ICI participants are now able to offset peak demand using corporate PPAs with eligible generators

The Ontario Ministry of Energy has amended regulations under the Electricity Act, 1998 (the Act) that allow Industrial Conservation Initiative (ICI) participants to offset their facility’s peak demand and lower their Global Adjustment (GA) costs by entering into corporate power purchase agreements (PPAs) with eligible generators with qualifying clean generation facilities that inject supply into the IESO-controlled-grid or a licensed distribution system.

This bulletin provides an update to our earlier post on the topic.

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 GA, based on their relative contribution to the top five peak hours of Ontario electricity demand, calculated over a 12-month base period beginning on May 1, 2025. 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 during peak periods.
• ICI participants are now able to use corporate PPAs to offset demand. On June 5, 2025, the Ministry of Energy passed amendments to Ontario Regulation 429/04 (the Regulation) under the Act, which allows ICI participants to offset their facilities’ electricity demand (including during the five peak hours used for the purposes of calculating GA charges) by entering into PPAs with eligible generators with qualifying clean energy generation facilities. The amendments to the Regulation went into force on July 1, 2025.
• The amendments create a new way to minimize GA. ICI participants can offset their energy usage during periods of high system demand in an effort to minimize GA charges by entering into PPAs with owners and developers of eligible clean energy generation facilities. The ICI participant’s GA charges will be reduced if and to the extent that electricity generation at the facility occurs coincidentally with the ICI participant’s electricity demand during the five peak hours that are used to calculate GA charges for the subsequent base period.
• The amendments introduce an additional contracting opportunity for eligible generators. Eligible IESO market participants with facilities that produce clean energy that is not “compensated electricity” (i.e., not already used to meet capacity or demand auction commitments, the subject of a supply agreement, or subject to regulated payment amounts) now have a new opportunity to be compensated for their supply.  

Background

Ontario’s ICI program was designed to incentivize eligible industrial and commercial customers to reduce their demand during peak periods. 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 amendments

Overview

The Ontario Ministry of Energy made amendments to the Regulation under the Act that establish another avenue for ICI participants to minimize their GA charges. The amendments went into force on July 1, 2025. Class A customers can now offset their calculated electricity demand in the top five peak hours of a base period by entering into PPAs with eligible clean energy generation facilities that are not connected behind the customer’s meter, provided that electricity generation at the facility occurs coincidentally with the ICI participant’s electricity demand during the five peak hours that are used to calculate GA charges for the subsequent base period.

In effect, the amendments offer 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. In either case, the generated electricity would virtually offset the electricity demand of the PPA customer during peak system demand hours for the purposes of determining the GA payable under the ICI program.

These amendments 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 with facilities that are not “compensated electricity” (i.e., not already used to meet capacity or demand auction commitments, the subject of a supply agreement, or subject to regulated payment amounts). To date, the market for PPAs has largely centered on deregulated electricity markets in provinces like Alberta, where 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 amendments aim to create a similar market for PPAs in Ontario, offering new contracting opportunities for both new facilities and existing facilities with IESO PPAs that will expire in the coming years.

Requirements

The following provides a non-exhaustive summary of the requirements for PPAs to allow for GA offset under the Regulation, as well as requirements for generators and consumers who wish to participate.

Generator and facility requirements

The generator must qualify as an “eligible generator” for a base period and satisfy various requirements, which include the following:

• it must be registered as an IESO market participant for the adjustment period;
• it must have one or more eligible generation facilities;
• it must enter into an “eligible purchase agreement” that specifies the generation facility or facilities subject to the offset arrangement;
• it must generate the electricity only from wind, water, biomass, biogas, biofuel, solar energy or geothermal energy;
• the generated electricity must not be stored in an energy storage facility;
• it must physically supply some volume of eligible electricity into the IESO-controlled grid or other distribution system during each hour of the applicable 12-month base period, subject to specified exceptions (which include outages and insufficient wind or sun, or other circumstances reasonably beyond the control of the generator);
• it must not consume more electricity than it generates; and
• it must file prescribed information in respect of its facilities to the IESO.

The Regulation includes siting requirements for generation facilities that have not been in commercial operation before the binding date of the PPA, which include the following:

• it must not be located within lands designated as prime agricultural areas as defined in Provincial Planning Statement, 2024; and
• if the facility is or will be located in one or more local municipalities, the generator must, before the base period, obtain a written resolution (in the form prescribed by the IESO) from each municipal council of the local municipalities in which the facilities is or will be located that supports the operation of the facility within the municipality.

Customer requirements

The purchaser must qualify as an “eligible purchase customer” for a base period and must satisfy various requirements, which include the following: 

• it must be registered as a Class A market participant for the adjustment period;
• it must have entered into an eligible purchase agreement with an eligible generator in respect of one or more of the market participant’s load facilities (associated with its Class A status) that are specified in the agreement; and
• it must satisfy annual filing requirements to the IESO on or before March 30 in the same calendar year in which the applicable base period commences.

PPA and other requirements

The Regulation imposes requirements in respect of qualifying PPAs and the electricity subject thereto, which include the following:

• it must pertain to the eligible forms of clean energy as discussed above;
• the energy must not be “compensated energy”, meaning the volumes of energy cannot already be the subject of a contract entered into with the IESO or the Ontario Electricity Financial Corporation, or used by or credited to the eligible generator from any capacity auction or pilot conducted by the IESO, or the generator or purchaser cannot otherwise be entitled to receive any payment or other consideration on account of that electricity;
• it must specify the generation and load facilities that will be subject to the GA offset arrangement;
• the physical supply of the electricity must be settled through the IESO markets; and
• it must provide for the purchase of some volume of eligible electricity by the customer for each hour during the base period, subject to certain exceptions as described above.

Implications

The amendments create a new way for Class A market participants to offset their energy demand during peak hours, allowing them to reduce their GA charges provided the conditions for eligibility are met.

The IESO has indicated that the changes will apply for the 2026-2027 base period. Prospective participants that wish to take advantage of this program as soon as possible should therefore begin identifying counterparties, negotiating PPAs, and ensure that requirements are met, including by registering as an IESO market participant (if this has not already been done). The IESO website indicates that it will publish guidance on the program and prescribed forms and will carry out stakeholder engagement sessions. We will continue to monitor these developments.