Ontario has developed a large renewable energy sector and often has more electricity than it requires. Electricity system operators often find themselves paying neighbouring states or provinces to absorb the province’s over-production.
Enter, energy storage solutions.
Ontario is quickly becoming an ideal seedbed for storage technology, since there are ready markets for both large and small scale storage systems.
Ontario’s Independent Electricity System Operator (IESO) has just concluded the second phase of a solicitation process with the award of nine contracts representing 16.75 MW of storage to five companies.
In the first phase of the solicitation process, IESO awarded contracts valued at 33.54MW to five firms in July 2014.[Ontario System Operator Procures 34MW Storage To Test In Grid Operation].
Background on Ontario’s procurement process
Following the Long Term Energy Plan committing Ontario to 50MW of energy storage, the Ontario Power Authority (OPA) and the Independent Electricity System Operator (IESO) created a framework for moving forward. [Energy Storage Procurements Forging Ahead in Ontario.]. Two consecutive phases were put in place for the procurement process.
The first phase involved projects that would deliver a frequency regulation service or reactive support and voltage control service. The projects would connect directly to the grid or, in some cases, to the distribution system in southern Ontario. These should be implemented before the end of this year.
Most of the resources that came out of the first phase use are battery storage, with the biggest awards going to Hecate Energy of Nashville, Tenn., for a 14.8MW battery storage project and to Convergent Energy and Power, based in New York, for a 12MW project that combines battery and flywheel technologies.
The second phase, completed in November last year, was aimed at longer-duration storage solutions. These solutions, designed to ramp up quickly and act as load and generation are meant to assist IESO in intraday balancing of the grid with storage solutions.
As Ontario adds more renewable energy to its generation mix, IESO’s ability to balance supply and demand becomes increasingly urgent. Ontario is working towards 50% renewable energy by 2025.
IESO-the need for a competitive capacity market
The economics of storage on Ontario’s grid are quite different from those in US markets such as the PJM Interconnection.
For instance, the IESO does not have a capacity market. PJM has a competitive capacity market, as do ISO-New England, the Midcontinent ISO, the California ISO and ISO-New York.
In the first phase of the request for proposals, IESO signed three-year contracts, estimated at a cost of US$14 million in aggregate each year. The projects selected in the second phase will receive 10-year contracts that are expected to cost US$9 million a year. The longer term of the second phase contracts is designed to match the useful lives of the assets. The first phase contracts are designed to be able to be linked to market-based rates in the future.
IESO is studying the implementation of a capacity market like PJM’s but for now the grid operator secures capacity by signing contracts. The rates in the storage contracts are based on market rates with a top-up provision.
While Ontario is leagues ahead of its US counterparts when it comes to reducing harmful carbon emissions, it is still behind in terms of having a grid with market-based rates. Most of the generation is still state-owned and the majority of the output is sold under contract.
IESO runs a wholesale market in which prices are set hourly. Locational pricing (common in US wholesale markets) has not been implemented in Ontario.The best point of comparison for the IESO storage procurement process is not with ISOs in the US, but with investor-owned utilities, say some experts.
Added to this, the IESO procurement process is encouraging a wide range of innovative technologies-and not necessarily the lowest cost technologies. Tom Adams, an independent energy and environmental advisor and researcher, says that the government could be overlooking under-utilized, existing pumped hydro resources in favour of procuring more innovative and “exotic” technologies.
The reality of capacity markets
The main argument in favour of capacity markets is that they can be more transparent and technologically neutral than government-directed procurement processes.
If capacity markets are likely to achieve these goals, they would provide a valuable change to the current system where resource needs are chosen largely on anecdotal and political grounds, explains George Vegh, McCarthy Tetrault, Adjunct Professor at University of Toronto Law School.
He adds that if capacity markets are not capable of carrying this out, then they could be just one more policy instrument used by the government to replicate and expand upon the current approach.
Time will tell.