Minister’s Directive

To: The Independent Electricity System Operator

I, Stephen Lecce, Minister of Energy and Electrification (“Minister”), hereby direct the Independent Electricity System Operator (“IESO”) pursuant to section 25.32 of the Electricity Act, 1998 (the “Act”) in regard to the procurement of electricity resources to ensure the reliable operation of Ontario’s electricity system in response to ongoing and growing electricity needs expected in the future and require the IESO to report back on certain questions respecting electricity as set out in this Directive pursuant to section 25.4 of the Act, as follows:

Background

After more than a decade of stable electricity supply, and at times, a surplus, the IESO has forecasted that Ontario will see electricity needs emerging in 2029 and growing through the 2030s. Amongst other drivers, this is a result of increased demand due to expanding electrification, population growth, increasing business investment in the province and expiring electricity supply and capacity contracts.

Fulfilling the forecasted supply need requires the IESO to procure electricity products and services from both existing and new electricity resources.

The government is committed to a procurement framework that ensures Ontario has an affordable, reliable and clean electricity system. This is achieved when resources are procured largely through competitive processes and in a transparent and cost-effective manner.

The IESO’s Resource Adequacy Framework sets out a long-term strategy to acquire products and services from resources while balancing ratepayer and supplier risks and recognizing the unique characteristics and contributions of different electricity resource types.

The framework consists of competitive procurement mechanisms, as well as special programs and bilateral negotiations with resource providers that are essential to meeting reliability needs while also meeting broader government objectives.

Second Long-Term Request for Proposals (LT2 RFP)

Recent initiatives under the IESO’s Resource Adequacy Framework, including competitive procurements, have ensured that we have contracted the resources we need to meet our electricity needs through to 2029. Our government and the IESO is now planning for forecasted needs that emerge in 2029 and grow through the 2030s.

In July 2023, the government released Powering Ontario’s Growth: Ontario’s Plan for a Clean Energy Future, our response to the IESO’s Pathways to Decarbonization, which outlines early actions to meet the province’s growing demand for electricity in the 2030s and beyond while transitioning to a clean electricity system. One of these actions, which was further detailed in a July 10, 2023, Minister’s letter to the IESO, was for the IESO to report back on the IESO’s proposed approach to potential subsequent procurements, including the LT2 RFP. In its report back, the IESO was requested to include:

  • A review of the role of existing assets and new non-emitting electricity resources that can be in-service by 2029 or when the IESO identifies future needs arising, including wind, solar, hydroelectric, storage and bioenergy.
  • Considerations for a potential separate procurement for resources with long lead times and long lifespans, such as certain long-duration storage and hydroelectric generation.
  • An assessment of the implications of a requirement in such procurement initiatives that all new electricity generation and storage resources procured would be required to obtain supportive municipal council resolutions prior to construction as well as some restrictions on the use of prime agricultural land.

On May 3, 2018, Ontario entered into an agreement (“Agreement”) with Six Nations of the Grand River and Six Nations of the Grand River Development Corporation, under which Ontario agreed to set-aside 300 MW of grid connection capacity in certain locations for new SNGRDC led or partnered renewable energy projects in future renewable procurements.

On June 6 and August 28, 2024, two Minister’s letters to the IESO outlined the following additional policy constraints for the IESO to consider in a report back on the final design of the LT2 RFP:

  • The procurements should be technology agnostic.
  • Municipal support resolutions will be required at the time of bid submission.
  • On Crown land managed by the Ministry of Natural Resources (MNR), MNR’s endorsement of a submitted Crown Land Site Report serves in lieu of a municipal support resolution.
  • Rated criteria for projects in northern Ontario, outside of prime agricultural areas, and projects with Indigenous participation.
  • Projects in specialty crop areas are not eligible.
  • Ground-mounted solar in Prime Agricultural Areas is not eligible.
  • Any other eligible resource in a Prime Agricultural Area needs to complete an Agricultural Impact Assessment.
  • Options to accelerate the procurement and increase the procurement targets.

Having duly considered the reports back received on March 15 and October 18, 2024, on the design of the LT2 RFP; I wish to instruct the IESO to launch the LT2 RFP with separate streams for dispatchable capacity resources and electricity producing resources.

In addition, in recognition of the need for more time to appropriately design a competitive procurement for long-lead time resources, I ask the IESO for a report back on considerations for a proposed separate procurement for long-lead time resources by March 14, 2025. After receiving and reviewing this report, government will work with the IESO to launch a competitive procurement for long-lead time resources by the end of 2025.

Capacity Sharing Agreement (2024 CSA) with Hydro-Québec Energy Marketing Inc. (HQEM)

On August 30, 2023, the IESO and HQEM, with the support of both provincial governments, entered into a Memorandum of Understanding (“MOU”) to negotiate a new electricity trade agreement to supplement the 2015 Capacity Sharing Agreement. HQEM is a subsidiary of Hydro-Québec and is the sole entity responsible for marketing Hydro-Québec’s generation portfolio.

Following the MOU, both parties negotiated the 2024 Capacity Sharing Agreement (“2024 CSA”) to allow Ontario and Québec to take advantage of their complementary seasonal peaks in electricity demand. As Ontario peaks during the summer while Québec peaks in the winter, the provinces are able to support each other’s electricity peak period and reduce the need for investments in new generation capacity.

This agreement leverages the complementary nature of the two provinces’ electricity systems to diversify electricity supply, increasing Ontario’s grid reliability at no additional cost to consumers for the capacity traded.

Under a seven-year term, with the option to extend for three years, the 2024 CSA will provide a significant source of capacity that Ontario can rely on during planned nuclear refurbishment activities.

In recognition of the flexibility that the 2024 CSA can provide, I wish to direct the IESO to enter into this new electricity trade agreement with HQEM for a term of up to ten years.

Atikokan Generating Station (GS)

Alongside these initiatives, further to the Minister’s Directive to the IESO, as approved by the Lieutenant Governor in Council pursuant to Order-in-Council 618/2024 dated May 9, 2024 (the May 9, 2024 Directive), I am directing the IESO to amend its amended and restated contract with Ontario Power Generation Inc. (OPG) for the Atikokan GS, dated July 24, 2024, to align, with terms that are substantially consistent with the draft term sheet dated July 11, 2024 among the parties.

Local Generation Program

The government of Ontario recognizes that distributed energy resources (DERs), such as smaller-scale, distribution-connected generation, can offer value to our electricity system at a time of unprecedented demand growth. Ontario has nearly 2,000 MW from roughly 1,600 existing biogas, wind, solar, and combined heat and power facilities with contracts sunsetting over the next ten years. The IESO should explore a new program to secure existing and new distribution-connected generation facilities to help meet regional and system-wide supply needs. Additionally, the IESO should explore considerations for upgrades and/or expansions at existing distribution-connected facilities to help cost-effectively support our growing energy needs. Locally sited resources can help support municipal clean energy commitments, address local energy supply concerns, and empower more Ontario customers and business to participate in the electricity system.

 As such, I request that the IESO report back by April 30, 2025 on a proposal to establish a local small generation procurement program in Ontario. After receiving and reviewing this report, government will work with the IESO to launch a competitive program for local generation resources by early 2026.

The government recognizes that further actions will be required beyond those outlined in this Directive. The IESO and the Ministry of Energy and Electrification (the Ministry) will continue to work together to ensure Ontario’s electricity system continues to be ready to meet the needs of Ontario’s residents and businesses.

DIRECTIVE

Therefore, in accordance with the authority under section 25.32 of the Electricity Act, 1998, the IESO is hereby directed as follows:

  1. The Second Long-Term Request for Proposals (LT2 RFP)
    1. The IESO shall undertake a procurement initiative, known as the Second Long-Term Request for Proposals (“LT2 RFP”), which shall be structured to include multiple submission windows under distinct capacity and energy procurement streams (each under separate requests for proposals and referred to as individual procurements hereafter) to ensure eligible resources gradually enter the electricity system to meet system needs identified by the IESO’s electricity system planning documents.
    2. The IESO shall enter into procurement contracts with successful proponents for the acquisition of energy and capacity from eligible facilities, that are able to commit to target commercial operation dates, subject to the appropriate contractual provisions and adjustments, in accordance with system needs identified by the IESO’s electricity system planning documents.
    3. The IESO shall endeavour to launch the LT2 RFP by issuing the final procurement documents for the first procurement no later than March 2025. At such time, the IESO shall outline the expected cadence and timing for all of the procurements and expected contract award milestones, which timing (and any deadlines within a given procurement) may be extended or abridged by the IESO as it deems necessary and appropriate. The IESO shall endeavour to conclude all procurements constituting the LT2 RFP by offering the last contracts on or before March 31, 2029.
    4. The IESO shall set the expected targets for each procurement such that:
      1. The totality of all energy procurements will target the acquisition of contract capacity (MW) sufficient to enable the production of up to 14 terawatt-hours (TWh) of annual generation from eligible energy-producing resources.
      2. The totality of the capacity procurements will target up to 1,600 MW through the acquisition of eligible capacity resources.
    5. The final LT2 RFP procurement documents and associated procurement contracts (“Contract”) shall comply with the following requirements:
      1. LT2 RFP procurements shall be open to all resource types that can meet the mandatory criteria established by IESO, provided that natural gas resources with a nameplate capacity of greater than 45 MW may only participate in the capacity procurements.
      2. The criteria established by IESO shall include, subject to appropriate contractual provisions and adjustments to meet system needs identified by the IESO’s electricity system planning documents:
        1. An expected commercial operation date of no later than May 1, 2034; and
        2. 20-year contract terms subject to the appropriate contractual provisions and adjustments.
      3. The IESO shall procure energy and capacity products and services from the LT2 RFP in a manner that takes into account the impact on affordability for consumers while supporting reliability including through the prioritization of energy-producing resources in both streams as applicable. This includes but is not limited to:
        1. Deploying an updated contract revenue model for energy procurements resources substantially as described in the reports back referenced above and in the IESO public stakeholder engagements to date referring to such model as the Enhanced Power Purchase Agreement (“E-PPA”) form of contract, subject to appropriate adjustments.
        2. Utilizing a capacity style contract substantially in the form of the Long-Term 1 Contract for capacity procurements, subject to appropriate adjustments.
      4. Where a proposed project is located in a municipality, the IESO shall require the proponent to obtain a council resolution of support from the municipality where the generating or storage equipment of the project is planned to be located (excluding any interconnection lines), at the time when the project proposal is submitted to the IESO. This requirement is solely for purposes of proposal submission to the LT2 RFP procurements and is separate and in addition to all necessary municipal permits and regulatory approvals, whose associated requirements and deadlines remain unaffected.
      5. Where a project is proposed to be located outside of municipal boundaries and on Crown land managed by the Ministry of Natural Resources (MNR), in lieu of a municipal support resolution, a proponent must obtain the MNR’s endorsement of the proponent’s Crown land Site Report.
      6. Where a project is proposed to be located both withinmunicipal boundaries and on Crown land managed by the MNR, a proponent should have a municipal support resolution and obtain MNR’s endorsement of the proponent’s Crown land Site Report.
      7. The following restrictions will apply in regard to where eligible projects for the LT2 RFP can be sited:
        1. All eligible projects are restricted from being built in speciality crop areas, as defined in the Provincial Planning Statement, 2024 and designated by the municipality’s or northern planning board’s Official Plan and the Greenbelt Plan (e.g., Holland Marsh, Niagara Peninsula Tender Fruit and Grape Area, etc.).
        2. New ground-mounted solar projects are prohibited from being built in Prime Agricultural Areas, as defined in the Provincial Planning Statement, 2024 and designated by the municipality’s or northern planning board’s Official Plan.
        3. All other eligible projects may only locate on lands which constitute Prime Agricultural Areas as defined in the Provincial Planning Statement, 2024 and designated by the applicable municipality’s or northern planning board’s Official Plan, if the proponent attests to having evaluated alternative locations at the time of proposal submission, to the satisfaction of the local municipality. Successful proponents must also complete an Agricultural Impact Assessment which is completed to the satisfaction of the local municipality prior to construction.
      8. The evaluation provisions of the LT2 RFP shall consider appropriate incentives, including but not limited to, recognition for projects that:
        1. Are situated in northern Ontario, defined as being within the collective territorial Districts of Kenora, Rainy River, Thunder Bay, Cochrane, Algoma, Sudbury, Timiskaming, Nipissing, Manitoulin and Parry Sound.
        2. Are sited on lands which are not designated as Prime Agricultural Areas, as defined in the Provincial Planning Statement, 2024 and designated by the municipality’s or northern planning board’s Official Plan.
        3. Recognize proponents who have and retain certain levels of economic participation in the project by an Indigenous Community or Indigenous Communities (as defined in the Contract), and to recognize proponents that propose to site their project on lands within the treaty area, or the established or asserted traditional territory or homeland of the participating Indigenous Community or Indigenous Communities, provided that the project proposal includes an attestation from a natural person with authority to bind each respective Indigenous Community in this regard.
      9. Where a proposed project is located on Indigenous Lands (as defined in the Contract) the IESO shall require the proponent to demonstrate support for the proposed project from the Indigenous Community (as defined in the Contract), with authority over the applicable lands.
      10. For technology types that are not subject to a provincial environmental approvals framework that the Crown may rely on to fulfill its duty to consult, the Ministry will determine whether the duty to consult and, where appropriate, accommodate Indigenous communities (“Duty to Consult”) may arise. For any permits issued by another ministry, that ministry will determine whether the Duty to Consult and, where appropriate, to accommodate Indigenous communities may arise. The LT2 RFP Contract shall require that:
        1. Where the Ministry and/or Ministries have determined that the province may have a Duty to Consult not otherwise addressed in a provincial environmental approvals process, the proponent provide confirmation to the IESO that any procedural aspects of consultation delegated to the proponent have been undertaken to the satisfaction of the Ministry and/or Ministries, or
        2. Where the Ministry and/or Ministries have determined that the province does not have a Duty to Consult, the proponent provide confirmation as such to the IESO.
      11. The IESO shall reduce the capacity available for LT2 projects proposing to connect to the 230kV circuits that connect to Nanticoke TS and/or the Niagara Reinforcement Line between Allanburg Transformer Station and Middle Port Transformer Station by 300 MW, and set aside this 300 MW of capacity for any renewable energy projects that are owned by, or have majority equity interest from, Six Nations of the Grand River Development Corporation (“SNGRDC Projects”), as applicable under the Agreement. This 300 MW of capacity can be awarded to one or more SNGRDC Projects under LT2 provided they meet all procurement requirements.
    6. The IESO shall, working with the Ministry and stakeholders, report back by March 14, 2025, on the design of a separate procurement for long-lead resources, prior to the launch of said procurement in late 2025.
  2. 2024 Capacity Sharing Agreement with Hydro Québec Energy Marketing Inc.
    1. The IESO shall finalize and enter into a seasonal capacity sharing agreement with Hydro Québec Energy Marketing Inc. with contract terms that are substantially consistent with the draft contract dated August 18, 2024.
  3. Atikokan Generating Station
    1. The IESO shall amend the amended and restated contract with Ontario Power Generation Inc. for the Atikokan Generating Station, as described in paragraph 1 of the May 9, 2024 Directive, on terms that are substantially consistent with the draft term sheet dated July 11, 2024.
  4. Local Generation Program
    1. The IESO shall consider the development of a Local Generation Program to re-contract existing and secure new-build small-scale electricity generation resources that are connected to the distribution system. Opportunities for upgrades and expansions with existing resources should also be taken into consideration.
    2. ENERGY asks the IESO for a report back on considerations for a proposed competitive program for local generation resources by April 30, 2025.

General

For greater clarity, all other terms of the May 9, 2024 Directive shall remain in full force and effect.

This Directive takes effect on the date it is issued.

Order in Council 1553/2024