If recent events indicate a trend, 2011 is poised to be a banner year for some proponents of new high efficiency combined heat and power projects, including industrial cogeneration and district energy facilities. In late December 2010, the Ontario Power Authority (OPA) announced two much anticipated Combined Heat and Power (CHP) procurement initiatives:

  1. individually negotiated CHP contracts for projects over 20 MW expected to be launched in 2011 (CHP IV); and
  2. a new Clean Energy Standard Offer Program (CESOP) for new CHP projects, 20 MW or under

, expected to be announced in the spring of 2011. It is a fresh start to clean energy procurement initiatives that have been in process since 2007. The OPA’s proposals include the provision of new up-front, locational eligibility requirements, which may exclude projects located in certain areas of the province from participating in the procurement. The CHP IV contract and pricing has not yet been released, and it is unclear how the OPA intends to address critical pricing issues unique to CHP facilities. Finally, the new CESOP rules and contract have yet to be released, although they are expected to be released by January 31, 2011.

THE NEW CHP DIRECTIVE

The Minister of Energy, Brad Duguid, issued a directive to the OPA under the Electricity Act, 1998 (the New CHP Directive). The New CHP Directive directs the OPA to procure a total of 1000 MW of CHP projects, consisting of:

  1. CHP projects procured to-date, including those procured under CHP I, CHPI II and CHP III RFP process; 
  2. Individually negotiated CHP contracts for projects over 20 MW; and
  3. CHP projects, 20 MW or under, procured through a standard offer program, which procurement is limited to cost effective projects located in areas of the Province where local distribution can be accommodated and there are local benefits.  

The New CHP Directive follows on the June 15, 2005 directive to the OPA to procure 1000 MW of high efficiency CHP projects across Ontario (the Original CHP Directive), an April 10, 2008 directive specifying that approximately 100 MW be renewable CHP (the Renewable CHP Directive), and a June 14, 2007 directive to launch a Clean Energy Supply standard offer program designed to procure small CHP facilities (the CESOP Directive).  

To-date, the OPA has procured CHP projects under the CHP I, CHP II and CHP III RFP processes. The OPA notes in its Update on CHP/CESOP that it is currently managing contracts that represent more than 450 MW of CHP-based technology procured through past OPA CHP initiatives.  

Notably, the New CHP Directive includes projects procured under the previous CHP process in the 1000 MW target, reducing the remaining opportunity to approximately 500 MW of new capacity.  

ONTARIO’S LONG-TERM ENERGY PLAN

The New CHP Directive is consistent with Ontario Long-Term Energy Plan (the Plan), and emphasises the efficiency, and greenhouse gas reductions, that can be achieved by CHP which can achieve “overall efficiency can exceed 80 per cent”.

In the Plan, the government announced that it will target a total of 1,000 MW of CHP to be procured through the OPA and will include existing contracts, individual negotiations for large projects and a new standard offer program for smaller projects in key strategic locations.

NEW CHP PROCUREMENT (CHP IV)

Through this procurement of CHP projects greater than 20 MW the OPA will be seeking projects with strong economics that will produce electricity at attractive prices. It is assumed that the prices and other key aspects to be paid by the OPA will be subject to individual negotiations.

The CHP procurement is expected to include up-front, locational eligibility requirements, which may exclude projects located in certain areas of the province from participating in the procurement. The CHP procurement may also require that proposals are subjected to connection availability screening tests to assess whether the project can be accommodated by the bulk transmission system or local distribution system, as applicable. In cases where the tests indicate projects cannot be accommodated, projects will be rejected from the process.

Potential CHP projects must not be the subject of a connection impact assessment (CIA), unless applied for prior to November 23, 2010, to be eligible for the procurement. The OPA indicates that information about the process for stakeholder engagement and finalization of the procurement will be provided in 2011.

CLEAN ENERGY STANDARD OFFER PROGRAM (CESOP)

The OPA has been working on the development of a Clean Energy Standard Offer Program for the procurement of CHP projects of 20 MW of capacity or less through a standard offer program (CESOP).

The newly proposed CESOP differs from the program that was under development in 2008, which was limited to projects with a nameplate capacity of 10 MW or less (it’s now 20 MW) and did not have upfront locational eligibility requirements.

Potential CESOP projects must not be the subject of a connection impact assessment (CIA), unless applied for prior to November 23, 2010, to be eligible for the program. The OPA indicates that it will release its draft program rules and contract for stakeholder consultations on January 31, 2011, with consultations continuing until March 11, 2011 and with program launch expected in second quarter of 2011.

CHALLENGES UNDER CHP AND CESOP

It remains unclear how the 500 MW will be allocated between CHP and CESOP (or if it will be allocated). We understand that there are a number of potential CHP projects, a few of which could easily exceed the capacity specified in the directive. This leaves little if any room for CESOP projects.

Unless other criteria are provided many CHP and CESOP projects will also be competing with access to a transmission and distribution system which has limited capacity due to the Feed-In Tariff Program. Feed-In Tariff Projects currently heading into the Economic Connection Test will also be concerned with how CHP and CESOP programs affect them.