What to make of IESO’s natural gas expansion, and what cities can do now

Update: On June 27^th, the IESO announced an additional 142 MW contracted storage capacity (up from the 739 MW listed in the table below, for a total of 882 MW) under the Expedited Long-Term 1 RFP. They also confirmed that 251 MW of additional natural gas capacity under the Same Technology Upgrades RFP (of the up to 291 MW listed in the table below) had been secured, including two more contract extensions for gas-fired generation facilities (St. Clair Energy Centre and York Energy Centre) totalling 970 MW of existing capacity out to 2035.

On Tuesday, the Independent Electricity System Operator (IESO) announced the results of a competitive procurement process, which will expand natural gas-powered electricity generation capacity by up to 586 megawatts. 

The new contracts follow the IESO’s plan announced last year to procure 4,000 megawatts of new electricity capacity, including 2,500 megawatts of new storage. If successfully installed, that storage capacity would represent a massive step forward in the transition to a net-zero grid. 

The remainder, planned additions of up to 1,500 megawatts of new natural gas capacity, has attracted significant interest in part because of potential misalignment with both forthcoming federal Clean Electricity Regulations (CER) and calls from municipalities, including motions to ban new gas-fired capacity, to decarbonize the grid on which their climate action plans rely upon. 

A summary of the first two tranches (of three) contracts awarded: 

Resources	Target Capacity	Announced Capacity
Same Technology Upgrades Natural Gas	Up to 300 MW	Up to 291 MW
Expedited Long-Term 1 Storage Natural Gas	900MW Up to 600 MW	739 MW 295 MW
Long-Term 1 (to be announced) Storage Natural Gas	1600 MW Up to 600 MW	TBD TBD

Energy storage is a big win, but the details matter

Over 700 megawatts of new battery storage (with potentially more still to be announced) is a significant achievement and one that could be used to enable increased penetration of low-cost renewable generation. It also comes on the heels of the Oneida Energy Storage project (250 megawatts) announced earlier this year. It is a strong signal that the storage industry here in Ontario is ready and able to meet Ontario’s projected need for additional peak capacity, and at a market price below what the IESO is willing to pay. 

However, energy storage only provides clean and reliable energy when paired with renewables. With 0 megawatts of new wind and solar generation procured by the IESO in the last six years, and no renewable procurements currently planned, new battery storage alone doesn’t represent a pathway to net-zero electricity.   

What about the rest of the capacity needs?

The IESO only secured half of their targeted capacity under their expedited procurement. While it’s too early to say whether further expansion is coming, it may be a signal that the federal CER is having its intended effect in disincentivizing new fossil fuel generation. The IESO attempted to mitigate this concern by offering contracts extending out to 2040, with compensation if forced to shut down early by federal regulations, but it appears this was only partially successful.  

Many questions remain

What this means for emissions from the grid moving forward and what we can expect in the final round of this RFP remains unclear. The details matter and should be made transparent to the public. The structure and price of these contracts will establish a market signal for future procurements and reveal how gas-fired generation will operate and be compensated after the federal CER is in place. What resources the IESO intends to prioritize next – and how soon – will drive the impact on affordability and emissions. TAF has made detailed recommendations to the IESO, emphasizing immediate prioritization in demand-side optimization through energy efficiency and demand-responsive DERs, with an expanded role for LDCs and municipalities.

Time for municipalities and utilities to embrace a larger role

Here’s where local players can step up to the plate with local solutions. Municipalities and LDCs have modern, affordable, and low-carbon tools at their fingertips that can both enable them to meet their own climate targets and ensure the province is successful in achieving a net-zero grid by 2035. 

Cities have agency over electricity demand, the other half of the system-wide balancing act that continues to be underutilized. Investments in energy efficiency to eliminate waste are low-hanging fruit (with Ontario lagging other comparable jurisdictions) and demand-responsive distributed resources hold incredible potential to better utilize the transmission and distribution grid we already have. This can be supplemented by rooftop solar, batteries, and other forms of local generation that produce and store power where it is needed. LDCs can roll out ambitious local CDM and DER programs that enable and incentivize residents and businesses to participate in the energy transition. 

All of this reduces the need for peak generation, meaning we can both manage emissions locally and reduce emissions provincially despite what gas capacity is built. Cities are valuable partners in ensuring that the future provincial grid is affordable, reliable, and clean for everyone.