On July 23, the IESO and Alectra announced details of a potentially revolutionary competitive market process that will test options for new and innovative ways of developing and operating power systems in the future. On November 18 and 19 an auction will take place, designed to select bidders to provide capacity resources in southern York Region for the period of May 1 to October 31, 2021. A fully developed set of draft Demonstration Project Rules and related information was released for comment in July, including a detailed timeline setting out pre-qualification processes, contracting and payment terms, and the obligations of successful proponents.
“This is a significant step forward in trying out new models for developing power systems, and at the same time, it could be an attractive business opportunity for a number of energy companies,” said Lou Colangelo, the General Manager of Toromont Power Generation Systems, based in Brampton, Ontario.
The timeline for market participants is challenging. The demonstration launches on September 23, with the release of a pre-auction report and the opening of a registration period for bidders. Bidders’ deposits will be due November 10 and offers will be due November 18 and 19. Post-auction reports will be released on November 25 and contracts will be issued on December 2.
The new initiative is ground-breaking in several respects. It is the first attempt to establish a fully featured local electricity market in Canada. It is also a real-world test of how well a dispersed marketplace of resources can effectively defer or displace the need for new investments in distribution and transmission infrastructure. And in addition, it is an experiment in a new two-level model of grid operation where a local distribution company effectively becomes a mini grid operator, actively dispatching resources, managing supply and demand locally while maintaining significant levels of coordination with wholesale market operations.
“Alectra and the IESO, along with their funding partner Natural Resources Canada, have demonstrated foresight in actualizing this concept, largely because it will help to test out practical options for more locally oriented power grids of the future,” Mr. Colangelo said.
“Grid operators around the world are examining new models for integrating DERs with electricity markets,” said Sarah Simmons, Manager of Generation and Emerging Sectors at Power Advisory LLC. “The IESO, Alectra and NRCan should be commended in moving forward with this demonstration project which is not only exploring new methods for procuring non-wires solutions, but new roles and responsibilities for distribution system operators with respect to coordinating and dispatching DERs.”
The design of the Local Capacity Auction is based in part on the IESO’s recently demonstrated Demand Response Auction process, which has proven successful in several previous rounds over the last three years. While many of the operational processes have been tested in this context, the IESO and Alectra recognize that adjustments will likely be necessary. With the release of the draft rules they are therefore inviting potential participants to provide input and suggest ways the program design can be improved in the weeks ahead. During the webinar on July 23, interested parties asked about eligibility requirements, interconnection procedures, and a range of related questions on which discussion is still ongoing. The IESO draft rules for the local capacity auction specify that Demand Response, storage and gas-fired projects will be eligible. In addition, the IESO has said they are willing to consider solar projects if proponents are interested.
One of the main concerns is investor appeal. Under the current plan, revenue from the market will be assured for six months only, from May to October 2021, and for the same period in 2022 with respect to the second auction. Without longer term commitments, some potential program participants have indicated significant new capital investments are unlikely. However, existing facilities with excess capacity or other customers may be suited to the new market in this first stage of its operation. APPrO is encouraging its members and other interested parties to become active in the IESO’s engagement process in the near future.
Underlying this experiment in southern York Region is a growing awareness in the power industry that significant structural change is well underway. The economics and capabilities of distributed energy resources have improved dramatically in recent years, to the point where they are competitive in some cases with large scale power grid resources.
If this trend continues, it could lead to an entirely new approach to the power system where local resources play a much larger role in meeting local energy requirements while wholesale assets transition to roles focused on meeting inter-regional balancing and system-wide needs. This kind of thinking challenges key concepts that have underpinned the design of the electric power system for most of the last century. Experiments of this nature could prompt new approaches in crucial aspects of energy system design and development, many of which extend far beyond the scope of this project, including how markets are run, how new investments are selected, the level of consumer participation, and cost allocation. Although distributed energy resources could enable reductions in overall energy costs, the savings will not be evenly distributed, a fact that is likely to prompt regulatory efforts to ensure that all classes of consumers ultimately benefit from the changes. Local energy markets are the subject of experiments in other parts of the world but the IESO’s York Region NWA demonstration project, with its firm timelines and clear capital cost displacement objectives, is now poised to be one of the most definitive.
The IESO and others have prepared the ground for this demonstration process with an extensive stakeholder engagement process over the last 18 months or so. A Roadmap for innovation was released in 2018 and consultations have been organized around a series of papers known as the Innovation and Sector Evolution White Paper series. The most recent paper in the series is titled “Development of a Transmission-Distribution Interoperability Framework”. For background on this discussion processes, see these articles:
• Engagements and white papers consider early steps for integrating DERs, overview published in February 2020.
• “IESO releases conceptual design and timeline for Local Energy Market demo,” from IPPSO FACTO, January 2020
• “It’s time to resolve the ownership options for DERs,” LinkedIn September 2019
• APPrO report on the IESO’s latest interoperability white paper, August 2020.
Soon after the webinar, the IESO posted a publication containing more complete answers to some of the questions raised. Details are available at this location. For more information on the demonstration project and the stakeholder engagement, readers may visit this link on the IESO website.
In a parallel process, the IESO and Hydro One are working to finalize the Regional Infrastructure Plan for York Region in 2020. Previous integrated regional resource planning processes have identified a need for transmission capacity or other electricity resources in this area.
At the level of province-wide capacity procurement, the IESO has scheduled its first wholesale Capacity Auction for December 2. Bidders who are not accepted in the local capacity auction will be free to offer into the province-wide auction.
Although it’s too soon to say how many local energy projects will step into this new area of business, it’s clear that both the provincial and local grid operators are serious about constructing a framework in which regional and provincial energy needs can be met through decentralized market processes. They are effectively accepting the challenge of extending the principles of competition and efficient grid operation into new markets, areas that are only now becoming available to consumers thanks to the possibilities created by new energy technologies.
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A version of this article is also published on LinkedIn at this location.