On January 29, 2024, the Ontario Energy Board (OEB) proposed amendments to the Distribution System Code (DSC) by adding a new section 6.2.4.1A related to enabling local distribution companies (LDCs) to offer flexible hosting capacity arrangements on a voluntary basis. The OEB’s proposal states that “Under a flexible hosting arrangement, the proposed DER's output or operation can be varied according to system operating conditions as agreed to by the distributor and DER customer.” Comments on the proposed amendments were due February 13, 2024.
Such flexible arrangements can be facilitated through, for example, technologies such as distributed energy resource (DER) management systems (DERMs).
The proposed amendments would allow LDCs to connect DERs “that may, in aggregate, exceed feeder and/or substation technical capacity limits on the distributor’s distribution system where the distributor has the technical capability to do so.”
The OEB’s proposal notes that some LDCs are experiencing a growing level of restricted feeders, resulting in potential DER applicants only being able to “move forward with their connections on these feeders after significant system upgrades to create additional capacity.”
The proposed section 6.2.4.1A would give LDCs and DER applicants time to establish connection requirements and terms and conditions of flexible hosting arrangements through exemptions from the following connection timeline requirements:
Additionally, the proposed section requires LDCs to outline all operating terms and conditions that will require the DER output or the operation of the DER to be varied (e.g., curtailing the output of a solar generator when the output could breach system limits).
In proposing the amendments, the OEB states that it “believes the benefits from greater DER integration and optimization of distribution system capacity through flexible capacity arrangements will outweigh any costs required for the development and implementation of such arrangements.”
Commentary
Power Advisory views the proposal to allow the offering of flexible hosting capacity arrangements to DER customers as a positive step towards enabling grid modernization investments, optimizing grid infrastructure, and providing a path for Ontario’s LDCs to actively manage resources connected to their network.
However, the proposed amendments are narrow in scope and represent more of a stop-gap measure rather than a forward-looking, enduring solution to restricted feeders. In many cases, restricted feeders are identified based on short-circuit (or fault current) limitations and it is not clear to Power Advisory whether LDCs would be able to use adjustments in output or operations to resolve fault current risks.
Offering flexible hosting capacity would be more beneficial to project developers, LDCs, transmitters, the Independent Electricity System Operator (IESO) and ratepayers if the proposal was an element contained within a broader policy and regulatory framework related to addressing barriers to DER connections. A broader DER enablement framework would set clear expectations and objectives for LDCs connecting DERs and enabling electrification, as well as the need for grid modernization and enhanced distribution system planning. It would be more enduring and enable optimization, efficiency and coordination across the sector.
Impact of Proposed Amendments on DERs Connection
The proposed amendments do not have an immediate effect on accommodating the growing number of DERs expected in Ontario, which is already experiencing an increase in restricted feeders and the expected uptake in DERs resulting from the energy transition. Specifically, the proposal notes that the OEB’s DER Connections Review Working Group (Working Group) “recommended that distributors explore flexible hosting capacity arrangements using enabling technologies such as [DERMs].” However, the Working Group noted at its August 10, 2023 meeting “that DERMS is still at the pilot stage.”
Further, the proposal makes offering such arrangements voluntary and also leaves the terms and conditions of the flexible agreements “that will require the output or operation of the proposed embedded generation facility to be varied” to be at the discretion of the distributor.
In the United Kingdom, electricity distributors have been offering flexible hosting capacity arrangements (called a “curtailable connection offer”). However, in 2022, the Office of Gas and Electricity Markets (Ofgem) found that change was required, noting that under the existing arrangements there was “no commonly defined limit on the extent to which [DER] network access can be curtailed. Arrangements can be poorly-defined, with no standard definition of curtailment, and how they work in practice can vary across [distributors].”
As a result, among other reforms, Ofgem required that flexible connection agreements contain:
Further, Ofgem required that flexible arrangements be made “available as a standard option where there is a network benefit to issuing a curtailable connection offer.”
Ofgem stated that the new requirements would reduce risk and provide greater certainty to customers as well as incentivizing distributors “…to take a more strategic approach to network planning and reinforcement, investing ahead of need in many cases and considering alternative approaches to reinforcement for meeting capacity needs of their customers.”
Adopting and adapting such an approach in Ontario would support many of the Non-Wires Alternatives (NWAs) activities offering potential cost savings and could provide more certainty to customers who are presented with a flexible hosting capacity option from their LDC.
Impact of Proposed Amendments on LDCs
Developing and implementing flexible hosting capacity is complex. It will take time for LDCs to implement a DERMS solution (including regulatory approval) and develop the processes and human resources required for implementation.
The United States Department of Energy (DOE) defines DERMS as “a software-based solution that increases an operator’s real-time visibility into the status of [DERs] and allows distribution utilities to have the heightened level of control and flexibility necessary to more effectively manage the technical challenges posed by an increasingly distributed grid.”
The DOE notes that these advanced distribution system controls, such as DERMS, can have long implementation timeframes (including regulatory approval). More importantly, the DOE states that advanced technologies and the functions they enable “fundamentally change how a utility operates. Beyond the timing and phasing of implementation and integration with other utility applications, it will require new processes and procedures, along with personnel training.” (emphasis added)
The offering of flexible hosting capacity arrangements (especially if such arrangements are eventually made mandatory in the future) and potentially directly controlling DER output through a DERMS represents a fundamental change in how LDCs in Ontario operate. It represents an evolution of LDCs towards more active system operators. This evolution brings with it changing expectations on the foundational technologies LDCs need to invest in, and the services and capabilities they are expected to offer customers.
The Proposed Amendments and Bulk System Co-ordination
The proposed amendments do not address or discuss the role of DERs beyond the distribution system. However, the IESO expects more DERs to be Market Participants through their various procurements. The IESO has already contracted for several distribution-connected energy storage facilities through the Expedited Long-Term (E-LT) RFP and may procure more DERs through the Long-Term 1 (LT1) RFP. The IESO has also indicated that DERs will be eligible to participate in the Long-Term 2 (LT2) RFP.
The IESO convenes a Transmission-Distribution Coordination Working Group (TDWG) with Ontario’s LDCs and other stakeholders “to support the IESO in developing coordination protocol(s) that detail the communications among the IESO, LDCs, and DER participants for participation in the IESO-Administered Markets.” The OEB’s proposal to enable flexible hosting capacity is the first step towards enabling LDCs to actively direct the operations of DERs, impacting those DERs availability to provide wholesale market services.
Given the rapid evolution of energy systems, the proposal should take into consideration and be integrated into a whole electricity network approach to policy and regulation. For example, if an LDC enters a flexible hosting capacity arrangement with a DER under contract with the IESO, and the distributor lowers the output of the DER for distribution system constraints, there is no consideration on what information must be shared with the IESO for IESO-Administered Market operation. This is a gap that must be addressed.
Conclusion
Power Advisory believes a less siloed approach to the connection of DERs is needed now. Ontario needs a comprehensive, coordinated and enduring policy and regulatory framework to facilitate the connection of cost-effective DERs, system planning, and set out the roles and responsibilities of LDCs, transmitters, and the IESO.
This approach should seek to provide clear objectives on the role of DERs in the electricity system, the role of LDCs and the investments they should be making to facilitate the energy transition, the evolving relationship between the IESO and LDCs (and their customers), as well as reflect changing customers preferences, including the enabling of DER participants to take part in local and/or wholesale market programs.
Please contact Power Advisory if you have any questions or would like any additional information.