Ontario amends net metering regulation for third-party ownership
On April 20, 2022, the Government of Ontario filed regulations O. Reg. 386/22 and O. Reg. 387/22 (collectively, the amending regulations) to amend the Net Metering regulation (O. Reg. 541/06) under the Ontario Energy Board Act, 1998 (the NMR) and the General regulation (O. Reg. 389/10) under the Energy Consumer Protection Act, 2010 (the consumer protection regulation). The amending regulations enable third-party ownership of net metered renewable energy generation in Ontario, as discussed in an Ontario Energy Board staff bulletin [PDF] and a Government of Ontario consultation.
The amended regulations will open the opportunity of net metering to a significantly broader pool of industrial and residential electricity customers, who may not be in a position to own or operate their own behind-the-meter renewable energy generating equipment. The amendments confirm that electricity distribution customers may enter into a net metering contract with their electricity distributor for electricity generated by a renewable generator, subject to third-party ownership arrangements such as leasing, renting, financing and power purchase agreements. The amending regulations will come into force on July 1, 2022.
In this blog post, we discuss this latest development in Ontario’s evolving regulation of net metering projects and its potential to promote greater use of renewable generation connected behind the electricity meter of distribution-connected electricity consumers in Ontario.
The NMR was originally introduced in 2006. Subject to the technical constraints of a distributor’s distribution system, the NMR requires a distributor to (i) permit its customers to install renewable generation “behind” their electricity meter to supply primarily the customer’s own electrical load and (ii) provide customers with credits on their electricity bill for excess electricity conveyed into the distributor’s distribution system. The credits can be used to reduce the consumption portion of a customer’s future electricity bills, subject to clearing all credits from a customer’s account at least every 12 months. Since the introduction of the NMR, more than 2,000 net-metered generation facilities, representing 38 megawatts of renewable generation capacity (wind, water, solar and bio-mass), have been connected to Ontario’s electricity grid.
As we discussed in a prior blog post, in the fall of 2021 the Government of Ontario introduced the Community Net Metering Projects regulation, O. Reg. 679/21 (the CNMPR). The regulation permits the net metering of a renewable generator located “behind” a customer’s meter with the loads of other customers not directly connected “behind” the same customer meter as the renewable generator. However, the net metering project must (i) be an approved pilot project (having a maximum capacity of 10 megawatts and a maximum term of 10 years, amongst other limitations) listed in a schedule to the CNMPR and (ii) involve a single entity (e.g., a property owner) operating the renewable generation and holding the accounts for all of the net metered customer loads. Currently, the CNMPR is only applicable to a single project, the “West Five” project development in London, Ontario, by Sifton Properties Limited.
The amending regulations will look familiar to industry participants, since they restate all but the final section of a prior regulation, O. Reg. 273/18 (the revoked regulation). That regulation had been approved to amend the net metering regulation, but was revoked by the then-newly elected provincial government in the fall of 2018, prior to coming into force.
Adding definitions for “eligible customer” and “eligible third party generator” to the NMR, the amending regulations provide that a distributor shall permit an eligible third party generator, with whom an eligible customer has contracted for the purchase of electricity “behind” the eligible customer’s meter, to convey eligible electricity into a distributor’s distribution system. The distributor is then required to provide the eligible customer with a credit for such eligible electricity on their electricity bill. This enables distribution-connected electricity consumers (the “eligible customer,” per the amending regulations), who were previously unable to realize the benefits of net metering due to the requirement that the customer own the generating equipment connected behind its meter, to seek customized commercial structures with third parties to fund the capital cost and address other challenges and barriers associated with installing, hosting and operating renewable generation behind the meter of an eligible customer. Similar to existing requirements included in the NMR for eligible generators, the amending regulations require that neither an eligible customer nor an eligible third party generator be a party to any other contract that provides for the sale, in whole or in part, of the electricity that the eligible third party generator conveys into the distributor’s distribution system under a net metering contract.
The amending regulations also introduce new consumer protections for such newly-enabled renewable generator equipment agreements. Retailers entering into a power purchase agreement and a renewable generator equipment agreement (defined as an “associated agreement”) will be subject to new consumer-protection-oriented requirements targeting unfair practices. These requirements include obligations to disclose cancellation costs, insurance and warranty obligations, maintenance obligations, equipment removal costs and estimated electricity savings, as required by the amended consumer protection regulation. The amended NMR also requires the distribution-connected customer that is a party to an agreement (other than a net metering agreement) related to renewable generator equipment behind its meter (i.e., a lease, rental or financing arrangement in relation to the generating equipment) to confirm to its licensed distributor that it has received disclosure of prescribed information about that agreement.
Absence of a virtual net metering amendment
Similar to net metering regulations, virtual net metering regulations require a distributor to credit the consumption portion of a customer’s electricity bill based on electricity conveyed into the distributor’s distribution system from a virtual net metered generator. One key difference, however, is that virtual net metering regulations do not restrict the connection of a virtual net metered generator to locations physically connected “behind” a load customer’s meter and do not limit virtual net metered generators to producing electricity that is primarily for their own use. This provides developers of virtual net metered projects with increased access to a pool of customers that can be aggregated for a single project, expanding possible sites for generators and allowing them to be sized and sited to achieve economies of scale beyond those of individual net metered projects.
While they establish additional flexibility and financing structures for net metering projects relative to the status quo, the most interesting aspect of the amending regulations for many industry participants is their exclusion of the virtual net metering section of the revoked regulation. Although the CNMPR permits community net metering projects that closely parallel virtual net metering projects in a number of respects, its requirement that a single entity (e.g., a property owner) hold all of the net metered customer accounts with the distributor limits its reach to residents and businesses located in areas where a single property owner is interested in developing net-metered renewable generation. This severely restricts the potential of community net metering projects to promote greater use of renewable generation relative to the potential created by virtual net metering projects that provide open access to all customers and renewable generation developers, where the benefits of net metering can be shared and spread across multiple distinct customers of an electricity distributor.
As the cost of grid-based electricity in Ontario is poised to continue to increase, electricity consumers are increasingly interested in net metering opportunities. The amending regulations support the expanded use of net metered renewable generation to supply Ontario’s electricity needs. By enabling third-party ownership of net metered renewable generators, the amending regulations increase the options available to both load customers seeking to add a renewable generator “behind” their meter that they do not own and renewable generation developers seeking additional sites for projects (such as on a host facility’s rooftop or lands). However, the amending regulations’ failure to enable virtual net metering represents another conscious Ontario electricity policy choice in recent years to limit the adoption of net metering projects relative to the larger potential adoption of net metering with generation equipment not physically connected to the load customer’s meter.