On October 4, 2024, the Ministry of Energy posted its 2025-2036 Electricity Energy Framework proposal on the province’s Environmental Registry of Ontario (ERO). This proposal follows last summer's notice of information for a new energy efficiency framework post-2024.
The ERO is the government's platform to provide information on potential environmental matters, and in many cases provides the public with an opportunity to provide feedback and questions. For this engagement, feedback on the Post 2024 Energy Efficiency (EE) Framework (also referred to in the posting as an electricity demand-side management or “eDSM” Framework) is due November 3, 2024.
Ontario has offered EE programs across various sectors since the early 2000s. Previous EE budgets and targets have been scaled up and down due to changing electricity system needs, and policy direction. Additionally, the involvement of local distribution companies (LDCs) in program delivery and design has also varied from framework to framework. In the fall of 2020, the government directed the IESO to centrally administer the current 2021-2024 Conservation and Demand Management (CDM) Framework, which is scheduled to end in three months.
During times of surplus supply, previous CDM programs were criticized as not being cost-effective. However, the IESO has flagged that electricity demand in Ontario is forecasted to increase by 75% by 2050 due to electrification trends in transportation and industrial decarbonization, and economic development of large industrial loads and data centers. With the system demand now forecasted to at least double, pursuing effective EE/DSM programs will be critical in Ontario’s energy transition to ensure a reliable and affordable electricity system at times of tight supply (i.e., generation) coupled with constrained physical capacity on the transmission and distribution systems.
Commentary
In contrast to last summer's lengthy ERO posting, there are few concrete details in the current posting. Ultimately, the government has signalled four significant changes:
The details of the Framework will need to be seen to give a proper assessment of the new regime. However, Power Advisory anticipates that shortly following the November 3rd comment period, the government will issue more substantive directives to the sector. This quick turnaround for comments on the proposals suggests it will be challenging for the government to make significant changes to the proposed framework prior to finalizing it and then issuing a directive to the IESO to start the new model in January 2025.
Elements of the new Framework will necessitate additional regulatory changes and/or clarification, especially changes regarding greater involvement by LDCs. For example, the degree to which the Framework will be aligned with the Ontario Energy Board’s (OEB)current Non-Wires Solutions Guidelines for Electricity Distributors (NWS Guidelines; formerly CDM Guidelines) remains to be seen.
The NWS Guidelines state that the update and name change from CDM “reflects the fact that non-wires solutions to address system needs can encompass a broader range of solutions than traditional conservation and demand management, including, but not limited to, third-party distributed energy resources such as energy storage and distributed (embedded) generation.” The NWS Guidelines currently “address a distributor’s role and interaction with both the current provincial CDM framework (the 2021-2024 CDM Framework) and the wind-down of previous CDM frameworks,” implying that revisions will be needed by the OEB to ensure the Guidelines address and align with the future post-2024 Framework (e.g., the Framework’s definition and objectives of EE programming).
Further changes to regulatory instruments made be needed if, for example, the new Framework includes, as discussed in the 2023 consultation on a post-2024 Framework, targets relating to “beneficial electrification” (i.e., fuel-switching from fossil fuel use to electricity in a way that reduces overall emissions and energy costs), and/or changes related to the funding of distributed energy resources (DERs) and demand response (DR) activities.
The role of DER and DR should be of particular interest to stakeholders given Ontario’s significant future supply needs, coupled with recent comments from the IESO CEO that the IESO “will soon release a revised Annual Planning Outlook long-term demand forecast that will show even faster growth than previous years […] If there’s one takeaway as we continue to reassess our forecasts, it’s that we have to increase the pace. We have to build bigger, and we have to build faster.”
Further, the Minister of Energy and Electrification has been clear on many occasions that the government’s economic development and energy strategies are inextricably linked, and that energy supply and infrastructure will not be a brake on economic growth: “Our economic needs are coming in, and Minister Fedeli, the Premier and others involved in the government are very committed to seeing that growth take hold without any impediment. Us in the Ministry of Energy, I think we got our marching orders loud and clear. We’re not going to be an impediment. We’re going to be part of the solution to enable more investment to create better jobs for the people of Ontario.” (emphasis added)
Conclusions
While the specific details around the post-2024 Framework are unknown, the intention is to move to a long-term (i.e., 10-year), versus the previous short-term (i.e., 4-year) framework. This includes programming for all customer segments and greater LDC involvement. Coupled with the province’s growing supply needs and the provincial government’s commitment to ensuring that energy supply and infrastructure are not a barrier to growth, the upcoming Framework proposal strongly points to the creation of new opportunities. These opportunities will benefit customers and LDCs, as well as the providers of DER, DR and EE solutions as they help meet electricity system resources needs going forward.
Overall, Power Advisory believes that a new post-2024 Framework should pursue DERs and DR solutions more aggressively than Ontario has in the past. During times of forecasted tight supply, it is a clear option that can help the province strategically and cost-effectively meet local and regional supply needs. Further, the smaller scale nature of distributed generation and storage results in less impact on communities (and face less strict municipal approvals, land restrictions, and/or permitting/siting issues) and therefore less likely to face community opposition compared to larger transmission-connected supply resources. Further, these distribution-connected resources can be developed, constructed and energized much quicker than large-scale transmission-connected resources.
This will require LDCs to have the resources necessary to quickly ramp up their ability to deliver and potentially design EE programs in areas identified through regional planning as facing transmission system constraints and/or address distribution system needs.
Power Advisory recommends that clients and interested parties with comments, concerns or questions on the proposal provide feedback by the November 3, 2024 deadline.
Please contact Power Advisory if you have any questions or would like any additional information.