By Jake Brooks, Executive Director, APPrO
In the process of reviewing Ontario’s power reliability standards, changes have come to light that could improve service quality while reducing long-term costs for consumers. “Win-win options to enhance the quality and efficiency of major investments are readily available,” said APPrO President Dave Butters. He noted that whenever uncertainty is reduced, the cost of new investment comes down, resulting in lower costs for consumers. “It may not be the quickest way to reduce costs, but it’s one of the most dependable.”
Market participants have identified potential improvements to the current methods for setting reliability standards that could lead to more accurate forecasts and more predictable power system operations. The suggestions ranged from updating the models for generator and transmission outages - reflecting recent changes in fleet characteristics, to more comprehensive recognition of weather variables due to climate change.
The IESO began a formal review of its reliability standards on August 6 with the announcement of a stakeholder engagement process “to identify areas where there may be an opportunity to re-consider its assumptions.” At the outset, participants were invited to provide feedback on the areas to prioritize, as well as the methodology and assumptions. The IESO explained that, “(t)he Ontario energy market is emerging from a sustained period of surplus conditions, and is beginning to see a capacity need take shape. With supply conditions tightening, the IESO sees an opportunity to review and challenge the existing thinking and approach to adequacy assessments. There is a balance to be struck between being appropriately conservative in the approach, while also considering value to ratepayers.”
The IESO expects that changes to reliability standards will affect the anticipated amount of capacity requirements, and will also have implications for some of the most crucial calculations underlying the Annual Planning Outlook (APO), the assessment of supply, demand and related issues produced each year by the IESO. Of course, changes in reliability standards can have more wide-ranging effects, potentially impacting plans for the power system in numerous ways over a long period of time.
Two immediate priorities identified for specific review by the IESO were:
1) Evaluate the appropriate level of non-firm imports to be used in the resource adequacy analysis, and
2) Examine generator contingency allowances to ensure they are appropriate for today’s fleet.
In a related report released on October 6 analyzing the causes of recent power outages in California, authorities highlighted the need to re-examine reliability standards. The report, jointly prepared by the California Independent System Operator (CAISO), California Public Utilities Commission (CPUC), and California Energy Commission (CEC), found that “resource planning targets have not evolved to keep pace with climate change-induced extreme weather events, and that energy market practices did not perform as intended during stressed conditions.” The report recommended updating resource and reliability planning targets, ensuring that the generation and storage projects currently under construction are completed on schedule, and expediting regulatory and procurement processes.
Industry comments
In mid-September six power industry organizations responded formally to the IESO’s invitation to comment. There was concurrence in several areas. Most commentators seemed to agree with the IESO’s proposal to focus on non-firm imports and on generator contingency allowances, although several suggested additional areas of study. There was almost universal support for increasing levels of transparency in the assumptions and modelling related to both reliability standards and the Annual Planning Outlook. In fact, a number of participants said that investors outside the IESO should be able to specifically replicate the IESO’s analysis based on a transparent set of data and assumptions. This ability, many felt, is necessary to achieve wide acceptance of the IESO’s projections, and to build their own investment plans on a sound and rational basis.
APPrO collected input from a range of its members in the supply side of the power sector. Its comments highlighted the value of IESO processes that serve to improve clarity and reduce uncertainty when projecting resource requirements in Ontario. In its recommendations to improve transparency it said, “We appreciate the additional information the IESO provided in the 2019 APO but there currently is not enough information for market participants to carry out their own resource adequacy modelling or to validate the IESO’s resource adequacy modelling. It is important that market participants can reproduce the IESO’s results and run their own analyses to support their investment decisions.”
“Improving market participant confidence in the modelling assumptions and projections benefits suppliers and consumers,” said Daniel Jurijew, the VP of Government Relations, Regulatory & Environmental Policy at Capital Power. In a sector that typically finances several billion dollars worth of capital investment per year, even a small fraction of one percent reduction in interest rate premiums adds up to substantial savings over the lifetime of a power project. “Transparency in the planning process should translate into greater access to lower cost capital since investors and providers of capital will be better able to price the risks to forecasted needs. This increased access drives competitive pricing and provides long-term benefits for consumers.”
OPG noted that when assessing the reliability of non-firm imports, “Firm imports obtained from the Capacity Auction also need to be factored into the methodology including any competition from such.” It also observed that a recent proposed market manual change to enable firm capacity from Manitoba “demonstrates the difficulty in relying on other jurisdictions solely through economic forces.”
The Power Workers’ Union also expressed concerns about reliance on non-firm imports. It recommended that the IESO “Consider non-firm imports as part of the reliability assessment only if they reduce the risk to system reliability” and if cost benefit analysis demonstrates that they will reduce total system costs. It also pointed to factors outside the IESO's control, including commercially driven exports from Ontario and wheeling through Ontario, practices that could reduce the capacity available on US interties to meet resource adequacy requirements.
APPrO also recommended that the IESO examine demand and transmission capability assumptions in its Resource Adequacy modelling. For example, because the future of the ICI program is uncertain, APPrO recommended that the IESO build in a sensitivity option to analyze potential circumstances without the ICI program. Like many others, APPrO noted that, considering climate change and increasing weather volatility, updated weather forecasting techniques will be important.
With respect to forced outages, APPrO recommended that the IESO develop a new methodology to forecast forced outage rates “because the existing methodology may become less accurate.” It said, “The IESO’s forced outage rate assumptions are based on historical performance. This is a reasonable assumption for assets less than 20 years old but may not be appropriate as Ontario’s generation fleet ages and starts to have higher outage rates. Similarly, forced outage rates may increase in the future as generators defer needed investments into their facilities until a sufficient resource adequacy model is developed that pays for those costs. In addition, planned outages may be cancelled and deferred by the IESO due to tight supply concerns, which are expected to become more frequent.”
The IESO noted in its August presentation that its winter assessments include additional contingency allowances (ACA) for forced outages. The ACA originated from the need to include an additional buffer in the winter due to the risk of generators tripping due to inclement weather. The IESO’s current recommendation is a review of the fleet’s cold weather performance to determine if the current ACA value is appropriate.
In its comments the Ontario Waterpower Association noted that the factors affecting reliability may vary for different types of generation – and fleet-wide averages may be misleading. The organization suggested that it would be prudent for the IESO to look at reliability trends by fuel type.
Risk of transmission outages
On intertie capability, APPrO raised concerns about the risk that there might be major transmission outages during peak demand periods. Modelling of planned and forced transmission outages affecting the interties will be important, particularly if non-firm imports are going to be treated as a form of reliable capacity. APPrO’s submission highlighted a further uncertainty about whether imports would actually flow to areas of need during scarcity events. It warned that, “the renewed market will be heavily mitigated and may not attract significant import interest relative to less restrictive neighbouring markets. More discussion is needed about how the IESO would assess the likelihood to flow.” In addition, non-firm imports would have to compete with committed firm imports for capacity on the interties and for resources in neighbouring jurisdictions.
Some of the IESO’s options under consideration could reduce the ability to schedule planned outages, another kind of change that could potentially impact generator availability. “Relying on additional non-firm imports in resource adequacy assessments will make it more difficult to take planned generator outages because scarcity events will become more severe and more frequent. The IESO should review its outage assessment methodology,” APPrO said. It observed further that relying on non-firm imports in the planning timeframe will reduce the amount of resources available in the operational timeframe when assessing planned outages.
One of the potential constraints foreseen by IESO planners is the risk of overloading transmission facilities feeding the Greater Toronto Area from the west. There is a set of transmission lines ranging from 230 kV to 500 kV that are typically used to bring power into Toronto from west to east in an operational pattern called “FETT” or “Flow East to Toronto.” The power sent through FETT has generally been balanced with power going into Toronto from the east. However, with the anticipated shutdown of the Pickering nuclear station east of Toronto over the next 5 years, higher volumes can be expected over the FETT. Transmission upgrades are in the works. However if the transmission upgrades are late, it is possible there could be overloading on some FETT lines on hot days. This problem could be mitigated in a number of ways, including the addition of new generation resources east of Toronto or within the GTA.
The term "forced outage" refers to removal from service of a facility due to unanticipated failure or emergency conditions. Its definition is specified in NERC terminology adopted by the IESO. The term “Non-Firm imports” is not formally defined, but refers to real-time energy the IESO expects will flow to Ontario in response to real-time market conditions. The NPCC Standard, Directory 1, describes these non-firm imports as “assistance over interconnections with neighboring Planning Coordinator Areas.”
The development of reliability standards has to bridge two different aspects of the IESO’s work - planning and operations. The reliability model is part of the IESO’s planning system which relies heavily on projections and forecasts. Working in parallel, the IESO’s operating platform, which keeps the system working and balanced in real time, is managed by a separate group of professionals. The objectives of the planning models are longer term, and related to system design, whereas the objectives of the operating platform are shorter term and focused on safety and operation. Challenges exist because the reliability models must be regularly reconciled with operational data which inevitably come from a different platform and a different part of the IESO.
Establishing conditions for investment
Capital Power noted that, “Overstating or over-forecasting system requirements leads to unnecessary investment in system resources, while understating requirements leads to situations where the market operator and policy makers must react quickly, potentially overpaying for resources that could have been better planned had system needs been communicated earlier.”
TC Energy took a similar view and observed that, “… ensuring that new capacity procurement is built upon robust and vetted analysis is a must for Ontario rate-payers to secure cost-effective solutions while maintaining the reliability we all depend on.”
TC Energy recommended that, “the IESO take time to clearly describe the tools and methodology they use for assessment. Specifically, for real-time imports, the IESO should describe their assumptions for neighbouring jurisdictions’ capability to export during peak demand hours. The IESO should describe how real-time imports and forced outages are being assessed in other jurisdictions and the IESO should undertake a concerted and structured process to share data and associated models and methodologies so stakeholders can replicate analysis and help identify areas for improvement. Finally, the IESO should look to enhance the governance structure to ensure alternative viewpoints can be presented in an organized fashion.”
The IESO is expected to release updated draft methodology changes in December, with stakeholder feedback due about a month after that.
For more information:
APPrO’s specific recommendations for resource adequacy modelling transparency
We support the IESO’s efforts to make its resource adequacy methodology more transparent and allow market participants to reproduce those results. We make the following recommendations to improve transparency:
• Provide all input data including all hourly load forecasts broken down by zone, assumptions for embedded generation and ICI, hourly generation profiles, planned outage assumptions by unit/plant, forced outage assumptions unit/plant. For greater clarity, the IESO should provide all system data, assumptions, methodologies and models as may be required such that interested stakeholders could replicate the loss-of-load probability and expectation (LOLP/LOLE) result using multi-area reliability simulation software (whether with GE MARS or other software package). This will allow participants to reproduce the IESO’s results and would assist both in validating the reasonableness of the assumptions and in providing confidence in the result. It would also allow them to make their own reliability assessments.
• Provide all output data from the model runs including all LOLP/LOLE results and any sensitivity analyses (e.g., for ICI).
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