The Clean Energy Standard Offer Program (CESOP) will support small clean energy generators that are connected to a distribution system. The Program is intended to encourage participation by a variety of clean energy technologies, including natural gas-fired combined heat & power (CHP), by-product fuel-fired generation projects, and generation projects fuelled by under-utilized energy (thermal or mechanical) sources.

Program History

On June 15, 2007, the Minister of Energy directed the OPA to develop the CESOP, based on recommendations developed by the OPA. The objective was to launch the Program by the end of 2007. The concerns raised by stakeholders regarding certain elements of the June 2007 recommendations, as well as changes in market conditions and other factors, led the OPA to delay the launch of the CESOP pending a review of these issues.

On May 27, 2008 the OPA released a “Report on the Ontario Power Authority’s Revisions to the Clean Energy Standard Offer Program” reflecting the results of that review. The results of the May 2008 Report superseded Recommendations XII to XVI and XIX to XXIII of the initial June 2007 CESOP Recommendations. The June 2007 recommendations which stand are Recommendations I to XI, XVII to XVIII, and XXIV to XXIX. (For more information, please see the original June 2007 Recommendations, and the May 2008 Report, under Related Downloadable Files at the bottom of this page).

On September 25, 2008 the OPA posted its final “Updated Report on the Ontario Power Authority’s Revisions to the Clean Energy Standard Offer Program”, outlining revisions to the program being made in response to industry and stakeholder feedback on the May 27, 2008 Report. This Updated Report is intended to provide stakeholders with information on the improvements made by the OPA to the program as previously described in the May 2008 Report.

Key elements

Consistent with the May 2008 Report, CESOP contracts will be awarded to eligible projects that have a gross nameplate capacity of no more than 10 MW, for a 20 year term. CESOP contract payments reflect the capacity value of these projects to the OPA. The CHP capacity value is determined by four elements:

• the assumed base value (in 2007 dollars) of Combined Cycle Gas Turbine capacity; 
• the market revenue that a representative CHP facility would be expected to receive; 
• adjustments to reflect avoided marginal transmission losses; and 
• avoided or deferred investments in transmission capital costs.

The CESOP approach continues to involve two methods of compensation. With each type, a set portion will be tied to the Ontario consumer price index. The type of compensation, and the portion which is subject to inflation, will depend on the type of project.

Compensation for natural gas-fired Combined Heat and Power projects

Natural gas fuel-fired CHP projects will receive a Contingent Support Payment from the OPA, to address natural gas price fluctuations. The OPA will calculate the total revenue that a reference CHP would require. This is the Net Revenue Guarantee (NRG) for all new natural gas-fired CHP.

The OPA will then calculate the Net Market Revenue (NMR) that the reference CHP would earn during a 16-hour weekday (7 AM to 11 PM, M-F) schedule for all 12 months of the year. The difference between the reference facility’s NRG and the NMR that the reference facility would earn is the Contingent Support Payment (CSP) amount that the OPA will provide.

Since the level of the CSP will vary according to the changes in gas and electricity prices - which affect the revenues that a representative CHP would receive – the fuel price risk for CHP participants is hedged.

The chart below shows how the relative proportions of CSP and NMR may vary, where NRG = NMR + CSP. Since the height of the columns reflects the set level of the Net Revenue Guarantee, this demonstrates the essence of the calculation of the Contingent Support Payment from the OPA: CSP = NRG – NMR.

The NRG for all new natural gas-fired CHP generators participating in the CESOP will be set at $17.25 per kW-month in 2009 dollars. Recognizing that older natural gas-fired CHP facilities had lower development costs, a lower NRG will be provided to eligible “grandfathered” facilities. For qualifying natural gas-fired CHP generators that achieved initial operation after August 18, 2005 and prior to September 01, 2008, the NRG will be set at $15.97 per kW-month in 2009 dollars.

Compensation for By-product Fuel-fired Projects / Under-utilized Energy Projects

The OPA will offer a separate power purchase agreement to qualifying by-product fuel-fired facilities and under-utilized energy projects, which generally do not have the price fluctuations of natural gas fuel, and have costs that are largely fixed once financed and built. The value from these generators is the same as the basis for the price paid to CHP generators, but with an adjustment to reflect that they will be less available at the time of system peak. This value was calculated at approximately $81 per MWh, on average, in 2009 dollars.

To provide incentives for these facilities to operate as much as possible at times of peak demand, the payment schedule pays this average value by offering a higher amount -- $117 per MWh --- during higher demand times (7AM to 11 PM on weekdays) and a lower amount -- $51 per MWh – at other times.

For administrative simplicity, the CESOP compensation rates for all types of CESOP generation have been set in 2009 dollars.

Who will be typical generators?

Potential generators are expected to include any commercial or industrial facility that requires both heat and power, or which produces electricity using by-product fuel or under-utilized energy sources.

Some typical applications include:

• Large greenhouses 
• Institutional buildings with high thermal energy demands (e.g. MUSH sector)
• Multi-family buildings 
• Industrial Facilities 
• District Energy Projects 
• Natural gas pressure regulating stations

Who is eligible to participate?

There are no restrictions on who can participate in the program, other than OPG and its affiliates. In general, projects cannot have already had an electricity supply contract with the Province, the former Ontario Hydro, Ontario Power Generation, or the Ontario Power Authority.

Eligible clean energy projects must:

1. be located in Ontario,
2. have an installed generating gross nameplate capacity of no more than 10 megawatts, 
3. be connected to an eligible distribution system licensed by the Ontario Energy Board and connect at a voltage of no more than 50 kilovolts, 
4. be metered by the local distribution company in accordance with OEB requirements,
5. adhere to transmission constraint limits, as applicable, and 
6. have a commercial in-service date after August 18, 2005.

Clean energy facilities that came into service prior to August 19, 2005 will not be eligible for the CESOP when it is initially launched. Such projects were built at lower costs, under different market conditions, and were generally developed to meet internal thermal and electrical requirements. It is not appropriate to allow such projects to participate in the CESOP to the same degree as newer projects.

In order to determine the best value propositions for the ratepayer, the OPA is currently reviewing potential options for contracting with such facilities, either through a modified CESOP or via another mechanism, and expects to provide industry with more information regarding its deliberations in late Fall 2008.

What are the Transmission System Constraints?

As with Renewable Energy Supply Request for Proposals and the Renewable Energy Standard Offer Program (RESOP), there are areas of the province where the transmission system has limited or no ability to accept new generation. The grid zones will be divided into 3 colours: green, yellow and orange:

• GREEN ZONES: no limit on Transmission Capacity. 
• YELLOW ZONES: at this time, for the purposes of the RESOP and the CESOP, Yellow Zones will be treated as Orange Zones. This will be reviewed upon the completion of the current competitive procurement initiatives, RES III, CHP II and CHP III. 
• ORANGE ZONES: only micro projects (< 10 kW) and farm-based bio-energy generation projects (< 250 kW) are accepted under the SOP, up to a combined maximum of 10 MW in that zone.

Please note that the general procurement map has been updated and there are now new Orange and Yellow Zones identified in Ontario.

These contract restrictions will also apply to CESOP generators and the OPA will not be considering RESOP or CESOP applications that connect to a distribution feeder that in turn connects to one of the transmission stations (TS) in any designated Yellow Zone or Orange Zone.

For more information on transmission constraints and on the OPA’s approach to managing Standard Offer Programs in constraint areas, please see our Transmission Constraints page.

Schedule for Program Implementation

With the release of this final Updated Report, the OPA intends to develop draft Program Rules. The OPA intends to develop draft Program Rules based on the content of this Updated Report and will release draft these Rules in the next couple of weeks. At that time, the OPA will also provide more information how stakeholders can provide comments on the draft Rules. Future updates on this process will be provided as details become available.

The OPA anticipates being able to release the Final Rules and Contract for the CESOP in October 2008, with Program launch slated for sometime in the Fall.