OEB-IESO Joint Study of Distributed Energy Resources (DER) Incentives

Background

Distributed Energy Resources (DER) encompass a broad set of technologies being rapidly embraced to meet the energy needs and preferences of consumers and communities. DERs can either be hosted by electricity customers (like rooftop solar), or they can be connected directly to the distribution system (like a battery facility). DERs are subject to distinct and often complex financial factors that influence decisions to install DERs and decisions in how to operate them. Collectively, these financial factors can be considered incentives, and they determine not only participant-side economics (i.e., whether DERs are worth the investment), but also the extent to which DERs can meet overarching electricity system needs.

Incentives affecting DERs are a cross-cutting issue in the purview of both the Ontario Energy Board (OEB) – which regulates utilities and sets energy rates, and for the Independent Electricity System Operator (IESO) – which administers the wholesale markets, procurements, and consumer-facing demand-side management programs. Stakeholders and communities have expressed the desire for collaboration between the OEB and the IESO to improve the efficiency and alignment of incentives that affect DERs. Getting these incentives right will increase the affordability and sustainability of electricity in a manner that facilitates the broader electrification and decarbonization of Ontario’s economy.

Continuing the ongoing collaboration between the two organizations, the OEB and the IESO have jointly commissioned a study to better understand how financial incentives for DERs could function collectively and efficiently, so that they can be better designed and aligned going forward. 

Study Objectives and Scope

The objectives of the Joint Study are to:

1. Better understand how incentives for DERs function collectively to ensure that different incentives are achieving the most efficient outcomes and not working at cross-purposes;
2. Develop recommendations for improving the efficiency of incentives; and
3. Apply the learnings to related OEB and IESO programs and policies.

The study has been organized into five tasks:

1. Categorization and overview of DER incentive mechanisms in Ontario (e.g., pricing, procurements, and programs)
2. Overview of DER incentives in select markets
3. Development of an analytical methodology for DER incentives
4. Gap analysis for Ontario DER incentives
5. Recommendations for a DER incentive framework for Ontario

This study is intended to focus on resources with attributes and considerations that are distinctly different from transmission-connected supply resources (e.g., small, customer-sited, not directly connected to the transmission system), and thus considers the following resources within scope of DERs:

• Generation, storage, or load-modifying technologies or controls (i.e., demand-side management and demand flexibility) hosted by both distribution and transmission connected customers
• Generation or storage connected directly to the distribution system

The study will conclude in early 2025 with the delivery of a public report, followed by a presentation. The results of this work will guide the calibration, alignment, and development of DER incentives by the OEB and the IESO. Stakeholders and communities will have the opportunity to provide feedback as this study progresses and at its conclusion, per the schedule below.

The study is being undertaken by The Brattle Group and is being co-managed and co-funded by the OEB and the IESO.

Related Initiatives

IESO's DER Roadmap Engagement

Related Information

OEB's Energy Transition Hub

Schedule of Activities