Regulatory incentives for Ontario distributors to encourage DER integration through non-wires solutions

On November 25, the Ontario Energy Board (OEB) released final amendments to the Distribution System Code (DSC) designed to encourage distributors’ consideration of non-wires solutions (NWS). These changes support Ontario’s Integrated Energy Plan and its objectives to unlock the value of distributed energy resources (DERs) to meet the province’s growing demand for electricity, enhance resilience, reduce costs and enable consumers and DER providers to participate in the energy system. The amendments introduce a 25% margin of payments (MoP) financial incentive for distributors who are leveraging third-party DERs as NWS to meet a distribution system need. Utilities, power consumers, investors and DER providers should assess these developments in the context of their future business and investment plans and remain vigilant for further initiatives underway to support DER integration in Ontario.

What you need to know

• Understanding NWS: NWS are non-capital investment strategies or approaches that can enable a utility to defer or displace the need to construct physical grid infrastructure like poles and wires. Examples of NWS that distributors may consider for the purpose of addressing system needs include energy efficiency programs, demand response programs, energy storage (in front of or behind the meter), generation (in front of or behind the meter) and managed charging of electric vehicles. NWS are part of a broader constellation of initiatives to integrate third-party DERs that have the potential to reduce costs, enhance resilience and enable consumers to participate in the energy system.
• Regulatory incentives: The DSC amendments outline a 25% MoP financial incentive that distributors can earn when they leverage third-party DERs as NWS to meet a distribution system need. Utilities can apply to the OEB for this incentive either in a stand-alone application or as part of their broader rate application. This incentive only applies to an OEB-approved DER NWS program as outlined under section 3 of the OEB’s NWS Guidelines.
• Eligibility criteria: To qualify, the DER program must (1) have a positive forecast net benefit (i.e., the net present value of the net benefit must be greater than 0); and (2) the net present value of the forecast MoP incentive amount cannot exceed 50% of the net present value of the forecast net benefit of the proposed third-party DER solution. If the OEB is satisfied, the distributor’s rates will be set to include the MoP incentive of a default of 25% of any OEB-approved NWS program.
• Next steps: These amendments took effect on November 25, 2025. Further policy developments related to DER integration are expected in the near term, as the OEB is working on defining a roadmap for developing and implementing Distribution System Operator (DSO) capabilities.

Ontario’s Integrated Energy Plan: focus on distribution and DERs

The Integrated Energy Plan (IEP) lays out a comprehensive, multi-faceted approach to address Ontario’s increasing demand for energy over the next 25 years. Central to this strategy is a call for significant investment in the province's electricity distribution sector to expand, modernize and fortify the local grids that bring power to consumers. The IEP underscores the role of DER in this process, highlighting their potential to enhance system flexibility and resilience, reduce reliance on traditional infrastructure and, in turn, reduce overall infrastructure costs.

Beyond system benefits, the IEP recognizes the importance of empowering consumers by providing them with more options to manage their energy use. Through the integration of DERs, consumers are encouraged to actively participate in the energy system, whether by adjusting their usage patterns, contributing energy back to the grid or taking advantage of new programs and smart technologies designed to enhance their energy choices.

Following the IEP’s release, the Minister of Energy and Mines directed the OEB to advance these objectives and explore incentive mechanisms for the use of DER as NWS¹. The Minister also directed the OEB to define a roadmap by December 31, 2025 for potentially developing and implementing Distribution System Operator (DSO) capabilities². To this end, throughout 2025, the OEB engaged in consultation to develop a policy framework for distributors. Energy participants should remain vigilant on the framework’s publication.

The DSC amendments: incentive and eligibility

Under section 11 of the DSC, a distributor may apply for a MoP financial incentive in relation to a third-party DER program to meet a distribution system need. This can be applied through either a stand-alone application or part of a distributor’s broader rate application. If approved, the distributor’s rates will include the MoP incentive of a default of 25% of the OEB-approved NWS program. Applications must include an overview of the NWS proposal, the incentive term, all the relevant forecasts and outlined payments to the DER provider, the requested percentage value of the MoP incentive (which cannot exceed 25%), a completed Benefit-Cost Analysis (BCA), and the proposed method for implementing and recovering the MoP incentive³.

In assessing the incentive application, the OEB will ensure that the application meets the following two eligibility criteria:

1. The proposed NWS solution must have a “positive forecast net benefit” (i.e., the net present value of the net benefit must be greater than 0), calculated using the Distribution System Test (DST) under the OEB’s BCA Framework⁴.
2. The net present value of the forecast MoP incentive amount cannot exceed 50% of the net present value of the forecast net benefit of the proposed DER solution.

Both the 25% incentive and 50% cap aim to mitigate risk to rate payers. However, the amendments allow flexibility in a distributor’s application where the “50% of net benefits” criterion is not met. The distributor would have to justify the incentive using appropriate evidence, including using qualitative benefits that cannot be assessed using the DST in the BCA Framework.

The OEB clarified that this incentive is limited to OEB-approved DER NWS projects⁵. That is, these amendments only address the MoP incentive; the distributor must still demonstrate the prudency of the proposed NWS itself. Here, the distributor would have to consider section 3 of the OEB’s NWS Guidelines, which outlines the requirements for receiving approval to use a DER as an NWS⁶.

Next steps

The MoP took effect on November 25, 2025, when the OEB published the final DSC amendments. Further policy developments related to DER integration are expected in the near future. Specifically, the OEB is working on a roadmap for developing and implementing DSO capabilities. Utilities, power consumers, investors and DER providers should take note of these amendments in the development of their future plans.