On September 12, 2024, the Independent Electricity System Operator (IESO) presented the latest design developments for its Long-Term 2 energy stream (LT2e) and Medium-Term 2 (MT2) procurements. This is a further update to our July 2024 bulletin on this topic.
Eligibility
The Minister of Energy’s August 28 letter to the IESO directs the LT2 to be completely technology agnostic. This means natural gas resources will now be eligible to participate in the LT2 and MT2. Notwithstanding, the IESO expects that nuclear resources (including small modular reactors) will continue to be separately procured by the government.
The IESO anticipates LT2e proponents to be largely comprised of bioenergy, solar, wind and CHP facilities participation, and LT2 capacity stream (LT2c) proponents to be largely comprised of hydrogen, storage, gas and bioenergy resources.
Similarly, the IESO expects biofuel, storage and gas facilities to participate in the MT2c procurement, and biofuel, solar and wind facilities to participate in the MT2e procurement.
Dispatchable loads and demand response resources remain ineligible under both the LT2 and MT2 and are instead encouraged to participate in the IESO’s capacity auction.
Mandatory Requirements
Municipal support resolutions must be included at the time of proposal submission. If the project is sited on prime agricultural lands or on Crown lands, the applicable government approval from the Ministry of Agriculture, Food and Agribusiness or the Ministry of Natural Resources, respectively, must also form part of the proposal submission deadline.
Other mandatory requirements carried forward from the LT1 procurement include confirmation of property access rights and minimum project team member experience requirements.
These requirements do not apply to the MT2 procurement, which is targeted toward existing facilities.
Rated Criteria
LT2 proposals will first be evaluated in rank and subsequently evaluated for deliverability. During the ranking assessment, additional rated criteria points will be awarded for projects sited in Northern Ontario and for projects not located on prime agricultural lands. More points can be obtained where the project involves Indigenous equity participation, and even more where the project is located on traditional (Indigenous) territories.
No rated criteria points will be awarded for the MT2, and proposals will be ranked solely on price. An 80% target threshold will be applied in an effort to maintain competitive pricing.
Payment Considerations
The IESO intends to use the new enhanced power purchase agreement (E-PPA) revenue model for LT2e and MT2e, while following the LT1 capacity contract revenue model for the LT2c and MT2c. Simply put, the E-PPA calculated monthly contract payments are based on the supplier’s monthly revenue requirement less monthly deemed energy market revenues. Each of these inputs, however, include an imputed production factor and deemed energy market price largely determined by the IESO.
While not directly addressed in the IESO’s September 12 presentation, it appears that excess market revenues earned by the supplier are still contemplated to accrue to the IESO irrespective of whether the supplier opts for the day-ahead to real-time adjustment (DARTA) protection.
Next Steps
The Minister’s August 28 letter requires the IESO to report back by September 20 on options with accelerated final targets and timelines.
Draft LT2c RFP and contract documents are to be released shortly, and final LT2e RFP and contract documents are to be released by the end of this year. LT2 proposal submission is estimated for Q3 2025, with final contract awards to be made by early 2026.
Final MT2 RFP and contract documents are to be released by November 15, 2024, with mandatory registration to open September 19 to 26, 2024. The MT2 proposal submission deadline is scheduled for January 9, 2025, with IESO evaluation and contract awards to be announced by April 1, 2025.
Stakeholders are invited to submit written feedback to the IESO by September 27, 2024.
For further information, please contact the author or any other member of our Power group.
