By Jake Brooks
As Ontario moves closer to producing the latest edition of its Long Term Energy Plan, the one issue that appears to be dominating the planning process is the question of risk: How to assess it and how to manage it. Although risk has always been a significant issue in power system planning, the IESO and many stakeholders have begun this round of planning with an unprecedented recognition that the 2016 Long Term Energy Plan (LTEP) will be fundamentally different from the last three power system plans: The near-term potential for change in energy technology, for new customer-driven solutions leveraging combinations of smart control systems, generation, demand response, storage and electrification of transportation, and for consequential re-structuring of the power market, is higher than at any time in history. Everyone involved in planning has to take into account a range of forces that could affect the system, and consider how the plan should best position the province to make prudent choices given the wide variation in circumstances it may be facing in a few short years, long before the conclusion of the 20-year plan.
Andrew Pietrewicz, the IESO’s Director, Resource Integration – Power System Planning, made the challenge very clear in a presentation to the IESO Stakeholder Advisory Committee meeting on March 23. Speaking first at a high level he observed that, “[W]e refer to the potential longer-term need for additional resources as a ‘moving target.’ Needs can be larger or smaller and arise sooner or later than projected.” This acknowledgement in itself suggests that the plan cannot rely on fixed assumptions about either supply or demand, but will need to focus on ensuring there is sufficient flexibility built into the plan to adapt to circumstances on relatively short notice.
Clarifying the IESO’s general assessment, Mike Lyle, the IESO’s Vice-President of Planning, Law and Aboriginal Relations, commented that “while certainly there are a number of risks and uncertainties, the IESO does not in its reference case at this point in time see a need for additional new resources, beyond those needed for operability reasons or arising out of regional planning, until the middle of the next decade.”
Mr. Pietrewicz in effect invited stakeholders to help the IESO work through some very fundamental questions. Asking “How do we manage risk in this period of transition and change?” he opened a type of discussion that is likely to generate broader input than is typical for this aspect of power system planning processes.
He then went on to explain in increasing levels of detail what some of the evident risks are at this point, and how the IESO expects to grapple with the risks that it can’t yet assess. “We look to understand the sources of change, their implications, and the options for taking advantage of them, for avoiding being harmed by them, and for thriving in their presence,” he said.
The coming fifteen years or so will feature significant transitions that will require attention, he noted, including “a sizeable and rapid turnover of Ontario’s existing supply fleet, aging among Ontario’s nuclear units and much existing supply reaching contractual term.” In particular, risks related to the supply system will require attention because they carry “some prospect of implementation, performance and availability risk.”
A chart distributed by the IESO categorizes the currently foreseen risk related to nuclear refurbishments, nuclear continued operation, directed resources, committed resources, and existing resources, breaking down the types of risk associated with each, and providing an assessment of overall risk for each.
Other stakeholders at the meeting raised related questions, many underlining the same kind of issues raised by Mr. Pietrewicz. Brian Bentz, who is both the Chair of SAC and the President & CEO of the PowerStream distribution utility, asked, “Are we using traditional system planning methods in a world that doesn’t lend itself to traditional system planning methods? Does econometric forecasting really apply anymore? It’s getting harder to hit the nail on the head.”
SAC member James Scongack, of Bruce Power, highlighted the importance of constructing a substantive process for discussion of technical issues before the OPO is finalized. “It’s critical for stakeholders to have a meaningful opportunity for assessment and input,” he said, and explained the kinds of information he and other stakeholders believe need to be shared and assessed in order to ensure the OPO is as robust as possible.
SAC member Jack Burkom, of Brookfield Renewable Energy Group, stressed that, “There are huge risks around some of these assumptions.” Pointing out the “massive volumes of supply” affected by the plan, he warned about the potential scale of the impacts. “It’s not clear what the IESO is doing to ensure there are off-ramps for those risks,” he said. “What are the alternatives if the operations don’t go as planned?” In fact a number of observers are concerned about the scale of the risks related to nuclear refurbishment. For example, Travis Lusney of Power Advisory LLC said, “the 10 units slated for refurbishment represent the biggest hurdle facing future power system plans in Ontario.”
Mr. Pietrewicz acknowledged that the issue of aging is relevant in light of the “demographic” distribution of Ontario's generator fleet: About 40% of Ontario’s total generation capacity is less than 15 years old; about 45% of Ontario’s capacity is greater than 30 years old. Compared to mid-life facilities, risks are higher with both older and younger generation assets.
He noted that, “We will want to recognize uncertainties and risks in an integrated way and on an ongoing basis. The aim will be to manage risk prudently and cost-effectively while preserving our ability to take advantage of good opportunities in the future should they arise.”
The IESO’s SAC presentation itemized a number of specific areas of uncertainty contributing to the need for risk management:
• Evolving costs of renewable technologies
• Evolving viability of electricity storage
• Evolving prospects for inter-jurisdictional trade
• Evolving potential for conservation achievement
• Evolving grid/wires technologies/systems
• Evolving market designs
• Evolving customer and/or community engagement in electricity
• Evolving carbon policies
• Evolving social expectations.
The presentation went on to observe that a key question “relates to maximizing the value of our current generation and wires assets and learning from our experiences to date and from initiatives now underway.”
Complicating the process, Ontario is now beginning to implement a new planning system put into motion by the passage of new legislation in Ontario. Bill 135, which received second reading in February, creates new processes and, at least according to some analysts, puts more control over energy planning in the hands of the Ministry. It has in fact removed the requirement for regulatory review of the power system plan, while also entrenching an obligation on the Minister of Energy to carry out public consultation on the Long Term Energy Plan.
Under the province’s new system, there will be three main stages of energy planning. First, the IESO will prepare a technical plan known as the “Ontario Planning Outlook” or OPO, inviting a certain amount of consultation in that process. Secondly, the Ministry will prepare the formal Long Term Energy Plan, very likely accompanied by extensive public consultation. Finally, when the Minister has approved the plan, the IESO and the OEB will be responsible for preparing “implementation plans.” The IESO’s current consultations are part of the first phase, the OPO. IESO staff expect to finalize the OPO in late spring or early summer 2016. The government will likely be consulting on the draft Long Term Energy Plan (LTEP) during the fall of 2016. The plan is expected to be final in early 2017, after which the implementation plans will be prepared. Stakeholders will likely be engaged in some way in all three stages of the planning. Although the process has changed, the government has retained the three year planning cycle: As mandated by the government, the first Integrated Power System Plan was produced in 2007, Long Term Energy Plans were produced in 2010 and 2013, and soon in 2016.
In a recent client note to APPrO, Power Advisory Managing Director Jason Chee-Aloy discussed the need for the OPO to provide a strong technical foundation for the planning activities envisioned under Bill 135 “because the LTEP 2016 will convey the Ontario Government’s energy policy direction, which will expectedly factor in applicable non-electricity policy objectives, it is imperative and critical for any IESO Technical Reports to provide robust and rigorous technical analysis, and avoid reaching conclusions and recommendations simply to meet anticipated Ontario Government policy objectives.”
APPrO President Dave Butters summarized the concerns of generators, and likely those of many other stakeholders in the sector, saying, “The biggest issue in this plan is risk. Not just the high and low scenarios but the do-ability of reaching conservation targets, political risks, weather, and other unknowns. We need to make sure that whatever outlook goes to the government is completely fair and realistic about the risks.”
Mr. Butters paid special attention to certain process issues. Saying that it’s important for the IESO to target “Continuous improvement on stakeholder engagement processes,” he noted that, “We need to knit the LTEP with market renewal.” Key priorities, as noted by the IESO include “Extracting the maximum value from assets we have, providing that they are economically viable,” and “Making sure the planning process is thorough and rigorous enough to ensure there is an opportunity to test all the assessments and assumptions.” He also noted that there’s a lot of interest in pursuing less prescriptive approaches to technology in future, and defining the functions the system needs to attract rather than specific solutions. “You want to unleash the creativity of those who are invested.”
Discussion at the SAC meeting turned at one point to the timelines for disclosing data on which the plan is based. Mr. Burkom said, “It makes sense to have continual disclosure of the full range of data that go into the plan.” Mike Lyle explained that there will be significant background data provided when the OPO is released, and said that “the IESO is looking at ways to provide more regular information to the sector.”
Dave Butters referred to discussions at previous SAC meetings suggesting that there be a working group set up to examine issues related to risk and the ways of managing it. He pointed out that such a group could examine “What are the system attributes today, and what will they be in the future?”
APPrO has organized its own Working Group of members to analyze and prepare input on the Long Term Energy Plan.