Behind-the-Meter Generation as CDM

July 2014

• A March 2014 Order in Council outlined a number of Ontario government initiatives related to its 2015-2020 Conservation First Framework.  Some of these initiatives have broad implications for Conservation and Demand Management (CDM), including behind-the-meter generation.
• Behind-the-meter generation sanctioned as CDM can hugely assist local distribution companies in meeting their CDM targets.  Distributors must achieve 7 TWh of CDM as part of the new framework.
• Behind-the-meter generation of significant scale can be well suited to industrial sites and so has the potential to make significant contributions to CDM results.
• The identification of behind-the-meter generation as CDM may also confer a protective benefit on behind-the-meter generators.

On March 26, 2014, the Ontario government created an Order in Council (OiC) that outlined a number of initiatives related to the 2015-2020 Conservation First Framework outlined in its Achieving Balance: Ontario’s Long-Term Energy Plan (LTEP 2013).  Related to that, Energy Minister Bob Chiarelli issued a number of directives, including those to the Ontario Energy Board (OEB) on March 26, and the Ontario Power Authority (OPA) on March 31.  Both of these directives and others related to the OiC have broad Conservation and Demand Management (CDM) implications, including impacts on behind-the-meter generation (BtMG).

The OEB directive

Concerning BtMG, the most significant feature of the OEB directive is the definition of CDM contained in section 3 ii:

“that CDM shall be considered to be inclusive of activities aimed at reducing electricity consumption and reducing the draw from the electricity grid, such as geothermal heating and cooling, solar heating and small scale (< 10 MW) behind the meter generation …”

The OPA directive

The OPA directive provides background on how the LTEP 2013 commits to establishing a new six-year conservation framework beginning in January 2015.  As part of the framework, distributors must achieve 7 TWh of CDM.  Concerning BtMG and not surprisingly, section 7.1 of this directive includes the same definition found in the OEB directive.

Impact on local distribution companies

The current CDM framework for local distribution companies (LDCs) running from 2011 through 2014 has associated targets of 1,330 MW and 6 TWh – with the latter cumulative over the four years.  LDC performance to date is somewhat unclear, due to a lack of timely information.  The OEB-published summary of results for 2012 reports in-year demand savings of 253 MW, in-year energy savings of 0.504 TWh and cumulative energy savings to the end of 2012 of 3.906 TWh.

Inspection of the energy numbers indicates that if 2013 and 2014 results are similar to those achieved in 2012, the cumulative energy savings to the end of 2014 will be in the order of 5.4 TWh – a shortfall of about 10% of the 6 TWh target.

By sanctioning BtMG as an official CDM activity, these recent directives implicitly signal that utilities should not have to make special arguments to recover revenue losses caused by BtMG.  It should also streamline the use of the LDC-based program that succeeds the Process and Systems program – the current vehicle for providing study and capital funding support to BtMG projects at LDC-customer sites (and equivalent to the Industrial Accelerator program for non-LDC customers).

Of the in-year 2012 energy results, 9,161 MWh or slightly less than 2% of the overall 0.504 TWh achieved was related to industrial programs.  BtMG of significant scale can be well suited to industrial sites and so has great potential to make significant contributions to CDM results.  A 1 MW BtMG project base loaded and so running approximately 95% of the time produces 8,300 MWh of energy annually – roughly equal to LDCs’ total 2012 industrial CDM result.  With 2013 and 2014 effectively done and considering typical project lifecycles, a BtMG project conceived now and that might have to wait for funding approval might not be in service until mid-2016.  Still, such a 1 MW project would contribute 0.037 TWh of reduced grid draw through the end of the 2020 framework.

Taking that thought further, if 10 MW of BtG came online mid-2016 and an additional 10 MW at the start of each year for 2017-2020, the total cumulative reduced grid draw would be an impressive 1.2 TWh - about 17% of the total cumulative LDC energy target of 7 TWh.  It’s also worth noting that if the 40 MW of projects for 2017-2020 could come on in two 20-MW chunks starting on January 1 for each of 2017 and 2018, the cumulative reduced grid draw to the end of 2020 would rise by 20% to 1.5 TWh – 21% of the 7 TWh target.

Clearly then, BtMG sanctioned as CDM can hugely assist LDCs in meeting their CDM targets – particularly industrial BtMG.

Impact on those considering BtMG

Anecdotal information suggests that OPA and LDC interest in and funding support for BtMG has been sporadic.  Sites considering BtMG should be encouraged so far and hopefully LDC CDM plans and programs for the 2016-2020 will include substantial support for BtMG.  This will also hopefully mean that  capital incentives equal or similar to those offered through the current Process and Systems program for LDC-served customers will continue to be available to those considering BtMG, and help them achieve attractive project returns.

Stepping back a bit, the identification of BtMG as CDM may confer a significant protective benefit.   Consider that the Global Adjustment (GA) could be charged to BtM generators on a gross rather than net basis, similar to the way the Debt Retirement Charge (DRC) is applied.  As well, that the GA Class B rate is an order of magnitude larger than the DRC might otherwise increase this risk.  Non-generation CDM creates the same type of notional revenue loss as BtMG does and yet this type of penalty has rarely if ever been part of the CDM discussion.  So, supporters of BtMG should hope the sanctioning of BtMG as CDM provides protection against such treatment.

Impact on other ratepayers

If we assume BtMG avoids GA Class B and wholesale market service charges - with a combined value of $70/MWh - a 1 MW project producing 8,300 MWh of energy annually would cause $581,000 of costs to be shifted annually to other users.  The total shift arising from the BtMG scenario of 50 MW discussed above would then be $29 million per year.  A residential consumer with 10,000 kWh of annual consumption would see an associated annual bill increase of less than $3. 

 Fight rising electricity costs by generating your own power Read more »

Changes to Allocation of Global Adjustment Will Increase Costs for Most Consumers Read more »

To learn more about Behind-the-Meter Generation, contact Bruce Sharp at bsharp@aegent.ca or Mike Risavy at mrisavy@aegent.ca.