IESO Finalizes Design Principles for Integrating Renewables

Over the past seven years, the Ontario government has made a concerted effort to bring more renewables into Ontario’s energy supply mix. These efforts have paid off — 5,800 MW of variable generation projects, primarily wind, are underway and expected to be in commercial operation by the end of 2012. Looking forward, the recently released Long-Term Energy Plan targets a total of 10,700 MW of renewable energy generation by 2018.

In anticipation of increased amounts of renewable electricity generation capacity feeding onto the provincial grid, the Independent Electricity System Operator (IESO) began a stakeholder initiative in November 2009 to establish guidelines to integrate renewable generators into the IESO dispatch regime. Their final renewable energy integration Design Principles were released March 9, 2011.

Background

The IESO is responsible for managing Ontario’s bulk electricity system. The IESO balances the supply of and demand for electricity in Ontario, and then directs its flow across the province's transmission lines. In particular, both market participants1 and the IESO operational arm are governed by the Market Rules. Pursuant to these rules, wind, solar and run-of-the-river energy generators, among others, are classified as "intermittent generators."2

Currently, intermittent generators provide the IESO with forecasts that estimate the energy they will provide and predict when they will be producing such energy.3 Intermittent generators receive the Hourly Ontario Energy Price (HOEP)4 for each unit of generation they physically provide, no matter how low the market-clearing price (which sets the HOEP). Since intermittent generators are ‘price-takers,’ they are by default the least expensive available supply. Electricity available from intermittent generators is therefore used first, as a block, before energy available from dispatchable facilities is considered.5 After taking into account the forecasts of intermittent and other non-dispatchable supply, the IESO makes up the remainder of supply from dispatchable sources and will issue dispatch instructions to the dispatchable facilities accordingly. The dispatch instructions are based on an established dispatch algorithm.6

Apart from emergency situations, the current Market Rules do not appear to allow the IESO to issue dispatch instructions to intermittent generators. Given this, and the potential magnitude of additional renewable generation coming online in the near future, the IESO introduced SE-91, Renewable Integration. This stakeholder initiative will help the IESO finalize amendments to the Market Rules to bring wind and solar energy generators into the fold of dispatchable generators.

Final Design Principles

The IESO introduced its draft Design Principles in November 2010. Many stakeholders, the majority of them wind developers, provided their comments and feedback. The IESO incorporated selected feedback and released finalized Design Principles on March 9, 2011. These principles fall into three areas: forecasting, visibility and dispatch.

Forecasting speaks to the ability to predict output from variable resources, and is viewed by the IESO as essential for maintaining system reliability and market efficiency. The Design Principles related to forecasting are as follows:

Principle 1: The IESO will implement a centralized forecast for all wind and solar resources with an installed capacity of 5 MW or greater and all wind and solar resources directly connected to the IESO-Controlled Grid.

Principle 2: Real-time forecast data will be used for variable generation dispatch and actual real-time data will be used for calculating foregone energy to support Ontario Power Authority (OPA) contract settlement.

Principle 3: The costs paid to the centralized forecast service providers will be treated as procured service charges and will be recovered from consumers through existing procurement market recovery mechanisms.

Overall, there appeared to be support for centralized forecasting from stakeholders. The Design Principles clarify that forecast data will not be used for settlement purposes. Rather, the best available actual data will be used for settlement. The IESO’s proposed 5-MW threshold is consistent with the design of the OPA’s Feed-in-tariff contracts, and, from an operations standpoint, is also considered the threshold at which point generation becomes material.

Visibility refers to the IESO’s ability to "see" what renewable generators are doing. Currently, the IESO only receives energy schedules from wind and solar generators. In order to achieve an acceptable level of visibility, new processes such as direct telemetry, meteorological data and reporting will be needed. The Design Principles related to visibility are as follows:

Principle 4: All variable resources subject to centralized forecasting will provide static plant information and data.

Principle 5: All variable resources subject to centralized forecasting will provide dynamic data (real-time telemetry).

Principle 6: All forecasts of facility output for resources subject to centralized forecasting will be publicly available.

One of the main concerns raised by generator stakeholders during the Design Principle meetings related to confidentiality and the commercial sensitivity of data published on a site-specific basis. Public disclosure has therefore been limited to forecasts and excludes site specific meteorological data.

The Visibility Technical Working Group (VTWG) carried out consultations with the IESO over the course of March 2011. The consultations formed the basis for the Market Rule amendments. The overall objective of the VTWG was to (i) define static and dynamic data requirements for wind and solar generators to implement a centralized forecasting service, and (ii) define communication and registration requirements to ensure that the IESO can monitor production of embedded solar and wind resources.

The new process will require all existing wind and solar generators with facilities greater than 5 MW (AC-rated for solar and installed capacity for wind), including embedded facilities that are not IESO market participants, to collect and submit site specific weather and plant data. This information will be maintained within a confidential database at the IESO. Wind and solar forecast service provider(s) will be provided access to this information in order for them to provide the IESO with wind-generation forecasts. The new category of embedded facilities greater than 5 MW will be required to register with the IESO via a new streamlined process.

Under the proposed centralized forecasting system, wind and solar facilities that are market participants will no longer be required to submit energy schedules once centralized forecasting is in place. Instead, they will be required to collect and submit site-specific weather and plant data to the IESO. It is proposed that each solar facility have a minimum of two meteorological data collection points and that all solar arrays be within a 12-km radius of a meteorological data collection point. Dynamic data elements would be reported to the IESO at least once every 30 seconds.7

Regarding wind facilities, there are two means of data collection: meteorological towers (met towers) and meteorological data collection points. It is proposed that all turbines be within 5 km of a nacelle-mounted meteorological data collection point. The number of met towers required per facility varies with size. Wind facilities with an installed capacity of less than 10 MW are not required to host a met tower, however this increases at a rate of one met tower per 100 MW of installed capacity. Dynamic data elements would be reported to the IESO at least once every 30 seconds.8 A list of the static and dynamic data requirements for wind and solar can be found by clicking here.

Dispatch is the ability of the IESO to direct large-scale renewable generators to dispatch on or off, regardless of wind conditions or level of sunlight penetration. Integration of renewables into the economic dispatch is required to resolve issues such as surplus baseload generation (SBG). The proposed dispatch procedure will apply to all variable resources connected to the IESO-controlled grid, as well as embedded generators that are registered market participants. The Design Principles propose a five-minute dispatch interval.

Principle 7: All variable resources connected to the IESO-controlled grid, and embedded variable resources that are registered market participants, will be actively dispatched on a five-minute economic basis.

Principle 8: Variable generators will operate within a compliance deadband when ambient conditions offer sufficient fuel.

Principle 9: Variable generators will be entitled to Congestion Management Settlement Credit (CMSC) payments.

Principle 10: The IESO may establish various floor prices for offers from baseload generators (e.g., wind, must-run hydro, nuclear, etc.) to ensure efficient dispatches during periods of local and/or global surplus baseload generation (SBG) events.

Principle 11: Directly connected variable resources (and embedded resources that are market participants) will be eligible to participate in operating reserve and ancillary markets where technically feasible (such integration will be considered on a cost-benefit basis, and is not likely to be addressed in the near term).

On May 12, 2011, the IESO issued the discussion paper that will form the basis for Market Rule amendments relating to the dispatch of variable generation sources.9 The Dispatch Technical Working Group will soon be formed to consult on the issues that will need to be resolved as the IESO moves forward to integrate variable generation into its dispatch algorithm.

Concerns Going Forward

Curtailment to manage surplus baseload generation (deemed to be a form of economic curtailment) is forecasted by the IESO to become significant by 2012, when a large portion of the currently contracted renewables come on line. Indeed, the IESO predicts that with the additional 3000 MW of FIT projects installed and operating, the Ontario grid would experience surplus conditions roughly nine per cent of the time based on average wind output.

SE-91 sets the stage for future wind and solar projects to become active, dispatchable generators. With a clear set of rules and operating requirements, future generators will be able to build and plan to the new role being accorded to renewables in the marketplace. However, questions remain as to how existing wind and solar power generators (legacy generators) will be treated by the IESO under any Market Rule amendments stemming from the Design Principles. It is anticipated that legacy generators that cannot meet the amended Market Rules due to technical barriers can seek to be exempt from one or more specific obligations or standards and effectively be grandfathered.

Grandfathering is also a substantive concern for generators that have executed power purchase agreements with the OPA or otherwise, in particular the RES I, RES II and RES III contracts. Many of the existing wind and solar generating facilities, or those that are close to achieving commercial operation, have been developed using financial models that did not anticipate any form of economic curtailment, given that the current Market Rules do not provide the IESO with the ability to curtail intermittent generators outside of emergency situations. In particular, from a technical standpoint, existing wind farms (or those close to achieving commercial operation) have not been designed to accommodate five-minute dispatch signals. In addition to any lost revenues under the respective power purchase agreement, legacy generators will incur substantial operating costs as a result of ramping operations up and down. The IESO and the OPA have both publicly recognized that the Market Rule amendments related to the Design Principles will potentially impact the economics of legacy renewable generators, and that there are contractual obligations to address those impacts.

The OPA’s continued involvement in SE-91 will be crucial as the design details of the Design Principles are developed in order to ensure that legacy generators are adequately compensated.

Next Steps

The Design Principles will form the basis for the Market Rule amendments. Design details and Market Rule amendments that address immediate needs will be developed first. As a result of the recent consultations with the VTWG, the following Market Rule amendments will be put before the IESO Board for approval on June 16, 2011:

  1. Centralized forecasting — Cost recovery: Will allow the IESO to recover costs associated with forecasting services relating to variable generation from consumers.
  2. Centralized forecasting — Data Obligations: Amend Market Rules to allow the IESO to create Market Rules applicable to embedded generators that are connected to the distribution system and obligate variable generators to submit static and dynamic data for centralized forecasting.

McCarthy’s will provide clients with updates on the Renewable Integration SE-91 as significant developments are made. In the meantime, clients that will be directly affected by proposed SE-91 Market Rule amendments are encouraged to follow the progress of the various working groups.

Given that the amendments to the Market Rules to integrate renewables are viewed as nondiscretionary from an operational standpoint, the IESO is not proposing a formal cost- benefit analysis.


"Market participant" means a person who is authorized by the Market Rules to participate in the IESO-administered markets or to cause or permit electricity to be conveyed into, through or out of the IESO-controlled grid.

2 Chapter 11 of the Market Rules defines an "intermittent generator" as a generation facility located within the IESO control area that generates on an intermittent basis as a result of factors beyond the control of the generator.

3 Market Rules, Chapter 7, s. 3.4.1.4 and s. 3.8.1

4 HOEP is the arithmetic average of the uniform Ontario energy prices determined for each dispatch interval. The uniform Ontario energy price is referred to as the Market Clearing Price (MCP). The MCP is established based on the available supply and demand in an unconstrained market, in which the physical limitations of the transmission system inside Ontario are ignored.

5 IESO Training Manual, Introduction to Ontario’s Physical Markets (March 2008), at p. 20.

6 Market Rules, Chapter 7, s. 4.3.3: The dispatch algorithm has as its mathematical objective function to maximize the economic gain from trade among market participants, which determines the quantities and prices that "clear the market," in the sense that, given the market-clearing prices and the dispatch data, no market participant would be economically better off (in terms of the dispatch data it submitted itself) producing or withdrawing more or less than the market-clearing quantity of any energy.

7 IESO Proposed Solar Generator Data Requirements March 2011) 

8 IESO Proposed Wind Generator Data Requirements (March 2011)

9 Renewable Integration (SE-91) Dispatch Technical Working Group