Regulatory Amendments Promoting Corporate Power Purchase Agreements Take Effect

Introduction

The Ontario government has adopted regulatory amendments^[1] (the “Amendments”) to facilitate access to renewable energy resources for larger electricity customers. The measures are intended to provide businesses with more choice in how they pursue their environmental and sustainability goals, while also promoting development of and competition in non-emitting resources.

The Amendments came into effect on July 1, 2025, in the form of changes to Ontario Regulation 429/04 under the Electricity Act, 1998, and relate to the treatment of corporate power purchase agreements (“C-PPAs”), particularly in terms of how large customers can lower Global Adjustment (“GA”) charges on electricity bills.

The Amendments come at a time when the Independent Electricity System Operator (“IESO”), in the context of the decarbonization of Ontario’s electricity grid as part of a global energy transition, is targeting 2,000 MW of wind, solar, bioenergy and hydro to be online as early as 2030.

Global Adjustment

GA charges for an Ontario electricity consumer are determined pursuant to Ontario Regulation 429/04. The GA is a component of the cost of electricity charged by the IESO, which relates to its contracted and regulated electricity resources. For a given settlement period, the commodity cost for a customer will consist of the GA, together with the wholesale (i.e., spot market) price of electricity for such period. Thus, the lower the spot price, the higher the GA (and vice versa).

The GA applies to all electricity customers in Ontario, including those who pay the market price and those who have signed a contract with a licensed electricity retailer.

ICI Program

The Industrial Conservation Initiative (“ICI”) is a demand-response program aimed at shifting large electricity users’ consumption to off-peak hours when the Ontario system is at its highest demand. It allows these customers to manage their GA costs by reducing demand during peak periods.

Customers who participate in the ICI pay GA based on their contribution to the top-five peak hours of energy use in Ontario over a 12-month base period (May 1 to April 30). Customers participating in this initiative are referred to as Class A customers.

Participants in the ICI program generally include:

(a) customers with an average monthly maximum hourly demand greater than 1 MW but less than or equal to 5 MW during the applicable base period.^[2] Customers in this category need to opt in to the program; and

(b) customers with an average monthly maximum hourly demand greater than 5 MW during the applicable base period. Customers in this category are automatically entered into the ICI program and need to opt out if they wish to be treated as a Class B customer for the applicable base period.

Certain other customers who previously participated in certain conservation programs may also be eligible.

Corporate Power Purchase Agreements

C-PPAs can take the form of either a physical contract, where the buyer agrees to purchase a specific amount of energy output from the supplier at an agreed-upon price, or a hedge or financial contract where the agreed-upon contract price is settled against the wholesale price of energy over a given settlement period.

In 2024, the global corporate clean energy procurement market grew rapidly, with a record 68 GW of clean energy procurement deals announced, a total of 29% growth against the previous year.^[3]

Data centres lead global corporate clean energy procurement efforts, but large corporations pursuing clean energy targets, including Amazon, Google and Meta, are also leaders in renewable contracts directly with generators.

Current Amendments

The current Amendments create a new framework that enables large electricity consumers in Ontario to access clean electricity through C-PPAs. Under these agreements, the generator’s output can be used to offset the consumer’s demand during peak periods, which may help reduce GA charges under the ICI program. These regulatory changes will take effect within the 2026-2027 ICI base period.

The framework supports participants in the ICI program by allowing them to enter into C-PPAs with non-emitting generators located anywhere in Ontario.

C-PPAs are permitted for “eligible electricity” purchased by an IESO wholesale market participant. Electricity is considered “eligible” if, during a base period:

(a) it is purchased by the market participant under an eligible purchase agreement entered into by the market participant with the eligible generator in respect of one or more of the market participant’s load facilities that are specified in the eligible purchase agreement;

(b) it is not compensated under another contract with the IESO or IESO-run capacity or demand response auction or IESO pilot program, pursuant to a cogen contract with the market participant or the generator is otherwise entitled to compensation other than pursuant to the C-PPA;

(c) it is physically supplied by the eligible generator from one or more of its eligible generation facilities that are specified in the eligible purchase agreement into the IESO-controlled grid or the distribution system of one or more licensed distributors without first being temporarily stored in an energy storage device or facility;

(d) the physical supply of the electricity is settled through the IESO-administered markets; and

(e) the market participant is a Class A market participant in respect of any of the load facilities referred to in clause (a) at the beginning of the adjustment period that begins in the calendar year in which the base period ends.

Eligible generation facilities have requirements that must be met before and throughout the base period. During the base period, the facility must generate some volume of renewable electricity each hour (with exceptions for outages, insufficient wind/sunlight and IESO dispatch instructions) and cannot consume more electricity than it generates.

The Amendments also provide a formula for determination of the peak demand factor. A key incentive provided by the Amendments is that the customer’s peak demand factor is lowered in connection with the electricity supplied under the C-PPA.

Conclusion

Traditionally, and to a large extent, the IESO has been the “single buyer” for Ontario electricity resources, whether under standard offer programs (such as the Feed-In Tariff) or competitive procurements in relation to both renewable and gas-fired generation. Thus, the Amendments represent a policy departure for Ontario by providing an additional mechanism for renewable generators to enter into power purchase arrangements with corporations instead of the IESO. Given the massive need for new renewable energy resources in Ontario (60% growth in demand by 2050), the Amendments increase the potential for C-PPAs to play a role in meeting the energy transition challenge as well as provide an additional pathway for corporations that wish to meet renewable energy targets.

[1] O. Reg. 101/25: Adjustments under Section 25.33 of the Act.