The COVID-19 pandemic and supply chain disruptions are frequently cited, but not the only reasons for uneven uptake of Ontario’s energy retrofit and performance incentives over the past two years. The recently released mid-term review of the 2021-24 framework for conservation and demand management (CDM) points to some internal barriers and bottlenecks in program offerings, including the discontinuation of incentives the commercial sector previously favoured and disproportionate spending on some sectors within the business program envelope.
As well, there have been some initial hiccups in delivering on the provincial government’s mandate to explore competitive procurement of energy efficiency. Proponents chosen through a March 2021 pilot auction for peak demand reduction capacity were largely unable to meet their commitments when the November 2022 start-date for the winter trial period arrived.
Nevertheless, analysts with the Independent Electricity System Operator (IESO) conclude that CDM targets for 2021-24 are achievable. Those were originally set at 2.7 terawatt-hours (TWh) of energy savings and 440 megawatts (MW) of peak demand reduction, but have since been increased to 3.8 TWh of energy savings and 725 MW of peak demand reduction with last fall’s injection of an extra $342 million of program funding.
“At its mid-term, the Framework is on track to achieve its original energy and demand savings target. In the remaining two years, enhancements will be made to the programs to reflect changing market conditions and customer feedback,” the executive summary of the IESO’s review states. “In all, Ontario is well positioned to seize opportunities to expand the scale and nature of CDM to address changing system and customer needs now and into the future.”
Seven new programs are slated for launch this year, although one of them — strategic energy management — is a reworked replacement for the popular direct subsidies for hiring in-house energy managers, which are no longer available. “The expanded suite of programs will address identified opportunities for HVAC in the residential sector; better supporting advanced- and connected-control systems and other non-lighting savings in the commercial and institutional sector; and targeted support for greenhouse lighting, controls and BTM DER (behind-the-meter distributed energy resource) projects in the agricultural sector,” the IESO advises.
Inefficiencies plague start-and-stop approach
Among initiatives to be introduced in the second half of the four-year term, commercial customers will see the return of incentives for customized energy efficiency upgrades — a well-subscribed option in previous CDM frameworks, which was eliminated in 2021 when retrofit incentives were channelled solely into prescriptive measures, paying a set dollar amount for installation of designated energy-efficient lighting, controls and equipment. After postponement of an intended 2022 rollout, the building commissioning program is also promised for this year.
The IESO review acknowledges commercial consumers’ disgruntlement when the custom track and a program focusing on process and systems upgrades were cancelled in 2021. It also underscores the inherent inefficiencies of what’s characterized as the “start-and-stop model” for the provincial CDM agenda.
In recent years, program administrators and enrollees have been juggling three distinct sets of CDM programs and deadlines for project completion: the previous government’s framework for 2015-2019; the current government’s interim framework for 2019-2020; and the 2021-24 framework. Adding more complications, pandemic-related issues forced multiple extensions to project delivery deadlines under the two earlier frameworks.
“With each new framework, significant effort is needed to relaunch and/or redesign programs and either extend or re-procure third-party program services, along with increased administrative efforts to track three separate budgets and targets,” the IESO notes. “Customers and partners also reported confusion resulting from the changing of frameworks and resulting program changes.”
Retrofit budget unexpectedly sidetracked
Drilling down to the business programs offered in 2021-22, the IESO reports some reluctance from prospective applicants to pursue the demand-savings incentive offered through the energy performance program due to its energy modelling requirements. It also appears commercial building owners/managers have extracted less benefit from retrofit program dollars than originally envisioned given an unexpected skewing of the budget to horticultural lighting.
The IESO cites “a high volume of horticultural lighting projects, which provide limited contribution to summer peak demand reduction” as a major factor in business programs falling 96 MW (24 per cent) short of the peak demand reduction targeted to be attained from the $369 million first allocated in the 2021-24 framework. (Notably, $136 million of the recent $342 million in additional CDM funding has been earmarked for greenhouse operators in southwest Ontario with projections of achieving 225 MW of peak demand reduction.)
The remainder of the shortfall is attributed to redirecting funds to programs that were offered through the previous interim CDM framework, following an influx of applications during the final weeks of eligibility. The IESO suggests this move helped “avoid consumer frustration and disappointment” but, in turn, it subsidized a “high proportion of exterior lighting” that’s typically in use during periods of lower systemwide demand.
Although the retrofit program is deemed “behind on its peak demand reduction target while being overspent on budget relative to the CDM program plan,” it has actually exceeded original projections for energy savings. Overall, business programs are calculated to be just 0.1 TWh (100,000 megawatt-hours) behind the target they were meant to achieve with the initial $369 million CDM budget.
A focus solely on prescriptive retrofit measures has reduced the IESO’s administrative costs by nearly 50 per cent per kilowatt-hour of achieved savings relative to the previous CDM framework and is credited with shortening the project approval process. The IESO further reports that it “continues to be mainly a lighting-driven program” and is forecasted to exhaust its budget in 2023.
Competitive procurement pilot encounters challenges
The retrofit program also figured in an array of challenges for participants in the IESO’s pilot project to test competitive procurement of energy efficiency. The nine proponents emerged from an March 2021 auction, in which they submitted bids for shedding energy load, and collectively proffered 7.4 MW of winter peak demand reduction capacity and 6.6 MW of summer peak demand reduction. This included a mix of large industrial and institutional electricity consumers positioned to deliver within their own operations and energy services firms aiming to aggregate demand reduction across a number of smaller consumers in their customer base.
Winning bids equated to a weighted average price of $334 per kilowatt (kW) for wintertime and $378 per kW for summertime peak demand reduction, representing a cost saving on the historically paid incentive of $400 to $800 per kW through the customized retrofit program. However, proponents were not prepared to fully meet their commitments for the wintertime pilot period scheduled from Nov. 1, 2022 to Feb. 28, 2023.
“Participants have cited a number of challenges that led to these relinquishments, including difficulty securing internal project funding to deliver projects, turnover in staffing during the EEAP (energy efficiency auction pilot) forward period, technology price escalation and workforce impacts of the COVID-19 pandemic,” the IESO reports. “Participants that had planned to deliver aggregated resources by enrolling customers and installing measures across multiple facility locations also cited challenges competing with other Save on Energy programs, such as retrofit.”
The IESO is now watching to see what will unfold for the summertime test period, scheduled for June 1 to Aug. 31, 2023. “As the pilot is still in progress, the IESO is cautious about drawing broad conclusions at the present time,” it affirms.
