There are more than enough reasons to carefully reconsider the volume and timing for adding renewables to Ontario’s electric grid. The supply mix target for renewables (10,700 MW of new renewables by 2018, not counting hydro) is ambitious and meeting it will require focused attention from many parts of the sector for years to come.
Although likely to attract challenges from opposing camps, this bold target is in effect the law of the land and potentially enough of a fixed reference point that it offers some hope for stabilizing expectations for the system.
While those who would increase the renewables target or the speed for achieving it have broad environmental and industrial development cases to make, those who recommend a more modest approach to renewables often have some very specific concerns. For example:
1. An overly ambitious rush to renewables will likely mean costs related to an excessive reserve margin, and a future in which more generation is curtailed, including renewables, because of periods of surplus generation.
2. A greater reliance on renewables will likely mean higher costs for meeting summer peaks, providing local reliability and other ancillary services. (This is somewhat of a mixed picture in that renewables can contribute to ancillary services in some cases.)
3. Agencies throughout the sector have to focus on renewables integration issues, inevitably to the detriment of their more traditional mandates. This includes the IESO working on its renewables integration initiative, Hydro One and the distributors working on a large volume of connection applications and green energy plans, several agencies led by the Ministry of Environment on REA applications, and of course the Ontario Energy Board on a range of regulatory rules and systems. At one extreme this leads to concerns that economic priorities are taking a secondary position behind renewables objectives for all these agencies.
It is worth noting that the issues outlined above are all system costs that are unrelated to the actual per kilowatt-hour cost of the renewable energy itself. Even if the renewable energy cost the same as other sources of power, the acquisition of renewables would still be imposing these additional costs on the system. None of this is an argument against renewables in principle – merely an attempt to ensure that the costs are fully understood – so that renewables can be procured in the most sensible way possible. Other energy sources have their own challenges and system integration costs too, of course.
Hydro One’s efforts to accommodate green power connection applications are a case in point. Despite what could be described as very clear overall targets and mandates from the provincial government, it is having great difficulties moving forward with full confidence because it needs to make almost daily choices amongst operational alternatives, knowing there are efficiency and cost-effectiveness implications associated with each, but only relatively general rules to use for guidance in making its choices.
For example, many connection applications are suffering delays because of technical constraints at distribution or transformer stations (restricted stations). Should Hydro One make a priority of resolving those problems, thus enabling further connections, or concentrate on the generation connection applications that can be completed without such upgrades? Or perhaps more beneficially, should it use some kind of long term economic measures to produce a judicious mix of work priorities that takes into account both project costs and system costs? The reconciliation of renewables connection and cost control objectives can get pretty complicated when there are shared assets and multiple beneficiaries.
Further issues are related to the large volume of applications. One example of this is where the Capacity Allocation Exempt (CAE) projects are taking up a great deal of attention from the engineers at Hydro One. Even though these projects represent relatively small amounts of renewable generation, they are supposed to receive priority attention from Hydro One. Not only is this questionable in terms of efficient use of resources, but processing these connection applications is almost certainly delaying if not displacing more viable larger renewable power projects. The current rules seem to oblige Hydro One to work on the small scale projects first, even if the economics would point in another direction. To make matters worse, the priority to be placed on connection of combined heat and power projects is not fully resolved, despite their environmental and system benefits.
Looking at the issue more generally, Hydro One has to systematically produce rational proposals for capital investments in several related areas: green energy plans, energy efficiency plans, smart grid development plans and providing for the normal expansion and capital replacement needs of its distribution system. Combine this with the sensible idea of co-ordinating the development of distribution assets with the reinforcement of local reliability and transmission investments and you have a very complex set of questions about how to priorize new investment activity. Although the regulator is working intensively to resolve these questions and provide guidance to Hydro One and the distributors, they all find themselves labouring without firm measures to use when making tradeoffs between the green energy objectives and the fundamental obligation to minimize costs to consumers. Obviously you have to draw lines above which a proposed green energy project would be rejected or postponed because of system costs. How are these choices to be made, and what principles should be applied to create limits or identify critical considerations? Delay in resolving these questions doesn’t just inconvenience the proponents of the project but potentially many other proponents, investors, and communities who stand behind them in the project pipeline.
The issues become even more challenging when you examine the question of technical standards. Some renewable energy advocates make the case that much more generation could be connected at significantly reduced cost if certain technical rules, put in place by Hydro One, could be further refined in full consultation with a wider group of stakeholders. While the rules have sound principles behind them, including potential impacts on other customers, there are often questions of whether a rule designed for one set of circumstances is being applied too broadly, rather than considering the site-specific circumstances. Should Hydro One and others be devoting time to resolving such technical questions quickly? There is no clear answer on this one either.
And at a more general level, Hydro One has to operate without certainty on the balance between directed work and work that arises through the normal development process. The normal system for development – i.e. identifying needs, devising plans and seeking approval for them from the regulator, seems to be used less and less often. This kind of uncertainty must have impacts.
Until 2008 the principles for renewables were relatively straightforward. Standard offer projects were to be accepted only until the point where they used up the available local grid connection capacity. After that the normal rules and cost responsibilities for using additional grid capacity were the same as for anyone else. With the Green Energy Act, it appeared that renewables were to get special treatment both in terms of connection priority and in terms of cost responsibility. But the operational details in terms of connection priority, and in particular how that kind of priority affects other competing demands on the grid, were not fully defined.
The key at this point is to identify a set of principles that will both encourage renewables and protect consumers. For renewables to be sustainable, they must be economically sensible. Much like the concept behind the Economic Connection Test, there are good reasons to devote time to defining this balance, as it will help stabilize the system for years to come. In many cases the solutions lie in the kind of specific knowledge that local distributors have. They know where their systems are stressed, where there is excess capacity. They can see unused opportunities, and most important, where there are potential synergies between investments to connect new generation and meeting other needs of the system.
Similarly, at the transmission level there are opportunities to identify investments that will meet multiple objectives. After struggling for years to determine the appropriate content for green energy and CDM plans, the staff at Hydro One and many distributors can no doubt cite numerous examples of situations that are attractive for new investment, and situations to avoid. A little discussion of this nature will probably reveal some commonalities amongst the good investments. Tabling a few of those will likely help to identify principles for conscientious and responsible investment.
A key part of making the FIT program more sustainable is to identify potential project costs more completely, to allow more fully informed choices to be made. Whether you want to see the targets higher or lower, or have the pacing adjusted up or down, there are good reasons for wanting more certainty as to which projects will be able to proceed and which will not. How to distinguish the sensible projects from those that are merely well-intentioned is the question of the day. The rest of the industry, just as much as renewables, will benefit from additional clarity.
— Jake Brooks