Ontario needs to find innovative and competitive ways to procure generation capacity. In the near future, if the province is to approve more long term power purchase agreements, they will have to be significantly different from those it has committed to in the past. This was the key message from Ontario Energy Minister Glenn Thibeault speaking at the APPrO 2016 banquet dinner on November 15.
Energy Minister Glenn Thibeault
Stressing that consumers and the government have made control of rising electricity costs the number one issue in the sector, Minister Thibeault suggested that generators would be well-advised to focus their efforts on finding new ways to help keep consumer costs in check.
Considering the kind of changes that are likely ahead, long term contracts may “be a thing of the past,” the Minister said. “But innovations that drive increased competitiveness, enhance system reliability and help us get better use of our significant existing assets should be considered and encouraged.” Although the forms that these innovations will take remains an open question, he observed that “as a sector, we need to look at ways to take costs out of our plans and reduce the longer term cost pressures built into our system.”
Although the government is proud of the enhancements it has made to the electricity system, making it cleaner and more reliable than before, energy policy priorities over the next few years are likely to be quite different. “I’m interested in maintaining the strength of our diverse supply mix, continuing to reduce carbon emissions, and lowering costs for electricity consumers. This will include a focus on implementing competitive, capacity procurement models, meaning that the former practice of sole-sourced, direct negotiations with non-utility generators, or NUGs, has come to an end. These existing NUGs whose 20-year OEFC contracts expire in the years ahead will now need to compete for re-contracting via capacity procurements to ensure best value for ratepayers. Simply put, for these facilities, moving forward – the price must meet or beat the competition.”
Many generators would say of course that their facilities already operate on a sound competitive basis, continually impacted by hourly prices and a range of cost pressures, in addition to having met rigorous tests in the original bidding process. Ontario’s competitive procurement processes of recent years have produced reasonable results in general, many believe, with medium and large scale generation being lined up at prices that compare well with the alternatives that were available at the time. Although making the system greener has contributed a certain amount to cost increases, much of the recent cost pressure in Ontario comes from less controversial origins, related to expanding the system to serve more customers, upgrading aging infrastructure and reducing long term debt.
“I don’t think either the electricity sector or the government have done a good job explaining why prices are where they are,” said APPrO President Dave Butters. “We should all be concerned about that.”
Minister Thibeault offered an example of another means through which existing generators may look for future revenue. “And in recognition that not all such facilities can be re-contracted, the IESO is already working to amend Ontario’s market rules to allow for domestic generating facilities, including NUGs, to bid firm capacity exports into our neighbouring jurisdictions – adjusting a practice that has long led to contractual unfairness and potential stranded assets.”
In a subsequent speech to the Empire Club of Canada on November 28, Minister Thibeault went further, saying that the province’s future procurement mechanisms should be technology-agnostic and focused on outcomes rather than inputs. He suggested that expiring contracts will form the basis of a new adaptive market that is yet to be developed.
The Minister’s speech also highlighted the work underway developing the province’s Long Term Energy Plan. “This next LTEP will also build on the success of the 2013 plan, which was the most comprehensive consultation and engagement process the Ministry of Energy has ever undertaken. Public consultations are currently underway in communities from Windsor to Thunder Bay and back, and they have been informed by an electricity system technical report prepared by the Independent Electricity System Operator (IESO), and a fuels sector technical report prepared by Navigant Consulting. I would note that the release of these two technical reports is unprecedented for our Ministry, and allowed for stakeholders, municipalities, and truly the public at large to be on an even playing field as we began an informed series of consultations. ... [W]e’re already starting to see innovative new ideas brought forward at these sessions.” He said, “I encourage all of you to join in this conversation.”
In conclusion, Minister Thibeault said, “Let’s think about what’s next — what our next round of bold, sweeping accomplishments will be. I hope you will take part and help us chart the way forward. Together we are building up Ontario and building up our economy.”