Demand response (DR), which enables consumers to reduce their electricity consumption in response to prices and system needs, is playing an increasing role in Ontario's electricity sector. Demand response allows the electricity system to tap into existing infrastructure, such as factories or hospitals, making demand response an efficient approach to meeting energy needs.
In Ontario, price signals are the most effective way to communicate these needs. Higher prices arise when the supply of electricity is tight, encouraging consumers to reduce or shift some of their energy use until other times of the day.
Over the past few years, the IESO has expanded the role of demand response within the market by evolving current demand programs and developing new market-based opportunities.
IESO President and CEO Bruce Campbell explains demand response.
Demand Response Auction
The annual Demand Response Auction is part of the IESO's ongoing efforts to expand Ontario's DR capabilities and transition multi-year, contract-based DR to a more cost-effective, market-based platform. The DR auction facilitates the entry of new DR suppliers and provides a transparent and cost-effective way to select the most competitive providers of DR, while ensuring that all providers are held to the same performance obligations. The Demand Response Auction allows large consumers, such as dispatchable loads, as well as aggregators of smaller institutional, commercial and industrial customers, to compete to provide DR capacity, which helps to meet Ontario's overall system adequacy needs.
The first DR Auction was held in December 2015 and invited offers for summer and winter commitment periods. The successful DR providers will be integrated into the electricity market along with generators and will help provide capacity to ensure the province's energy needs are met during peak hours. The next DR Auction will be held in December 2016.
For more information, see Demand Response Auction.
Demand Response Pilot Projects
The IESO's DR pilot projects will be used to better understand the capabilities of DR to follow changes in electricity consumption and help balance supply and demand, services that are currently provided by generators and other suppliers. The pilot projects represent up to 80 megawatts (MW) of DR from five companies covering 20 projects ranging from 1 MW to 35 MW, each with unique technical characteristics, requirements and constraints.
For more information, see Demand Response Pilot.
Capacity-Based Demand Response
The Capacity-Based Demand Response program transitions contracted DR providers from the Demand Response 3 (DR3) Program into the wholesale energy market. The DR capacity under this program is considered in the IESO economic dispatch process alongside bids and offers from other resources in the energy market and can be used on a province-wide basis or to meet more specific, locational needs.
Over time, the DR capacity in the program will be reduced as the legacy contracts expire and the transitional program ends. These participants will then have the opportunity to compete against other providers of DR capacity through the Demand Response Auction.
For more information, see Capacity-Based Demand Response.
Other sources of Demand Response in Ontario
Since the electricity market opened in Ontario, consumers have been playing an important role to help to reduce peaks and to meet system needs in real time.
Dispatchable loads are active participants in Ontario's electricity market who can adjust the amount of energy they consume in response to direct instructions from the IESO. Through the market, dispatchable loads predetermine a price at which they no longer wish to consume a certain quantity of electricity. If the Ontario energy price goes higher than that price, these participants must reduce consumption by a specified amount. These consumers also provide operating reserve to the system, agreeing to be on-call to reduce demand should there be an unexpected loss of generation. These market incentives allow users to reduce their own costs and potentially also generate a new revenue stream.
Companies and institutions that use more than 250,000 kilowatt-hours of electricity a year pay the market price of electricity, which changes hourly depending on system conditions. These organizations often plan their energy use based on price trends in order to better manage their costs.
Companies that have an average peak demand of greater than 3 megawatts (MW) can control their Global Adjustment (GA) costs by reducing their energy use during the five highest demand peaks in the year. If they are successful at reducing their consumption on days when the system is reaching the peak, they can reduce their GA costs.
Residential and small business consumers pay time-of-use rates, which offer different prices for on-peak, mid-peak and off-peak periods. This pricing structure encourages users to shift some of their usage from high-price peak hours to less expensive off-peak hours.
peaksaver PLUS® is an optional demand response program that helps residential consumers reduce energy during peak demands by allowing their utility to remotely cycle down their air conditioners and water heaters.