Market Outlook for Renewables in Ontario

Green Profit SwitchMarch 30, 2015

Power Advisory LLC

Travis Lusney

Tel: 647-680-1154 Email: tlusney@poweradvisoryllc.com

Power Advisory LLC is a leading North American management consulting firm that

specializes in electricity sector matters and solutions. With offices in Boston and

Toronto, we offer a highly qualified and focused team that provides market-tested

and value-driven consulting support. Our advice is based on an understanding of

fundamental economic drivers shaped by electricity market structures, generation

technologies, regulatory frameworks, government policies and market behavior.

A sample of the Toronto office’s current activities:

Assisting multiple clients in developing strategy for the Large Renewable Procurement I

Request for Proposal (LRP I RFP) process.

Co-leading the Solar Development Evolution Working Group which is focused on

assessing best practices for customer based solar PV generation and determining what

should be applied in Ontario. Also determining requirements for transition in the

existing FIT program to support long term solar PV development.

Analysis and commentary on the proposed Demand Response Auction and Capacity

Market from the IESO.

Electricity system review for the Province of Newfoundland and Labrador prior to the

interconnection for the first time of the island of Newfoundland to the North American

electricity system.

Guidance for Combined Heat and Power (CHP) project development.

2

POWER ADVISORY LLC

Power Advisory LLC 2015

All Rights Reserved

Liberal government in 2nd year of majority government.

Main focus is on deficit reduction and transit funding.

Ontario Power Authority (OPA) has been absorbed by the Independent Electricity

System Operator (IESO).

New executive leadership (Bruce Campbell CEO) expected to refocus the energy agency.

Minister directive power will remain but ability to implement is reduced via market rule

change process.

IESO has initiated stakeholder engagement on Demand Response (DR) Auctions

and Capacity Market (also referred to as Capacity Auction).

Shift away from centralized procurement with specific government direction.

Small FIT program and microFIT program have clear procurement direction until

2017. Large Renewable Procurement (LRP) I is underway.

All nuclear generating stations (Pickering GS, Darlington GS and Bruce GS) are

currently operational.

3

WHERE ARE WE NOW

Power Advisory LLC 2015

All Rights Reserved

4

ONTARIO IS LONG ON CAPACITY

Power Advisory LLC 2015

All Rights Reserved

-$15

-$10

-$5

$0

$5

$10

$15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

HOEP - Wednesday, October 8, 2014

Hour of Day (“Hour Ending”)

Ho

url

y O

nta

rio

En

erg

y P

rice

($

/MW

h)

Liberal government entering last year of majority government.

Main focus will be on the upcoming election and smothering issues.

IESO will likely have launched DR Auctions and may have launched Capacity

Auction.

Market mechanisms are expected to secure resources to meet Ontario’s reserve

requirement for supply adequacy.

Procurement mandates for the Small FIT program, microFIT program and LRP

have ended.

Nuclear generating assets begin retirement and refurbishment.

Pickering GS could be entering final year of service (license from CNSC is currently to

August 2018).

Darlington unit 2 and Bruce A unit 4 offline for refurbishment.

5

WHERE WILL WE BE IN 2017

Power Advisory LLC 2015

All Rights Reserved

6

ONTARIO WILL NEED CAPACITY

Power Advisory LLC 2015

All Rights Reserved

Indication of requirement for additional capacity, beyond total resource commitment

Source: 2013 LTEP & Power Advisory

Ontario small solar procurement

Limited development and innovation opportunity.

Potential projects are segregated into different programs by size.

Programs require third party administration.

Heavy on front end activities.

Program pricing does not account for external market forces.

Exchange rates, import tariffs, interest rate changes.

Highly competitive market with many players from different backgrounds.

All players are competing for limited MWs.

7

ELECTRICITY MARKET RISKS FOR RENEWABLES

Power Advisory LLC 2015

All Rights Reserved

Benefits to offering variety of

opportunities.

Can continue to use program caps to

manage multiple procurements.

Easier to adjust to external market

factors.

Starting to recognize and determine

impact of high penetration of

customer based generation.

Standby charges.

Minimum bill.

Distributors are evolving into

Managers of distributed network.

Must properly value reliability

offering and manage risk of stranded

assets.

Investment in capacity to decrease vs

increasing for flexibility and

resilience.

8

EXPERIENCES OUTSIDE ONTARIO

Power Advisory LLC 2015

All Rights Reserved

More customer centric choices.

Rate-payers have been consistent in preferring more choice.

Supports investment in distributed generation, energy storage, alternative reliability

benchmarks.

Provide multiple avenues for renewable development.

Different funding opportunities for different business models and customers.

Need for alignment with power system needs and values.

Integration with regional planning.

Fair cost allocation for value

Value of grid reliability is very high, however future investment in capacity in the grid

will need to be scrutinized.

The evolution of customer values and customer return expectations will influence

investment assessment for both regulated and unregulated businesses.

9

WHERE DOES THE ELECTRICITY SYSTEM NEED TO

EVOLVE TO

Power Advisory LLC 2015

All Rights Reserved