By Jake Brooks
Significant change could be coming to an electrical grid near you. Opportunities may soon open up for a wide variety of clean energy suppliers to add electricity to the grid, and for increasing numbers of relatively small energy producers — including consumers — to enter the energy market using local resources.
Newly released independent research from the Independent Electricity System Operator (IESO) has found that a prudent portfolio of Distributed Energy Resources (DERs) could be less expensive than the wires and transformers that would otherwise be needed under reasonably probable conditions in parts of York Region north of Toronto, depending on the levels of future DER growth and other circumstances. The authors caution that the findings in this report might not be directly applicable to other timeframes, places, or types of distributed energy resources, but taken in context, they are nonetheless remarkable.
Ontario’s energy landscape is rapidly changing with the adoption of electric vehicles, solar power, and battery storage systems. To maintain safe, reliable, and affordable electricity, distribution system managers will need to monitor how much power is being used on the grid and when usage occurs. Non-Wire Alternatives (NWAs) such as DERs can offer cost-effective and faster deployment alternatives to expensive and time-intensive infrastructure buildouts and help in reducing a utility’s impact on the environment.
Following the conclusion of this ground-breaking demonstration project, Steven Del Duca, the Mayor of Vaughan, home to several of the project participants, said: “Vaughan is an innovative city with one of the fastest-growing populations in Canada. We must ensure no stone is left unturned when it comes to increasing energy efficiency for our residents now and into the future; all options must be on the table. I commend the Vaughan-based businesses, like Longo Brothers, Tycho Poly Inc. and Sobeys, for pioneering new ground-breaking technologies that will alleviate pressure on our electricity grid while benefitting residents and businesses in Vaughan and beyond for years to come.”
Fundamental change could be underway in the economics of energy if this pattern continues. After many years of focusing on large-scale infrastructure, a subtle shift towards smaller, more locally oriented development may be emerging. For example, according to energy consultant Wood Mackenzie, the market for DERs in the U.S., “will nearly double from 2022 to 2027, reaching US$68 billion per year.”
Considering that Ontario’s grid operator and all levels of government are anticipating rapid expansion of the overall electrical grid, revelations like this could boost Canadians’ expectations for near term investment in relatively small, targeted and localized energy projects in tandem with the pace of overall energy system growth, or possibly faster. This project has convincingly demonstrated that local electricity markets can effectively encourage people and companies to offer innovative new resources to the electrical grid, increasing the breadth and depth of electricity competition.
There are a number of qualifications on the study’s conclusions but it will carry a lot of weight, being based on the results of two years of real world demonstrations of how DERs performed under open market conditions, and subsequent cost benefit analysis carried out by ICF, a well known consulting firm with extensive energy expertise. Successful bidders in the demonstration included behind-the-meter combined heat and power facilities, commercial load curtailment, and residential demand response in the form of aggregated smart thermostats.
“We are thrilled with the successful completion of the NWA Demonstration Project. The strong market interest and diverse range of successful participants highlights the immense interest amongst the DER community, and their capability to deliver on energy needs,” said Geri Yin, head of Grid Innovation at Alectra Utilities. “This project energized the local community to take on an active role as part of grid solutions — a win-win-win for customer, community and the grid.”
Credit: Woliul Hasan/Unsplash+
Demonstration project details
The report’s cost benefit analysis is described as “illustrative” because, like any forward-looking research, it is based on the specific conditions present during the time period the demonstration was conducted, combined with modelling assumptions including future electricity needs, energy and capacity costs.
However, given that the data for the input assumptions came from Alectra, the local utility that hosted the demonstration project, the IESO, the grid operator in Ontario, the measurement of real world market behavior during the demonstration, and research by the ICF team, this study is by far the most comprehensive and authoritative of its kind ever conducted in Canada.
Projections of future costs and benefits always carry implicit uncertainties. However, forecasts are necessary for proper infrastructure planning. To ensure there is enough supply, planners must make choices about which types of power plants to build, and where to put grid infrastructure, long before the actual business conditions under which the facilities will operate are known. This is why cost benefit analysis, using the best available data, even with all its uncertainties and qualifications, has become a crucial tool for making important long term planning decisions, in both the public and private sectors. Robust studies of this nature are all the more timely considering the ambitious scale of grid expansion that is widely anticipated in the near future.
In its final report, ICF stated, “The illustrative cost-benefit analysis … demonstrates that DERs can offer substantial cost savings as an alternative or deferment to traditional infrastructure given the right conditions.” Notably, as the demonstration progressed, the behavior of bidders matured, and prices proved to be significantly lower in the second year. However, it’s important to note that while the bidder behaviour and pricing dynamics evolved positively over this demonstration, other factors, such as market conditions, evolving DER growth and regulatory policies will play a significant role in determining the overall cost-benefit analysis in the future.
The York Region Non Wires Alternative Demonstration Project was a two-year “real world test” to find out what happened when a distribution utility invited local resources to offer energy supply and related services to the local utility. The demonstration was designed to assess the effectiveness and performance of local resources in providing these services to the system, and in particular, whether these options could potentially, under the right conditions, enable the utility to postpone building new electric wires and transformer equipment.
The project was a collaboration between the local utility, Alectra, and the provincial grid operator, the IESO, with funding from the federal government, Natural Resources Canada and the IESO’s Grid Innovation Fund. The initiative was considered highly innovative when first announced in 2019 as it effectively created the first local electricity market in North America.
The two-year local capacity auctions successfully procured 10 megawatts (MW) of capacity for the year 2021 and 15 MW of capacity for the year 2022, from a diverse range of DER participants, including manufacturers, supermarket operators, and residential participants through aggregators. DERs procured through the capacity auctions committed to being available for two six-month periods (May 2021 to October 2021 and May 2022 to October 2022) to help meet electricity system needs.
This table summarizes the results of the Cost Benefit Analysis by ICF and was presented in the report with several qualifications. Please see the report at this location for more complete information.
In reviewing the project, ICF provided positive feedback about the overall design and management of the process. It found that the Demonstration Project was largely successful, and substantially met all of its major objectives.
In its report, ICF noted that, “Prime locations for DERs are areas with constrained distribution or transmission networks, driven by rising demand, evolving load patterns, or the retirement of existing generators.”
Highlighting some of the benefits, ICF said, “DERs have shorter development timelines and can be deployed modularly, allowing for closer alignment of capacity need and DER installation (versus T&D which is oversized compared to initial capacity need).”
In its conclusions, ICF offered suggestions for future program design including the following:
- Conduct local DER potential studies to inform planning decisions, ensuring sufficient DERs available. Value of DERs can be based on ‘stacked value’ across multi-year periods, as appropriate.
- Establish a framework that includes incentives for performance and disincentives for non-performance.
- Provide multi-year commitments to improve certainty and support participants in investing in DERs. These commitments also boost confidence that planners have in using DERs.
A wide range of energy experts foresee changes to electricity market rules to establish what’s known as “value stacking,” or business systems that could remunerate DERs for demonstrated benefits they create for other users of the grid. However, the implementation of value stacking will require greater co-ordination between distribution and transmission levels of the system. With respect to DSOs, DER Participants, and IESO Coordination, the report said: “Simplify provision of grid services by streamlining rules and processes across DSO and IESO opportunities. Effective coordination is essential for ‘stacking’ services across the grid.”
With respect to “Recognizing all DER Cost and Benefit Streams” ICF observed that, “Using established analytical methods to evaluate DERs highlights their economic potential. It is also important to acknowledge the value of less tangible benefits.”
Energy analysts such as Jennifer Delony think that the grid may be evolving from a primarily top-down distribution system towards a more open network that includes large numbers of participants exchanging energy in real time on a transactional basis. From humble beginnings in York Region, this project may have planted some of the seeds for far-reaching change in the future.
As investment in electrical infrastructure grows, quite possibly at a pace exceeding the general rate of economic growth, there is a good chance that increasing proportions of this investment will take place at the local distribution level, now that evolving technology and markets are enabling more competitive and productive use of local resources.
There is little doubt that this demonstration project and the research assessing it represent an important landmark in the evolution of local electricity markets in Canada.
Jake Brooks is an energy consultant who served as executive director of the Association of Power Producers of Ontario for many years.
Disclaimer: This article is for general and public information only. It is not necessarily applicable to the reader’s specific circumstances and should not be relied on as the basis for financial, regulatory or other decisions, unless it’s under the advice of an appropriate certified professional.
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