The Industrial Conservation Initiative and Clean Energy Power Purchase Agreements

May 15, 2024
Travis Lusney & Roy Hrab

On May 7, 2024, the Ontario Ministry of Energy posted a new proposal for feedback regarding amendments to Ontario Regulation 429/04 (O. Reg. 429/04). The proposal aims to enable eligible electricity customers (i.e., purchasers) to enter into corporate Power Purchase Agreements (PPAs) with clean, non-emitting energy suppliers.

This current proposal is a revised version of the November 2, 2023, posting by the Ministry. Power Advisory provided a Presentation on the November 2023 proposal.

Like the original proposal, the current proposal would allow qualifying Class A customers in the Industrial Conservation Initiative (ICI) to offset their demand in the top five peak hours of a base period for settlement purposes through corporate PPAs with eligible non-emitting electricity supply that is not connected behind the facility's meter. The corporate PPA would be treated as if supplied to the ICI participant behind-the-meter for the purpose of determining Global Adjustment (GA) charges.

Class A customers who participate in the ICI pay GA based on their percentage contribution to the top five peak hours over a 12-month base period (May 1-April 30).

The new posting states that the non-emitting resources eligible under the proposal are wind, solar, hydroelectric and biofuel (i.e., renewable sources). The proposal notes that there is “interest in pairing these technologies with energy storage and the inclusion of nuclear small modular reactors (SMRs), however due to the complexity to implement these additional technologies they will be considered at a future date.”

It is noteworthy that the revised proposal’s eligible technologies represent a change from the original November 2023 proposal which stated that “battery storage” was a potential eligible technology. Further, the original proposal referenced “small hydroelectric (i.e., less than 10 megawatts)” as an eligible technology, the new proposal has replaced this with the more generic “hydroelectric.”

Also included is a consultation document with draft potential amendments to O. Reg. 429/04. Some key aspects of the draft amendments are discussed below.

The draft includes definitions of what constitutes “eligible electricity,” an “eligible generator,” an “eligible purchase agreement,” and an “eligible purchase customer.”

The draft refers to an eligible purchase customer as a “Class A market participant”. The original 2023 proposal referred to “qualifying ICI participants.” Customers participating in the ICI can be IESO market participants or LDC consumers.

To be an “eligible generator” the generation facility must also be “connected to the IESO-controlled grid or to a distribution system of a licensed distributor and that generates electricity only from a renewable energy source, but does not include a generator that consumes more electricity than it generates.”

A condition for the electricity purchased to be “eligible electricity” is that it “is physically supplied by the eligible generator […] into the IESO-controlled grid or the distribution system of one or more licensed distributors.”

The draft regulation sets out certain restrictions on the electricity purchased through the PPAs, stating that “no amount of electricity purchased by the market participant under the eligible purchase agreement [can be] used by or credited to the market participant in respect of any IESO demand response auctions or pilots or any capacity auction.” Further, the draft states that none of the electricity purchased by the market participant under the eligible PPA can be: (1) “used by or credited to the eligible generator in respect of any capacity auction conducted by the IESO;” (2) “the subject of a contract entered into by the eligible generator with the IESO”; or (3) “the subject of a purchase from the eligible generator under any other agreement with the eligible generator, including any other eligible purchase agreement, whether the agreement is with the market participant or any other person.”

The draft regulations state that an “eligible purchase customer” must provide the IESO with a letter from the market participant and the eligible generator attesting that (1) they have entered into an eligible PPA(s) and “specifying and confirming the proportion, expressed as a percentage, of the total volume of electricity supplied by the generation facility or facilities referred […] into the IESO-controlled grid or the distribution system of a licensed distributor over the applicable base period that is to be purchased by the market participant under each of the agreements.”

A copy of the eligible purchase agreement must also be provided to the IESO.

In addition to the draft proposals, the posting indicates that the Ministry is interested in stakeholder feedback on the following issues:

  • the mechanics of financial settlement (including peak demand factor calculations) under the proposed amendments.
  • the implementation of a proposed requirement that new generation facilities obtain a local municipal support resolution stating support for the new generation facility on their municipal lands in order to be eligible under the proposed amendments; and,
  • a potential restriction on locating new generation facilities on prime agricultural lands.

The expected effective date for the proposed amendments is May 1, 2025.

The deadline for feedback on the proposed amendments is June 21, 2024.


Corporate PPAs offer significant potential for Ontario to meet resource adequacy needs, develop clean energy supply, help corporations meet their environmental, social and corporate governance (ESG) goals (such as the development of net zero supply chains, for example, in automotive manufacturing including batteries and electric vehicle supply chains), as well as attracting private capital from organizations and funds with net zero objectives as part of their investment strategies. In all these ways, corporate PPAs can enhance economic development, competitiveness, job growth, and attractiveness for new capital investment.

In Ontario, facilitating corporate PPAs could allocate supply cost risks away from electricity ratepayers while simultaneously helping to address power system supply needs. It has been made clear Ontario needs new supply to support electrification and economic development through the IESO’s Annual Planning Outlook that identified around a 5,000 MW and 15 TWh supply shortfall as a result of increasing demand and expiring contracts over the 2030-2034 period.

It is likely that energy resource development through corporate PPAs could address supply needs more expeditiously than Ontario government or IESO-led procurement processes, which by design are burdened (rightly) with rigorous transparency and accountability mechanisms. Further, corporate PPAs would inject much needed new buyers of energy in Ontario that would encourage innovation and unique bilateral arrangements. Over time, the best approaches and provisions in corporate PPA agreement could be adopted more broadly by the IESO and would help Ontario ratepayers over the long-term.

While corporate PPAs offer many value streams for Ontario, there are areas of uncertainty that must be addressed before significant interest from ICI participants (and potentially other non-ICI participant large loads), and/or generators will emerge.

Ineligibility of Hybrid Facilities

The explicit disallowance of pairing energy storage with renewable generation (typically referred to as a hybrid-facility) as an eligible arrangement necessarily limits the potential of the proposal. For example, ICI participants have previously raised operational and cost concerns of the program, such as lost production from shutting down operations to avoid the top five peak hours and the costs of installing behind-the-meter energy resources. Further, some customers eligible to participate in the ICI cited these same issues as preventing them from participating in the program (e.g., the costs of shutting down and restarting production is prohibitively expensive).

These specific concerns were raised when the Ministry of Energy conducted a consultation on industrial electricity pricing in 2019.  Participants in the consultation indicated that a preference for an alternative to shutting down production, noting “…in lieu of disrupting production, they would consider installing, or have already installed, behind-the-meter generation or electricity storage systems. Others mentioned that they struggled to justify the cost for investing in electricity generation or storage solutions to their head offices or thought that these investments “seem risky”.

Making hybrid storage-renewable generation facilities eligible would address the above concerns by offering participants an alternative to shutting down to avoid the top five peak hours while allowing participants to manage the variable/intermittent output of renewable generation and fully contract-out energy systems. Such an arrangement would also allow them to avoid the upfront capital costs of directly purchasing and installing resources behind-the-meter of their facility.

In addition, supporting hybrid facilities would encourage new non-emitting resources to be capable of offer more services to the IESO-Administered Markets (IAM) through enhanced dispatch capabilities compared to stand alone intermittent renewable generation.

Requirement to be a Market Participant?

The proposal’s definition of an “eligible purchase customer” refers to a “Class A market participant,” but not to a “Class A Consumer” (not a market participant). The posting does not make any reference to, or explanation for, excluding ICI participants that are not IESO market participants from participation in the PPA proposal.

As noted earlier, customers participating in the ICI can be IESO market participants or LDC consumers. However, O. Reg. 429/04 is made under the Electricity Act, 1998, which defines a “market participant” as “a person who is authorized by the market rules to participate in the IESO-administered markets or to cause or permit electricity to be conveyed into, through or out of the IESO-controlled grid.”

Limiting the eligibility to Class A IESO market participants would raise concerns regarding the potential financial impact on Class A non-market participants (LDC consumers) unable to offset their demand via a PPA during peak hours. Class A non-market participants would see their share of GA costs increase as a result of Class A IESO market participants reducing their peak demand through a PPA.

The final amendments should make the eligible purchase customer definition unambiguous with regards to IESO market participant status.

Disclosure of PPA to the IESO

The requirement that parties to an eligible PPA provide a copy to the IESO may also deter participation, depending on the degree of disclosure required. Both parties will likely want to keep the terms of the agreement confidential for commercial and competitive reasons. Generators may feel uncomfortable disclosing price information to the IESO, given the IESO’s role in procuring and contracting for supply.

If unredacted copies of the agreement must be provided to the IESO, Power Advisory believes there will be minimal interest by eligible parties to enter into such agreements.

The reason for requiring the provision of a copy of the agreement is unclear, especially since the draft regulation requires that the IESO be provided with an attestation that the parties have entered into an eligible PPA. Therefore, as an alternative to providing a copy of the agreement, the attestation requirements could be amended to include information the Ministry and/or IESO may want in the PPA without disclosing any commercially sensitive information.

Uncertainty: The Market Renewal Program and the Future of ICI

Of further note is that the effective date for the proposed amendments is May 1, 2025, which is also the “go-live” date for the IESO’s Market Renewal Program (MRP). MRP will replace Ontario’s current uniform pricing market with Locational Marginal Prices (LMP) that will apply for loads that are market participants (e.g., Class A market participants).

Power Advisory believes that, in specific circumstances, LMP differentials can help support project economics through benefits for both the customer and generator depending on technology type and connection location.

The PPA proposal does not discuss or refer to MRP, LMP, or how the change from Ontario’s current uniform market price to LMP will impact (and/or be compatible with) the ICI given the supply/demand signals of the two regimes do not align (e.g., the top 5 peak hours and share of GA costs in the ICI program are based on total Ontario system peaks, not locational circumstances which how LMPs are determined).


Overall, the revised proposal represents an incremental step in the development of a market for PPAs in Ontario and, as currently drafted, is unlikely to result in significant uptake. That said, a cautious approach to amendments is understandable given the realities of Ontario’s complex hybrid market structure. The current degree of shifting GA costs from Class A to Class B (e.g., small residential and commercial) electricity customers create practical and political challenges with any changes that potentially lead to a change in cost shifting between the two classes or, as noted above, possibly within Class A itself (if, in fact, the intention of the proposal is that only Class A IESO market participants are eligible to enter into PPAs).

Given these considerations, the current proposal points to the need for a comprehensive discussion of potential policies and regulatory reforms to overcome the deep structural barriers to PPAs in the province as well as how MRP (and LMPs) will interact with existing programs like the ICI.

Power Advisory recommends that clients and interested parties with comments, concerns or questions on the proposal provide feedback by the June 21, 2024 deadline.

Please contact Power Advisory if you have any questions or would like any additional information.