Ontario Regulation 429/04: Enhancing Benefits for Class A Consumers and Promoting Clean Energy

I learned recent updates to this Ontario regulation last month at a PEO event in June 2024. This change provides an alternative to reduce electricity cost for Class A consumers by offsetting peak demands using PPA with clean energy providers. It has many advantages over a battery story system. The following chatGPT write-up provides a detailed description.

Introduction

Ontario Regulation 429/04 introduces significant updates to bilateral power purchase agreements (PPAs), aiming to enhance the benefits for Class A consumers and promote clean energy investments. This article explores the regulation changes, their benefits to Class A consumers, and how they contribute to the promotion of clean energy. Additionally, it compares the new PPA offsetting peak demand approach with the traditional method of installing battery storage systems.

Understanding Class A Consumers

Class A consumers are large industrial and commercial electricity users in Ontario, eligible under the Industrial Conservation Initiative (ICI). These consumers typically have an average monthly peak demand of at least 1 MW. They have the opportunity to reduce their Global Adjustment (GA) fees by lowering their electricity usage during the top five peak demand hours of the year. The GA is a component of electricity bills that covers the costs of building and maintaining the electricity grid and ensuring an adequate power supply. For Class A consumers, the GA is calculated based on their contribution to these peak hours, making it crucial to manage and predict peak demand accurately.

Reducing peak demand is essential because the costs during these hours can be exceedingly high, often far exceeding the costs of regular electricity usage. For instance, in 2019, the cost during peak hours was approximately $110,000/MWh, significantly impacting the overall electricity bills for Class A consumers (Energy Regulation Quarterly).

What is a Power Purchase Agreement (PPA)?

A Power Purchase Agreement (PPA) is a contract between two parties, typically a power producer and a power purchaser (such as a utility or a large-scale consumer), where the producer agrees to sell electricity to the purchaser at a predetermined price for a specified period. PPAs provide a stable and predictable revenue stream for power producers, while purchasers benefit from stable energy prices and the ability to hedge against market volatility. In the context of Ontario's updated regulation, PPAs with clean energy producers allow Class A consumers to offset their peak demand with renewable energy sources.

Virtual Net Metering and Its Role

Virtual net metering, as introduced in the updated regulation, allows Class A consumers to benefit from clean energy generation even if the renewable energy facility is not located on their premises. Here's how it works:

1. Corporate PPA Setup: A Class A consumer enters into a PPA with a clean energy generation facility (e.g., wind, solar, small hydroelectric, biofuel, or battery storage) that is not physically connected behind the consumer’s meter (Sussex Strategy Group) (Home | Torys LLP).
2. Generation During Peak Hours: The clean energy facility generates electricity, which is fed into the local distribution system or the provincial transmission grid (Home | Torys LLP).
3. Virtual Net Metering: For the purposes of the GA calculation, the electricity generated by the clean energy facility during the five highest peak demand hours is considered to offset the Class A customer's electricity demand. This means the customer's peak demand is reduced by the amount of electricity that the clean energy facility generates coincidentally during those peak hours (Sussex Strategy Group) (Power Advisory LLC).

Benefits for Class A Consumers

1. Cost Savings: By accurately predicting and reducing usage during peak hours, Class A consumers can significantly lower their GA fees. An effective peak shaving strategy can save substantial amounts on annual electricity bills. For example, every megawatt (MW) taken off the grid during peak hours can result in approximately $400,000 in annual savings (T&T Power Group).
2. Energy Efficiency: The regulation encourages the adoption of renewable energy, leading to more efficient energy use and reduced dependency on fossil fuels. This shift can also enhance the overall energy efficiency of industrial operations.
3. Incentives for Renewable Energy: The updates facilitate greater investment in renewable energy projects, which can be included in PPAs. This not only diversifies energy sources but also promotes sustainable practices.

Promotion of Clean Energy

The updated regulation aligns with broader climate goals by promoting the use of clean energy. By integrating renewables into PPAs, the regulation supports the transition to a low-carbon economy, reducing greenhouse gas emissions and fostering a sustainable energy market. Historical data from regions with similar policies, such as various states in the U.S. and provinces in Canada, demonstrate significant progress in renewable energy adoption and emission reductions:

• California: The state's aggressive renewable portfolio standards and cap-and-trade program have spurred substantial growth in solar and wind energy installations, reducing reliance on fossil fuels (Center for Climate and Energy Solutions) (SpringerLink).
• Canada: National efforts to reduce emissions from the electricity sector, supported by regulations targeting coal-fired power plants, have led to a marked increase in clean energy generation. In 2020, 84% of Canada's electricity came from low- and non-emitting sources, reflecting a successful shift towards greener energy (Canada Gazette).

Comparison with Battery Storage Systems

Traditionally, Class A consumers have used battery storage systems to manage peak demand. While batteries offer the advantage of limited maintenance and rapid deployment, they come with several drawbacks:

• High Costs: The installation cost of battery systems can exceed $2,000/kW, making them a costly solution compared to other methods (T&T Power Group).
• Limited Deployment Window: Most batteries have a limited deployment window of about 2 hours, which can be insufficient if peak hours extend beyond this duration. Predicting peak hours accurately becomes critical, and any miscalculation can lead to significant costs.
• Complexity in Peak Forecasting: The unpredictability of peak demand, especially influenced by factors such as the COVID-19 pandemic, adds complexity to using batteries effectively (T&T Power Group).

In contrast, the updated PPA approach allows for continuous and reliable clean energy supply during peak hours, providing a more cost-effective and flexible solution.

Conclusion

Ontario Regulation 429/04 offers a progressive approach to managing peak demand and promoting clean energy investments. By enabling Class A consumers to offset peak demand through PPAs with clean energy producers, the regulation provides substantial cost savings and supports the growth of renewable energy. This updated regulatory framework not only benefits large electricity users but also contributes to a more sustainable and resilient energy system in Ontario.