The rise of utility-scale storage in Canada

Kristyn Annis

Partner and Chair, Energy Storage Canada

Border Ladner Gervais, Toronto

kannis@blg.com

The last three years have seen utility-scale energy storage systems proliferate in Canada like never before. A recent white paper published by Energy Storage Canada, the nation’s leading industry organisation for all things energy storage, concluded that anywhere between 8,000 MW to 12,000 MW of energy storage potential would optimally support the net-zero transition of the Canadian electricity supply mix by 2035. In addition to helping jurisdictions meet their net-zero goals, energy storage is key to increasing grid reliability, efficiency and resiliency.

In Canada, which is a federation, the ten provinces have constitutional jurisdiction over energy that is within their respective borders. As the industrial revolution took hold, the provinces put in place Crown corporations to manage the provinces’ respective electricity grids. In British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and Prince Edward Island, the Crown continues to own the provincial vertically integrated utility, meaning that transmission, most distribution, and generation are centrally managed, with some involvement of independent power producers. This allows provincial governments to execute on provincial energy policy expeditiously in ways that legislative authority cannot. While the degree of control exerted by the provincial government with a vertically integrated Crown corporation is almost absolute, provinces with an open market also continue to exert a high degree of control over the energy sector as a manner of provincial policy.

Ontario

Ontario is Canada’s most populous province with more than one third of the country’s population. The province has approximately 38,193 MW of installed capacity,[1] with summer peaks that range from 21,000 MW to a historical high of 27,005 MW.[2] In Ontario, the Independent Electricity System Operator (IESO) is responsible for managing the electricity sector. The IESO delivers key services including managing the power system in real-time, planning for the province’s future energy needs and enabling conservation. The IESO takes direction from the Minister of Energy, which is generally issued by way of letter.

After at least a decade of surplus energy and relatively flat demand, the IESO now predicts a steady average increase of net energy demand of two per cent year-on-year, culminating in a 208 TWh demand in 2043, for a total increase of 60 TWh and summer peaks forecast to reach 31,500 MW.[3] Driven by electrification of certain sectors of the economy, increased economic activity, population growth and the retirement and refurbishment of Ontario’s nuclear facilities, which provide more than half of Ontario’s baseload power, the IESO predicts a capacity shortfall in the mid-2020s.

To help meet this shortfall, the IESO has initiated a series of procurements, and stated their intent to issue future procurements well into the 2030s. The IESO’s very public signal to the market that it intends to carry out continual procurements is a game-changer for the marketplace and the energy sector in Canada. Such transparency enables developers to plan their investment pipeline, thereby optimising assets, use of capital and creating efficiencies in the energy buildout. The IESO also broke ground by focussing on energy storage in its recent procurements. Storage has a unique role to play in the electricity sector, acting as both load and supply, and capable of providing a host of grid reliability services. These services are commonly referred to as ancillary services and include grid regulation, reactive support and voltage control services, reliability must-run and black start capabilities. Utility-scale storage is optimised by charging during off-peak hours (when the grid is powered primarily by nuclear and hydro in Ontario and therefore low-emitting) and injecting energy back into the grid during peak hours.

Given Ontario’s need for capacity (ie, MW available to provide energy when needed, as opposed to energy into the grid), the IESO focussed their first and second procurements on filling this need. The IESO issued the largest storage-based procurement in Canada in February 2023 with the Expedited Long-Term 1 RFP (the ELT1). The ELT1 resulted in a total of 739 MW of utility-scale storage being procured, with in-service dates in 2026.[4] The weighted average price for successful proponents was approximately CAD836/MW. The ELT1 also included a non-storage category for natural gas-fired power stations. Notably, the IESO failed to meet the capacity it had allocated for ELT1 in the non-storage category and only two gas plants ended up with a contract. The weighted average price for such resources was more expensive than storage, at CAD1,093/MW. In addition to the ELT1, the IESO contracted with a private developer (comprised of an Indigenous partner and non-Indigenous partner) for the Oneida Battery Storage Project, which will add another 250 MW (1000 MWh) of battery storage by 2025. With only 54 MW of storage currently installed in the Ontario grid, the ELT1 alone represents a 434 per cent increase in Ontario’s future storage capacity.[5]

The IESO initiated the Long Term 1 RFP (LT1) on the heels of ELT1. The LT1 is intended to procure competitively up to 2,518 MW of year-round capacity services, of which 1,600 MW are targeted to be procured from energy storage facilities, and 918 MW are from natural gas facilities. The target for natural gas facilities includes the leftover capacity from ELT1. The bid submission deadline was 12 December 2023 with contract awards expected to be announced in May 2024. The IESO is currently seeking comments on the design of Long Term 2 RFP (LT2), which is expected to focus on energy (MWh) rather than capacity, to compliment the additional storage capacity that is coming online from ELT1 and LT1.

Utility-scale storage is increasing in the rest of Canada as well, especially when considered in relative terms to the current assets online in each province.

Figure 1: provincial energy storage targets.

As seen in Figure 1 (above), British Columbia and Nova Scotia are the top two jurisdictions after Ontario to announce utility-scale energy storage targets. Each has different reasons for implementing such targets, but de-carbonisation is central to both.

Nova Scotia is one of the few provinces still powered primarily by coal and has been plagued by continual energy supply issues. Nova Scotia released a draft Clean Power Plan in Q3 2023, with the objective of, by 2030, achieving 80 per cent renewables; closing coal; cutting electricity greenhouse gas emissions by 90 per cent and improving grid resiliency. At least 1,000 MW of wind is anticipated, being Nova Scotia’s lowest-cost option, with approximately 300 MW of battery energy storage systems to help manage wind’s variability.

British Columbia, via their vertically integrated utility, BC Hydro, updated the provincial integrated resource plan Clean Power 2040 – Powering the Future, in 2023. British Columbia has plentiful river systems and hydroelectric power provides the bulk of the province’s electricity needs. Dammed rivers are a large-scale form of energy storage, but the province has plans to introduce both utility-scale and small scale battery energy storage to meet capacity needs. Under the accelerated electrification scenario in the Plan, the province intends to advance utility-scale batteries, with the first units installed in fiscal 2029, ramping up to provide approximately 480 MW of additional dependable capacity by fiscal 2032. Although not as firm a commitment as energy storage proponents would like see, it is nonetheless a signal that utility-scale storage will play an important role in the British Columbia’s energy sector.

Conclusion

Energy storage, especially in the form of batteries, like solar and wind, is a technology play.  Specific energy and energy densities are increasing dramatically, meaning a lighter battery will provide a longer charge. The private sector, governments and universities are also investing in R&D in a material way, experimenting with different materials, storage technologies and applications. One of the main challenges facing utility-scale storage will be to ensure that the grids to which they connect can support their application and optimise their use. The correct commercial incentives, revenue models and compensation for services must be in place to allow utility-scale storage to participate in electricity markets on a level playing field and with a reasonable expectation of return on investment. Overall, jurisdictions are wise to look to utility-scale energy storage to help decarbonise, lower energy costs and increase grid resiliency.