A unique solution for York Region

A new IESO demonstration project in York Region will test how a local electricity market could function alongside the provincial wholesale electricity market, looking at whether it can provide a cost-effective and reliable option to help address local increases in electricity demand. Local electricity markets could also defer the need to invest in new transmission infrastructure.

The demonstration, which launches in 2020, is funded equally through the IESO’s Grid Innovation Fund and Natural Resources Canada (NRCan), and will be designed by the IESO and implemented by Alectra Utilities.

The goal of the three-year market test is to harness existing and potentially new resources -- called distributed energy resources (DERs) -- that are connected to local distribution grids, allow them to compete in a market framework, and identify ways to use them to support the local and centralized power grid.

DERs can include solar panels, combined heat and power plants, electricity storage, small natural gas-fired generators, or consumers capable of adjusting their energy use when required, to name a few. In Ontario, more than 4,000 megawatts (MW) of DERs have been contracted or installed over the past 10 years. They currently make up to 10 percent of the province’s electricity capacity. In the United States, the US Energy Information Administration suggests that renewable distributed generation will grow at an annual rate of roughly six per cent each year to 2050.

Leveraging a tried and tested market format

So how will the new market work? Building on the auction format that the IESO is using for the provincial Capacity Auction, the local electricity market will allow DER owners, aggregators and large customers to compete, with the lowest-cost offers being selected. Smaller customers can also be part of the market when they sign up with an aggregator. The competitive format provides successful bidders an opportunity to participate day-to-day in an energy market, as well as access to a potential new revenue source, and ultimately helps to lower electricity costs for consumers.

The key thing about DERs is they’re local, which means electricity travels shorter distances along distribution wires than electricity that travels across long-distance transmission wires from large provincial sources of generation. They’re also scalable – which means they can be deployed quickly to adjust to changing supply and demand conditions, avoiding investments in more capital intensive, large-scale assets with less ability to respond to change. Since DERs that provide grid services are often owned by customers who also leverage their capabilities for their own needs, the capital costs recovered from other ratepayers may be lower than traditional electricity infrastructure.  This can make them a very attractive alternative from a cost perspective, especially if new infrastructure is being considered from a regional planning perspective.

And that’s exactly why York Region is the ideal test bed for this new pilot. Electricity demand in this area is expected to grow and exceed system capability in the next 10 years. The IESO will be looking to see if the market can reliably source 10 to 20 megawatts of electricity locally, watch how the local market functions alongside the provincial electricity market, and start thinking about whether it can help address the long-term electricity needs for regional planning.

A different market, with different needs, and a different solution

Unlike York Region, where the anticipated growth in demand is 10 years out, southwest Ontario’s Windsor-Essex region is experiencing a period of quickly increasing demand right now. Local businesses and electricity system planners agree that the need for more capacity is urgent.

Along with other businesses, new and expanded greenhouses in the area are contributing to electricity demand that is expected to double over the next five years. In the Kingsville-Leamington area specifically, it’s projected to triple by 2026.

While part of the solution for Windsor-Essex will come from a new switching station and transmission line that will increase supply to the area, a new study by the IESO shows there is great potential for energy efficiency to help manage increasing electricity demand while reducing costs for greenhouses. For example, greenhouses can achieve up to 55% in energy savings by switching to LED lighting. Enter the IESO’s Save on Energy Retrofit program, which provides incentives to upgrade various equipment and lighting. Since 2011, the Retrofit program has resulted in energy savings of over 115 GWh for greenhouses—that’s more energy than the city of Kenora used last year.

Innovation also has a role to play: starting November 18, 2019 until February 14, 2020, the IESO will be issuing a targeted call for proposals through the Grid Innovation Fund to support the testing and implementation of solutions that have the potential to cost-effectively reduce electricity demand from indoor agricultural facilities during local and provincial peak periods.

Engaging to inform tailor-made solutions

Different communities across Ontario have different electricity needs and preferences. That means that engagement is critical. The IESO frequently travels across the province to meet with municipalities and businesses, to understand what’s happening in their communities and make sure they have access to the electricity they need to grow.

Whether it’s addressing the demand challenges in York Region or Windsor-Essex, the bottom-line is finding a solution that matches communities’ unique needs and ensuring the solution is both cost-effective, and reliable.