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Submission to Ontario’s Ministry of Energy

 

Long-Term Energy Plan Consultations

 

Centre for Urban Energy at Ryerson University – December 2016

 

1Strategy for Long-Term Energy Plan

 

The goal of the Long-Term Energy Plan (LTEP) should be to deliver sustainable energy – both electricity and natural gas – at minimal cost.  To reach this goal, the Ministry of Energy is advised to strategically act to yield pronounced results in the short, medium, and long terms.

 

In the short term, costs can be contained for generation procured through market-based processes. The IESO-run energy market and planning capacity market can ensure that competitive energy rates are secured for consumers.  This addresses the variable costs.

 

In the medium term, we should optimize the use of existing assets to drive down unit costs.  This addresses the fixed costs.  Please see section on Conservation and Energy Efficiency.

 

In the long term, we should accelerate the innovation process by investing in research and development (R&D) to create new low-carbon technologies that cost less and perform better than the status quo.  Please see section on Innovation and Economic Growth.

 

Further, the Ministry of Energy is advised to place a greater emphasis on natural gas in the LTEP. Ontario’s gas demand is the equivalent of more than 80 GW, whereas electricity is around 25 GW. Natural gas is also a much larger source of greenhouse gas emissions than electricity.  Ontario leadership around natural gas can give it a first-mover advantage in climate change.

 

Details are offered below according to the sections outlined in the LTEP Discussion Guide.

 

2Key Recommendations

 

4Distribution and Grid Modernization

 

4.1Update Ontario’s regulatory model to: adopt new technologies; encourage utility planning with new technologies; encourage cooperation among utilities; and allow utilities to assume greater risk.

 

5Microgrids

 

5.1Remove regulatory barriers and promote a business model for collaborative microgrid projects.

 

6Transmission: Electricity transmission; Pipelines

 

6.1Bring together experts in industry and academia to assess and implement emerging technologies

 

in Ontario’s transmission system.

 

7Storage

 

7.1Allow utilities to fund research projects in energy storage.

 

7.2Revise the price structure for small energy storage systems to better reflect costs and benefits.

 

7.3Update market structure to allow energy storage to participate.

 

8Innovation and Economic Growth

 

8.1Issue a directive to the Ontario Energy Board to allow utilities to spend a percentage of their revenue on R&D.  (For comparison, utilities in Brazil are required to spend 0.2 per cent of the revenue on R&D by their regulator.)

 

8.2Provide public funding for R&D to create low-carbon technologies that cost less and perform better than the status quo

 

9Conservation and Energy Efficiency

 

9.1Use a combination of disincentives for consumption during very narrow peak periods and incentives for consumption during off-peak periods. This has the effect of flattening the demand curve.

 

9.2Streamline audits for electricity, gas, and water conservation and focus on reducing

 

consumption during peak periods.

 

9.3Remove regulatory barriers to conservation by: measuring and rewarding high utilization rates and penalizing low utilization rates; ensuring cost savings due to conservation are passed on to consumers; enhancing existing peak conservation programs to include benefits of reduced and deferred infrastructure; and planning for peak reduced demand.

 

9.4Evaluate existing programs according to their ability to reduce the peak, rather than

 

volumetric consumption, and prioritize programs by their performance at peak reduction.  Also, the most elastic (price-sensitive) consumers should be targeted.  This would typically mean that programs are directed at industrial customers rather than residential.

 

10Supply Mix

 

10.1Promote a fleet of generation supply options instead of targeting just one.

 

3About the Centre for Urban Energy at Ryerson University

 

The Centre for Urban Energy (CUE) at Ryerson University is an academic-industry partnership that finds sustainable solutions for urban energy challenges.  The ideas presented in this submission are collected from our experts’ cutting-edge research.  Our intent is to offer non-partisan, evidence-based advice to the Ministry of Energy so that Ontarians can have affordable, reliable, and clean energy.

 

4Distribution and Grid Modernization

 

What are the significant challenges facing utilities and what can the government do to meet them? What are the most important benefits of a modern grid? Increased reliability? Greater information on your energy usage?

 

What additional policies should the government consider to expand access to natural gas?

 

A key obstacle to distribution grid modernization in Ontario is the existing regulatory model. Utilities in the province are still spending tens of millions of dollars refurbishing and upgrading distribution systems using traditional technologies and methods in the face of growing disruptive developments and uncertainty. With advancements in technology and business opportunities, cost-effective solutions to distribution system problems could be explored outside of utilities, such as by engaging customers and/or third party aggregators.  A forward-looking regulatory model for utilities needs to incorporate the following:

 

•Targeting and utilization of new technologies such as distributed energy resources (DERs) for the benefit of ratepayers in the province.

 

•Encouraging utilities to develop well-integrated and comprehensive distribution plans including DERs and customer.

 

•Encouraging utilities with incentives to go beyond their own boundaries to share with and benefit from the resources of other regional utilities.

 

•Allowing utilities to develop plans that take into consideration increased uncertainty and risk.

 

RECOMMENDED ACTION

 

4.1Update Ontario’s regulatory model to: adopt new technologies; encourage utility planning with new technologies; encourage cooperation among utilities; and allow utilities to assume greater risk.

 

5Microgrids

 

What are the best uses of microgrids in Ontario?

 

Are there any barriers preventing the use of microgrids?

 

Microgrids improve supply reliability and help to increase the renewable energy penetration without adding an extra burden on utility grids. All these benefits are quantifiable but do not generate revenue to the microgrid developer, consumers or the utility. Therefore, microgrids should be collaborative projects. It is suggested to remove existing barriers for such collaborations and promote a business model for collaborative microgrids.

 

RECOMMENDED ACTION

 

5.1Remove regulatory barriers and promote a business model for collaborative microgrid projects.

 

6Transmission: Electricity transmission; Pipelines

 

How can Ontario continue to strengthen reliability of the transmission system in all regions of the province?

 

A well-planned approach involving industry and academia experts is required to assess and implement emerging technologies in Ontario’s transmission system and to take us to truly sustainable future. With the rising integration of renewable resources, such as wind and solar, there is the growing concern of maximum utilization of these resources (by not spilling wind or solar), grid reliability and grid balancing.  In the same context, the need to increase power transfer capability over certain transmission lines also becomes critical. Furthermore, bringing large amounts of hydropower from Ontario’s north to load centres in the GTA could also be an option for consideration, should there be load growth triggered by transportation sector (and/or buildings/residential sector). The past decade has seen the development and successful pilot testing of a number of new/emerging technologies to address the needs and concerns just noted.

 

RECOMMENDED ACTION

 

6.1Bring together experts in industry and academia to assess and implement emerging technologies

 

in Ontario’s transmission system.

 

7Storage

 

Would you be willing to participate in a program where your utility could use your home storage device from time to time to operate a more reliable electricity distribution system?

 

What role do you foresee for natural gas to supplement and complement the province’s existing electricity storage options?

 

How can Ontario further support innovative energy storage technologies that leverage our existing natural gas infrastructure assets and take advantage of our clean electricity system?

 

Even without incentives, future generation capacity additions will be from intermittent resources. Large generation plants such as wind farms and small renewable energy systems such as rooftop solar PV will contribute to this intermittent electricity supply profile. Improving the operation flexibility in the grid is becoming very important in both transmission and distribution levels. Therefore, energy storage systems have a promising future as technologies which can improve grid flexibility.

 

What can we do to bring energy storage without proposing another scheme of incentives? We need to mature energy storage technologies faster than their natural pace. Our recommendations are:

 

1)Research - Manufacturers, utilities, and academic institutions are willing to collaborate on research projects. Manufacturers and academics should be encouraged to test their products and ideas within safe operation limits of the grid. Utilities should be allowed and encouraged to fund important research projects.  Today, this funding is in jeopardy because of the regulator’s approval process.

 

2)Price Structure - Small energy storage systems will be mostly connected to the distribution

 

level and will be embedded generators or loads. However, collectively, they can help to minimize the load fluctuations seen by gas plants. The current price structure does not support these small energy storage systems and does not reflect the overall benefit of them. Therefore, it is suggested to revise the price structure based on the correct costs and benefits.

 

3)Enabling Energy Storage Market Integration - Energy storage has a unique set of characteristics. They are energy-limited dispatchable technologies. Therefore, energy storage market integration is difficult with existing market structure. Energy storage should be considered for the proposed Ontario capacity market development.

 

RECOMMENDED ACTIONS

 

7.1Allow utilities to fund research projects in energy storage.

 

7.2Revise the price structure for small energy storage systems to better reflect costs and benefits.

 

7.3Update market structure to allow energy storage to participate.

 

8Innovation and Economic Growth

 

Which innovations offer the greatest benefit to your community and the energy system as a whole? How should the public and private sectors cooperate to encourage innovation in the energy section? What actions could the government take to support the adoption of alternative fuels?

 

The ultimate goal is to develop low-carbon technologies that cost less and perform better than the status quo.  This will have the dual effect of lowering greenhouse gas emissions and lowering energy bills, all the while maintaining performance expectations and minimizing government intervention.  More on this idea can be found in a piece written by CUE IESO distinguished research fellow Jessie Ma, which was published in Policy Options: http://policyoptions.irpp.org/magazines/november-2016/trumps-win-doesnt-have-to-be-catastrophic-for -the-climate/

 

The provincial government could take action to accelerate the innovation process towards these low-carbon, mass-market technologies.  In particular, investments in R&D by Ontario’s utilities fall far below comparable jurisdictions due to regulatory barriers.  This timidity in funding cedes any first-mover advantage that Ontario could have to others.

 

Figure 1 shows the number of Natural Sciences and Engineering Research Council of Canada (NSERC) Industrial Research Chairs (IRCs) supported by utilities in Canada.  Ontario wires companies support only one!  While there could be other R&D funding outside of this, it is a good barometer of the level of support for R&D because creating an IRC is relatively straightforward and automatically comes with significant federal grant funding.

 

Figure 1 - NSERC chairs supported utilities in Canada

 

The electrical utility industry is undergoing a paradigm shift where the fundamental principles on which this industry was created are gradually being challenged.  The drivers are many: aging grid infrastructure, policies and initiatives driven by environmental concerns, changing consumer choices, third party engagement, declining revenue, and declining new technology cost, and more.

 

Businesses and utilities in electrical power generation, transmission and distribution have an existential interest in R&D, and they need to be R&D champions. Ontario’s low R&D investment level has resulted in a sporadic “shot-gun” approach with lackluster results and rising electricity rates.  R&D should instead be channeled to foster innovation and benefit ratepayers in the long-term.

 

Certain academic institutions of higher learning in the province are well equipped with highly-skilled personnel and state-of-the-art facilities to meet this challenge.  The need for industry-driven R&D is therefore more now than it has ever been – and this need is in many different areas: policy, regulatory, technology, etc.

 

Yet, there is very little R&D being done in Ontario for numerous reasons. Here are some of the barriers:

 

•There is no mandate for electrical utilities to invest in R&D.

 

•The current regulatory regime lacks the innovation component, does not require utilities (a) to spend a percentage of their revenue for R&D activities with appropriate checks to make sure benefits are realized or (b)  to report and measure utilities on R&D through a KPI metric.

 

oIf the number of NSERC chairs supported by utilities in Canada is taken as a measure, the performance of Ontario’s electrical transmission and distribution utilities would be lagging others.

 

•There is very limited government funding available for R&D initiatives where academia can help utilities and the ratepayers of this province to thrive.

 

RECOMMENDED ACTIONS

 

8.1Issue a directive to the Ontario Energy Board to allow utilities to spend a percentage of their revenue on R&D.  (For comparison, utilities in Brazil are required to spend 0.2 per cent of the revenue on R&D by their regulator.)

 

8.2Provide public funding for R&D to create low-carbon technologies that cost less and perform better than the status quo

 

9Conservation and Energy Efficiency

 

Should Ontario set provincial conservation targets for other fuel types such as natural gas, oil and propane?

 

To meet the province’s climate change objectives, how can existing or new conservation and energy efficiency programs be enhanced in the near and longer term?

 

Conservation should be treated as a means to an end – not an end in and of itself.  We don’t conserve simply for the sake of conserving; we conserve to reach other objectives.  Therefore, we should be selective and careful in when we employ conservation, and ensure that conservation is the best option available to achieve our objectives.

 

If we use conservation as a tool to maximize societal benefit (see Figure 2), conservation targeted at the most elastic (price-sensitive) consumers during narrowly-defined peak periods can be used to maximize utilization of fixed assets, thereby lowering unit costs of energy and deferring capital investments.  (This can apply equally to electricity and gas infrastructure.)  This approach would reduce the overall capacity requirements of the system, and these savings would be realized among all users.

 

Figure 2 – Model of underlying system philosophy for electricity, gas, and water services

 

Further, opportunities for integration of conservation are during coincident peak times: namely, during summer for water and electricity, and during winter for gas and electricity.

 

Through maximizing asset utilization, multiple benefits can be achieved:

 

•Unit prices could be lowered for all consumers in a sustainable manner by reimagining our cost structure.

 

•System expansions could be deferred.

 

•Additional capacity could be freed up for new uses, such as electric vehicles on the electricity system.

 

•It adds a measure of control and certainty for including conservation and demand management in utility planning, so that costly and unnecessary overbuilding is less likely to happen in the first place.

 

•It also builds in some flexibility into the system as future supply and demand situations are highly uncertain.

 

This concept is used in the three “boxes”: Creating the Future; Managing the Present; and Selectively Forgetting the Past.

 

•In Creating the Future, a combination of disincentives for consumption during very narrow peak periods and incentives for consumption during off-peak periods has the effect of flattening the demand curve.  This improves utilization and lowers unit costs for all consumers.

 

•In Managing the Present, conservation programs directed at large consumers of electricity, gas, and water could benefit from streamlining.  In particular, audits of these facilities could be conducted for all three services simultaneously and administrative requirements to access incentives could be funneled together.  Also, the structural incentives and disincentives for utilities to pursue conservation in this context should be revisited.

 

•In Selectively Forgetting the Past, utilities are advised to evaluate their existing programs according to their ability to reduce the peak, rather than volumetric consumption, and to prioritize programs by their performance at peak reduction.  Also, the most elastic (price-sensitive) consumers should be targeted.  This would typically mean that programs are directed at industrial customers rather than residential.

 

This conservation model is further described in a white paper entitled, “Using Conservation to Maximize Societal Benefit: A Refinement of the Past-Present-Future Conservation Model,” by Jessie Ma and Bala Venkatesh.

 

How can we continue to inform and engage energy consumers?

 

The greatest value from conservation is derived from the most elastic (price-sensitive) consumers, and these are typically industrial consumers.  Therefore, information and engagement efforts should be directed at them.  These can be done in the form of customized energy audits that recommend specific conservation activities, or in generic marketing efforts for this consumer segment that sets out a high-level business case for conservation.  Price signals can also be used to engage industrial consumers.

 

RECOMMENDED ACTIONS

 

9.1Use a combination of disincentives for consumption during very narrow peak periods and incentives for consumption during off-peak periods has the effect of flattening the demand curve. 9.2Streamline audits for electricity, gas, and water conservation and focus on reducing

 

consumption during peak periods.

 

9.3Remove regulatory barriers to conservation by: measuring and rewarding high utilization rates and penalizing low utilization rates; ensuring cost savings due to conservation are passed on to consumers; enhancing existing peak conservation programs to include benefits of reduced and deferred infrastructure; and planning for peak reduced demand.

 

9.4Evaluate existing programs according to their ability to reduce the peak, rather than

 

volumetric consumption, and prioritize programs by their performance at peak reduction.  Also, the most elastic (price-sensitive) consumers should be targeted.  This would typically mean that programs are directed at industrial customers rather than residential.

 

10Supply Mix

 

To meet a higher demand, what mix of new electricity resources would best balance the principles of cost-effectiveness, reliability, clean energy, community engagement, and an emphasis on Conservation First?

 

What policies will Ontario need to adapt to a transformation in the fuels sector?

 

The cost of renewable energy incentives has increased considerably. Furthermore, high growth of intermittent renewable generation requires more dispatchable resources. Even without incentives, the percentage of intermittent generation is high in the overall electricity supply mix. Is there another method to bring back the balance and flexibility to the supply mix?

 

Promoting one technology or another take the supply mix away from its natural techno-economic equilibrium. Policies of promoting a fleet of technologies are more attractive instead of targeting one generation technology. One good example is a combined policy to promote intermittent generation sources and energy storage.

 

Such a policy will allow the keep the supply mix in the correct equilibrium and will improve the utilization of existing gas plants.

 

RECOMMENDED ACTION

 

10.1Promote a fleet of generation supply options instead of targeting just one.

 

11Contact

 

For further information, please contact:

 

Jessie Ma

 

IESO Distinguished Research Fellow

 

Centre for Urban Energy at Ryerson University

 

Tel: 416-979-5000 x2977

 

Email: jessie.ma@ryerson.ca

 

Location:CUE-104, 147 Dalhousie Street, Toronto, ON M5B 2R2

 

Mailing Address: 350 Victoria Street, Toronto, ON M5B 2K3

 

[Original Comment ID: 206966]