On July 4, 2024, the Independent Electricity System Operator (IESO) presented the latest design developments for its Long-Term 2 (LT2) and Medium-Term 2 (MT2) procurements, each of which will contain both capacity and energy streams.
Eligibility
Repowered facilities will no longer be eligible to participate in the LT2 or MT2. The LT2 will be geared toward new resources and eligible expansions, where eligible expansion eligibility will be defined as it was under the LT1 (e.g., separately metered). The MT2 will be geared toward existing facilities with procurement contracts with the IESO, Ontario Power Authority or Ontario Electricity Financial Corporation expiring by April 30, 2029.
Proponents may split a facility to allocate some or all of its supply into one or more of the LT2 or MT2 energy and capacity streams, with priority given to energy resources in cases of limited connection availability. It remains unclear if and to what extent this approach will interface with the IESO’s deliverability evaluation following proposal submission, including where proponents submit only partial facility supply for LT2 or MT 2 consideration.
Energy storage resources will be eligible only for the LT2 capacity stream (500 MW to 1,000 MW) and not the LT2 energy stream (2,000 MW). Unlike in the LT1, the LT2 capacity stream will be evaluated under a single procurement target and will not be bifurcated by technology type, i.e. energy storage and non-energy storage resources.
The MT2 procurement target will be calculated as a percentage (IESO currently suggests 80%) of the total submitted proposals. However, the IESO intends to include flexible provisions to award MT2 contracts beyond the set procurement target so long as prices are within a set percentage threshold of the marginal successful bid.
Stakeholder feedback suggests there is concern the IESO’s procurement targets are unnecessary and prematurely restrictive to investors and developers, particularly in light of Ontario’s significant electrification goals.
Distributed energy resources (DERs) less than 1 MW and aggregated DERs remain ineligible under both the LT2 and MT2. Likewise, natural gas resources will not be considered (subject to change by government direction).
What’s Changed?
Unlike in the LT1, proposals for the LT2 will first be evaluated in rank based on proposal price and subsequently evaluated for deliverability. Potential LT2 proponents will still need to wait a few more days or weeks for the much-anticipated release of the IESO’s Updated Preliminary Connection Guidance Document on deliverable and non-deliverable areas of the electricity transmission system. The procedure for requesting access to the transmission system map from the IESO is to be posted shortly thereafter.
While a municipal support resolution is expected to become a pre-proposal submission requirement under the LT2 (unlike in the LT1), it is not yet required under the MT2 (subject to change by government direction).
No rated criteria points will be awarded for the MT2, and proposals will be ranked based only on their price. The IESO is considering offering rated criteria points under the LT2 capacity stream for long-duration assets (resources that can provide continuous injection for more than four hours). This reflects successful lobbying efforts by interest groups related to long-duration-energy storage. The IESO is also proposing to remove from the LT2 the material cost indices and early operation payment incentives offered under the LT1.
Fees and Security
For the MT2, the IESO proposes:
- A C$500 registration fee
- A minimum proposal submission fee of C$3,000 with a variable fee of C$100/MW for existing megawatts up to a maximum of C$10,000 (including the registration fee)
- Proposal security in the form of an irrevocable standby letter of credit in the amount of C$10,000/MW of the maximum contract capacity (defined by the proponent for the capacity stream and defined as facility nameplate capacity for the energy stream), subject to a maximum of C$2-million
For the LT2, the IESO suggests:
- A proposal security requirement of C$35,000/MW of the maximum contract capacity, with a minimum of C$500,000 and a maximum of C$15-million
- Proposal security in the form of a letter of credit but only until commercial operation, after which it would be automatically converted to completion and performance security in the amount of C$20,000/MW of the maximum contract capacity
Next Steps
The draft LT2 contract for the energy stream is to be released on July 24, 2024, with the draft LT2 energy request for proposal (RFP) to follow shortly thereafter. The draft LT2 capacity stream RFP and contract are to be posted imminently.
The draft MT2 RFP and contract documents are to be released this August, with registration to begin in September and the final MT2 RFP and contract to be posted in November 2024. The MT2 proposal submission is scheduled for January 2025, with IESO evaluation and contract awards to be announced in March 2025.
Successful MT2 proponents may avail themselves of up to six-month bridging extensions for their existing contracts (as well as early termination of existing contracts) to meet a May 1 contract start date in 2026, 2027, 2028 or 2029. MT2 contract holders may also terminate an MT2 contract early if required to pursue a contract awarded under a subsequent procurement,such as the LT3.
Stakeholders are invited to submit written feedback to the IESO by July 19, 2024.
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