Wind Energy and the Ontario Market

Whitepaper on Wind Energy and the Ontario Market

Prepared for: Canadian Wind Energy Association

January 2020

Power Advisory LLC 55 University Avenue, Suite 605, P.O. Box 32 Toronto, Ontario M5J 2H7 poweradvisoryllc.com

Whitepaper on Wind Energy and the Ontario Market

TABLE OF CONTENTS

Table of Figures ...... 3 Executive Summary ...... 4 1. Introduction ...... 8 1.1 Scope and Objectives of Whitepaper 8 1.2 Ontario Electricity Market Overview 9 1.2.1 Changing Ontario Power System and Future Needs ...... 10 1.3 Principles to Guide Scope and Objectives 15 2. Wind Energy Potential in Ontario and Value Proposition ...... 17 2.1 Wind Generation in Ontario 17 2.2 Latent Supply Capabilities of Wind Generation in Ontario 18 2.3 Wind Generation Supplying Multiple Electricity Products and Services in Other Markets 19 2.4 Technological Advances and Declining Costs of Wind Generation 20 2.5 Wind Generation and the IESO MRP 23 3. Evolution of Wind Generation in Ontario ...... 24 3.1 Changes to IAM Design and Amendments to IESO Market Rules 24 3.2 Changes Beyond IAM 25 3.2.1 Provisions Regarding EAs within IESO Contracts and Markets for EAs ...... 25 3.2.2 Regulatory Reform Relating to Connections ...... 27 3.3 Additional Mechanisms and Paths to Maintain Operations and Develop Wind Generation 29 3.3.1 Bilateral Contracting with Utilities ...... 29 3.3.2 Bilateral Contracting with Electricity Customers ...... 30 3.4 Commentary on Bilateral Contracting Opportunities for Wind Generation in Ontario 32 4. Emerging Trends ...... 34 4.1 Hybrid Variable Generation and Energy Storage Projects 34 4.2 Off-Shore Wind Generation Procurements and Project Developments 35 4.3 Electrification 37 5. Conclusions and Recommendations ...... 38 5.1 Recommendations 38 6. Appendices ...... 42

A.1 Context for Ontario Electricity Market and Trends 42 A.2 Recent Canada and U.S. Wind Generation Procurement Results 44 A.3 Recent U.S. Procurement Results for Hybrid Projects 45

Table of Figures Figure 1. Change in Supply Mix ...... 9 Figure 2. IESO Forecasted Summer Peak Energy Demand ...... 10 Figure 3. Typical Ontario Summer Energy Demand Profile ...... 11 Figure 4. IESO Installed Capacity Outlook by Fuel Type ...... 12 Figure 5. Resources with Expired Contracts ...... 13 Figure 6. IESO Capacity Adequacy Outlook ...... 14 Figure 7. Installed Transmission-Connected Generation Capacity ...... 17 Figure 8. Installed Distribution-Connected Generation Capacity ...... 18 Figure 9. Levelized Cost of Alternative Energy and Conventional Energy Supply ...... 21 Figure 10. Levelized Cost of Alternative Energy and Conventional Energy Supply ...... 21 Figure 11. Levelized Cost of Unsubsidized Wind Energy ...... 22 Figure 12. RPS by U.S. States ...... 26 Figure 13. Levelized Wind Power Purchase Agreement Prices by Execution Date and Region ... 30 Figure 14. Corporate PPAs in U.S. (2014-2018) ...... 31 Figure 15. Forecast Cost Comparison of Supply Sources Post 2023 ...... 35 Figure 16. U.S. Northeast Off-Shore Wind Project Development ...... 36

EXECUTIVE SUMMARY

As illustrated in the Canadian Wind Energy Association’s (CanWEA’s) A Wind Energy Vision for Canada, wind energy has been successfully developed across Canada and is helping to provide low-cost and reliable electricity services powering a growing demand for clean electricity supply. Ontario leads all provinces in the development of wind generation, with the largest amount of wind energy supply of any province in Canada.

CanWEA has engaged Power Advisory LLC (Power Advisory) to draft this Whitepaper – Wind Energy and the Ontario Market (“Whitepaper”). This Whitepaper consists of Power Advisory’s assessment of Ontario’s electricity market and the role of wind generation within it, along with recommendations for the further advancement of wind generation in the province.

Background and Context

To date, significant uptake of wind generation in Ontario, and across Canada, has mainly resulted from specific government policy objectives resulting in administration of prescriptive procurement programs to contract for development of wind generation projects. While this framework may re-occur at some point in the future in Ontario, Ontario’s electricity market has currently shifted away from it – and Ontario’s wind energy industry must also necessarily evolve. Ontario’s electricity supply mix is now approximately 92% non-emitting. Over-supply conditions are projected to persist over the next several years, but supply needs are then projected to arise after that (i.e., in the mid- to late-2020s timeframe). Customers, meanwhile, are increasingly becoming more active in managing their electricity supply alongside continued growth in distributed supply resources.

The Independent Electricity System Operator (IESO) is embarking on the most significant wholesale electricity market reforms – through the Market Renewal Program (MRP) – since competitive wholesale and retail electricity markets were opened in 2002. If implemented, as planned for in 2023, this will impact how all resources, including wind generation, participate within Ontario’s electricity market and resulting wholesale market revenues.

Evolution of Wind Generation and Ontario Power System Needs

Considering this evolution of Ontario’s electricity market, wind generation can continue to meet Ontario’s power system needs and other objectives based on the following attributes and trends:

• Wind generation is among the lowest cost supply resources;

• Wind generation can supply multiple electricity products and services, not just energy;

• Existing and new wind generation projects can be configured to be co-located with other resources (such as energy storage) in meeting very specific power system needs cost effectively;

• Non-emitting attributes are increasingly in demand and have value; and,

• Customers are increasingly choosing supply from wind generation (and other non-emitting resources) resulting from declining costs and preferences for cleaner sources of supply.

Given these positive attributes and trends relating to wind generation, Ontario’s electricity market must evolve in order to capture wind generation’s full capabilities to help meet the needs of Ontario’s power system and preferences of customers. However, because of the structure, organization, design, and rules within Ontario’s electricity market – and in contrast to other markets and jurisdictions – barriers exist that prevent wind generation from supplying multiple electricity products that are needed and from accessing the associated revenue streams (i.e., other than wholesale energy market revenues).

Proposed Changes within Ontario’s Electricity Market

Based on the assessments made within this Whitepaper, recommendations are presented throughout that will help address existing barriers that are holding back wind generators from supplying multiple electricity products and services aligned with Ontario’s power system needs and customer preferences. Essentially, addressing these barriers will unlock additional revenue streams for wind generators (e.g., capacity, ancillary services, and environmental attributes). Further, multiple buy-side contract counterparties (e.g., utilities, customers) in addition to the IESO (as the IESO is the only contract counterparty to wind generators today) should be enabled to participate, providing increased opportunities for wind generators to enter into contracts for the sale of multiple electricity products. Overall, increasing the number of buy-side contract counterparties, and supply of multiple electricity products and services creates improved revenue opportunities for wind generators and increased optionality for customers and flexibility for the IESO. This will enable wind generators to manage their businesses and make investment decisions – without solely relying on the Ontario government and/or the IESO through prescriptive procurement plans.

These recommendations present CanWEA, alongside other stakeholders, with options to develop positions and then champion reforms within and outside Ontario’s wholesale electricity market (i.e., IESO- Administered Markets (IAM)). This Whitepaper proposes 14 recommendations that can be organized by four main categories, and address evolution and changes needed to fully enable wind generation optimization and development within Ontario. Listed below are condensed versions of the recommendations grouped by categories.

A. IESO MRP and Broader Electricity Market

• Recommendation #1 – Improve energy production forecasts for wind generators, make changes to design/rules to reduce inefficient over-commitment of generators

• Recommendation #2 – Explore more accurate methods to calculate capacity value from wind generators

• Recommendation #3 – Indicate in power system plans resources to be procured through contracts, alongside IESO Capacity Auctions, of varying terms commensurate with system needs, market conditions, and other objectives

• Recommendation #4 – Wind generators should be permitted to supply existing ancillary services where capable within the IAM

• Recommendation #5 – IESO should identify new ancillary services (e.g., ramp) to meet system needs, and wind generators should be permitted to supply new ancillary services where capable within the IAM

B. Environmental Attributes

• Recommendation #6 – IESO should explore monetizing environmental attributes (EAs), revenues from sale of EAs could be shared with supplying wind generators and Ontario electricity customers

• Recommendation #7 – Ensure that any carbon pricing mechanism applied in Ontario provides a market mechanism through which wind generation projects can seek to monetize their greenhouse gas emission reduction attributes

C. Bilateral Contracting

• Recommendation #8 – Initiate discussions with the Ontario government, IESO, Ontario Energy Board (OEB), and utilities (e.g., local distribution companies) towards exploring how utilities can enter into bilateral contracts with wind generators meeting multiple objectives

• Recommendation #9 – Initiate discussions with the Ontario government, OEB, and commercial and industrial customers towards exploring facilitation of bilateral contracts between wind generators and these customers

D. Project Development

• Recommendation #10 – Explore feasibility of helping meet Ontario’s system needs by co-locating energy storage with wind generators

• Recommendation #11 – Explore potential to develop off-shore wind generation projects to help meet Ontario’s future needs

• Recommendation #12 – Specifically integrate role of clean energy supply from wind generators into transportation electrification, considering its compatibility with use of electric vehicles

• Recommendation #13 – Review framework to manage connection queues administered by the IESO and utilities to improve clarity, transparency, and fairness

• Recommendation #14 – Review existing rules, codes, operating standards, and interconnection requirements to reform impact assessments relating to inverter-based resources

The following guiding principles were used to formulate recommendations:

• Cost-Effectiveness;

• Accessibility;

• Competition;

• Fairness;

• Flexibility; and

• Clean Solutions.

1. INTRODUCTION

The Canadian Wind Energy Association (CanWEA) engaged Power Advisory LLC (Power Advisory) to develop this Whitepaper on Wind Energy and the Ontario Market (“Whitepaper”). As illustrated in CanWEA’s A Wind Energy Vision for Canada, wind energy has been successfully developed across Canada and is helping to provide low-cost and reliable electricity services powering a growing demand for clean electricity supply.1

This Whitepaper: i) provides context for development of future wind energy industry positions within the context of Ontario’s electricity market, including planned reforms taking shape through the Independent Electricity System Operator’s (IESO’s) Market Renewal Program (MRP) and beyond; and, ii) identification of other relevant policy considerations, unique to Ontario’s electricity market, that can be utilized to optimize existing wind generation and create future opportunities to develop additional wind generation in accordance with power system needs and other objectives.

1.1 Scope and Objectives of Whitepaper

Since Ontario’s wholesale and retail electricity markets opened in May 2002, Ontario’s supply mix has drastically changed (Figure 1). The development of renewable energy supply, including inverter-based resources such as wind generation, and other resources have replaced all coal-fired generation, while distributed energy resources (DERs) continue to be developed. Therefore, Ontario’s electricity market, and more specifically the IESO-Administered Markets (IAM) – Ontario’s wholesale electricity market – must also continue to evolve to better integrate inverter-based resources (such as NERs2 and DERs3), and to effectively recognize their multiple attributes, which can in turn enable cost-effective supply of needed electricity products and services within a competitive framework that provides value to all electricity customers.

1 See https://canwea.ca/vision/ for details regarding CanWEA’s A Wind Energy Vision for Canada 2 From November 2017 to April 2019, the IESO facilitated a Non-Emitting Resources Subcommittee (NERSC) of the Market Renewal Working Group (MRWG) (see http://www.ieso.ca/en/Market-Renewal/Stakeholder-Engagements/Non-Emitting-Resources- Subcommittee). The NERSC was concluded on April 25, 2019 with a final report assessing integration of NERs within the IAM and how NERs can help meet power system needs. 3 As part of the IESO Innovation Roadmap related action items, on October 17, 2019 the IESO released the first of the Innovation and Sector Evolution Whitepaper Series titled Exploring Expanded DER Participation in the IESO-Administered Markets (see http://www.ieso.ca/Get-Involved/Innovation/White-papers).

Figure 1. Change in Supply Mix4

All electricity markets, no matter the jurisdiction, are experiencing significant fundamental changes, involving: i) outdated legacy regulatory framework; ii) increasing competition from very low marginal cost resources and DERs, enhancing the need for reforms to the regulatory framework, including reforms to design and rules of wholesale and retail electricity markets; iii) retirement of “conventional” resources such as coal-fired generation; and, iv) increasing development of renewable energy supply resources (e.g., NERs and DERs).

Driven by power system changes and the need for regulatory and market reforms, which are very applicable and evident within Ontario today, this Whitepaper will outline potential directions for wind generation in Ontario. The information presented will provide useful context for CanWEA and its members as they consider the development of future:

• Policy and advocacy positions;

• Recommendations within the IESO MRP and other market design and rule initiatives to reform the IAM;

• Recommendations for reforms outside the IAM; and,

• Relationships and alliances with other stakeholders towards addressing needed reforms within Ontario’s electricity market.

While Ontario focused, the information presented in this Whitepaper may also help to inform the development of future wind energy industry positions in other jurisdictions across Canada.

1.2 Ontario Electricity Market Overview

Despite Ontario’s present over-supply resulting from a combination of declining demand and increased supply over the past several years, Ontario projects to need new supply between the mid-2020s and the mid-2030s. This new supply need will primarily result from planned retirements and refurbishments of nuclear generating units. By the mid- to late-2020s, at least six nuclear generating units will not be

4 See Ontario government Long-Term Energy Plan (2017), p. 19, located at https://www.ontario.ca/document/2017-long-term- energy-plan

available during any given year. Therefore, the IESO projects new supply to be needed in the mid- to late- 2020s.5

In part driven by these future supply needs, the IESO has decided to evolve its Demand Response Auctions (DRAs) to include other resources to help procure the capacity needed6. Therefore, DRAs have been renamed Capacity Auctions (CAs) and are being planned as a specific mechanism to help meet Ontario’s future supply needs. This direction represents a changed approach to meeting Ontario’s supply needs by increasing reliance on wholesale market signals to drive investments. Based on the organization and structure of Ontario’s electricity market, it remains to be seen whether this changed approach will be sufficient in meeting all of Ontario’s needs, and how wind generation will be best utilized to help meet these needs. Appendix A.1 provides useful history and commentary towards better understanding Ontario’s electricity market, how supply needs have been met in the past, and considerations influencing future supply needs.

1.2.1 Changing Ontario Power System and Future Needs

1.2.1.1 Ontario Demand Outlook

As shown in Figure 2, the IESO projects net demand (i.e., demand excluding conservation and demand management (CDM)) to remain below 25,000 MW in its reference case going forward, representing summer peak demand requirements7 (projected to remain higher than winter demand requirements). The IESO also provided high- and low-demand scenarios. The high-demand scenario could see summer peaks climb higher than 27,000 MW (which would match historical records), and the low-demand scenario could see summer peaks drop below 23,000 MW.

Figure 2. IESO Forecasted Summer Peak Energy Demand8

5 See slide 51, IESO 2018 Technical Planning Conference (September 13, 2018), located at http://www.ieso.ca/- /media/Files/IESO/Document-Library/planning-forecasts/tech-conf/2018-Technical-Planning-Conference-Presentation.pdf 6 Generators that do not have a contract with a government entity and are not rate-regulated by the Ontario Energy Board (OEB) will be permitted to participate in CAs starting in 2020, along with qualified energy storage resources and system-backed imports. 7 Summer season defined by the IESO as May 1 to October 31 8 See slide 28, IESO 2018 Technical Planning Conference (September 13, 2018), located at http://www.ieso.ca/- /media/Files/IESO/Document-Library/planning-forecasts/tech-conf/2018-Technical-Planning-Conference-Presentation.pdf

The IESO forecasts moderate demand growth over the next several years, in part driven by the following factors:

• CDM policies and programs;

• Embedded generation (i.e., distributed generation, behind-the-meter (BTM) generation) mainly resulting from solar generation;

• Other forms of DERs (e.g., DR, combined heat and power (CHP) generation, energy storage, etc.); and,

• Customers consuming less energy and/or shifting times of energy consumption based on costs set by time-of-use (TOU) rates.

While Ontario’s demand is forecast to be moderate over the next several years, demand is becoming more “peaky” in different timeframes, and summer and winter peak demands are becoming similar in magnitude due to declining peak demand in traditional summer months (July and August).

Figure 3. Typical Ontario Summer Energy Demand Profile9

Despite Ontario’s peak demand declining since 2006, extreme weather conditions are stressing Ontario’s power system through unexpected high demand periods (e.g., annual peak demand occurring in September rather than July or August). In part due to uptake of embedded generation, DERs, etc., the intra-day peak demand is no longer always middle of days coincident with peak temperature and humidity. Instead, the peak now occurs during later hours of the day when embedded solar generation is not producing energy. This is illustrated in Figure 3.

9 See page 21, IESO Report: Energy Storage (March 2016), located at http://www.ieso.ca/-/media/files/ieso/document- library/energy-storage/ieso-energy-storage-report_march-2016.pdf

1.2.1.2 Ontario Supply Outlook

Ontario’s supply mix is comprised of nuclear, gas-fired, hydroelectric, and non-hydroelectric renewable generation, as shown in Figure 4.

Figure 4. IESO Installed Capacity Outlook by Fuel Type10

Ontario’s supply mix has further potential to keep changing, considering Ontario’s projected supply needs based on planned retirements and refurbishments of nuclear generating units, along with potential retirement of supply after generation contracts expire. Figure 5 shows timelines for expiring contracts by fuel-type.

10 See slide 37, IESO 2018 Technical Planning Conference (September 13, 2018), located at http://www.ieso.ca/- /media/Files/IESO/Document-Library/planning-forecasts/tech-conf/2018-Technical-Planning-Conference-Presentation.pdf

Figure 5. Resources with Expired Contracts11

Based mainly on planned retirements and refurbishments of nuclear generating units, the IESO projects Ontario to require new supply starting in the mid-2020s through to the early- to mid-2030s, as illustrated in Figure 6. However, Ontario’s future supply needs could increase if:

• Generators retire post expiry of their contracts (due to age, location, and/or lack of revenue adequacy from the IAM);

• There are delays in returning refurbished nuclear generating units to service, or refurbishment of some units are abandoned; and/or,

• Impacts of CDM are lessened (potentially through policy changes).

Therefore, based on these future risks, Ontario may require more new supply than projected by the IESO (i.e., supply needs could trend towards the dashed curve within Figure 6).

11 See slide 42, IESO 2018 Technical Planning Conference (September 13, 2018), located at http://www.ieso.ca/- /media/Files/IESO/Document-Library/planning-forecasts/tech-conf/2018-Technical-Planning-Conference-Presentation.pdf

Figure 6. IESO Capacity Adequacy Outlook12

Based on the IESO’s CA plans, the IESO hopes that the market will be able to meet supply needs with a technology agnostic outcome by way of investments in some existing facilities and some new projects. That is, the IESO does not plan to pre-determine specific resources by technology or fuel-type for participation within CAs and has no present clear plans to procure needed resources through other mechanisms (e.g., contracts, etc.).13 14 Therefore, there is a potential for the supply mix to further change, in part based on unknown outcomes of future CAs to which the market may or may not respond.

1.2.1.3 Summary of Ontario Power System Needs

Based on Ontario’s demand and supply outlook, the following generally summarizes Ontario’s power system needs:

• Demand is projected to moderately grow, but demand patterns are changing and becoming more “peaky”;

• New supply is projected to be needed between the mid-2020s and the mid-2030s (potentially greater than 3,000 MW), but if certain risks are realized, additional supply will be needed; and,

• The combination of “peaky” demand and need for new supply suggests power system needs will be best addressed from resources that have the following attributes and characteristics:

o Flexibility and operability (i.e., ability to quickly ramp up and ramp down);

12 See slide 51, IESO 2018 Technical Planning Conference (September 13, 2018), located at http://www.ieso.ca/- /media/Files/IESO/Document-Library/planning-forecasts/tech-conf/2018-Technical-Planning-Conference-Presentation.pdf 13 However, in the IESO draft Incremental Capacity Auction (ICA) High-Level Design (HLD), a Reliability Mechanism (pp. 203-204) in the draft ICA HLD, located at http://www.ieso.ca/en/Market-Renewal/Stakeholder-Engagements/Market-Renewal-Incremental- Capacity-Auction), has been specified as potentially being needed to procure needed resources. The IESO did not specify what exactly the Reliability Mechanism will be. Therefore, there is potential for the Reliability Mechanism to be some form of contract. Subsequent to release of the draft ICA HLD, in July 2019 the IESO announced stoppage of the ICA initiative. As a result, based on discussions within the IESO’s MRP Update stakeholder meetings and within the IESO’s Stakeholder Advisory Committee (SAC) meetings, the IESO stated plans to launch a new stakeholder engagement to explore potential procurement mechanisms (in addition to CAs) to be used to help meet Ontario’s future supply needs (see July 24, 2019 submission from the Consortium of Renewable Generators, Energy Storage Providers, and Industry Associations, located at http://www.ieso.ca/Market-Renewal/Stakeholder- Engagements/Update-Meetings). 14 On January 27, 2020, the IESO will be launching a new stakeholder engagement called Resource Adequacy Engagement (see http://www.ieso.ca/en/Sector-Participants/Engagement-Initiatives/Engagements/Resource-Adequacy-Engagement). Mechanisms to help meet Ontario’s resource adequacy supply needs will be discussed, likely including potential use of contracts. Therefore, there is potential for contracts to be used in the future to help meet Ontario’s resource adequacy and power system needs.

o Scalability (i.e., flexibility in use, ability to be compartmentalized and segmented in their deployment and production of energy, etc.); and,

o Reliability (i.e., supply when the power system is in greatest need).

1.3 Principles to Guide Scope and Objectives

Principles are useful to ensure scope and objectives for this Whitepaper that will result in recommendations that can inform future policy development.

Given the significance of the IESO MRP, the MRP principles of efficiency, competition, implementability, certainty, and transparency15 were reviewed.

The U.S. based Wind Solar Alliance recently released a report, Customer Focused and Clean – Power Markets for the Future (November 2018).16 This report “concludes that market reforms are needed to ensure that electricity in the U.S. is reliable and affordable. Such reforms also are needed to accommodate an anticipated supply mix with high levels of renewable generation and to integrate all of the generation, storage and demand-side resources that contribute to reliable power system operation. The reforms we recommend will produce four highly beneficial features: markets that are flexible, fair, far, and free”.17 These beneficial features, along with specific recommendations, are proposed reforms for the PJM and Midcontinent Independent System Operator (MISO) markets. These features and applicable recommendations have been reviewed for this Whitepaper.

Factoring in the principles and beneficial features relating to plans to reform the IAM, the proposed reforms for two of the largest U.S. wholesale electricity markets, and consistent with CanWEA’s vision document, A Wind Energy Vision for Canada (January 2019),18 the following principles will help guide this Whitepaper:

• Cost Effectiveness – wind energy is one of the most cost-effective sources of new electricity generation;19

• Accessibility – greater access to cost-effective wind energy is being demanded by customers and utilities20 to help manage electricity costs and help meet power system needs;21

15 See Missions and Principles, located at http://www.ieso.ca/en/Market-Renewal/Background/Overview-of-Market-Renewal 16 See WSA Reports, located at https://windsolaralliance.org/reports/ 17 See WSA Reports, located at https://windsolaralliance.org/reports/ 18 See https://canwea.ca/vision/ 19 See Lazard latest annual Levelized Cost of Energy Analysis (LCOE 13.0), located at https://www.lazard.com/perspective/lcoe2019/ 20 Customers are increasingly demanding wind energy, as evident through increasing number of corporate Power Purchase Agreements (PPAs) (see Figure 14), utilities are increasingly demanding wind energy through specific mechanisms (e.g., Renewable Portfolio Standard (RPS)) (see Figure 12 for RPS by U.S. states) 21 Refer to Section 2.3 of this Whitepaper

• Competition – multiple suppliers of wind energy should be able to openly compete to supply multiple electricity products and services, and compete through clear and transparent mechanisms;

• Fairness – markets and regulatory framework need to be reformed so design and rules are made fair by addressing barriers and providing equitable opportunities to supply multiple products and services with access to multiple markets, customers, and utilities;

• Flexibility – power systems and markets, suppliers of electricity products and services, and the products and services themselves, need to become more flexible in response to the need to adapt to changing demand patterns and supply mix; and,

• Clean Solutions – technological advances and lower production costs are resulting in cost- effective and reliable clean sources of electricity generation helping to meet power system needs and customer preferences.

The principles listed above align well with CanWEA’s vision document. In particular, wind generation has proved to be price competitive, a reliability partner, part of clean solutions, and experiencing growing demand as a supply source. Ultimately, wind generation is significantly helping Canadian power systems transition to lower carbon grids and helping to meet the growing needs resulting from electrification.22

22 See https://canwea.ca/vision/ for linkages between this Whitepaper and CanWEA’s A Wind Energy Vision for Canada

2. WIND ENERGY POTENTIAL IN ONTARIO AND VALUE PROPOSITION

Wind generation in Ontario has rapidly matured from supplying no energy within the IAM upon market opening in May 2002 to an installed capacity of 4,486 MW23 of transmission-connected supply participating within the IAM today (see Figure 7).

Even though wind generation has quickly moved from being referred to as “alternative” and now is a “mainstream” source of supply, more work is needed for utilities and Independent System Operators (ISOs)/Regional Transmission Organizations (RTOs) to fully realize the potential of wind generation.

2.1 Wind Generation in Ontario

Accounting for all transmission-connected and distribution-connected capacity, wind generation totals 5,076.5 MW (accounting for 590.5 MW24 distribution-connected (Figure 8)), representing approximately 12.6% of Ontario installed generation supply capacity.

Figure 7. Installed Transmission-Connected Generation Capacity25

23 See Ontario’s Energy Capacity, located at http://www.ieso.ca/Learn/Ontario-Supply-Mix/Ontario-Energy-Capacity 24 See Ontario’s Energy Capacity, located at http://www.ieso.ca/Learn/Ontario-Supply-Mix/Ontario-Energy-Capacity 25 See Ontario’s Energy Capacity, located at http://www.ieso.ca/Learn/Ontario-Supply-Mix/Ontario-Energy-Capacity

Figure 8. Installed Distribution-Connected Generation Capacity26

Within the IAM, wind generation has further matured from originally being classified as an “intermittent” generation source to becoming “dispatchable”,27 in order to capture its flexibility to supply energy in accordance with Ontario’s power system needs on a five-minute dispatch basis.

2.2 Latent Supply Capabilities of Wind Generation in Ontario

In addition to wind generation supplying energy within Ontario’s electricity market, many wind generators are capable of providing additional electricity products and services.

Through the IESO Market Renewal Working Group’s (MRWG’s) Non-Emitting Resources Subcommittee (NERSC) NERs Request for Information (RFI) administered in 2018, it was clearly revealed that existing wind generation in Ontario have capabilities to provide the following electricity products and services in addition to energy:28

• Ancillary Services (defined within the IAM) – operating reserve, regulation, reactive support and voltage control;

• Ancillary Services (not specifically defined with the IAM) – ramp, load-following;

• Capacity; and,

• Environmental Attributes (EAs) (e.g., Renewable Energy Certificates (RECs)).

Considering Ontario’s projected power system needs, the IESO should work with market participants (MPs) and stakeholders through the IESO Market Development Advisory Group (MDAG)29 or other

26 See Ontario’s Energy Capacity, located at http://www.ieso.ca/Learn/Ontario-Supply-Mix/Ontario-Energy-Capacity 27 See MR-00362 and MR-00381, located at http://www.ieso.ca/en/Sector-Participants/Change-Management/Market-Rule- Amendment-Archive 28 See July 24, 2018 presentation, located at http://www.ieso.ca/Sector-Participants/Engagement-Initiatives/Engagements/Non- Emitting-Resource-Request-for-Information 29 See http://www.ieso.ca/en/Sector-Participants/Engagement-Initiatives/Engagements/Market-Development-Advisory-Group

applicable stakeholder engagement forums to prioritize removing barriers to the supply of different ancillary services30, on the part of wind generation and other capable resources. This will need to include determining how these resources will be financially compensated for supplying these ancillary services.

Recommendation – The wind energy industry should work with the IESO and other stakeholders through the IESO MDAG process or other IESO stakeholder engagement forums towards permitting wind generators (stand-alone or co-located with other resources such as energy storage) to supply ancillary services and to be financially compensated accordingly, and this should be prioritized through IESO market development workplans or similar IESO project planning documents.

2.3 Wind Generation Supplying Multiple Electricity Products and Services in Other Markets

In part because of the cost-effectiveness and uptake of wind generation, utilities and ISOs/RTOs have started to enable wind generators to supply additional electricity products and services. While this has yet to occur across Canada, some U.S. jurisdictions have started to permit wind generators to supply some ancillary services, while the electricity markets in Germany and Ireland are the leading jurisdictions in Europe to do the same. The following is a list of some of the utilities, ISOs/RTOs, and jurisdictions where wind generation is providing ancillary services:

• California ISO (CAISO) – wind generation provides regulation;

• Southwest PowerPool (SPP) – wind generation provides regulation;

• Xcel Energy Public Service of Colorado (PSCo) – wind generation provides regulation;

• Germany31 – wind generation provides operating reserve; and

• Ireland (EirGrid)32 – wind generation is providing reactive support and voltage control, and operating reserve.

In addition to permitting the supply of “traditional” ancillary services (e.g., operating reserve, regulation, etc.), ISOs/RTOs are starting to lead the way in defining new ancillary services that help meet new power system needs regarding flexibility and operability. For example, a ramp product has been implemented in MISO and CAISO, due to the flexibility and operability needs of their respective power systems. SPP is presently working with MPs and stakeholders towards potential implementation of a ramp product that wind generators are well suited to provide.

30 See August 29, 2019 MDAG meeting, Power Advisory LLC presentation on behalf of the Consortium, located at http://www.ieso.ca/Sector-Participants/Engagement-Initiatives/Engagements/Market-Development-Advisory-Group, for recommendations to be included within the inaugural IESO Workplan for market development priority projects alongside the MRP 31 See https://www.tscnet.eu/wind-energy-provide-operating-reserve-germany/ 32 See http://www.eirgridgroup.com/how-the-grid-works/ds3-programme/

New ancillary services such as ramp are needed based on changing power system needs resulting from changing demand patterns and supply mix. That is, DERs and CDM are changing demand patterns, and inverter-based resources (e.g., variable (i.e., wind and solar) generation) combined with DERs are changing the available supply mix. Balancing demand and supply is becoming increasingly challenging within wholesale electricity markets and therefore new supply capabilities are required from a number of sources.

Based on Ontario’s changing demand patterns and supply mix, the IESO will likely need to follow the lead of the jurisdictions identified above.33 Further, because of the fast moving characteristics of wind generation, wind generators in Ontario with appropriate capabilities should be permitted to supply new ancillary services, the definition and implementation of which IESO should be exploring.

Recommendation – The wind energy industry should work with the IESO and other stakeholders through the IESO MDAG process or other IESO stakeholder engagement forums towards identification of new ancillary services, such as ramp, needed to help meet Ontario’s power system flexibility and operability needs. Wind generators (stand-alone or co-located with other resources such as energy storage) that are capable of providing new ancillary services should be permitted to do so and be financially compensated accordingly.

2.4 Technological Advances and Declining Costs of Wind Generation

Relative to the technologies of the first wind generators developed in Ontario, technological advances have been resulting in significantly lower production costs and higher energy production.34

The combination of technological advances and declining production costs have resulted in wind energy being among the most cost-effective sources of energy supply. According to Lazard (Figure 9), their analysis “shows a continued decline in the cost of generating electricity from alternative energy technologies, especially utility-scale solar and wind. In some scenarios, alternative energy costs have decreased to the point that they are now at or below the marginal cost of conventional generation [e.g., coal- and gas-fired generation, etc.].”35

33 IESO identified power system flexibility needs to be up to 740 MW (August 1, 2017 presentation, slide 18 http://www.ieso.ca/Market-Renewal/Stakeholder-Engagements/Enabling-System-Flexibility), some solutions adopted in other wholesale electricity markets include introduction of a ramp ancillary service, more frequent scheduling of energy transactions over interconnections, procurement specifically for flexible capacity, etc. (January 27, 2017, slides 12-13 http://www.ieso.ca/Market- Renewal/Stakeholder-Engagements/Enabling-System-Flexibility) 34 See Wind Technologies Market Report, located at https://emp.lbl.gov/wind-technologies-market-report 35 See Lazard latest annual Levelized Cost of Energy Analysis (LCOE 13.0), located at https://www.lazard.com/perspective/lcoe2019/

Figure 9. Levelized Cost of Alternative Energy and Conventional Energy Supply36

The low end levelized cost of onshore wind-generated energy is $28/MWh [$US] compared to $33/MWh [$US] for coal. Figure 10 shows this result, which discounts for existing incentive programs in the U.S.37 For further context, Ontario’s refurbished nuclear generation is contracted at approximately $80/MWh (2018 $CDN).38

Figure 10. Levelized Cost of Alternative Energy and Conventional Energy Supply39

Costs of wind energy have rapidly declined over the last several years, as shown in Figure 11.

36 See Lazard latest annual Levelized Cost of Energy Analysis (LCOE 13.0), located at https://www.lazard.com/perspective/lcoe2019/ 37 e.g., if Incentive Tax Credit (ITC) were accounted for, cost for wind energy would be lower (i.e., approaching $14/MWh ($US)) – see “Unsubsidized Wind” versus “Subsidized Wind” 38 See IESO’s presentation, Market Renewal Program Business Case: Key Assumptions for Discussion (May 16, 2019), slide 8, located at http://www.ieso.ca/en/Market-Renewal/Stakeholder-Engagements/Update-Meetings 39 See Lazard latest annual Levelized Cost of Energy Analysis (LCOE 13.0), located at https://www.lazard.com/perspective/lcoe2019/

Figure 11. Levelized Cost of Unsubsidized Wind Energy40

The contract price of $135/MWh ($CDN) set for on-shore wind generation projects at the start of the former Feed-in Tariff (FIT) program in 2009 is similar to Lazard’s levelized cost of energy (LCOE) for wind energy in 2009 in the U.S., even with taking into account exchange rates and other differences. Therefore, this information, combined with recent competitive procurement results for new wind generation projects in Canada, suggests that the same declining cost trend for wind energy is applicable in Ontario, and is indeed occurring across Canada and the U.S.

The most recent competitive procurements for wind generation in Canada were administered by the Alberta Electricity System Operator (AESO) as part of its then Renewable Electricity Program (REP),41 and listed below are the contracted results. These average contracted prices represent the lowest costs for wind energy ever achieved in Canada:

• REP Round 1 (December 2017) – 600 MW, weighted average bid price $37/MWh ($CDN);

• REP Round 2 (December 2018) – 363 MW, weighted average bid price $38.69/MWh ($CDN); and,

• REP Round 3 (December 2018) – 400 MW, weighted average bid price $40.14/MWh ($CDN).

Appendix A.2 lists other recent procurement results from across Canada and the U.S., which are also cost- effective and in-line with AESO’s procurement results and Lazard’s LCOE calculations.

40 See Lazard latest annual Levelized Cost of Energy Analysis (LCOE 13.0), located at https://www.lazard.com/perspective/lcoe2019/ 41 See https://www.aeso.ca/market/renewable-electricity-program/rep-results/

2.5 Wind Generation and the IESO MRP

In 2016, the IESO launched the MRP representing planned fundamental reforms to the IAM. The MRP has been organized through two streams: i) Energy Workstream; and, ii) Capacity Workstream. The Energy Workstream comprises: i) the Single-Schedule Market (SSM) (i.e., elimination of Hourly Ontario Energy Price (HOEP), five-minute Market Clearing Price (MCP), and Congestion Management Settlement Credits (CMSC), and implementation of Locational Marginal Price (LMP)); ii) a financially-binding Day-Ahead Market (DAM); and, iii) Enhanced Real-Time Unit Commitment (ERUC) to improve scheduling and dispatch of resources. The Capacity Workstream is comprised of CAs.

Wind generation will benefit from the MRP, assuming that LMPs accurately reflect demand/supply conditions, especially during periods of high demand, shortages and scarcity of supply, and assuming that scheduling and dispatch of energy production is made more efficient. This will result in higher wholesale energy market revenues for wind generators, which will reduce payments under existing contracts42. However, because the scope of the MRP does not include addressing barriers to wind generation providing ancillary services, creation of new ancillary services, and addressing valuation of EAs, the MRP will not fully enable all supply capabilities of wind generation. That in turn means a decrease in potential revenues from the IAM. Therefore, the MRP itself will not be able to fully capture the benefits and cost- effective value of supply associated with the multiple electricity products and services available from wind generation.

42 All contracts between the IESO and wind generators are contracts-for-differences (CfDs), where generators are paid the difference between HOEP or MCP and their contract price. Therefore, higher HOEPs and MCPs result in lower contract payments.

3. EVOLUTION OF WIND GENERATION IN ONTARIO

As discussed in the preceding sections of this Whitepaper, barriers need to be addressed so as to more effectively integrate wind generation and to enable its supply of multiple electricity products and services, including development of new ancillary services to meet Ontario’s power system needs. This can and should be done through the IESO MDAG and development of a workplan to evolve the IAM alongside the MRP.

Even with potential changes to the IAM, which should be planned for through the MDAG and within other IESO stakeholder engagement forums, broader changes beyond the IAM will also be needed to capture the full potential and cost-effective value of wind generation.

The sub-sections below describe needed changes within the IAM and beyond, along with recommendations.

3.1 Changes to IAM Design and Amendments to IESO Market Rules

Accompanying the identification of multiple electricity products and services that can be supplied by wind generation, the following barriers and solutions were also identified within the IESO NERs RFI:43

• Supply of Ancillary Services from Additional Resources – IESO Market Rules need to be amended to permit supply of ancillary services from resources other than hydroelectric and gas-fired generation, including changes to requirements, standards, etc.;

• Monitoring, Testing, Compliance – IESO Market Rules and applicable IESO Market Manuals need to be amended to support the supply of ancillary services from multiple resources through protocols to monitor, test, and ensure the necessary capabilities are in place;

• Systems and Tools – changes to the IESO’s network model and other software and tools are needed, as they presently are not designed to technically account for supply of non-energy products from multiple resources; and,

• Creation of New Ancillary Services – to best meet Ontario’s power system needs, new ancillary services (e.g. ramp, load-following, etc.) should be developed, and multiple resources should be able to compete to supply them and be compensated accordingly.

The Wind Solar Alliance’s report, Customer Focused and Clean – Power Markets for the Future (November 2018), represents the most recent recommendations for reforms in the PJM and the MISO wholesale electricity markets, and are consistent with the considerations listed above regarding changes to the IAM. Listed below are some of the main recommendations from the Wind Solar Alliance’s report that are most applicable to potential reforms to the IAM:44

43 See July 24, 2018 presentation, located at http://www.ieso.ca/Sector-Participants/Engagement-Initiatives/Engagements/Non- Emitting-Resource-Request-for-Information 44 See WSA Reports, located at https://windsolaralliance.org/reports/

• Energy Market Reforms: i) multi-day unit forecasts; ii) improvements in renewable energy forecasts; iii) reduce operational over-commitment of conventional units (e.g., gas-fired generation); and, iv) respect bilateral contracts;

• Reliability Services Reforms: i) reactive power compensation; ii) remove barriers to provide operating reserve and regulation; and, iii) primary frequency response markets; and,

• Capacity Market Reforms: i) respect state resource choices; and, ii) ensure Capacity Markets reflect renewable resources’ true capacity value.

Recommendation – The wind energy industry should work with the IESO and other stakeholders within the IESO MRP Energy Workstream to explore improvements to energy production forecasts for variable generation and how the IESO uses these forecasts, along with exploring design and rules to reduce inefficient over-commitment of generators within the ERUC, so as to more efficiently utilize available and cost-effective resources such as wind energy in the Real-Time Market (RTM).

Recommendation – The wind energy industry should work with the IESO and other stakeholders to determine the supply capability of wind generators to be included within Ontario power system plans, and regarding design and rules of IESO CAs that will result in more accurate methodologies to calculate capacity value from variable generation.

3.2 Changes Beyond IAM

In all electricity markets and jurisdictions revenues from bilateral contracts are a fundamental mechanism to incent cost-effective development and maintenance of resources (i.e., not just wind generation, but for all resources including generation and demand-side resources), and are essential in supporting the workability of wholesale electricity markets. Sections 3.3 and 3.4 below discuss bilateral contracts further within Ontario’s electricity market context.

Outside of the areas of changes within the IAM, and applicable recommendations identified in the sections above, other changes are needed to remove barriers and to help to cost-effectively maintain and/or develop wind generation. These changes beyond the IAM design and the IESO Market Rules fall into two general areas: i) provisions within IESO contracts regarding EAs, and EAs themselves; and, ii) regulatory reform relating to connections to the grid.

3.2.1 Provisions Regarding EAs within IESO Contracts and Markets for EAs

Within nearly all IESO contracts, the IESO retains ownership of all EAs, or similar non-emitting products, produced by generators under these contracts. This is definitely the case for all wind generators under

IESO contracts, no matter the contract type or vintage.45 At the time of executing contracts for renewable generation projects, it was understandable for these projects to not retain their EAs, since the objective of these contracts was to ensure development of sufficient amounts of renewable supply to meet targets set by the Ontario government. Therefore, contract prices reflected all-in costs to develop these resources.46 However, considering the present over-supply situation in Ontario, coupled with the demand for renewable energy (i.e., physically or virtually) and EAs across many jurisdictions in Canada and the U.S., the IESO and renewable generator contract counterparties should explore monetizing contracted EAs or similar (e.g., RECs).

Markets exist for EAs (typically defined in the form of RECs) through two main forms across the U.S. and Canada. First, compliance or mandatory markets exist as a means of ensuring that governments and applicable utilities and/or customers purchase enough RECs to meet specific objectives or targets. For example, many states mandate their utilities to procure RECs towards meeting a pre-determined Renewable Portfolio Standard (RPS). Second, non-compliance or voluntary markets exist where buyers (e.g., governments, utilities, customers) purchase RECs to meet multiple objectives (e.g., policies, lower costs, etc.). No matter the market for EAs/RECs, bilateral contracts are the main mechanism for these transactions. Figure 12 provides a summary of RPS across the U.S. by state.

Figure 12. RPS by U.S. States47

45 Contract types and vintage include Renewable Energy Supply (RES) I, II, and III, Renewable Energy Standard Offer Program (RESOP), FIT, Large Renewable Procurement (LRP) I, etc. 46 For example, in 2008 the Ontario government set a non-hydroelectricity renewable capacity supply target of 10,700 MW 47 See https://www.awea.org/policy-and-issues/electricity-policy/rps

Because the IESO retains ownership of all EAs for contracted generation, and has not monetized these EAs in any way, neither the IESO or the renewable generators can sell or trade EAs/RECs associated with those facilities.

Recommendation – The wind energy industry should work with the IESO and other contract counterparty generators to explore monetizing associated EAs/RECs, where the revenues from the sale of EAs/RECs would be shared between these generators and the IESO. The IESO could then credit all Ontario electricity customers with these revenues helping to lower electricity costs for them.

In part driven by uptake of renewable generation (led by wind generation), combined with specific policy objectives, some jurisdictions are planning to price carbon directly within their wholesale electricity markets. For example, the New York ISO (NYISO) has recommended a design to price carbon within the DAM and RTM48.

Considering Ontario’s relatively high share of renewable generation, coupled with the demand for EAs/RECs within mandatory and voluntary markets, Ontario’s renewable generation resources are well positioned to supply EAs/RECs across Canada and the U.S. Ontario’s current status as a federal backstop jurisdiction remains unclear, particularly in so far as the federal policy would apply within Ontario’s electricity market. The current uncertainty does not preclude further consideration by stakeholders and the IESO on how a carbon price might be implemented within the wholesale electricity market design at an appropriate point in the future.

If Ontario’s large greenhouse gas (GHG) emitters are regulated under the federal carbon pricing backstop, wind generation will not be able to monetize its EAs, although it will gain some indirect benefit from the partial imposition of carbon costs imposed on fossil-fuel fired generation. Ontario should explore alternative mechanisms to price carbon in Ontario, with a view to providing greater opportunities for wind generation to secure the market value associated with its EAs.

Recommendation – The wind energy industry should work with the IESO and other stakeholders through the IESO MDAG, or within another IESO stakeholder engagement forum, to ensure that any carbon pricing mechanism applied in Ontario provides a market mechanism through which wind generation can seek to monetize their GHG emission reduction attributes.

3.2.2 Regulatory Reform Relating to Connections

There are two areas regarding connection of wind generation projects that should be explored, in the interests of improving processes to connect projects to the grid, and of optimizing the energy production from these projects.

48 See https://www.nyiso.com/documents/20142/2179214/Carbon%20Pricing%20Draft%20Recommendations%2020180802.pdf/575a6d2b- ad09-d8f8-e566-39a0c04f9a43

First, and given plans to reform the IAM such that wholesale market signals will be the main driver for maintaining generation facilities and developing new generation projects, review of connection queues within the existing processes administered by the IESO, transmitters, and local distribution companies (LDCs) will be needed. That is, present rules and processes that administer connection queues need to be reformed because they were created at a time of central power system planning and directed procurements for targeted resources to be contracted. For example, the former Request for Proposals (RFPs) resulting in contracted wind generation projects, and then the FIT Program, drove the rules and processes of today’s framework for administering connection queues.

Recommendation – The wind energy industry should work with the IESO, transmitters, LDCs, and other stakeholders to review rules, codes, standards, and processes being used to manage connection queues towards improving clarity, transparency, and fairness, in accordance with planned reforms to the IAM and on-going changes to Ontario’s power system beyond the IAM.

Second, connection impact assessments (CIAs) should be reformed to better address capabilities of inverter-based resources such as wind generation. Improvements to CIAs will permit greater optimization of energy production from inverter-based resources while still maintaining reliability standards.

Advancements in power electronics used by inverter-based resources are rapidly evolving to include expanded technical attributes and characteristics. That is, the capabilities of inverter-based connections can actually enhance reliability and stability of power system operations. However, to achieve this within Ontario’s power system and within the IAM, regulatory reforms are required in the form of changes to existing codes, operating standards, and interconnection requirements. In particular, interconnection requirements should recognize the ability to support power system stability during transmission faults. Therefore, the performance standards of inverter-based resources such as wind generation should be assessed to determine what changes are required within existing connection processes and interconnection requirements to ensure connection standards are optimized. For example, the North American Electric Reliability Corporation (NERC) established an Inverter-Based Resource Performance Task Force (IRPTF)49 in 2017. The purpose of the IRPTF is to explore the performance characteristics of utility- scale inverter-based resources directly connected to bulk power systems, including additional system analysis, modeling, and review of inverter behaviour under abnormal system conditions.

Recommendation – The wind energy industry should work with the IESO, the Ontario Energy Board (OEB), transmitters, LDCs, and other stakeholders to review existing rules, codes, standards, and interconnection requirements to reform CIAs and related processes relating to inverter-based resources such as wind generation.

49 See https://www.nerc.com/comm/PC/Pages/Inverter-Based-Resource-Performance-Task-Force.aspx

3.3 Additional Mechanisms and Paths to Maintain Operations and Develop Wind Generation

As stated above, bilateral contracting is a fundamental mechanism to incent cost-effective development and maintenance of resources (i.e., generation or demand-side resources) through revenues outside of the IAM, and is essential in supporting the workability of wholesale electricity markets. This is definitely the case for wind generation – in jurisdictions with or without wholesale electricity markets, including those with or without Capacity Markets.

Bilateral contracting for wind generation generally occurs with four different buy-side counterparties: i) utilities (e.g., load-serving entities (LSEs)); ii) customers (e.g., industrial, commercial, residential through organized groups (e.g., co-ops), etc.); iii) governments (e.g., municipalities) and government agencies; and, iv) retail marketers. For Ontario, government agencies (e.g., IESO, Ontario Power Authority (OPA) prior to its merge into the IESO) have contracted for nearly all wind generation in Ontario.50 Based on the IESO’s plans to administer CAs as a mechanism to procure needed resources to meet Ontario’s supply needs, this Whitepaper focuses on key bilateral contracting counterparties.

3.3.1 Bilateral Contracting with Utilities

By using Canada and U.S. jurisdictions as examples, most utilities (i.e., LSEs) have obligations to ensure adequate supply for their electricity customers (“obligation to serve”). Where these utilities have either divested all of their generation (mandated by government or not) or choose not to develop all required generation, they typically bilaterally contract with third party generators (e.g., independent power producers (IPPs)) for supply. Relating to renewable generation broadly, but specifically for wind generation, many utilities have been contracting with IPPs (i.e., typically some combination of energy, EAs/RECs, and capacity). As shown in Figure 13, as of January 2018, U.S. utilities have contracted for approximately 40.4 GW of wind generation projects, where contracted prices have significantly declined over the last several years.

50 There are very limited examples of “merchant” wind generation development in Ontario, where all are “behind-the-meter” and in aggregate sum to very little supply.

Figure 13. Levelized Wind Power Purchase Agreement Prices by Execution Date and Region51

Utilities bilaterally contract for wind generation due to a combination of the following reasons:

• Reliability and diversity of supply mix portfolio;

• Cost-effective supply;

• Compliance with government policies and objectives (e.g., RPS, etc.); and

• Customers’ demand and preferences.

3.3.2 Bilateral Contracting with Electricity Customers

In addition to bilaterally contracting with utilities, wind generators bilaterally contract directly with many different electricity customers. These customers enter into bilateral contracts for wind generation (typically some combination of energy, EAs/RECs, and capacity) due to a combination of the following reasons:

• Cost-effective supply;

• Financial hedge towards lowering electricity costs;

• Demand and preferences; and,

• Specific mandate (corporate policies, etc.).

51 See Wind Technologies Report (2018), located at https://www.energy.gov/eere/wind/downloads/2017-wind-technologies-market- report (note: levelized contract prices include energy, capacity, RECs, ITC/Production Tax Credit (PTC) were not discounted)

Bilateral contracts between customers and wind generators typically take one of two forms. One, bilateral contracts can be “physical”, where wind generation supplies energy and capacity directly to customers. Two, bilateral contracts can be “financial” (often referred to as “virtual”), where the contracted price is a financial hedge to actual electricity costs.

Due to a combination of rising electricity costs to customers (in many areas driven by fixed costs for delivery through distribution and transmission networks), declining production costs for supply, and specific buyer objectives, bilateral contracting between renewable generators and commercial and industrial (C&I) customers is growing exponentially. These bilateral contracts, or Power Purchase Agreements (PPAs), are commonly referred to as “corporate PPAs”, and most corporate PPAs are virtual. Figure 14 provides information on the growth of corporate PPAs in the U.S. and who some of the main C&I bilateral contract counterparty customers are.

Figure 14. Corporate PPAs in U.S. (2014-2018)52

In the U.S., as of early 2018, 6.43 GW of corporate PPAs had been executed with renewable generators. Since 2008, approximately 13.4 GW of clean energy corporate PPAs had been executed globally as of late last year, with the U.S. accounting for the majority of these PPAs53.

In Canada, renewable generators entering into corporate PPAs are most prevalent in Alberta. For example, during the week of October 13, 2019, Berkshire Hathaway Energy (BHE) Canada announced

52 See https://rmi.org/the-power-of-agreement/ 53 See https://cleantechnica.com/2019/01/29/global-corporate-clean-energy-procurement-hits-record-13-4-gigawatts-in-2018/

plans to develop a $200 million ($CDN), 117 MW wind generation project near Medicine Hat, Alberta. BHE Canada stated that a large Canadian corporate partner has signed a long-term PPA.54

Based on the potential for corporate PPAs, the Pembina Institute, in conjunction with the Rocky Mountain Institute (U.S.), launched the Business Renewables Centre (BRC) Canada,55 and held its inaugural meeting in Calgary on October 17, 2019.56 The BRC Canada was founded to enable buyers to source renewable energy supply directly from IPPs.

Interestingly for Ontario, the timing to discuss the potential for increased bilateral contracting with industrial customers is good, in light of the Ontario government’s recent consultation on industrial electricity prices.57 One of the areas that was consulted on relates specifically to retail supply contracts,58 into which the potential for corporate PPAs directly between generators and C&I customers fits nicely.

3.4 Commentary on Bilateral Contracting Opportunities for Wind Generation in Ontario

As stated above, in Ontario, government agencies (e.g., IESO, OPA) have contracted for nearly all wind generation (in addition to contracting for the majority of all other resources) and going forward, the IESO plans to administer CAs as a mechanism to procure needed resources to meet Ontario’s supply needs. Therefore, it is presently unclear, at best, whether wind generators will be able to rely on the IESO to be the buy-side for bilateral contracts.59

Unlike many other markets and jurisdictions across Canada and the U.S., bilateral opportunities do not generally exist within Ontario for wind generators to contract directly with utilities and customers (this is broadly true for all IPPs no matter project fuel-type). Listed below are the reasons and barriers that account for the absence of such contracting opportunities in Ontario:

• Majority of Ontario’s utilities (LDCs, transmitters) are not organized and structured to enter into bilateral contracts for supply (physical or financial), unlike utilities that function as LSEs;

• Many C&I customers in Ontario are eligible for specific programs (e.g., Industrial Conservation Initiative (ICI)) that are very cost effective by way of lowering their all-in electricity costs (e.g., ICI affords Class A customers the ability to significantly lower Global Adjustment (GA) charges); and,

54 See https://calgaryherald.com/commodities/energy/warren-buffetts-firm-is-building-an-alberta-wind-farm-that-can-power- almost-80000-homes/wcm/0e7df1d3-04ec-41b3-b735-8aa4e058560b 55 For information on the BRC, see https://businessrenewables.ca/ 56 See https://calgaryherald.com/business/local-business/renewables-marketplace-looking-to-take-off-in-alberta 57 See https://www.ontario.ca/page/consultation-industrial-electricity-prices 58 Question #6 from the list of consultation questions: Electricity retailers currently have a limited role in Ontario’s electricity market. If the option were available, would your company consider entering into an all-in commodity contract with a retailer, even if it involved a risk premium?, located at https://www.ontario.ca/page/consultation-industrial-electricity-prices 59 See footnotes 13 and 14 regarding potential for IESO contracting

• Specific regulations prevent the facilitation of “financial” or “virtual” PPAs through metered energy consumption and electricity market settlements, which precludes these hedges to applicable costs.

Recommendation – The wind energy industry should begin discussions with the Ontario government, the IESO, the OEB, LDCs with an interest in bilateral contracting with IPPs, and other stakeholders towards exploring the potential for utilities – perhaps initially through a small-scale pilot program – to enter into bilateral contracts with wind generators that can meet multiple objectives (e.g., lowering costs, ensuring supply, etc.).

Recommendation – The wind energy industry should begin discussions with the Ontario government, the IESO, the OEB, C&I customers, and other stakeholders towards exploring changes to applicable regulations, etc. to facilitate “financial” or “virtual” PPAs that will result in lower costs to applicable C&I customers.

The ability for wind generators to enter into bilateral contracts with multiple buyers (e.g., utilities, C&I customers, etc.) will provide revenues outside of the IAM and many mutual benefits:

• Enables utilities and customers to make cost-effective supply choices that are market-driven;

• Enables development and maintenance of needed supply resources that can meet multiple needs and objectives;

• Provides market-based hedges to wholesale electricity market prices and costs (e.g., energy, capacity, etc.); and,

• Supports workability of the IAM and efficacy of the MRP goals and objectives through bilateral contracts serving as market-based hedges, enabling customers to more effectively manage their electricity consumption and costs, and enabling suppliers to maintain and develop needed resources.

4. EMERGING TRENDS

In maturing from an alternative supply resource to a mainstream supply resource, wind generation is now on the cusp of the following emerging trends:

• Supply of a broader suite of electricity products (i.e., not just energy, EAs/RECs, etc.), mainly through supply of ancillary services;

• Corporate PPAs mainly between C&I customers and variable generators;

• Hybrid projects where variable generation is being combined with energy storage;

• Off-shore wind generation developments; and,

• Electrification.

Previous sections within this Whitepaper described the first two emerging trends. The following sub- sections describe the remaining emerging trends.

4.1 Hybrid Variable Generation and Energy Storage Projects

Hybrid projects (typically a combination of variable generation and battery storage) are increasingly common due to: i) technological advances; ii) declining production costs; iii) power system flexibility and operability needs resulting from changing demand patterns and supply mix; and, iv) policies to reduce GHG emissions.

Because of the combination of the above factors, hybrid projects are not only becoming more prevalent, they are becoming cost-effective relative to other resources (e.g., gas-fired generation), and can outperform other resources in ramping up and ramping down quickly, and thereby meeting power system flexibility and meeting operability needs. For example, recent procurement decisions and studies show that hybrid solar generation combined with battery storage projects are more cost effective than peaking gas-fired generation in some jurisdictions.60 61 Hybrid wind generation and battery storage projects (sometimes including solar generation) are also declining significantly in cost.

Figure 15 clearly forecasts hybrid wind generation and energy storage projects, and hybrid solar generation and energy storage projects, to be amongst the most cost-effective supply resources in the future. Wind generation and energy storage projects are in fact forecast to be the most cost effective of all supply resources ($20/MWh or 2¢/kWh to $30/MWh or 3¢/kWh ($US)) in the post-2023 timeframe.

60 See https://www.energy-storage.news/news/solar-and-storage-plants-chasing-down-gas-generators 61 See https://www.greentechmedia.com/amp/article/sce-picks-major-battery-portfolio-in-place-of-puente-gas-plant

Figure 15. Forecast Cost Comparison of Supply Sources Post 202362

An example of a contracted hybrid project was announced on February 12, 2019 between Portland General Electric and NextEra Energy. NextEra Energy will develop a new hybrid project in Oregon combining 300 MW of wind generation with 50 MW of solar generation and 30 MW of battery storage.63 This project will be the first of this scale in North America to co-locate and integrate these three technologies.

Appendix A.3 lists other recent procurement results from across the U.S. for hybrid projects.

Recommendation – The wind energy industry should work with the IESO and other stakeholders to explore the technical and economic feasibility of hybrid projects co-locating wind generation and energy storage (and other resources) that can help meet Ontario’s power system needs (e.g., future supply, power system flexibility and operability).

The NYISO recently launched a stakeholder engagement with the goal of determining how to technically integrate hybrid energy storage and generation within their models to determine efficient scheduling and dispatch of energy production, taking into account attributes of storage and paired generators.64

4.2 Off-Shore Wind Generation Procurements and Project Developments

Over the last few years, major commitments have been made regarding development opportunities for off-shore wind generation projects, predominantly in the U.S. northeast (e.g., New England, New York, and New Jersey). From about 30 MW in operation today, approximately 2,000 MW of off-shore development projects have been contracted, and a cumulative greater than 10 GW of installed off-shore wind

62 See http://www.investor.nexteraenergy.com/~/media/Files/N/NEE-IR/news-and-events/events-and-presentations/2019/morgan- stanley-presentation-vfinal.pdf, (1) represents potential projected cost per kWh ($US) for new build wind, solar, and natural gas, excluding PTC and ITC, projected per kWh operating cost ($US) including fuel for existing nuclear and coal, based on NextEra Energy internal estimate 63 See https://www.portlandgeneral.com/our-company/news-room/news-releases/2019/02-13-2019-portland-general-electric-and- nextera-energy-resources-to-develop-en 64 See https://www.nyiso.com/documents/20142/10252714/Hybrid%20Storage%20Model_MIWG_Jan%2013%202019.pdf/caf29abe- a431-a2d1-358d-43326153824a, representing NYISO’s introductory presentation to stakeholders

generation is now expected by the early 2030s. An indicative schedule of this development by state is presented in Figure 16.

Figure 16. U.S. Northeast Off-Shore Wind Project Development65

In May 2018, the 800 MW Vineyard Wind project66 was awarded contracts to supply clean energy for the Commonwealth of Massachusetts, resulting from the Massachusetts 83C RFP that was administered by the Massachusetts Department of Energy Resources and the Massachusetts utilities (Eversource Energy, National Grid, and Unitil). The contracts are currently before the Massachusetts Department of Public Utilities for approvals, and the reported contract price is $64.97/MWh ($U.S.).67

The Vineyard Wind project will provide needed energy supply to the New England load centers in Southern New England and Boston. This project is proving to help meet supply requirements in these areas, especially considering planned retirements of reliability-based generation facilities.68

Recommendation – The wind energy industry should consider engaging with the Ontario government, the IESO, and stakeholders regarding exploratory discussions on the potential to develop off-shore wind generation projects in the future to help meet Ontario’s future power system needs.

65 Source – Power Advisory LLC 66 See https://www.vineyardwind.com/ 67 Contract price is for supply of energy and RECs, Vineyard Wind retains revenues from ISO-New England’s (ISO-NE’s) Forward Capacity Market (FCM) 68 Exelon has filed to retire the Mystic Generation Station in 2022 if sufficient regulatory solution does not result, https://www.exeloncorp.com/newsroom/exelon-generation-files-to-retire-mystic-generating-station-in-2022

4.3 Electrification

Electrification, also known as energy conversion, refers to the transition across economic sectors to electricity-powered end-use technologies. For example, the transition to electric vehicles (EVs) or the shift to air-source heat pumps and heat pump water heaters. Electrification offers growth opportunities for renewable generation to provide cleaner and cost-effective electricity supply to customers.

The trend towards electrification means that electricity will start to power more everyday products across the transportation, building, and industrial sectors. The Electricity Power Research Institute (EPRI) estimates that energy efficient electrification could boost U.S. electricity demand up to 52% from a 2015 baseline by 2050.69

The transition to EVs is one of the largest potential areas for electrification. The National Renewable Energy Laboratory (NREL) estimates the U.S. could have as many as 240 million light-duty EVs on the road by 2050.70 Regarding renewable generation, studies show that EV buyers will likely become more interested in the source of their electricity and are therefore more likely to support renewable generation.71

Wind generation pairs well with transportation electrification. EV users tend to charge their vehicles over night, when wind generation is strongest. Coupled with electricity rate design based on TOU rates, as presently done with the Regulated Price Plan (RPP) that is applied to the majority of Ontario’s residential electricity customers, this can further incent charging EVs when wholesale energy prices are relatively low and energy production from wind generators are on balance highest (i.e., during off-peak hours). Therefore, smart electrification programs should recognize the benefits that come from integrating and accounting for transportation electrification, wind generation, and effective rate design.

Recommendation – The wind energy industry should consider engaging with the Ontario government and other stakeholders regarding policies and programs that aim to further enable and facilitate transportation electrification; and such policies and programs should specifically integrate and account for the role of clean energy supply from wind generation, considering its compatibility with the use of EVs and their cycles of charging and discharging.

69 See http://mydocs.epri.com/docs/PublicMeetingMaterials/ee/000000003002013582.pdf 70 See https://www.nrel.gov/docs/fy18osti/71500.pdf 71 See https://iopscience.iop.org/article/10.1088/1748-9326/8/1/014045/pdf

5. CONCLUSIONS AND RECOMMENDATIONS

Since the May 2002 opening of wholesale and retail electricity markets in Ontario, wind generation has gone from not supplying any energy within the IAM to 4,486 MW participating in the IAM today, and a total of 5,076.5 MW operating in Ontario. Nearly all of the wind generation developed in Ontario resulted from Ontario government-directed programs to contract for wind generation. Unlike many other markets and jurisdictions, wind generation in Ontario was not developed through a “portfolio” approach, which involves combinations of bilateral contracts (sometimes with multiple buy-side counterparties, and sometimes multiple contracts with different contract terms), wholesale market revenues (i.e., energy, etc.), and sale of EAs/RECs, etc.

Considering the technological advances of energy production that are driving down costs, wind generation is very competitive and is now one of the most cost-effective sources of supply. Therefore, wind generation is increasingly competing with other supply sources. Markets and jurisdictions outside of Ontario have established a more level playing field, where wind generation can be maintained and developed based on a portfolio approach driven from multiple revenue sources. Unfortunately, due to Ontario’s unique market structure and organization, including design and rules of the IAM, wind generation in Ontario cannot access as many revenue sources as within a portfolio approach. Therefore, Ontario-based wind generation presently cannot achieve its full potential to provide cost-effective supply and value of multiple electricity products to multiple buyers including electricity customers.

Based on plans to reform the IAM starting with the MRP – and given that there are currently no clear plans to contract for electricity supply resources – this Whitepaper provides background and rationale for its recommendations, which collectively seek to chart a path for wind generation maintenance and future development in Ontario. Because the MRP represents such a fundamental reform for Ontario’s wholesale electricity market, including specific mechanisms to procure resources, the following recommendation addresses the scope of the MRP.

Recommendation – The IESO should continue to work towards implementing the planned reforms to the IAM identified within the Energy Workstream. However, because of Ontario’s unique aspects of governance, market structure, resource mix, and high concentration of contracted and rate-regulated generation, CAs should be voluntary and short-term (seasonal and annual). Therefore, based on right-sizing resources to best meet Ontario’s power system needs and other objectives, the IESO’s power system plans should indicate specific resources (based on attributes) that should be procured outside of CAs through contracts of different term length commensurate with system needs, market conditions, and other objectives. The wind energy industry should champion these points and work with the IESO and other stakeholders within applicable IESO stakeholder engagement forums.

5.1 Recommendations

The recommendations listed throughout this Whitepaper are reorganized below into four groups of categories.

A. IESO MRP and Broader Ontario Electricity Market Recommendations

Recommendation #1 – The wind energy industry should work with the IESO and other stakeholders within the IESO MRP Energy Workstream to explore improvements to energy production forecasts for variable generation and how the IESO uses these forecasts, along with exploring design and rules to reduce inefficient over-commitment of generators within the ERUC so as to more efficiently utilize available and cost-effective resources such as wind energy in the RTM.

Recommendation #2 – The wind energy industry should work with the IESO and other stakeholders to determine the supply capability of wind generators to be included within Ontario power system plans and design and regarding rules of IESO CAs that will result in more accurate methodologies to calculate capacity value from variable generation.

Recommendation #3 – The IESO should continue to work towards implementing the planned reforms to the IAM identified within the Energy Workstream. However, because of Ontario’s unique aspects of governance, market structure, resource mix, and high concentration of contracted and rate-regulated generation, CAs should be voluntary and short-term (seasonal and annual). Therefore, based on right-sizing resources to best meet Ontario’s power system needs and other objectives, the IESO’s power system plans should indicate specific resources (based on attributes) that should be procured outside of CAs through contracts of different term length commensurate with system needs, market conditions, and other objectives. The wind energy industry should champion these points and work with the IESO and other stakeholders within applicable IESO stakeholder engagement forums.

Recommendation #4 – The wind energy industry should work with the IESO and other stakeholders through the IESO MDAG process or other IESO stakeholder engagement forums towards permitting wind generators (stand-alone or co-located with other resources such as energy storage) to supply ancillary services and be financially compensated accordingly, and this should be prioritized through IESO market development Workplans or similar IESO project planning documents.

Recommendation #5 – The wind energy industry should work with the IESO and other stakeholders through the IESO MDAG process or other IESO stakeholder engagement forums towards identification of new ancillary services (e.g., ramp, etc.) needed to help meet Ontario’s power system flexibility and operability needs. Wind generators (stand-alone or co-located with other resources such as energy storage) that are capable of providing new ancillary services should be permitted to do so and be financially compensated accordingly.

B. EAs Recommendations

Recommendation #6 – The wind energy industry should work with the IESO and other contract counterparty generators to explore monetizing associated EAs/RECs, where the revenues from the sale of EAs/RECs would be shared between these generators and the IESO. The IESO could then

credit all Ontario electricity customers with these revenues helping to lower electricity costs for them.

Recommendation #7 – The wind energy industry should work with the IESO and other stakeholders through the IESO MDAG or within another IESO stakeholder engagement forum to ensure that any carbon pricing mechanism applied in Ontario provides a market mechanism through which wind generation can seek to monetize their GHG emission reduction attributes.

C. Bilateral Contracting Recommendations

Recommendation #8 – The wind energy industry should begin discussions with the Ontario government, the IESO, the OEB, LDCs with an interest in bilateral contracting with IPPs, and other stakeholders towards exploring the potential for utilities – perhaps initially through a small-scale a pilot program – to enter into bilateral contracts with wind generators that can meet multiple objectives (e.g., lowering costs, ensuring supply, etc.).

Recommendation #9 – The wind energy industry should begin discussions with the Ontario government, the IESO, the OEB, C&I customers, and other stakeholders towards exploring changes to applicable regulations, etc. to facilitate “financial” or “virtual” PPAs that will result in lower costs to applicable C&I customers.

D. Project Development Recommendations

Recommendation #10 – The wind energy industry should work with the IESO and other stakeholders to explore the technical and economic feasibility of hybrid projects co-locating wind generation and energy storage (and other resources) that can help meet Ontario’s power system needs (e.g., future supply, power system flexibility and operability).

Recommendation #11 – The wind energy industry should consider engaging with the Ontario government, the IESO, and stakeholders regarding exploratory discussions on the potential to develop off-shore wind generation projects in the future to help meet Ontario’s future power system needs.

Recommendation #12 – The wind energy industry should consider engaging with the Ontario government and other stakeholders regarding policies and programs that aim to further enable and facilitate transportation electrification, and such policies and programs should specifically integrate and account for the role of clean energy supply from wind generation, considering its compatibility with the use of EVs and their cycles of charging and discharging.

Recommendation #13 – The wind energy industry should work with the IESO, transmitters, LDCs, and other stakeholders to review rules, codes, standards, and processes being used to manage connection queues towards improving clarity, transparency, and fairness, in accordance with planned reforms to the IAM and on-going changes to Ontario’s power system beyond the IAM.

Recommendation #14 – The wind energy industry should work with the IESO, the OEB, transmitters, LDCs, and other stakeholders to review existing rules, codes, standards, and interconnection requirements to reform CIAs and related processes relating to inverter-based resources such as wind generation.

6. APPENDICES

A.1 Context for Ontario Electricity Market and Trends

Prior to restructuring Ontario’s electricity market in the late 1990s and early 2000s, Ontario Hydro owned and operated nearly all generation and transmission. There were very few IPPs and over 300 LDCs. Ontario Hydro was broken up into five entities (Ontario Power Generation (OPG), Hydro One, Independent Electricity Market Operator (IMO72), Ontario Electricity Financial Corporation (OEFC), and the Electricity Safety Authority (ESA)) around 1999 and LDCs began consolidating. A market power mitigation agreement (MPMA) was established to mitigate OPG’s market power, including a revenue cap and OPG’s market share was to decrease to no more than 35% within 10 years. In May 2002, wholesale and retail electricity markets were opened, resulting in few developed merchant generation projects, many customers switching away from default supply arrangements to contracts with retail marketers, and continued consolidation of LDCs. Ontario experienced tight supply conditions during summer of 2002 resulting in very high default supply rates to residential customers. Consequentially, the Ontario Progressive Conservative (PC) government froze retail rates in November 2002 putting a chilling effect on new investments at a time when Ontario required new supply. In 2004 the newly elected Ontario Liberal government established the OPA. The OPA became operational in 2005 with a mandate to contract for new supply, develop long-term power system plans, and administer CDM programs. Resulting from the OPA’s contracting of new supply, Ontario addressed its supply issues. Contracts for new supply were needed to ensure investments in generation, and to overcome a combination of the chilling effects from the previous government intervention in the market, issues with the design and rules of the IAM, and the abandonment of the MPMA (as a result of which OPG was no longer subject to the revenue cap and no longer had to de-control generation down to a maximum 35% market share). Parallel to the OPA’s activities, the Ontario government enacted aggressive climate change policies through mandates to retire all coal-fired generation, and the setting of CDM targets and renewable generation targets that included economic development components (“green jobs”). Some of these objectives were specifically addressed within the Green Energy and Green Economy Act (2009), including implementation of the FIT Program. Throughout the early- to mid-2010s, these policies and programs resulted in significant additions of supply from renewable generation (mostly wind generation) and downward pressure on electricity demand. Contracted new supply met Ontario’s supply needs established in the early- to mid-2000s. Ontario is now very over-supplied and electricity customers have been burdened with rising rates. Because of the rising costs to electricity customers, the former Liberal government implemented the Fair Hydro Plan in 2017 prior to the last provincial election, resulting in capping residential rates. In June 2018, the PCs obtained a majority government, campaigning to lower residential rates by another 12%.

72 IMO was rebranded as the IESO around 2004

In part due to not wanting to repeat past policies and programs that exacerbated Ontario’s over- supply, along with known design and rule flaws within the IAM, the IESO launched MRP in 2016. The MRP consists of planned changes to the IAM including introduction of LMP for energy (replacing the existing uniform HOEP and MCP), a financially-binding DAM, ERUC to schedule and dispatch some generators more efficiently, and CAs to procure resources to meet Ontario’s supply needs. The IESO believes that MRP will also provide market-based signals and additional revenues needed to drive needed new supply, considering that supply needs are projected to begin in the mid- to late-2020s resulting mainly from the planned retirements and refurbishments of nuclear generating units. Despite the positive results of the IESO’s MRP Benefits Case (2017) and Business Case (2019), the efficacy of the MRP (especially CAs) remains to be seen, considering the unique aspects of Ontario’s electricity market along with issues presently being experienced within the U.S. Capacity Markets (e.g., NYISO, ISO- NE, PJM). The IESO finalized an update to the 2017 Benefits Case through an MRP Business Case in 2019, and there remains to be potential for some stakeholders to vocally oppose aspects of the MRP (as they had done so regarding the former Incremental Capacity Auction (ICA)73) in the future.

73 In July 2019, the IESO announced stoppage of the ICA initiative. The ICA initiative was stopped in part due to lack of consensus from stakeholders regarding the efficacy of ICAs to ensure all future Ontario supply needs could be met. See the stakeholder submissions commenting on the draft ICA HLD document located at http://www.ieso.ca/Market-Renewal/High-Level- Designs/Incremental-Capacity-Auction-High-Level-Design.

A.2 Recent Canada and U.S. Wind Generation Procurement Results

• New York State Energy Research and Development Authority (NYSERDA) 2018 RES RFP (New York state-wide REC only contracts): 1,364 MW solar and wind generation projects weighted average price of $18.52/MWh ($U.S.) (January 2019)

• AESO REP (wind generation projects):

o REP Round 1 (December 2017) – 600 MW, weighted average bid price $37/MWh ($CDN)

o REP Round 2 (December 2018) – 363 MW, weighted average bid price $38.69/MWh ($CDN)

o REP Round 3 (December 2018) – 400 MW, weighted average bid price $40.14/MWh ($CDN)

• SaskPower (October 2018) 200 MW wind generation: Average bid price $42/MWh ($CDN) with winning project stated to be significantly lower

• NYSERDA 2017 RES RFP (New York state-wide REC only contracts): 1,383 MW solar, wind and small hydroelectric generation weighted average price of $21.71/MWh ($U.S.) (March 2018)

• Massachusetts 83C offshore wind generation contract, 800 MW Vineyard Wind project: Levelized price of $64.97/MWh ($U.S.) (2017)

Note: U.S. wind and solar generation projects have benefited from the ITC or PTC, which are scheduled to phaseout. The value of a full PTC has been approximately $24/MWh ($U.S.) (primarily realized by land- based wind generation projects) and for the ITC up to 30% of the project’s capital cost (primarily realized by solar generation and offshore wind generation). These need to be considered when comparing selected Canadian pricing. Contract structure and term, presentation of pricing (i.e., weighted average, levelized, etc.) and commercial operation date vary by examples above.

A.3 Recent U.S. Procurement Results for Hybrid Projects

• Hawaiian Electric contracted for 247 MW of hybrid solar generation + 1,000 MWh energy storage, ranging from $80/MWh to $120/MWh ($US) significantly below fossil fuel-fired generation in the state of about $150/MWh ($US) (March 2019)

• Portland General Electric contracted with NextEra Energy for development of 300 MW of hybrid wind generation + 50 MW of solar generation + 30 MW of battery storage (February 2019)

• Nevada Energy contracted for 1,000 MW of hybrid solar generation + 100 MW (400 MWh) of energy storage with project pricing as low as $23.76/MWh ($US) for 25-year term (June 2018)

• Tucson Electric Power contracted at less than $45/MWh ($US) for 100 MW of hybrid solar generation + 30 MW/120 MWh energy storage contract (May 2017)

• Xcel Energy (Colorado) received proposals for wind generation, wind generation + solar generation, wind generation + energy storage, and wind generation + solar generation + energy storage, ranging from $18.10/MWh to $36/MWh ($US), where stand-alone solar generation median pricing was $29.50/MWh ($US) and $18/MWh ($US) for stand-alone wind generation (December 2017)

Note: see note from Appendix A2