Distributed Energy Resources Bringing Energy Closer to Home

Distributed Energy Resources: Bringing Energy Closer to Home Presentation by the Industry Task Force on Distributed Generation July 28, 2005 1

Industry Task Force on Distributed Generation n Volunteer Ad Hoc group of industry participants with an interest in furthering the development of policies supporting distributed generation in Ontario. Members include Owners, Manufacturers, Developers, LDC’s, and other industry experts Projects represented include wind, highefficiency cogeneration (natural gas & biogas), district energy and others 2

Characteristics of Distributed Generation n Distributed Generation small -- typically embedded n local -- close to load n decentralized -- connected to distribution, but not centrally planned n smart -- complements, but will not replace power stations and transmission grids n 3

Distributed Generation n Based on our definition of DG, approximately 300 MW is in-service in Ontario. Many more good projects are developed enough to proceed quickly (200 -300 MW estimated) Projects have not proceeded due to: n n Market uncertainty Value not monetized and delivered to proponents / hosts 4

Procurement n n DG Task force members participated in RES I and CES, some successful. Most potential DG sites were not represented. Reasons included: n n n Complexity Appeared to be designed for larger Combined Cycle projects Limitations and additional risks faced by cogeneration proponents (thermal host) No economic value attached to producing power close to the load i. e. . “Delivered Power” Time frame too tight 5

Procurement n Positive features of the process: Competitive nature n A portion of fuel costs (and risks) transferred into price of power n Private investment n 6

Procurement Suggestions n Simple process – smaller projects n n Timing – must be flexible: n n smaller developers with fewer resources allowing high efficiency cogen to be built on timing in synch with host. . i. e Toyota, Hospitals Liabilities more consistent with smaller projects, LD’s and commitments – n these are small projects, and if one does not get built, or close the doors before the end of 20 years, it is not material to OPA 7

Procurement Suggestions n Create a standard offer with uniform terms and conditions for any embedded generation n Remove the current stipulation that proponents must be IESO market participants. 8

Procurement Suggestions n When evaluating bids or setting a standard offer price, these projects need to be valued based on “delivered power” n n Capital & Energy savings on transmission and distribution networks DG value can exceed “base energy rate” by $20 to $25 per MWh 9

Procurement Suggestions n n Standard offer should be set at a value that includes hidden benefits of DG, and available for a period that will recognize host’s approval and development times Continue to work with OEB to make hidden benefits part of standard tariffs or have the OPA pay value to proponents If RFP, make it an “RFP Lite” that is very simple Power price indexed to fuel cost (natural gas projects) 10

Procurement Suggestions n n n Self-scheduling, or defined “on-peak” operation DG should be treated similarly to demand response and DSM projects … be able to avoid all upstream charges including DRC If this cannot be done in practice, it still should be taken into account when evaluating DG vs. other options in OPA’s procurement decisions. 11

Benefits of DG n n n Delay or avoid need for capital expenditures to upgrade congested transmission or distribution network, and offer local solutions to transmission constraints Reduce T&D system losses and improve T&D load factors Increase reliability at LDC level and provide support or ancillary services to LDC network Help reduce peak prices and transmission charges Reduce financial, development, construction and operating risk for ratepayers because of smaller increments of investment 12

Benefits of DG n n n Make more efficient use of fuel, particularly in case of cogen Offset T&D charges – economic advantages to ratepayers or to generators Environmental Capital Savings Peaking use of DG can be very effective capacity Power Factor correction and voltage support 13

Questions For more information, please contact: James Sidlofsky, Chair, DG Task Force Borden Ladner Gervais LLP 416 -367 -6277 Barry Chuddy, Vice-Chair, DG Task Force Enersource Corporation 905 -283 -4250 14