October 1, 2024 – Significant change could be coming to an electrical grid near you. Opportunities may soon open up for a wide variety of clean energy suppliers to add electricity to the grid, and for increasing numbers of relatively small energy producers—including consumers—to enter the energy market using local resources.

Newly released independent research has found that a prudent portfolio of distributed energy resources (DERs) could be less expensive than installing the wires and transformers that would otherwise be needed under reasonably probable conditions in parts of York Region (north of Toronto), depending on the levels of future DER growth and other circumstances.

The authors caution that the findings in this report might not be directly applicable to other time frames, places, or types of distributed energy resources but, taken in context, they are nonetheless remarkable as an indicator of potential change in progress.

Brian Bentz, the president & CEO of Alectra Utilities, said that the York Region NWA Demonstration Project “has proven the potential for using local solutions as a cost effective alternative to traditional electricity infrastructure”.

The energy system (and the industry behind it) could take on a new look if this pattern continues. After many years of energy development focused on large-scale infrastructure, increasing levels of smaller, more locally oriented projects may be coming. For example, according to energy consultant Wood Mackenzie, the market for Distributed Energy Resources in the US, “will nearly double from 2022 to 2027, reaching $68 billion US per year.”

The York Region Non Wires Alternative Demonstration Project was a 2-year “real-world test” to find out what happens when a distribution utility invites local resources to offer energy supply and related services to the local utility. The project was designed to assess the effectiveness and performance of DERs in providing these services to the system and, in particular, whether these options could potentially—under the right conditions—enable the utility to postpone building new electric wires and transformer equipment.

While there are a number of qualifications on the study’s conclusions, it will carry a lot of weight, being based on the results of two years-worth of real-world demonstrations of how distributed energy resources performed under open market conditions, and subsequent cost benefit analysis carried out by ICF, a well-known consulting firm with extensive energy expertise.

Successful bidders in the demonstration included behind-the-meter combined heat & power facilities, commercial load curtailment, and residential demand-response in the form of aggregated smart thermostats.

Geri Yin, head of Grid Innovation at Alectra Utilities, said “This project energized the local community to take on an active role as part of grid solutions: a win-win-win for customer, community, and the grid”.

The report’s cost benefit analysis is described as “illustrative” because, like any forward-looking research, it is based on current conditions and a number of assumptions. Nonetheless, the study was the most comprehensive and authoritative of its kind ever conducted in Canada.

In its final report, ICF says “The illustrative cost-benefit analysis […] demonstrates that DERs can offer substantial cost savings as an alternative or deferment to traditional infrastructure given the right conditions”. It is important to note that factors such as market conditions, evolving DER growth and regulatory policies will play a significant role in determining the overall cost-benefit analysis in the future.

The York Region project was a collaboration between the local utility (Alectra) and the provincial grid operator (IESO), with funding from the federal government, Natural Resources Canada, and IESO’s Grid Innovation Fund. The initiative was considered highly innovative when first announced in 2019 as it effectively created the first local electricity market in North America.

The two-year local capacity auctions successfully procured 10 megawatts of capacity for the year 2021, and 15 MW of capacity for the year 2022, from a diverse range of DER participants, including manufacturers, supermarket operators, and residential participants through aggregators. DERs procured through the capacity auctions committed to being available for two six-month periods (May 2021 to October 2021 and May 2022 to October 2022) to help meet electricity system needs.

Carla Y. Nell, IESO’s vice-president of Corporate Relations, Stakeholder Engagement and Innovation, said “Local markets provide businesses with an important economic incentive to play an active role in Ontario’s electricity sector, which improves reliability and affordability for everyone”.

This table summarizes the results of the cost benefit analysis by ICF, and was presented in the report with several qualifications.

In reviewing the project, ICF was complimentary about the overall design and management of the process. It found that the demonstration project was largely successful, and substantially met all of its major objectives.

Highlighting some of the benefits, ICF says “DERs have shorter development timelines and can be deployed modularly, allowing for closer alignment of capacity need and DER installation (versus T&D, which is oversized compared to initial capacity need)”.

Energy analysts such as Jennifer Delony think the grid may be evolving from a primarily top-down distribution system toward a more open network that includes large numbers of participants exchanging energy in real time on a transactional basis. From humble beginnings in York Region, this project may have planted some of the seeds for far-reaching change in the future.

As investment in electrical infrastructure grows—quite possibly at a pace exceeding the general rate of economic growth—there is a good chance that increasing proportions of this investment will take place at the local distribution level, now that evolving technology and markets are enabling more competitive and productive use of local resources.

There is little doubt that the York Region Non Wires Alternative Demonstration Project—and the research assessing it—represent an important landmark in the evolution of local electricity markets in Canada.

Jake Brooks is an energy consultant who served as executive director of the Association of Power Producers of Ontario for many years.

This article is for general and public information only. It is not necessarily applicable to the reader’s specific circumstances, nor should it be relied upon as the basis for financial, regulatory, or other decisions.

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