ICI participants may soon be able to offset peak demand using corporate PPAs

The Ontario Ministry of Energy has proposed amendments to regulations under the Electricity Act, 1998 (the Act) that would allow Industrial Conservation Initiative (ICI) participants to offset their facility’s peak demand by entering into power purchase agreements (PPAs) with clean energy facilities that are not connected behind the participant’s meter.

What you need to know

• ICI participants are incentivized to reduce demand during peak hours. ICI participants are required to pay a charge, called the Global Adjustment (GA)¹, based on their relative contribution to the top five peak hours of Ontario electricity demand, calculated over a 12-month base period. They are therefore incentivized to shift their electricity use away from peak periods or to install behind-the-meter generation or storage to reduce their net electricity demand.
• Proposal would allow ICI participants to use corporate PPAs to offset demand. On November 2, 2023, the Ministry of Energy proposed amendments to Ontario Regulation 429/04 under the Act, which would allow ICI participants to offset their facilities’ electricity demand during the five peak hours by entering into corporate PPAs with clean energy generation facilities that are not connected behind the ICI participant’s meter.
• Change could create a new way to minimize GA—and a new contracting opportunity. The proposal could create a new avenue for ICI participants to minimize GA charges and a new contracting opportunity for owners and developers of clean energy generation and storage facilities.
• Deadline for public comments. The proposal is open for public comments until December 17, 2023.

Background

Ontario’s ICI program was designed to incentivize eligible industrial and commercial customers to reduce their demand during peak periods. In doing so, the program helps the province defer the need for investments in new electricity infrastructure that might otherwise be needed to support peak demand. The large industrial and commercial customers who participate in the ICI, called Class A customers, pay the GA based on their percentage contribution to the top five peak hours, calculated over a 12-month base period.

The ICI therefore creates an incentive for Class A customers to minimize the GA payable, either by shifting their electricity use away from peak periods (including by shutting down electricity use during such periods) or by installing behind-the-meter generation or storage that reduces net electricity demand at the customer’s facility during peak periods.

The proposal

The Ontario Ministry of Energy has proposed amendments to O. Reg. 429/04 under the Act that would create another avenue for ICI participants to minimize their GA charges. The proposal would allow a Class A customer to offset its calculated electricity demand in the top five peak hours by entering into a corporate PPA with a clean energy generation facility that is not connected behind the customer’s meter. The customer’s demand would be reduced during the peak hours by the amount of coincident generation under the corporate PPA. Eligible generation facilities would include wind, solar, small hydroelectric (i.e., less than 10 megawatts), biofuel and battery storage.

In effect, the Ministry has proposed a form of virtual net metering. Electricity generated by the contracted clean energy generation facility would not be supplied directly to the ICI customer, but rather to a connection point on a local distribution system or the provincial transmission grid. Nonetheless, the generated electricity would virtually offset the electricity demand of the PPA customer for the purposes of determining the GA payable under the ICI program.

The proposal would create not only another avenue for ICI participants to reduce their GA, but also a new contracting opportunity for owners and developers of clean energy generation and storage facilities. To date, the market for corporate PPAs has largely centered on deregulated electricity markets in provinces like Alberta. In these markets, corporate PPAs have increasingly been used by renewable energy suppliers to hedge against volatility in future power prices and by their counterparties to secure a future stream of environmental attributes and to hedge against increases in power prices. The Ministry’s proposal aims to create a market for corporate PPAs in Ontario, potentially offering new contracting opportunities for both new facilities and existing facilities with IESO PPAs that will expire in the coming years. Input from and dialogue with energy industry stakeholders, and more clarity on how this proposal will interface with existing transmission market rules, will be required before the viability of such new energy contracting opportunities in the province can be truly assessed.

Looking ahead

The proposal is open for public comments until December 17, 2023. Comments may be submitted electronically here.