The IESO’s Long-Term 2 Request for Proposals Draft: potential changes for energy suppliers

On September 6, 2024, the Independent Electricity System Operator (IESO) released the draft of its Long-Term 2 Request for Proposals (LT2).The LT2 outlines a resource-agnostic framework for suppliers looking to provide year-round energy generation services in Ontario through new build electricity generating facilities larger than 1MW. This bulletin highlights the new requirements and the challenges for suppliers to consider for future project proposals.

What you need to know

• The IESO’s LT2 outlines a resource-agnostic framework for suppliers looking to provide year-round energy generation services in Ontario through new build electricity generating facilities larger than 1MW. Through this framework, the IESO plans to procure roughly 2,000 MW of energy generation services.
• The LT2 outlines eligibility requirements that proponents must satisfy before being considered by the IESO, including requirements relating to Team Member Experience, Group Limits and the proposed Project Site’s access rights.
• The LT2 provides new Rated Criteria Points awarded based on the project’s site in relation to agricultural areas and whether the project is located in Northern Ontario.    
• For the Indigenous Participation Rated Criteria Points, the LT2 introduces the concept of Minimum Reduced IPL, qualifying the degree to which Indigenous communities can reduce their economic interest in a project prior to the fifth anniversary of the project’s commercial operation date.
• The LT2 places greater emphasis on protecting agricultural lands as seen with a new prohibition on Non-Rooftop Solar Projects on Prime Agricultural Areas. For other proposed projects located on Prime Agricultural Areas, an Agricultural Impact Assessment will now be required.

What is the LT2?

The LT2’s goal is to support the IESO’s resource adequacy initiatives and procure electricity generation services to address Ontario’s system reliability for long-term needs. The LT2 takes a technology agnostic approach, meaning that all resource types are eligible to participate so long as suppliers meet the requirements of the request for proposals (RFP) and the LT2 Contract.

The LT2 RFP is only in draft form, with the IESO continuing to solicit feedback from stakeholders this fall. The IESO aims to finalize both the LT2 RFP and companion LT2 Contract in December 2024, and receive proposal submissions under the LT2 by the third quarter of 2025. Through this framework, the IESO plans to procure roughly 2,000 MW of energy-producing resources.

While the LT2 is similar in some respects to its predecessor, the Long-Term 1 RFP (LT1), the LT2 draft outlines new requirements for suppliers and their project proposals. We highlight three key aspects of the LT2 that suppliers of energy-producing resources ought to consider for their future proposals.

Mandatory requirements

The LT2 outlines eligibility requirements that proponents must satisfy before being considered by the IESO. Where a proponent has not satisfied these mandatory requirements, its proposal will not be evaluated further and will be rejected.

Team Member Experience

Under the draft’s Team Member Experience requirements, a proponent must possess at least two Designated Team Members who have experience in planning, developing, financing, constructing and operating at least one qualifying project. Proponents can have more than two Designated Team Members to satisfy the aggregate experience requirements relating to each of these experiences.

Proponent Group Limit

The LT2 limits proponents and their control group members from submitting no more than ten proposals in total. A separate proposal must be submitted in respect of each project.

Access to Project Site

Proponents must also demonstrate that they have uncontested access to the properties for the Project Site. The LT2 provides the following:

• All proposals where the Project Site is to be located in whole or in part on Municipal Project Lands, Indigenous Lands or Unorganized Lands must show evidence of the delivery of a Pre-Engagement Confirmation Notice to the Local Body Administrator. This is a new requirement from the LT1.
• For proposals where the Project Site is to be located in whole or in part on Indigenous lands, the proposal must include an Indigenous Support Confirmation as evidence of Indigenous support.
• For proposals where the Project Site is to be located on Municipal Project Lands, the proposal must include a Municipal Support Confirmation as evidence of municipal support.

Proponents must provide confirmation of access rights for the project by demonstrating they are either the registered owner of the Project Site or have received confirmation from the registered owners. For projects located on Crown lands, the proposal must also provide a confirmation letter from the Ontario Ministry of Natural Resources verifying that a completed Crown Land Site Report has been received.

New Rated Criteria Points and Indigenous Participation Level Qualifications

The Rated Criteria Points are used to evaluate the proposal and to lower a proposal’s Evaluated Proposal Price (EPP). The LT2 proposes awarding points in the categories of Indigenous Participation, projects not located on Prime Agricultural Areas, and projects located in Northern Ontario. Within these categories, proponents can receive a maximum of 12 criteria points to reduce their EPP.

Indigenous Participation

For Indigenous Participation, proponents can receive up to three points depending on the Proponent Indigenous Participation Level (IPL), which is the percentage of the total economic interest in the project held by one or more Indigenous communities. Where a project is awarded points for its IPL, proponents are awarded additional points if the Project Site is in whole or in part on Indigenous Lands (broadly defined).

While the IPL points remain the same from the LT1, the LT2 outlines an additional qualification through the concept of the Minimum Reduced IPL. Under LT1, an Indigenous community can request a reduction in their IPL to 10%. Under LT2, Indigenous communities can request a reduction to their IPL to a level not below the Minimum Reduced IPL. The Minimum Reduced IPL is 40% where the Initial IPL was equal to or greater than 50%; 25% where the Initial IPL was equal to or greater than 25% and less than 50%; and 10% where the Initial IPL was equal to or greater than 10% and less than 25%.

Project Location

The LT2 also adds two new categories in which proponents can gain Rated Criteria Points. First, the LT2 awards three points for projects that are not located on Prime Agricultural Areas. Second, LT2 awards three points if the Project Site is located within a Northern Ontario territorial district. Unlike the Indigenous Participation categories, under these two categories, points are awarded on an all-or-nothing basis, meaning that the proponent will either receive all three points or no points, depending on where the proposed Project Site is located.

Additional prohibitions and regulations relating to Prime Agricultural Areas

Consistent with Ministerial direction, the LT2 places new emphasis on protecting agricultural land, prohibiting specific projects in relation to agriculture land use. The proposed Project Site cannot include any lands in areas designed as Specialty Crop Areas. The LT2 also specifically forbids proposals for Non-Rooftop Solar Projects from including any lands located in Prime Agricultural Areas.

The LT2 also requires an Agricultural Impact Assessment for proposed projects situated on land designated as Prime Agricultural Areas. The supplier must give the IESO written notice and supporting documents that it has completed an Agricultural Impact Assessment, including delivering the report to any municipality’s planning department that has jurisdiction over the Project Site’s land. This notice must be given by no later than the 18-month anniversary of the contract date. Failure to complete the Agricultural Impact Assessment within this timeframe constitutes an event of default under the LT2 contract.

Next steps

The IESO continues to solicit feedback on the draft this fall and aims to finalize the LT2 this December. Proponents looking to submit proposals for the LT2 RFP will want to ensure that their proposals are structured to meet these new requirements while also taking into consideration the new Rated Criteria Points.