By Travis Lusney, Power Advisory LLC
For organizations with renewable energy generation projects participating in the Large Renewable Procurement (LRP) I procurement process, connection capability of Ontario’s power system is an important consideration. As the LRP I shifts from the Request for Qualification (RFQ) stage to the Request for Proposals (RFP) stage, the procurement process moves from a general assessment of participating proponents to an aggressive competition between Qualified Applicants.
The goal of the Ontario Power Authority, as the procurement agent of the LRP I process, is to secure a balance between rational proposal prices, project risks, the ability of projects to connect to the grid, and the ability of projects to produce energy. To achieve this goal with respect to connecting proposed projects to the grid, the OPA should work to ensure that risks Qualified Applicants can control are borne by these applicants, while risks that cannot be controlled are minimized by the OPA. Examples of risks that cannot be controlled by Qualified Applicants include future congestion and curtailment, connection capability at a point of interconnection, and force majeure events. Since renewable energy generation projects are typically financed through project debt financing, minimizing uncontrolled risks benefits the OPA on behalf of Ontario’s electricity ratepayers by reducing financing costs associated with developing these projects. This can significantly impact costs over a 20-year contract term.
One uncontrolled risk that the OPA should work to minimize is the process to estimate connection capability at a point of interconnection for all proposed renewable energy generation projects. Qualified Applicants aim to optimize the size of their proposed projects by balancing three separate and interdependent attributes. The first of these attributes is the capability of the generation technology to utilize the available resource (e.g., wind speed) at the project site. The second is the availability of land on which to develop the project. The third is the ability of the grid to absorb energy from the newly developed generation. One of the primary benefits of competitive procurements is incentivizing participants to optimize their projects in order to be successful in the procurement process. Therefore, the cost of each of the above attributes must be optimized by Qualified Applicants towards the most cost effective proposals.
The OPA has stated that a Connection Availability test (i.e., connection capability test) is required within the LRP I RFP. Connection capability testing is intended to assess the likelihood that proposed projects will be suitable for connection to the grid prior to LRP I Contract awards. This is a valid requirement to include in the LRP I RFP for a variety of reasons. The OPA proposes to use the Transmission Availability Test and Distribution Availability Test (TAT/DAT) from the Feed-In Tariff (FIT) Program for the connection capability test. However, the OPA has thus far in the LRP I process failed to provide adequate information to Qualified Applicants as to the likely results of TAT/DAT for their proposed projects’ connection to the grid. In particular the TAT Table, which provides estimated values that will be used in the availability testing, does not provide enough information for proponents on transmission circuits and connection capability values.
To understand the reasons for Qualified Applicants needing additional connection information beyond that currently being provided in the LRP I process, it helps to understand the origins of the TAT/DAT process. The FIT Program and accompanying processes, such as TAT/DAT, were developed with the expectation of thousands of applicant projects being submitted to the OPA for evaluation and then being processed towards FIT Contract offers in a short period of time. Further, the FIT Program had established relatively low barriers of entry in order to incentivize maximum participation of applicant projects. Within the FIT Program, the assessment of a large volume of applicant projects needed to be completed quickly and it was therefore envisioned that the TAT/DAT process might occur as often as every six months. In contrast, the LRP I RFQ resulted in only 42 Qualified Applicants that will result in a relatively small number of proposed projects in response to the LRP I RFP. Therefore, a different connection capability test rather than TAT/DAT for a more limited set of proposed projects is justified.
To date, the OPA has provided several kinds of useful information on connection capability. Areas of the province where additional generation cannot connect to the grid have been identified (e.g., Northwest, Niagara, Bruce, and Sault regions). The OPA has also provided connection capability information on transmission circuits and Transmission Stations (TSs) throughout the province through the TAT Table. The TAT Table identifies short-circuit and thermal connection capability for all stations includes individual buses within TSs. For transmission circuits that are radial lines, circuits connected to the grid at only one end, the OPA provided estimates of connection capability based on the weakest section of a given transmission line. The main drawback of the TAT Table is related to network circuits, circuits that are connected to the grid at both ends. For these transmission circuits, the OPA has only listed whether circuits have no availability or “some” availability. The issue for Qualified Applicants is that “some” could mean as little as, for example, 5 MW and as much as, for example, 300 MW. The issue of determining connection capability for proposed projects is further compounded by the draft LRP I RFP stating that multiple project proposals cannot be submitted for similar projects. As a consequence, any single proposed project only has three opportunities to basically ‘guess’ connection capability correctly, assuming of course that minimum connection capacity is economical[1].
The current approach outlined within the LRP I RFP is not optimal and as already explained will result in increased financing rates for project development and higher costs for ratepayers. Ratepayers deserve optimized projects that have been sufficiently evaluated. In previous competitive procurements, such as the Renewable Energy Supply III (RES III), the OPA required all Applicants to complete the first stage of System Impact Assessments (SIAs[2]), which is administered and overseen by the Independent Electricity System Operator (IESO). The first stage of SIAs provided important information on connection capability at the preferred points of interconnection. However, this initial SIA option is not being permitted within the LRP I RFP (in fact it is expressly not being permitted as specified in the November 7, 2014 Ministerial Directive to the OPA), in part due to additional time needed by the OPA to coordinate with the IESO in order to administer a more detailed connection capability test.
Through the Qualified Applicant consultations, the OPA requested alternatives or adjustments to address regarding their proposed connection capability test (i.e., TAT/DAT). Power Advisory LLC (Power Advisory) has long considered connection capability to be a key development risk in the LRP I process and has given the issue a great deal of thought. At the LRP I Qualified Applicant consultation Meeting on December 2, 2014, Power Advisory provided the following option to the OPA to enhance and improve the connection capability test.
The OPA should offer each Qualified Applicant the opportunity to submit a preferred connection point for the OPA to assess. The connection assessment request can be accomplished through a prescribed form that gathers the required details for the OPA analysis. The deadline for submission can be set early in the LRP I RFP schedule in order to allow the OPA time to complete the assessment and provide results back to Qualified Applicants so project sizes and locations can be optimized.
The connection assessment performed by the OPA does not need to be a new process. The OPA could simply apply the TAT in an “uncompetitive” format. By “uncompetitive,” this approach means that the OPA will not consider a ranking of projects but instead will provide a connection capability value assuming that a project is the first project considered in the LRP I evaluation stack of proposed projects.
To reduce resource requirements for the OPA, the connection assessment can be standardized for all requests. Instead of allowing Qualified Applicants to suggest different project contract capacities for assessment, the OPA could pre-determine project size increments that could be assessed. Incremental size assessment is required to provide an estimate of maximum connection capability for a point of interconnection to the grid. The OPA indicated in response to the Power Advisory suggestion that 50 MW increments of project size for assessment may be appropriate [3].
To help ensure fairness regarding access to information in the LRP I RFP, the OPA could publish the results by transmission circuit for each connection assessment request. Information related to the identification of the Qualified Applicant who requested the information would be withheld and the results would represent an addition to the TAT Table.
Power Advisory believes the inclusion of the application of an uncompetitive TAT assessment upon request in the LRP I RFP would resolve most of the issues of confidence in connection capability information for Qualified Applicants. Qualified Applicants will be provided with an understanding of the approximate maximum connection capabilities for preferred interconnection points and could use the range of capacity increments to determine their three contract capacity alternatives. As a result, the connection capability information provided will increase the competitive tension in the LRP I process and should result in lower priced proposals, another benefit to Ontario’s ratepayers.
footnotes
1. The OPA has included the option for Qualified Applicants to identify a First Alternative Contract Capacity and Second Alternative Contract Capacity. Both alternative Contract Capacities must be offered at the same proposal bid price.
2. The SIA considers the impact on the reliability of the integrated power system from the proposed connection arrangement. The steps of the SIA and detailed information on each step is available in the Market Manual 2.10, Section 8.
3. Incremental size assessment means the OPA would test projects sizes at 50 MW, 100 MW, 150 MW, etc. until a project cannot connection. Power Advisory has initially suggested 10 MW increments and believes 25 MW would still be useful to Qualified Applicants.
Power Advisory LLC is a leading North American management consulting firm that specializes in electricity sector matters and solutions. This advice is based on an understanding of fundamental economic drivers shaped by electricity market structures, generation technologies, regulatory frameworks, government policies and market behavior.
Travis Lusney is a Senior Consultant with Power Advisory LLP and an accomplished power system planner with deep experience in procurement strategy, power system modelling and resource adequacy. He can be reached at
Editorial views expressed in IPPSO FACTO are the opinions of the original commenter, and may not represent the positions of APPrO.
[1] The OPA has included the option for Qualified Applicants to identify a First Alternative Contract Capacity and Second Alternative Contract Capacity. Both alternative Contract Capacities must be offered at the same proposal bid price.
[2] The SIA considers the impact on the reliability of the integrated power system from the proposed connection arrangement. The steps of the SIA and detailed information on each step is available in the Market Manual 2.10, Section 8.
[3] Incremental size assessment means the OPA would test projects sizes at 50 MW, 100 MW, 150 MW, etc. until a project cannot connection. Power Advisory has initially suggested 10 MW increments and believes 25 MW would still be useful to Qualified Applicants.