Governments of Ontario and Québec Support New Electricity Trade Agreement

Yesterday, the provincial governments of Ontario and Québec announced their support for a new 600 MW electricity trade agreement between Ontario’s Independent Electricity System Operator (IESO) and Hydro-Québec, to optimize the existing seasonally available capacity of electricity generation across both provinces over the next 10 years. The full release can be found here.

The IESO and Hydro-Québec signed a Memorandum of Understanding (MOU) at the Energy and Mines Ministers’ Conference (EMMC), with the intent to finalize a binding agreement in the near future. This capacity swap agreement was designed to complement the seasonal electricity demand peaks of both provinces, with Ontario’s occurring in the summer, and Québec’s occurring in the winter. As a result, both provinces have excess capacity during the other province’s electricity peak period that can be beneficially exchanged.

According to this new agreement, which is still in its preliminary stages, the IESO and Hydro-Québec will conduct an annual 600 MW electricity capacity swap, coinciding with each province’s yearly peak demand period. The IESO will provide 600 MW to Hydro-Québec in the winter and Hydro-Québec will provide 600 MW to the IESO in the summer. Ontario will also be allowed to bank any amount of the 600 MW of summer capacity provided each year for use in any future summer period during the agreement, allowing the province to rely on that capacity until it is required. The term of this agreement is for up to 10 years, and since the deal only constitutes a “straight swap” of electrical capacity in equal amounts, no capacity payments will be required by either party.

This MOU is similar in concept to that used in the 2015 Ontario-Québec Electricity Trade Agreement. That agreement, which saw similar electricity swaps between both provinces across the same summer and winter peak seasons, was signed on a 7-year term and was set to expire this year. Ontario already had plans on exercising its last and only option in the summer of 2026, for a block of 500 MW. Expansion potential for electricity trade between Ontario and Québec was explored in some detail in the IESO’s Ontario-Quebec Interconnection Capability Technical Review, which among other things, determined that Hydro One’s completion of the Hawthorne TS-Merivale TS M30A/M31A conductor replacement work in Ottawa was important to increasing reliable import capacity from Québec through Eastern Ontario.

The IESO and Hydro-Québec have also agreed to explore opportunities to strengthen and increase the number of transmission interconnections between the two provinces. The focus of any future transmission connections would be to meet increasing loads in the Abitibi and Timmins region, as well as exploring the potential for new capacity between Montréal and Toronto.

Sussex views this current MOU and agreement largely as intended to be added insurance for Ontario over the next decade while capacity needs remain tight. Clients should view this pending Agreement as reducing some of the urgency of meeting reliability needs in the mid-2020s, but not having a significant long-term impact on Ontario’s supply needs. It will not impact targets for the Long Term 1 RFP and is not likely to change the required energy needs to be met through the subsequent Long Term 2 (and beyond) RFPs. The IESO still views sustained needs throughout the next decade, driven primarily by the decarbonization of transportation and industry, facility retirements, and Federal policy (like the recently released draft Clean Electricity Regulations).