Corporate Power Purchase Agreements and ESG Goals May Become More Viable Under Ontario Proposal
Ontario recently issued a proposal to amend the Global Adjustment (GA) regulations under the Electricity Act, 1998 which would allow Class A participants under the Industrial Conservation Initiative (ICI) to enter into power purchase agreements (PPAs) with certain types of renewable electricity generation facilities to offset consumption during the ‘high five’ system peak hours.
Specifically, Class A participants could enter into private supply agreements for qualifying renewable electricity generation and, in turn, reduce the amount of electricity withdrawn from the IESO-controlled grid during the five highest demand peak hours (for as early as the May 1, 2024 to April 30, 2025 base period) upon which Class A participants are assessed their respective GA charges (for the following adjustment period commencing July 1, 2025). Eligible renewable energy generation is currently proposed to include wind, solar, small hydroelectric (i.e., less than 10 megawatts), biofuel and battery storage.
The proposal would treat separately connected supply under the PPAs as behind-the-meter for GA calculation purposes, effectively creating a regulatory framework for the implementation of virtual net metering in the province. The proposal is intended to incent increased development of new ‘clean’ electricity generation as well as enhance industrial competitiveness. The proposal does not state whether it will include, or be accompanied by, a contemporaneous regulatory framework to offset the increase in GA charges that Class B customers will be required to pay if the proposal is approved.
Although virtual PPAs are already permitted in Ontario, they have been few and far between due to the inability to hedge against GA charges which has comprised the majority of electricity commodity costs in recent years. The proposal addresses this regulatory conundrum, which may result in an uptick in corporate PPAs in the province and serve as another mechanism – in addition to the recently implemented clean energy credit registry - that Class A customers can use to achieve their environmental, social and governance (ESG) goals.
The proposal comes on the heels of the release of the federal draft clean electricity regulations, the latter of which is contingent upon rapid development of large grid-scale non-emitting electricity resources by 2035 in Ontario and across the country. It will be interesting to see if and to what extent the proposal will help achieve Canada’s net zero goals.
Comments on the proposal are due by December 17. Should you have any questions regarding how the proposal may impact your business, please do not hesitate to contact Reena Goyal or another member of McCarthy Tétrault’s National Power Group.