purchase agreements with two generation proponents: Hydro Ottawa Holdings Inc., and the Whitesand First Nation, about 250 kilometres north of Thunder Bay.
With respect to Hydro Ottawa, the Minister said that the IESO must satisfy itself that a number of technical requirements are met, before entering into Power Purchase Agreements for two different hydroelectric facilities known as the Gatineau Facility and the Hull Facility.
The directive went on to say that “Any PPA(s) resulting from any negotiations contemplated above shall be on terms that reflect a reasonable cost to Ontario electricity ratepayers and a reasonable balancing of risk and reward, taking into account the specific operating characteristics of the facility in question, and shall include a price that is consistent with other IESO hydroelectric procurement initiatives for similar facilities.”
With respect to the Whitesand First Nation, the Minister noted that recent research has indicated that it will not likely be economic to connect the community to the main provincial electricity grid. The IESO was directed to “Enter into a Power Purchase Agreement (‘PPA’) with a legal entity that shall be owned and controlled by Whitesand First Nation. …”
The directive specified a contract term of 20 years and a contract capacity of up to 4 MW, for power from a Biomass Cogeneration project. It also set a base rate for the power of $257/MWh in year one, escalated at 0.80 per cent annually on the previous year’s rate in each year of the contract term, and an Economic Development Adder of $184/MWh.
The Minister’s directive noted that “It is recognized that a price for the Biomass Facility should reflect avoided diesel cost in 2017 and ensure that the benefits of not burning diesel are adequately captured at prevailing diesel prices during the life of the contract.”
The Biomass Cogeneration Facility is part of Whitesand First Nation’s larger Community Sustainability Initiative that includes a wood pellet plant.
On January 28, OSEA presented its Developer of the Year Award to Whitesand First Nation, saying it “has worked very hard and over many years to get the permission to build a 3.64 MW combined heat and power biomass plant. ... In 2016, Whitesand First Nation is expected to begin construction on the project that will provide the region with a steady stream of revenue, local jobs and an ample reliable, clean supply of electricity.”