ONTARIO NEWS

Canada’s first local electricity market has taken another step closer to real-world demonstration with the release of a conceptual design and anticipated timeline from the IESO. In a public webinar on December 12, the IESO laid out its working schedule and key principles that it proposes to guide the project, and invited input from potential participants and other interested parties.

The IESO’s conceptual design for the York Region local energy market will rely on a few simplifications to facilitate the demonstration, but is expected to produce a range of insights for the IESO and market participants on how best to organize the interaction between local energy resources and the entities responsible for managing both the distribution and transmission grids in the future.

          York Region, north of Toronto, was chosen as the site for this demonstration project because it is a rapidly growing area which anticipates a need for new power infrastructure in the next five to 10 years. This means there is both time to test new approaches to meeting grid reliability requirements, and real value available to project proponents and grid operators if and when they succeed in addressing the region’s needs.

          The demonstration market will operate in a simulated, test environment that is isolated from the IESO market and system operations. Need will be simulated by modeling transformer capabilities as being exceeded during peak hours. The demonstration will also simulate wholesale market participation. However, the bidding and dispatch processes will be real. Actual energy and capacity services will be secured from DERs, which will be required to physically operate and be subject to real financial consequences from performance or failure to perform.

          Local capacity auctions will be used to coordinate new incremental DER capacity to assure that adequate resources are secured to meet the simulated need. DERs that clear in the demonstration’s capacity auction will be required to be available for dispatch by maintaining energy bids in the demonstration’s energy market. Two auctions are proposed:

• First local capacity auction in Q4 2020 for the 2021 summer commitment period (May 1 to October 31)

• Second local capacity auction in Q4 2021 for the 2022 summer commitment period (May 1 to October 31)

          The capacity target is proposed to be 10 MW in the first auction and 20 MW in the second auction, subject to review after the first auction. The IESO also tabled a set of proposed eligibility requirements  (see sidebar here). Resources less than 100 kW in size will have to be aggregated, a requirement which potentially creates opportunities for an additional type of market participant operating as aggregators, either independently or in combination with other entities. However, entities that bid to supply resources to the York Region local energy market cannot be owned or operated by the host LDC or its affiliates. DER facilities that make use of diesel as fuel will be ineligible, and to protect against double payments, DERs participating in the demonstration will not be eligible to participate in IESO-administered markets.

          During the commitment period, participating DERs will be required to be available during business days from 12:00 noon to 9:00 pm EST. The IESO proposes to adopt a process used for Hourly Demand Response whereby participating DERs receive a “standby report” in advance of a potential activation between 15:00 EST on the day ahead and 07:00 EST on the dispatch day. DERs will receive an activation notice approximately 2.5 hours prior to dispatch, and DERs may be activated once per day for up to four consecutive hours. It is also proposed that DERs will be dispatched up to 20 times in a given commitment period.

          The IESO will also test local marginal pricing as a means of encouraging the resources to locate in the most appropriate places and to operate at the most appropriate times. A basic DLMP (Distribution Locational Marginal Prices) algorithm developed by the IESO will be used for the demonstration.

One of the issues to be explored in this process, the architecture for multilevel grid control, has broad-reaching implications both within Ontario and beyond. Although it’s generally acknowledged that the wholesale grid operator does not require operational visibility for every single distributed energy resource in the system, it remains unresolved as to how the operation of these resources will be coordinated between local and the wholesale levels of the system. The current demonstration project is assuming that the Local Distribution Company, operating as a DSO (Distribution System Operator) will assume all required operational control over DERs and effectively act as an intermediary between the local market and the wholesale grid, what the IESO terms Total Distribution Operator. A variety of other options are possible in which various types of signals are exchanged between the local resource and the wholesale grid. The IESO takes no position on the preferred resolution amongst the options, but has outlined some models for further study and discussion in one of its white papers. For the purposes of the current demonstration project, the IESO opted for nearly complete devolution to the distribution level, because that will allow the widest range of options to be tested and reviewed, to better inform future decisions.

          In order to address these issues, the IESO identified a set of "Key Grid Architecture Principles" that can be used to analyze potential alternative system structures and identify coordination required for reliability. These include observability, scalability, layered decomposition, tier bypassing, hidden coupling, latency cascading, and cybersecurity exposure. See the chart “Key Grid Architecture principles” for more information.

In this work it is becoming evident that challenges similar to those experienced during the design of wholesale power markets are coming to the fore. How to maintain active competitive markets while meeting reliability requirements will be an ongoing issue. Commonly accepted methods for achieving reliability may be reviewed in the process. The project will almost certainly represent a coming together of expertise from different parts of the power system reflecting the integration of insights from planning, procurement, market development, operations and reliability, with potential implications for regulatory and policy superstructures.

          The December 12 webinar was largely intended to kick off a discussion process with potential participants to hear concerns and help to refine plans for the demonstration project. The IESO stressed that feedback on the following questions would be particularly helpful:

• How can participation in the demonstration auction be maximized?

• What are challenges/opportunities to the adopted T-D model?

• Are the proposed eligibility requirements reasonable?

• Are demonstration timelines reasonable?

• Are there other concepts worthwhile to explore in the demonstration?

• Are there other issues that are important to the success of the demonstration?

          The project’s ultimate goal is to better understand the potential of using DERs in place of traditional

infrastructure by watching them operate in real-world applications. The IESO noted that the project is benefitting from financial support provided by Natural Resources Canada and the IESO’s Grid Innovation Fund.

          At a higher level, the IESO is inviting interested parties to review three papers which outline the primary concepts and principles which it expects will guide the project. The three papers are:

1. Non-Wires Alternatives Using Energy and Capacity Markets (Draft white paper)

2. Development of a Transmission-Distribution Interoperability Framework (Draft white paper)

3. Concept design for the LEM Demonstration project (contained in the December 12 presentation).

          Further information on the broader IESO Innovation Roadmap and its Innovation and Sector Evolution White Paper Series are available at this location on the IESO website.

          See also the IESO's previous paper, “Distributed Energy Resources: Models for Expanded Participation in Wholesale Markets,” and “New business opportunities in the York Region Local Electricity Market,” article from IPPSO FACTO November 2019.

         See also the related story "Proposed eligibility requirements for participating DERs".