Ontario Court of Appeal’s Recent Ruling May Shift the IESO’s Future Electricity Procurement Strategy for Repowered Facilities

The Ontario Court of Appeal has rendered an important decision, which could impact the Independent Electricity System Operator’s (IESO) future procurement of repowered facilities.

The Decision

The decision involves certain rooftop solar facilities contracted under the Ontario Power Authority’s (now the Independent Electricity System Operator (IESO)) feed-in-tariff (FIT) 1 1.3 and 1.5 electricity procurements. Since the time the contracts were signed, the contract holders replaced existing solar panels with more efficient panels and/or added more panels to their respective facilities. These changes resulted in an increase in the capacity of the facilities to capture and convert DC energy, or their DC/AC ratio. These changes were made without seeking prior consent from the IESO.

The contract holders argued that such “optimization” of their rooftop solar facilities did not constitute a Contract Facility Amendment under the FIT 1 contracts requiring prior IESO consent. The IESO disagreed. In the IESO’s view, such repowering of the rooftop solar facilities did, in fact, constitute Contract Facility Amendments, and the contract holders’ failure to obtain the IESO’s prior consent constituted events of default.

Contract Facility Amendment is defined in the FIT 1 Contract as a modification, variation or amendment in any material respect of “any of the features or specifications of the Contract Facility or the Facility as outlined in the Application or the FIT Contract Cover Page” (underlining added). Because the capacity to produce DC energy and the DC/AC ratio are not features or specifications expressly listed in the Application or FIT Contract Cover Page, the Court of Appeal upheld the lower court’s finding that the optimization of the rooftop solar facilities did not constitute Contract Facility Amendments.

The IESO has 60 days from the date of this decision to file for leave to appeal to the Supreme Court of Canada.

Potential Impacts

Following stakeholder feedback on the Long-Term 1 (LT1) electricity procurements, the IESO had initially proposed including repowered facilities as eligible to participate in the current LT2 procurement. Such inclusion of repowered facilities was ultimately decided against, and the IESO has since announced that repowered facilities will continue to be ineligible under the LT2. The IESO remains receptive to further stakeholder feedback on the prospect of including repowered facilities in the pending LT3 procurement and beyond.

One of the stated objectives of the LT procurements, however, is to incent existing facilities with soon-to-be expiring contracts (including FIT 1 contracts) to remain in service to help bridge the supply gap to meet forecasted increased demand starting in 2026, until large nuclear unit refurbishments are complete and other grid-scale replacement energy resources are implemented as part of Ontario’s broader energy transition.

If so, and the Court of Appeal is right in concluding that suppliers are permitted to repower their facilities under existing FIT contracts, it is challenging to suggest that repowered facilities should be excluded from current and future LT procurements.

For more information on this development, please contact the author of this bulletin or any other member of our Power group.