by Stephen Andrews, Borden Ladner Gervais, LLP
On August 29 the Ontario Power Authority announced it had filed its 20 year Integrated Power System Plan with the Ontario Energy Board. The IPSP represents over two years of industry and public consultations to determine how Ontario should develop, over the long term, electricity infrastructure. The estimated cost of the plan is $60 billion and key initiatives include:
• Doubling the amount of renewable energy production by 2025.
• The phase out of coal-fired generation by the end of 2014.
• The refurbishment or replacement of the province’s baseload nuclear capacity.
• Transmission system upgrades to achieve the policy and operational objectives of the IPSP.
• An aggressive set of conservation and demand management targets.
Background:
The IPSP presents a prioritized implementation plan that responds to the Ontario government policy direction conveyed through the Supply Mix Directive (June 13, 2006). The IPSP is based on a 20-year forecast, but is subject to updating and regulatory review every three years; this will enable the OPA to revise the mid- and long-term plans based on near-term accomplishments and experiences.
In its directive, the government stipulated that the province’s electricity requirements should be met from the following resources in this priority order:
1. Conservation
2. Renewable resources
3. Nuclear power for remaining baseload requirements
4. Natural gas-fired generation for peaking, high-value and high-efficiency uses
5. Coal-fired generation replaced by cleaner sources in the earliest practical time frame. (The government later determined through regulation that coal phase-out will occur by the end of 2014 at the latest.)
The directive also indicated that the transmission system is to be strengthened to meet these goals. The IPSP proposes how to achieve the desired supply mix, while ensuring the system meets the electricity needs of the province for capacity, electricity production, reserve requirements and flexibility.
The IPSP will be implemented through a number of projects, facilities and programs. The plan submitted to the OEB represents the OPA’s current view of a reasonable, cost-effective way to achieve the desired supply mix goals.
The sequence and specific projects will likely change as opportunities present themselves in the energy sector.
Key elements of the 20-year Plan: Conservation
The IPSP provides a long range plan to accomplish the target of 6,300 MW of demand reduction from conservation by 2025. It focuses on achieving the government’s target of 1,350 MW of electricity peak demand reduction over the period 2008-2010.
The plan sets out how the target will be realized in each of four conservation categories: Energy efficiency, demand management/conservation behaviour, customer-based generation and fuel switching. Conservation programs will use three strategies to achieve these targets:
• Resource acquisition, which refers to procuring energy and/or demand savings and can take the form of payments or incentives to overcome financial barriers to customers adopting conservation programs.
• Capability building, which refers to developing skills and knowledge necessary to deliver effective conservation programs.
• Market transformation, which means achieving a substantial and sustainable increase in the market share of energy-efficient technologies, buildings and production processes.
The 2010 target will be achieved largely from resource acquisition programs. In the long term, however, it is expected that conservation will come more from investment in capability building and market transformation, with less reliance on resource acquisition.
Renewable resources & enhanced transmission
There are two key elements to achieving the goals for renewable resources – acquiring renewable generation supply and enhancing transmission to connect the supply with customers. Renewable resources that are feasible and do not require upgrades to the transmission network will be procured as soon as possible. (On August 27, the Ontario Government directed the OPA to immediately begin the process of procuring an additional 2,000 MW of new renewable supply resources, with 500 MW to be procured by the end of 2007).
The IPSP includes a list of transmission network enhancements to facilitate new renewable resources. The accompanying resources will be developed by coordinating with the extensions of the transmission system through “enabler” lines. This will mean a change to the policy under which transmission connections have traditionally been funded in Ontario – it will require funding enabler lines as network resources, rather than as connection resources. This means all customers in the province will be impacted by this change.
A list of facilities and geographic areas that comprise the currently most attractive renewable resource opportunities is included in the plan and will be developed in order of transmission availability. That mix will likely change as better opportunities present themselves and as progress with the implementation of transmission upgrades and enabler lines becomes clearer.
Nuclear power
After contributions from conservation and renewable resources are maximized, nuclear power is the preferred option to meet the baseload requirement. However, whether the requirement for 10,249 MW of nuclear resources should be met through refurbishment of existing facilities or by building new capacity remains to be determined. Refurbishment is more attractive because it involves a shorter lead time; uses existing generation sites and transmission infrastructure; local community support is already strong at existing sites, and experience from past and current refurbishments can be leveraged.
The most immediate decision is whether to refurbish Pickering B. The IPSP has flexibility to address either scenario. If Ontario Power Generation decides to refurbish Pickering B, the plan assumes the associated capacity of 2,064 MW will be installed by 2018. If OPG decides not to refurbish, the IPSP assumes that the same 2,064 MW will be replaced at a later time by new nuclear resources.
Natural gas-fired Generation
Natural gas-fired generation will be used when additional conservation or renewable resources are not feasible or cost effective. It represents a contingent resource that can be brought on as needed. When gas-fired resources are used, the IPSP stipulates that this should be restricted to single-cycle gas turbines (for peaking requirements) or combined-cycle gas turbines (for intermediate requirements). New contracts and facilities will attempt to reflect these requirements.
There are a number of existing gas-fired generators that operate as baseload resources because of the contractual terms of the non-utility generation contracts. When these contracts expire, the facilities can operate more efficiently to meet intermediate and peaking load needs. The IPSP includes a current list of contracts and projects through which the OPA intends to meet these requirements.
Coal-fired generation
By regulation, the government has mandated that coal-fired generation must be phased out no later than the end of 2014. Replacing coal-fired generation in the province means replacing its three contributions to Ontario’s electricity needs – capacity, energy production and reliability. Coal replacement will require a combination of resources – conservation, renewable energy and gas-fired generation – as well as investment in transmission facilities.
There are different options and requirements in different parts of the province. In the Northwest, the IPSP plans for the replacement of the Atikokan and Thunder Bay coal-fired generation with a combination of conservation and renewable resources to be available by 2014. In the rest of the electricity system, gas-fired generation to meet local area reliability needs with relatively modest transmission system enhancements will replace coal generation most effectively. Natural gas-fired facilities for York Region, Kitchener-Waterloo and Southwest GTA will replace the capacity and energy production that coal currently provides by 2012. These and other facilities will replace coal’s current overall contribution to reliability by 2014.
Cost breakdown and customer impacts
The IPSP includes generation projects, transmission enhancements and conservation efforts estimated to cost roughly $60 billion: Conservation $10.2; Natural Gas $3.6; Renewables 15.4, Transmission $4.0; Nuclear $26.5.
Of the transmission total, some $3 billion (or 75 percent) is for transmission enhancements to facilitate renewable resources.
Near-term action plan (2008-2010)
The IPSP identifies specific priorities for the near-term, but will develop options for the mid-term and explore opportunities for the longer term. This leads to a near-term action plan that the OPA will carry out over the 2008-2010 period, including the following components:
Conservation: The directive goal is 1,350 MW of savings; the OPA program target is 1,410 MW of conservation and demand management. It will also invest in market capability and market transformation activities.
Renewable Supply: The OPA will work to procure up to 10,402 MW of new renewable supply. (This is in addition to what is achieved through the OPA’s Standard Offer Program.)
Gas-Fired Generation: The OPA will procure gas-fired projects that are required for local area supply and transmission relief. The capacity targets for these projects are as follows:
• 850 MW of combined-cycle gas-fired capacity in the Southwest Greater Toronto Area (GTA);
• 550 MW of simple-cycle gas-fired capacity in the GTA;
• 350 MW of simple-cycle gas-fired capacity in Northern York Region; and
• 450 MW of simple-cycle gas-fired capacity in Kitchener-Waterloo/Cambridge/Guelph.
In addition, it will be necessary for transmission proponents to carry out development work with respect to the transmission projects recommended in the IPSP. Certain of these transmission projects, in addition to meeting the supply mix goals, are aimed at ensuring regional and local area reliability in Windsor Essex, Central and Downtown Toronto and Milton. It is not expected that any of these projects will result in project decisions and applications during this near-term period of 2008-2010.
The OPA has now filed the IPSP with the OEB for consultation and review. The process is now to be determined by the Board.
(See more graphs from the overview on page 46.)
— Reprinted from Borden Ladner Gervais LLP, Energy Markets Bulletin, August 29, 2007 www.blgcanada.com