March 2023 Ontario Electricity Market Update: What's Next For Procurements in Ontario?

March 31, 2023
Sarah Simmons

The Independent Electricity System Operator (IESO) is in the last stages of the Expedited Long-Term 1 Request for Proposals (E-LT1 RFP) for the procurement of new electricity reliability services. Proposals from qualified applicants were due to the IESO on February 16, 2023. While the IESO initially signaled the need for the Long-Term (LT) procurements in the first Annual Acquisition Report (AAR) released in 2021, and the IESO began consultation on the LT RFP in December 2021, the E-LT1 RFP officially started once the final Request for Qualifications (RFQ) was posted on June 3, 2022. Despite the E-LT1 RFP milestones which indicates that successful proponents will be notified May 1, 2023, the IESO has now signaled that it will announce the selected projects sometime in May or June 2023. All told, this first expedited procurement for new electricity reliability services will have taken more than a year to execute.

The IESO is now in the process of refocusing its efforts on the 2023 AAR, which will lay out the revised procurement plans and priorities for the IESO, and they have begun consultation on the LT1 RFP for new electricity reliability services. IESO’s LT1 RFP is expected to utilize a similar capacity style contract and revenue model as the E-LT1 RFP. In total, the procurement target for new electricity supply resources for Same Technology Upgrade Solicitation, E-LT1 RFP and LT1 RFP is 4,000 MW of effective capacity. The IESO is now projecting that the LT RFP will be completed in approximately Q1/Q2 2024.

The IESO’s 2022 Annual Planning Outlook (APO) indicates that Ontario system needs for both energy and capacity will continue into the 2030s. The magnitude of these needs will ultimately depend on the pace of Ontario’s energy transition and electrification pathway, economic growth, and continuation of operations of existing electricity supply resources. However, given the approximately 1-year cycles of IESO’s LT RFP procurement, it is becoming increasingly challenging to see how the current procurement process will keep up with the pace of electricity demands in Ontario. Indeed, we are already seeing how electricity supply constraints are impacting economic growth in certain areas of the province (see for example Power Advisory’s report to the City of Windsor).

In Power Advisory’s opinion, there are multiple opportunities and options to revise this trajectory.

First, the IESO should identify means to streamline and reduce the administrative burden of its procurements. For example, is an RFQ phase necessary to repeat, or can new potential applicants with the required capabilities be added to the list of qualified proponents expediently? How can the IESO tighten timelines for the Delivery Assessments or provide up-to-date data with respect to connection capability?

Second, the IESO should provide as much forward guidance as possible on future procurements to enable a steady and predictable process of community engagement and partnership development. These relationships with municipalities and Indigenous communities take effort to nurture and grow. In the long run, investing in and building a strong relationship with local communities will alleviate risks of projects being delayed or unable to obtain the require level of community support to advance to commercial operation.

Third, new potential procurement pathways should be explored to enable customers to contract with electricity resources directly. Given the magnitude of province-wide needs, the need for energy in addition to capacity in the medium-term, and the desire of customers through environmental, social, and governance mandates to meet electricity needs through renewable energy supply, there are ample reasons why enabling corporate power purchase agreements are being considered. Creating an opportunity for corporations to directly contract with electricity resources could provide a pathway to bring on incremental new sources of energy, while allowing the IESO the opportunity to focus on other reliability procurements.

In the next few months, the IESO will continue to consult on the LT 1 RFP and AAR. Power Advisory anticipates that there will be continued discussion and debate on the best pathways to procure new electricity resources, as there continues to be increased pressure on the IESO to advance its reliability procurements while balancing policy objectives for clean and affordable electricity.