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Ontario Power Generation is teaming up with a U.S. energy-storage company to provide a battery-based system to reduce electricity costs for industrial customers in the province.

Stem Inc., based in Millbrae, Calif., is a market leader in pairing lithium-ion batteries with high-end software powered by artificial intelligence in a system that stores electricity on site when power prices are lowest. It can then deploy the stored electricity to reduce the customer’s reliance on the grid during peak hours, when prices are highest.

Under an agreement announced on Wednesday, Stem and Ontario Power Generation (OPG) will market the systems to industrial customers whom the Independent Electricity System Operator already pays to cut their power use during peak times when there is a strain on the grid.

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Stem provides the initial capital needed to install its systems at industrial plants and then charges a monthly payment from the savings its customers realize on their electricity bills. The deal with OPG is the company’s first foray into Canada after existing projects in several U.S. states and Japan.

Stem received a $200-million investment earlier this year from the Ontario Teachers' Pension Plan. Stem chief executive John Carrington said the company hopes to use the funds for customers in the province over the next 18 months and continue to expand in Canada to other provinces.

The partnership with the provincially owned OPG “really brings together a very powerful combination,” Mr. Carrington said in an interview. “We’re very excited about it. This partnership provides businesses in Ontario with a very innovative, turnkey solution to enhance their competitiveness.”

OPG chief executive Jeff Lyash said the Stem technology paired with OPG’s market intelligence will help manufacturers and other industrial customers in the province manage their electricity costs.

Beyond the immediate benefit to individual customers, the OPG-Stem deal could be an important part of the effort to meet a looming capacity gap that will occur after 2023, when OPG begins to shut down its aging Pickering nuclear plant. In a forecast released this fall, the system operator in Ontario said the province faces a looming shortfall of peak-time capacity starting at 1,400 megawatts in 2023 and growing over the rest of the decade.

An affordable storage system would be a perfect match for a provincial energy grid that has too much power during low-demand periods – for example, late at night – and not enough when everyone wants to turn up their air conditioners and turn on their lights at the same time, Mr. Lyash said. Currently, OPG has to run water through its hydroelectric plants without generating electricity – or “spill” it – at low-demand times because there is no market for the power.

Battery-based storage such as what Stem provides can capture low-carbon energy from nuclear and hydroelectric plants, or from intermittent sources such as wind or solar, and then sell it back into grid when it is needed. Without that ability, the province would have to rely on either aggressive conservation programs or natural-gas-fired plants that are only required during peak hours. Mr. Lyash said the Stem storage system should be price competitive with the natural-gas peaker plants.

After the closing of coal-fired power plants, Ontario now has very little reliance on fossil-fuel-powered electricity, which produce carbon dioxide emissions that contribute to climate change.

“Building a system that maintains this low-carbon intensity is going to be important in the long term,” Mr. Lyash said. With efficient storage system, “we will be able to cost effectively address the [looming] capacity shortfall without spewing a lot of greenhouse gas.”

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