The keynote speaker at a recent winder energy conference in Detroit was Rick Sergel, President and CEO of the North American Electric Reliability Corporation (NERC). NERC is an organization to which all Canadian and US regional electricity control authorities belong, (for Ontario, the member is the Independent Electricity System Operator (IESO)) which, subject to the oversight of the U.S. Federal Energy Regulatory Commission (FERC), sets reliability standards for generation and transmission in North America. His punch line was that "if you are pro-green energy you have to be pro-transmission expansion". Mr. Sergel made the point that the rapid growth of wind energy, which is often located in areas distant from the existing transmission grid, has increased the already pressing need for further investment in the transmission grid. Winds are often strongest in rather remote areas, distant from loads and the existing grid, such as the Bruce, eastern Lake Superior, the eastern shore of Georgian Bay, the eastern shore of Lake Huron, and the north shore of Lake Erie in Ontario, Buffalo Ridge in Minnesota, and the Texas Panhandle. Wind plant investment is most economic in these locations. Hydroelectricity is similar in this respect.
In addition, unlike large nuclear or coal facilities or combined cycle gas plants, a wind energy plant is built sequentially, with the initial plants often being 100 - 200 MW, and other separately owned plants of similar size following. The vast land assembly effort required to develop wind plant sites is complicated and time consuming. Under the Transmission System Code in effect in Ontario, the generator must pay its connection costs to the grid, including radial feeder lines and stations, and, sometimes, any grid upgrade triggered by its connection. That obligation would make many current renewables proposals unprofitable for the generator so the investments will not be made.
In its new 20-year Integrated Power System Plan, the Ontario Power Authority (OPA) concluded that to meet the Ontario Government's renewable energy targets, it needs to accelerate the deployment of wind power investment in Ontario. As a result, designated several planned transmission lines connecting the areas where it expected concentrated investment in wind plants to the existing transmission grid as "enabling lines" and suggested that they might be financed and/or paid for by rolling the costs into existing grid costs, rather than be paid for by generators. The OPA cited precedents in California and Texas (to which we might add Colorado and Minnesota) where both US federal and state regulators have supported this approach.. The OPA said alternatives to the present generator-pay regime should be considered.
A few weeks ago, the Ontario Energy Board (OEB), which is currently reviewing the OPA's Integrated Power System Plan, and which is the body responsible for deciding how transmission and distribution lines are to be paid for, decided to launch a separate process to address the issue of enabling lines and how generator (and load) connections to the transmission grid should be financed. It also stated that, once this process is nearing completion, it would establish another proceeding to review generator and load connections to the distribution systems. The rules for distributor connection are set out in the Distribution System Code. The OEB held a preliminary consultation with interested parties and is now drafting a position paper, which will likely be published this spring.
The generator-pay principle is currently embedded in the OEB's Transmission System Code and any changes to the policy will require amendments to that Code.
Most parties seem to favour a change to the existing policy; certainly many generators do. Hydro One Networks Inc., the owner of the transmission grid, is agnostic on the issue, so long as it continues to recover its revenue requirement.
It seems likely that the OEB will propose that transmission ratepayers, which are large directly connected industrial users and local distribution companies, pay at least part of the costs of the generator and load connections, perhaps along the lines of the Texas policy, where once "renewable energy zones" are established, the transmission customers pay the costs of developing and constructing the regional "enabling lines". Then, as the wind energy generators gradually come on line at a later date, they pay their proportionate share of the ongoing costs of the line(s). Texas is the leading jurisdiction for wind energy in the United States and can serve as a successful precedent for enabling lines. Its regime contains checks and balances to ensure transmission lines are not overbuilt.
The connection of smaller generators and loads to the distribution system is a more complicated matter. The OPA's Renewable Energy Standard Offer (RESOP) has led to several hundred proposals to the OPA to build smaller (10 MW and under) wind, solar, biomass and small hydro projects. Many of these projects, especially wind and solar, are concentrated in the service areas of a relatively small number of distributors. These connection requests will trigger upgrades and various reconfiguration of distributor feeders and stations (there is no "network" as such in most distributor systems). The issue of who pays in these instances will be the subject of a later column.
The transmission cost attribution proceeding will be of interest to all generators, large industrial users, and local distribution companies.