NATIONAL NEWS

 

Canada’s first local electricity market is off to a promising start. Breaking new ground, a wide variety of local distributed energy resources (DER) will start delivering services to the grid on May 1. During the November 2020 capacity auction, a range of projects totalling 10 MW were accepted at a clearing price of $0.64 per kW-day. Although it was only a demonstration project, the results appear to be attractive, indicating that local utilities and transmission system operators may benefit from distributed market-based local capacity and the ability to defer more expensive infrastructure upgrades. Major innovation could be afoot if this kind of market continues to develop and grow.

 - Jake Brooks

 

 

 

The following is a summary of an expert panel discussion on the York Region Non-Wires Alternatives Demonstration Project. The panel was held online as part of the APPrO 2020 conference on December 2, 2020, soon after the first capacity auction results were announced.

 

 

Panelists:

 

Pat Lo, Senior Manager, Partnerships, IESO

 

Geri Yin, Head, Grid Innovation, GRE&T Centre, Alectra Utilities

 

Jen Hiscock, Assistant Program Director / Smart Grid & Energy Storage, Natural Resources Canada, and Session Moderator

 

 

 

Jen Hiscock: This new demonstration project, valued at more than $11 million, marks the first time NRCan (Natural Resources Canada) has invested in this kind of market-based solution. Rather than focusing on technology application, the project looks at how development of a local market might make services available economically to the wholesale grid. Funding has been provided equally by the federal government and the IESO.

 

 

 

The project area covers a subset of the Alectra service territory. It was chosen based on the location of expected demands on the distribution and transmission grids, looking at what could be done on the distribution side to address some of the system constraints if a non-wires alternative approach is taken. Existing stations are approaching their limits, and a growth trend is anticipated for a number of years. The question arose as to whether some of the needed capacity upgrades could be deferred by leveraging existing or new customer-owned assets.

 

 

 

The assets under consideration ranged from 100 kW to 3 MW – like batteries and space conditioners, remotely controllable. Resource types include demand response, gas-fired generation and storage.

 

 

 

The first market auction, which sought 10 MW of capacity for a 6-month commitment period from May to October 2021, had just cleared at the time of the conference, at a price of $0.64 / kW-day (see chart). Another auction is scheduled for fall of 2021.

 

 

 

Pat Lo: One of the objectives of the project was to find out what resources are available in the community, and to identify specifically what local resources could be used to meet local system needs. What value streams are available among these non-wires alternatives? And under the heading of interoperability, what value would there be at the wholesale level as well? What correlation might there be between prices in the transmission and distribution markets? How reliable will the resources be? Are the various types of resources available competitive with each other?

 

 

 

Geri Yin:  The capacity auction was run on November 18 and 19, 2020 – a real competition! Local resources representing 34.3 MW of capacity registered to participate, well exceeding our set capacity target of 10 MW.  We’ve seen a diverse group of participants: aggregated residential customers, supermarket operators, manufacturers, a district energy utility, and other local companies are among the successful providers. The types of DERs that have cleared the capacity market include behind-the-meter CHP, C&I Load Curtailment, Residential DR (Smart Thermostats), and behind-the-meter Gas-fired Generation.

 

 

 

The local capacity market cleared at a competitive price of just $0.64/ kilowatt-day, or $640/MW-day. This was 40% of the price cap which was $1.6/kw-day or $1,600/MW-day.  The demonstration’s clearing price for the full six-month commitment period (May – October) in 2021 is about $80,000/MW.

 

 

 

The capacities cleared through the local auction market were pretty much evenly distributed among the two zones – zone 1 in Vaughan and zone 2 in Markham and Richmond Hill. The two-zone market is expected to generate more learnings and enable better understanding of local market dynamics that can be used during the next round of the market auction. 

 

 

 

Alectra was thrilled with the results of the auction. The amount of interest from the market and the diversity of the successful participants and resources shows tremendous potential for using local solutions as a cost-effective alternative to traditional electricity infrastructure to meet local and regional energy needs. It is clear that there is a viable local market for DERs to participate as grid energy resources.

 

 

 

Another important aspect is that this local market gives the community the opportunity to take an active role in building a more sustainable grid - by deferring traditional infrastructure, while at the same time generating a new source of income. 

 

 

 

Jen Hiscock: Remember that nobody put a thumb on the scale in any way to determine who would win or who would perform better in this auction. We tried to make the playing field as level as possible. It’s also good to see the level of resources that can participate – resources in the range of a few hundred kilowatts would never be engaged at the scale the IESO deals with. In addition, the new sources of revenue created for customers will help them commit to increasing electrification. This could be important considering that efficiency alone may not be enough to get to the 2050 decarbonization goal.

 

 

 

Questions

 

 

 

1. The pilot has allowed testing of a number of parameters, but there are others we can’t yet test. What limitations in testability did it encounter?

 

 

 

Pat Lo: The dispatch process will be real, not simulated. The IESO will be calling on the resources, and they will come online. However, we can’t directly apply the results to the wholesale market. Some of the remaining barriers are in the regulatory domain. But the regulator is highly involved and is reviewing the project. We’re hoping that, working with the regulator, we’ll be able to provide enough insight so as to make broader choices in the future.

 

 

 

2. There’s always been some doubt as to how many customer assets we can leverage. Tell us about the process of recruiting customers.

 

 

 

Geri Yin: We took a staged or phased-in approach to engage stakeholders and acquire participants to the program. Engagement via the IESO webinars began in December of 2019. Last July the IESO and Alectra jointly hosted a stakeholder engagement session on the detailed design of the Demonstration Program Rules and Participant Contracts, followed quickly by the marketing campaign, where Alectra worked closely with the IESO on marketing and communication strategy. Alectra was taking a customized, one-on-one approach with the customers, helping them understand what the program is about, what they’re being asked to do, and what’s in it for them. We educated customers about the program with our marketing materials and tools. We’re also collaborating with industry associations – such as EDA, OEA, Vaughan Chambers of Commerce, the Markham Board of Trade, and so on, who are also networking and getting the program out through their own channels.

 

 

 

3. Have any of them had to do their own retrofits or upgrades in order to participate? Or were they able to sign up on the spot?

 

 

 

Geri Yin: Some had their resources readily available, some are looking at building DERs. Some will be ready for the second-round market auction next fall.

 

 

 

Jen Hiscock: This sort of approach is extremely transparent in order to allow everyone who wants to play and to allow for broad competition. The project methodology was designed to maximize the breadth of competition, not to create a rush to connect.

 

 

 

4. This is the first such project in Canada. Is there a basic structure to a project like this to help other system operators and LDCs who might want to set up something similar?

 

 

 

Pat Lo: LDCs have their own set of system operations specific to the distribution network – opening and closing breakers, planning system outages – while we’re talking about more market-based constructs, procuring energy resources. So they might have to acquire that capacity, understanding how market systems operate. The IESO’s approach to market operation properly stresses full transparency, including costs, cost breakdowns, rules and contracts.  There shouldn’t be anything to hide.

 

 

 

As to the regulatory side, the OEB right now is in a transitional state and they’re looking at more innovation. We’re seeing some good progress. Two of the key takeaways for me are a) the importance of getting to know the markets, and b) learning how to manage the regulatory nuances that will alleviate barriers to developing these new markets.

 

 

 

Geri Yin: Other LDCs may need to work to develop a local energy market perspective. This could mean getting their executives on board, developing the appropriate expertise – in the legal area, system planning, the control room, etc., and making sure the needed processes are established.

 

 

 

They will need a software platform that’s able to register DERs, and allow participants to bid into capacity and energy markets. The system will need the capability for qualifying and contracting DERs, forecasting demand, scheduling, dispatching, performing M&V and settlement, etc. Regulatory changes will clarify and enable the cost recovery for operating this type of local market; but before that happens, ring-fencing the internal resources devoted to the projects (separating them from normal utility business) is necessary so that it will not affect ratepayers.

 

 

 

Pat Lo: The auction has demonstrated that this kind of capacity procurement is fairly economic. This initiative is strategically important.

 

 

 

Jen Hiscock: We always expected a pilot to be a little more expensive than a full scale-up. This pilot will be important as a benchmark. It’s not unusual for people to underestimate the cost of change management at the early stages of a new initiative. There will be a need in many cases to devote time and effort to the development of human resources.

 

 

 

5. What would be needed to make this scale up in Ontario?

 

 

 

Pat Lo:  The intent is to take the current wholesale capacity price and compare it to the clearing price of the local auction. That will give us an idea of what resources clear at what level. It will also help us understand what the values are for non-wires alternatives in terms of capital deferral.

 

 

 

FERC Order 2222 is making large strides in the United States. The IESO will be learning from that and likely making moves in that direction as well.

 

 

 

6. Geri, did you have a comment on getting the scale you wanted?

 

 

 

Geri Yin: It definitely required a shift in our thinking about scale. From one perspective we were looking at how to enable customers to have more control of how they use energy. From another perspective we are looking at how to ensure efficient and innovative investment in utility infrastructure. To get to scale, we need to have systems such as DERMS connected to the various DMS at utilities/DSO (i.e., SCADA, GIS, etc.)   – allow the DSO to be able to fully integrate the DERs into the grid; be able to control, monitor, manage and optimize DERs, while offering customers grid services to monetize their DERs.  Ultimately, we will need a new regulatory framework (i.e., new tariff and rate design/structure) to incent investment in and cost recovery associated with adopting DERs as grid solutions to avoid or defer traditional poles and wires investment.

 

 

 

7. Where is the money for these settlements coming from?

 

 

 

Jen Hiscock: Some of the money for the demonstration project is coming from NRCan funding. And that’s part of why the OEB is happy to have you go ahead; ratepayers aren’t paying for the settlements at this point. But if we want this to get to scale, where will the value come from? Under the traditional TSO approach, we’d only be talking about wholesale clearing prices, but since it’s at the distribution level, we can also add any asset deferrals on the LDC side. So what are the easiest values to realize, in order to minimize administrative costs?

 

 

 

Pat Lo: The way utilities are traditionally set up, it’s often easier for them to rate-base everything. We need to consider if there are other ways to ensure capacity is in place. Can utilities acquire capacity services from market participants for example? Can utility capital be used to secure capacity from DERs, or do we just change the structure entirely to compensate utilities differently?

 

 

 

8. How might anyone considering a role as power producer participate in this project? I’d like to include options for aggregation and behind the meter opportunities.

 

 

 

Pat Lo: We wanted to procure three types of resources, but for this pilot we were only able to organize to get two. There is no storage – that would have been hard to make an investment in given the tight timelines for participation in the first capacity auction. In future we’d love to see some kind of adjustment, so we could see how well it competes.

 

 

 

9. How can future auctions be designed to recognize the lead time that’s often necessary to develop new DER projects to participate effectively? The local region might not have many additional existing assets to leverage.

 

 

 

Pat Lo: This is a two-year market. Typically in such market, once you secure a contract, there’s a short window to get your asset online, six months in this case. For this demonstration project it is not expected to be economic to build new generation. For new resources, we’ll have to consider more enduring programs, possibly with conditional roll-outs. The point here was to gather more evidence about DER behaviour from a system perspective, to determine if this approach would be economic. It appears to be so, and it now seems like we have a good opportunity to push the system boundaries, encourage collaboration with the regulator – and to tie in with climate initiatives as well, as part of a move toward net zero while delivering net benefit for ratepayers.

 

 

 

Acronyms used in this report:

 

DERMS: Distributed Energy Resource Management System

 

DMS: Distribution Management System

 

DSO: Distribution System Operator

 

SCADA: Supervisory Control and Data Acquisition

 

TSO: Transmission System Operator

 

NRCan: Natural Resources Canada

 

 

 

 * * *

 

 

 

For more information, see these pages on the IESO, Alectra and APPrO websites:

 

https://www.alectra.com/nwa

 

https://www.ieso.ca/en/Sector-Participants/Engagement-Initiatives/Engagements/IESO-York-Region-Non-Wires-Alternatives-Demonstration-Project

 

Slide deck from the NRCan presentation to the APPrO 2020 conference

 

 

 

Conference registrants can see the video and access presentation materials on the APPrO conference app at this location:

 

 

 

APPrO plans to host discussion on related questions at the upcoming 33^rd Canadian Power Conference on November 29 and 30, 2021 including sessions focused on DERs and the York Region Demonstration Project.

 

 

 

 

 

 

 

***

 

 

 

A version of this article is also published on LinkedIn at this location.

 

 

 

This article represents the views of the author. It is intended to prompt further discussion and may not reflect the position of APPrO or of any APPrO member.

 

 

 

By Sean Mallen

Sean Mallen Communications

December 10, 2020

 

The impact of the pandemic on the workplace was on display in a panel of CEOs at the APPrO 2020 virtual conference. Joined together by Zoom from across the country, Sophie Brochu of Hydro-Québec, Ken Hartwick of Ontario Power Generation and Dawn Farrell of TransAlta Corp all appeared to be in living rooms or home offices, while Brian Vaasjo of Capital Power had a virtual backdrop.  Appearing in boxes on computer screens, in various gradations of casual dress,  they were asked for their observations on how life has changed and how much of that change will persist.

 

“It’s important that we recognize the implications of the pandemic on people,” said Vaasjo. 

 

He said that like so many others, his firm moved relatively quickly to adopt anti-infection protocols in power plants and to ask office employees to work remotely. He expects that even after the pandemic eases that half of Capital Power’s office staff will continue to work remotely at least part of the time, but he foresees a challenge for all industries.

 

 

“(With a national system of carbon pricing) we might be able to achieve Paris in a very cost effective way.”

- Dawn Farrell, CEO of TransAlta

 

“The problem with that is the culture that got us through the pandemic will erode and it’s going to be difficult for all of us to figure out how we can keep the engagement in light of people working more remotely, away from the corporate core,” said Vaasjo.

 

He quoted a colleague’s vivid image to illustrate the problem.

 

“We’ve all been able to get through this pandemic because we’re utilizing body fat. Once that body fat is gone, we’ll see our culture and engagement eroding.”

 

OPG’s Ken Hartwick noted how generators rose to the challenge of 2020, while also touching on the mental health issues created by the stresses of the pandemic.

 

“We shouldn’t underestimate the impact that has on people. Both in our companies and in the community.  We need to be part of the answer to that,” he said.

 

Sophie Brochu, CEO of Hydro-Québec, speaking at APPrO 2020 Sophie Brochu, who joined Hydro-Québec just as the pandemic began, spoke about how Quebeckers’ traditional love-hate relationship with the utility shifted during the public health crisis.

 

“The level of appreciation for HQ has never been higher. The citizen was asking for proximity, for understanding, for relief.  And they wanted resilience from the power supplier,” she said.

 

“It’s one word: communication.  And that communication, that understanding, that empathy is what needs to persist.”

 

Brochu said ratepayers were naturally concerned about paying power bills during such uncertain times and utilities have to recognize that reality.

 

“It is the duty of society and utilities to focus on energy efficiency.  We have to help each of our customers use less.”     

 

Dawn Farrell, CEO of TransAlta, speaking at APPrO 2020 TransAlta Corp CEO Dawn Farrell echoed the necessity to be sensitive to the cost of power for consumers, as well as the biggest environmental challenge facing the planet. 

 

“We have to be thinking about how we provide electricity. It needs to be provided with as low GHG footprint as we can do,” said Farrell. 

 

Power producers have been leading the way nationally in reducing their carbon footprint, while Farrell recognized that the prairie provinces still have work to do, given their reliance on natural gas, although Alberta is in the process of phasing out coal.

 

She suggested that if the provinces and the federal government could work out long term carbon pricing agreements, providing revenue certainty over 20 years for projects that cut carbon, it could have a dramatic benefit, given that power producers plan developments in timeframes that last decades.

 

“You would unleash hundreds and hundreds and thousands of projects across this country…and we might be able to achieve Paris in a very cost effective way.”

 

In a discussion titled “The Transformation Panel,” delegates got a glimpse of some of the astonishing technological advances that will help drive the fight against climate change.

 

Grace Quan, CEO of the Vancouver-based firm Hydrogen in Motion spoke about her firm’s development of a process to store hydrogen under low pressure at high density.  She likened it to a battery and said it has multiple applications, including in transportation.

 

“It’s going to be a real game changer if we can implement hydrogen in a clean, sustainable way,” said Quan, adding: “It’s technology that changes the world.  We didn’t get out of the stone age because we ran out of stones.”  

 

The Chair of the Energy Advisory Board at the MaRS Discovery District, Paul Murphy, gave glimpses into several intriguing technologies.  One, created by a Toronto startup called Solistra, is a process that transforms carbon dioxide or methane from industrial activities into hydrogen—in effect, turning greenhouse gases into zero emission fuel.

 

“Investors and companies that use energy are increasingly  looking for economic solutions that  also have an environmental or social value,” said Murphy. “And this is only likely to increase into the future.”

 

His comment highlighted another phenomenon that we have seen in the pandemic: a growing international conversation about the importance of ESG (environmental, social, governance).  The stresses of 2020 have supercharged the movement, with consumers, shareholders and employees all demanding that corporations demonstrate concrete commitments to improving society, and not only the bottom line.

 

“Shareholders are a huge driver of this trend,” said Emily Damon, who specializes in the field for Guidehouse. 

 

Speaking in a panel on ESG leadership, she gave a sense of the magnitude of the movement.

 

“There are trillions of dollars in assets under management attributed to ESG funds and tied to the UN principles for responsible investment,” said Damon.

 

She shared the panel with Mike Crawley, President and CEO of Northland Power, who said ESG is a major preoccupation for his firm.  He felt that Northland was already well positioned on the environmental side, given its focus on developing green power, but added that it had to do better in reporting on its progress.

 

“That’s our priority over the next two years, to significant ramp up our reporting to make it easier for investors to select Northland…because everything we’re doing from the “E” standpoint is good for the world,” said Crawley.

 

He said Northland is also emphasizing the importance of health and safety, particularly given that many of its workers operate in potentially hazardous offshore environments.  And his company is sensitive to issues of diversity and inclusion.

 

“I believe that the most productive employee is somebody who feels that when they show up to work they can be  who they are  and be comfortable in who they are, and they can feel valued…and they know their voice will be heard.”

 

Along with earth-shaking changes in the economy and public health, 2020 also featured a tumultuous election in the United States, where the voters chose to end Donald Trump’s presidency after a single term. 

 

In a discussion of the political outlook, Crestview Strategy’s Maryscott Greenwood (who is also CEO of the Canadian American Business Council), predicted that President-elect Joe Biden will face Republican roadblocks in bringing in transformative change, particularly on the climate file.  Democrats had hoped to sweep both houses of congress, but instead their majority was cut in the House of Representatives and control of a closely-divided Senate rests on two senatorial elections in Georgia.

 

“The big, ambitious, visionary climate policies that you’ve read about will be moderated quite a lot by the reality of the politics,” said Greenwood.

 

In Ontario, energy policy dropped down on the priority list in 2020 (aside from relief measures on power bills) for a government preoccupied with the pandemic.  Panellists Dan Moulton of Crestview and Matthew Gibson of Sussex Strategy Group said they did not expect to see anything dramatic on the file from the Ford government between now and the next scheduled provincial election in 2022.   

 

The point was reinforced by the Minister of Energy, Greg Rickford, who told the conference that the government was not anticipating any major new procurements over the next few years and instead is focused on keeping rates down for consumers.

 

 

 

In its September 16 report, the national Task Force for a Resilient Recovery presents two dramatically different options for Canada’s economic recovery.

Canada’s federal energy regulator announced August 5 that “for the first time ever,” it now has an Indigenous Advisory Committee (IAC) who will advise the Board of Directors on how the CER can build a new relationship with Indigenous peoples.

Innergex Renewable Energy Inc. announced the signing September 17 of two 25-year power purchase agreements that provide a fixed price to the Hawaiian Electric Company.