A relatively firm and consistent philosophy has been apparent for several years in the policies applied to the development and connection of generation in Ontario: Smaller generation applicants should generally receive priority over larger generation applicants for both contracts and connections. The policy may not have been stated explicitly, but it is apparent in the establishment of the rules for Capacity Allocation Exempt projects (now called small FIT), in the treatment of micro-embedded generation, and of course in the timelines for FIT program windows.
As the contention for limited connection capacity becomes more intense and real projects hang in the balance, Hydro One and the other distributors are working hard to ensure that the rules are specific enough that everyone, particularly generator applicants, will know what to expect. Similarly, the OPA has been clarifying and striving for consistency in its programs and offerings. Yet investors in potential projects have been waiting on the sidelines for more than a year since the OPA stopped accepting large FIT applications, and many are no doubt looking for other places to invest their capital.
While the rules and the systems for making new connections may be largely resolved, the same cannot be said about the over-arching policy and the reasoning behind it. Why is it preferable to give procurement and connection priority to small generators? How should such a preference be expressed in policy and in practice? This is by no means an objection in principle to alleviating barriers for small projects. It’s a request for a more specific diagnosis, so participants can be sure that the prescription fits the problem.
The reasons for wanting to ensure that smaller generators get some kind of connection priority fall into several categories, but the most compelling is straightforward fairness of opportunity. If there were no rules in place to encourage connection of small generators, it is safe to assume that in many situations, the larger applicants would quickly use up all the connection capacity and all the smaller applicants would be seriously out of luck.
Without presuming anything about what the government’s rationale might be, the reasons for promoting small generation connections might be summarized as follows:
1. Small generators will be effectively displaced (some might say suppressed) in many areas unless they are given connection priority of some kind.
2. Small generators have unique abilities to create positive public engagement: They stand a good chance of being supported by their local community, and of being relatively green and innovative. Over the longer term, having people living nearby small localized generation tends to encourage popular participation in, and understanding of, power system development issues in a positive way. Not only is it good for the community, but it also helps communities to become more knowledgeable about, and accepting of, the power generation business.
3. Small generation is likely to present fewer technical challenges for the operation of the grid, and lesser risks of oversupply or of exacerbating the surplus baseload generation problem in particular.
One thing that has become pretty clear is that smaller generation as a whole is not more economic. Both the cost of the energy and the effective cost of the connection tend to be higher with the smaller projects. The Ontario government’s FIT program seems to recognize this in that the community power and Aboriginal power programs include economic adders as well as special priority rankings for these types of projects when awarding contracts.
The key objective for developers of both large and small projects is a sustainable system. That inevitably requires balance. No one would gain from a system that ties up connection capacity for small projects that never get built because they can’t be financed. In the same vein, a system that always allowed big projects to muscle out the smaller players would be problematic in other ways, and likely more subject to political and policy challenges than a system with a balance between large and small projects.
A similar question surrounds the priority given to connection of renewables. While it’s an understandable part of public policy to want to ensure renewable generation has reasonable, even preferential, access to the grid, there are a lot of questions as to how far this should go. Should renewables have priority over high efficiency co-generation, which is arguably a form of energy efficiency and very effective at reducing atmospheric emissions? Some would argue that co-gen, because of its load-following characteristics, actually reduces emissions more than would the same capacity renewables project. (The cogen displaces less efficient fossil fired generation on the system when renewables might not be available, whereas new renewables often displace other heritage renewables.) It’s been demonstrated that the cost per ton of emission reduction is generally less with cogeneration as compared to renewables. But this is not an either-or question. Renewables and co-gen each have unique benefits for the system and each one needs to have a place in the structure. So shouldn’t they each have a recognized place in the allocation of connection capacity? Similar questions can be asked of course about other forms of generation with their unique benefits. There is a range of unresolved issues relating to how project viability should be factored into the decisions about allocating connection capacity.
The underlying question is this: If you are going to define a supply mix that has a more nuanced approach to the allocation of connection capacity, what rules and principles should it be based upon? Right now the policy essentially says renewable applicants receive priority allocation of connection capacity, and an individual renewable project only loses that allocation if it can’t manage to get connected within a specified period of time. Non-renewables can only be connected if there isn’t a viable renewable energy project contending for the same capacity. Would it make sense to give high efficiency cogeneration the same kind of treatment as renewables? Perhaps the system can be revamped to ensure that the connection playing field is more level in general, while not unfairly excluding renewables. These are significant unresolved questions that would be useful areas for stakeholder discussion prior to further action led by the OPA or the Ministry.
It is a great irony of Ontario’s FIT program that a system that was instituted specifically to establish a consistent and dependable form of procurement for renewables has now been forced to resort to a complex system of application windows. No one knows when the next window will open, to say nothing of the one after that. Arguably there is no more dependability about the timeline for future procurement under today’s FIT program than there was under the previous system of centrally-administered RFPs.
In a very important sense, these problems are related to the less-than-ideal set of supply mix directives that the industry is working with. Such directives were originally intended to help deal with the kinds of broad questions that could provide long-term guidance to agencies working on procurement and connection issues. For example, in addition to setting targets for increasing levels of renewables penetration, supply mix directives could clarify the objectives in terms of balancing large and small generation, or reference public policy statements that do the same thing. They could clarify how far utilities are expected to go in terms of facilitating grid access for renewables, particularly in cases where capacity is limited and there is contention amongst generators. Such clarity would also be likely to be helpful to the OEB as it works to give distributors guidance on their investment plans, considering that the cost of expanding connection capacity is poised to significantly impact long term consumer costs.
Unfortunately, supply mix directives in Ontario have become relatively specific and detailed. This creates two kinds of problems. It means that no set of enduring principles for regulators and agencies to use has been fully defined. And just as important, it makes the supply directive impossible to follow for the ordinary member of the public. In fact, one of the key purposes of the supply mix directive, that of expressing the broad public will in a way that brings clarity to the public debate and guides the work of the agencies in the sector, is not being achieved. You could say that the higher purposes of the supply mix directives are becoming lost in their own details.
It was always expected that supply mix directives would be the subject of public consultation. Years ago they were. Yet many updates have followed with little or no consultation. What better time to start a focused process on developing long term principles of this nature than when the buyer is not accepting a lot of new applications, and when utilities generally have their hands full simply following through on the connection agreements they have already signed?
It’s quite possible there is a better way to design both procurement and connection systems so that connection capacity is well-used, efficiently constructed and fairly allocated. And by the same token, ensuring that the supply mix policy is based on a set of durable, easily understood principles.
— Jake Brooks, Editor