Introduction

Distributed Energy Resources (DERs) are drawing the attention of energy system operators and regulators across North America and Europe. DERs are “a decentralized source of energy that provides electricity services to individual customers or to the wider system located nearby.”¹ DERs are often sited near customers and “provide all or some of their [customers] immediate electric and power needs and can be used by the system to either reduce demand or provide supply to satisfy energy, capacity, or ancillary service needs of the distribution grid.”² DERs involve the integration of a of range technologies, including solar photovoltaic, wind power, cogeneration, renewable natural gas, energy storage, and electric vehicles, into stable and reliable energy resources at a local level.

Taken together, DERs have the potential to improve the sustainability of energy systems, by being able to make better use of renewable low-carbon energy resources, and improving system reliability and resiliency through the use of distributed and technologically diverse energy sources.³ DERs are anticipated to have greater ability to adapt to changing circumstances, and have the potential to offer greater control to consumers.⁴ DERs may also allow the deferral of costly infrastructure upgrades and potentially contribute to the reduction of “transmission and distribution bottlenecks and congestion.”⁵

While DERs offer the potential to strengthen the sustainability of energy systems, their emergence is seen to present a number of potential challenges. Widespread deployment of DERs requires the reconfiguration of transmission and distribution systems from relatively hierarchical structures connecting generators to consumers into networked configurations facilitating energy transactions among participants who may act as generators or consumers depending on their circumstances. Potential DER developers are searching for sustainable business models that enable them to aggregate their distributed, small-scale generation and storage resources into manageable revenue generating grid-scale assets.

The potential roll-out of significant amounts of DERs may present some challenges for the current system. For electricity systems that rely on large-scale, centralized generation assets, like nuclear, large fossil fuel-fired and hydroelectric power plants, widespread adoption of DERs have the potential to erode their traditional baseload grid demand, which, in turn, risks “stranding” those long-lived generating facilities.⁶ In addition, the potential roll-out of DER’s has sparked debate about how, and by whom, the costs of the necessary upgrades to transmission and distribution infrastructure, that larger-scale DER deployment would require, should be covered.⁷

The Province of Ontario offers an important case study for exploring these tensions around DER development. There is increasing recognition among the province’s regulators, policymakers, and major actors in the electricity system of DER activity as a key focal point of innovation in the electricity sector. There is also an awareness that other jurisdictions are moving forward on DER development, and a recognition of the potential for DER deployment to have a momentum of its own, independent of the policy decisions made by governments and regulators.⁸ Interest in DERs is reinforced by concerns over the regional impacts of climate change, particularly extreme weather events, and a growing emphasis on the reliability and resiliency of traditional electric grids and energy services.

At the same time, the province has a deeply embedded centralized electricity generation and transmission infrastructure, elements of whose centrality to the province’s electricity system is being reinforced by a combination of explicit policy decisions and changing relationships between the province and generators. In this context, there are emerging concerns over potential stranding of centralized assets, due to a combination of factors, including weak demand growth, driven by structural economic change and improved end-use efficiency, and the potential impacts of a DER revolution. These considerations could result in efforts to constrain, either through slow movement in the modification of the existing regulatory and policy regime, or more explicit measures, to limit DER development to protect incumbent centralized assets. It’s unclear at this stage what path the province will take. Will DER development remain constrained to experimental “sandboxes” at the margins of the system, or will it be allowed to play a more central role in the province’s future energy framework?

This paper employs a socio-technical transition framework to help understand and analyze these dynamics, and assess their direction in Ontario.

Understanding Energy System Transitions: Socio-Technical Transition Theory

Socio-technical transition theory examines “mechanisms through which socio-economic, biological and technological systems adapt to changes, in their internal and external environments.”⁹ Socio-technical transition evolved from “technology innovation and diffusion, evolutionary economics, and the sociology of large technical systems, to provide a framework for understanding how shifts in large and complex systems unfold.”¹⁰ The framework has been widely employed to understand the dynamics of technological and policy change in the energy sector.¹¹ Within socio-technical transition theory exists a framework called the Multi-Level Perspective (MLP). The MLP framework is used to examine the “process and development, and adoption of new technologies and their impacts on existing institutional, regulatory and technological systems.”¹²

The MLP approach focuses on activities at three levels in the advancement of transitions: the niche, the regime, and the landscape.¹³ The niche level is where technological and policy innovation occurs. Niches take many forms — the activities of private sector start-ups, the research arms of existing utilities, or university laboratories. The regime level is where established actors, technologies and rules such as institutions, regulations, and policies operate.¹⁴ The landscape level is used to define the exogenous environment.¹⁵ Examples of landscape-level factors include the underlying economic structure of the jurisdiction in question, existing physical and technological configurations of energy systems, shifts in global markets, technological innovations, and external biophysical developments like climate change.

The interplay between the three levels can be summarized as follows: developments from within the niche, when coupled with changes in landscape, place pressure on the regime. If landscape-level pressures are significant enough they disrupt the existing regime, facilitating opportunities for niche-level developments to advance and be adopted into a reconfigured regime.¹⁶

Within the framework, there are four potential pathways that transitions are said to take.¹⁷ The first is technological substitutions pathway; when an existing regime is dismantled by the deliberate introduction of new actors or technologies. Examples of this approach can include initiatives like the Feed-in-Tariffs (FIT), which were employed to encourage the development of renewable energy resources in Germany, Ontario and other jurisdictions.¹⁸ The second potential pathway is a transformation. Transformation occurs when a regime gradually incorporates new niche level developments without significantly disrupting its existing structure.¹⁹ The third pathway is called reconfigurations. Reconfigurations happen when the influx of new technology leads to structural adjustments within the regime, due to the pressure from the landscape.²⁰ De-alignments and re-alignments are the fourth possible pathway occurring when the regime is disrupted by external pressure from innovators within the niche, who emerge and force the regime to reconfigure.²¹

This paper describes the existing situation at the landscape, regime, and niche levels and explores the responses of the regime to these pressures, and assesses the prospects for a significant transition in the Ontario electricity system in the direction of DERs.

Ontario Electricity System at Three levels

The Landscape

The existing system context and configuration

Ontario’s existing electricity system is dominated by nuclear energy, with three facilities (Pickering (6 units + 2 retired), Bruce (8 units) and Darlington (4 units)) accounting over 61 percent of annual output (147.6 TWh in 2018) in energy terms.²² All three facilities are owned by Ontario Power Generation (OPG), a provincially-owned corporation that assumed control of the former Crown utility Ontario Hydro’s generating assets when the latter was broken up in the late 1990s. The Bruce facility is operated by a private consortium named Bruce Power.

Approximately 25 per cent of energy output is provided by 66 legacy hydro-electric assets with a total capacity of 7,475 MW.²³ These facilities are almost exclusively owned and operated by OPG. Many have undergone modernizations and upgrades over the past fifteen years. A phase-out of coal-fired generation, propelled by a combination of concerns over air quality and greenhouse gas emission impacts, was completed in 2014. The province’s five Ontario Hydro/OPG-owned coal-fired facilities had provided up to 25 per cent of the system’s electricity output in the late 1990s and early 2000s.²⁴

As part of the coal phase-out, a large (approx. 10,000 MW) fleet of new gas-fired generation has been contracted by the province. These facilities were constructed and are operated by private third parties from the mid-2000s onwards. A review of the installed capacity (approximately 27 per cent of the province’s total) versus annual energy output from gas-fired facilities (approximately 6 per cent of total)²⁵ reflects the consideration that the use of gas-fired generating capacity has been limited to back-up and gap filling functions, with the implication that these facilities may still have long operating lives ahead of them. The oldest of these facilities are beginning to come off their original contracts with the Ontario Power Authority and its successor the Independent Electricity System Operator (IESO).²⁶ The original contracts were structured around capacity payments ensuring that the capital costs of facility construction will be retired at the end of these contracts, regardless of facility utilization rates.

From a starting point of virtually zero installed capacity, approximately 4500 MW of new wind, and 450 MW of new solar capacity have been developed since 2005, by third parties. These developments occurred through the combination of the now terminated feed-in-tariff (FIT) program under the 2009 Green Economy and Green Energy Act, and competitive RFP-based procurements.²⁷ Some of the earliest of these procurements are also approaching the ends of their original contracts.

The province’s nuclear fleet is at end-of-life. One nuclear plant (Pickering) is to be retired by 2024, while the Bruce and Darlington facilities are scheduled to undergo refurbishments.²⁸ The province’s transmission infrastructure, operated by the partially privatized utility Hydro One, remains largely configured around major centralized generating facilities and is not well configured to support DER deployment. The same can be said of the province’s distribution networks, which are mostly operated by municipally-owned Local Distribution Companies (LDCs).²⁹ Hydro One also handles distribution to some large industrial consumers, as well as commercial, farm and residential consumers in rural areas.

As shown in Figure 1, electricity demand in the province peaked in the mid-2000s³⁰ and has declined since then, despite continuing growth in the province’s population and economy. The situation has been attributed in large part to economic restructuring away from energy-intensive manufacturing and resource extraction and processing activities, towards less energy-intense service, knowledge and information-based activities.³¹

The impact of conservation programs put in place since 2003 has also been a significant factor.³²

Partially as a result of consistent over-projections of future demand growth, Ontario carries a surplus of generating capacity. In 2018, the province exported 18.6 TWh of electricity, often at low or even negative prices.³⁴ Expectations of demand growth due to the electrification of transportation and building and water heating as part of low-carbon transition responses to climate change are not being realized, in part due to the Ford government’s pull-back on the previous government’s climate change strategy.³⁵ The availability of lower-cost natural gas options for space and water heating relative to electrification has also been a factor.³⁶

The overall landscape, with a large portion of supply provided by legacy and long-lived hydro-electric and nuclear generating assets, a large fleet of relatively new gas-fired generating capacity, and flat demand growth, leaves little room for new entrants or technologies in the system.

Landscape-level developments

Beyond the flattening of demand growth as a result of economic restructuring and conservation initiatives, there are other landscape-level developments that have the potential to disrupt the regime. The regional impacts of climate change are recognized within the province, particularly with respect to the increased occurrence of extreme weather events, including heat- waves, ice storms, and intense precipitation. These developments have lead to increased concerns over resiliency of the electricity system in the face of extreme weather. These concerns have been reinforced by weather-related events like the 2003 eastern North American blackout, 2013 Toronto ice storm,³⁷ and the September 2019 impacts of Hurricane Dorian in Atlantic Canada.³⁸

In addition, public concerns over rising electricity bills, largely reflecting the costs of rebuilding a system in which many generating, transmission and distribution assets had been subject to under-investments in maintenance and were approaching end-of-life, have become a major political issue in the province. This has led to strong pressures to reduce consumers’ bills in the short term, and may provide incentives to consumers, both large and small, to minimize their reliance on the provincial system in the longer term.³⁹

Finally, and perhaps most importantly, the emergence of DERs themselves represents a potentially significant landscape-level development. DERs reflect the convergence of three major technological revolutions in the electricity sector over the past decade. These include: the improved technical and economic performance of renewable energy sources; the emergence of advanced energy storage technologies; and the application of information technology and communications technologies to grid management and control (a.k.a. smart grids).⁴⁰

This technological convergence offers the potential to integrate locally distributed and controlled generation and storage assets into reliable electricity supplies, with the role of grid supply rendered residual or even redundant. Such developments, could lead to significant reductions in grid demand that would potentially “strand” large, centralized and long-lived generating and transmission assets. Stranding could occur, if there is insufficient demand for outputs and services, which would typically generate revenues to pay down capital investments for construction or refurbishment or operating and maintenance costs. Such situations lead operators to increase their rates, prompting further defections from the grid by their remaining consumers. This scenario is sometimes referred to as a “utility death spiral.”⁴¹

In Ontario, the need to be able to deal with high seasonal space heating and cooling needs, among other things, mean that full self-generation and disconnection scenarios seem unlikely for residential and small/medium commercial consumers except in high grid-connection cost rural settings.⁴² Moreover, DER development may offer opportunities for distribution system operators like Ontario’s LDCs. DER deployment depends on the ability to coordinate and aggregate resources across a network to provide stable and reliable supply. The transactions needed to make such systems viable will have to occur over distribution system operator (DSO) networks. Business models for DSOs to recover the system upgrade and operating and maintenance costs required to play these roles remain uncertain but seem to be emerging.⁴³ Ontario LDCs are already signalling their interest in playing the role of DER enablers through their distribution networks.⁴⁴ At the same time, the movement towards reducing the role of the commodity portion of electricity bills relative to the “fixed charge” portion for maintaining a grid connection may remove incentives for DER development, conservation and innovation more generally.⁴⁵ The declining portion of the bill related to consumption reduces the potential savings to consumers that could flow from pursuing these types of options.

Outside of Ontario, the U S, Federal Energy Regulatory Commission (FERC) and some US states are recognizing DER aggregators as a distinct class of market participants.⁴⁶ Within Ontario, third party organizers/aggregators of behind the meter (BTM) DER activities for large industrial and commercial consumers are emerging in response to demand response (DR) and “GA-Busting” opportunities, developments discussed in greater detail below as niche-level activities.

The Regime

Ontario’s electricity sector has never been subject to a clearly defined long-term planning or regulatory framework. The current regime flows from adoption of a “hybrid” system containing market and planning elements, including the creation of a provincial-level system planning agency (the Ontario Power Authority (OPA) — whose functions are now carried out by the IESO) in the aftermath of a failed experiment with competitive wholesale and retail markets in the early 2000s. Since the collapse of the OPA-led Integrated Power System Planning (IPSP) process at the end of the last decade, the system has shifted towards a paradigm of increasingly explicit political management.⁴⁷

The shift towards a political management model was formalized under the Wynne government through the adoption of Bill 135 (2016).⁴⁸ The Bill removed the requirement of legislation adopted in 2004⁴⁹ that the OPA/IESO develop IPSPs and those plans be subject to formal review by the Ontario Energy Board (OEB). Rather overall system planning decisions are now made at the political level, and the resulting Long-Term Energy Plans are not subject to any meaningful regulatory oversight or approval. The energy plans are then implemented via directives from the Minister of Energy to the major institutional actors in the system, particularly the OEB and IESO.⁵⁰

The Ontario Energy Board operates under the authority of the Ontario Energy Board Act, 1998 and the Electricity Act, 1998. The Board is responsible for, among many other things, rate-setting and licensing, and approving all licenses for any market participant in the province, including the IESO.⁵¹ In practice, this means that the OEB has some control over what goes onto the electricity rate base, and therefore the economic viability of new technologies and business models, as well as the entry of new actors into the system. This authority is subject to very high levels of political control.

The Independent Electricity System Operator (IESO) of Ontario, created by the Electricity Act, 1998, acts as Ontario’s electricity system and market operator, which manages the integrated power system and serves as the supervisor of the wholesale market in Ontario.⁵² The services the IESO provides across the electricity sector are: “managing the power system in real-time, planning for Ontario’s future energy needs and enabling conservation and designing a more efficient electricity marketplace to support sector evolution.”⁵³ In addition to operating the system on a day-to-day basis, the IESO has some role in forward planning, although, that function is constrained by the highly politized decision-making processes that define the system.

As noted earlier, the system is dominated by large centralized generating asset owners and operators (e.g. OPG (nuclear and hydro)), Bruce Power (nuclear) as well as developers of new gas-fired generation, with some additional new entrants through the pre-2014 renewable energy development programs.

Not surprisingly in this context, the existing regime rules are generally oriented towards large centralized generation. The existing rules did not anticipate the possibility of the large-scale deployment of DERs, or their underlying new technologies such as advanced energy storage.⁵⁴

The municipally-owned LDCs operate the distribution networks in most cities and towns, giving them direct relationships with residential, commercial and institutional consumers. The LDCs had taken on substantial roles in delivery of conservation programming for residential and commercial customers from 2004 onwards. Those roles were terminated by the provincial government in March 2019.⁵⁵ The LDC sector has been undergoing a high degree of consolidation.⁵⁶ One result of this trend has been the emergence of some larger LDCs with substantially higher technical and policy capacity and interest in innovation than their predecessors. Among other things, has been reflected in discussion papers from the Electricity Distributors’ Association exploring the potential roles of LDCs as DER enablers and developers. There have also been a number of DER pilot projects on the part of individual LDCs.⁵⁷

Niche-Level Developments

Within the MLP framework, the niche level is where innovation and development occur. The niche is seen to provide spaces in which new ideas and products are protected from market selection pressures.⁵⁸ The technologies and practices created at the niche level may the potential to penetrate the regime by offering novel, and beneficial alternatives to current approaches.

Ontario has a hybrid planning/market electricity structure and relatively complex institutional landscape left in the aftermath of successive restructurings of the electricity system. These unique dynamics have, largely unintentionally, created a niche-rich environment for technological, policy and business model innovation.⁵⁹

Potential niches for DER related development have emerged in a number of locations through the system. These include the recently established ancillary services and demand response markets, the activities of LDCs, and potentially most significantly the opportunity to offer “GA-busting” services to large industrial consumers.

Ancillary services are used in the province to guarantee the reliability of the IESO grid.⁶⁰ The IESO currently contracts for four ancillary services: certified black start facilities; regulation service; reactive support and voltage control service; and reliability must-run.⁶¹ DER options provided by third parties may offer alternatives to current ancillary service technologies with a promise of low carbon performance and resiliency.⁶² The demand response auction, in place since 2017, provided opportunities to aggregate demand response resources, principally from large industrial and commercial consumers.⁶³

Within the Ontario LDC community, some operators have begun to examine practical barriers to DER integration. Alectra Utilities, for example, has several pilot projects dedicated to smart grid technologies and is currently hosting a microgrid demonstration project. Alectra also has initiated a project called “Power House” which seeks to “evaluate the integration of solar storage on residential homes.”⁶⁴

Third parties have the flexibility to create solutions to DER barriers that LDCs would otherwise be restricted to via policy, regulations or legislation. In Ontario, niche-level actors who work at the distribution level offer software platforms that integrate DERs (e.g., Powerconsumer Inc.) and transactive energy platforms (e.g., Opus One).

The province’s rate structure for large industrial consumers (i.e. over five MW peak demand) provides an additional important opportunity for niche-level activities. In addition to the market price (Hourly Ontario Energy Price (HOEP)) for electricity, since 2005 Ontario electricity consumers have paid a Global Adjustment (GA) fee. The GA is used to cover the costs of capital investments in the system, including nuclear refurbishments, capacity payments under natural gas generator contracts, and FIT contracts for renewable generators.⁶⁵ Until March 2019 conservation programs were also financed through the GA. The GA has emerged as the largest contributor to the commodity portion of consumers’ electricity bills.⁶⁶

In June 2011, the government implemented the Industrial Conservation Initiative (ICI). Under the program, large industrial consumers can avoid having to pay the GA portion of their bills if they can reduce their electricity consumption by twenty five per cent during the five peak system demand hours of the year.⁶⁷ The rate structure has provided an opportunity to “GA-bust” by investing in or contracting behind-the-meter generation or storage to reduce their grid demand while maintaining operations during the periods of peak system demand.⁶⁸ A market has also emerged for software programs that offer predictive modelling and analytics designed for GA-busting.⁶⁹ The exact extent of “GA-busting” services and technologies being provided in the province is unknown, although it is widely thought to be substantial.⁷⁰

The Ontario Regime’s Responses to Landscape Pressures and Niche-Level Developments

The direction of the existing regime is dominated by the province’s decisions to pursue multi-billion dollar refurbishment projects of the Bruce and Darlington nuclear stations between 2016 and 2033, along with the extension of the life of the Pickering facility, originally scheduled to close in 2018, to 2024.⁷¹

The primary planned response to the retirements of the Pickering facility and Bruce and Darlington refurbishments is the development of an incremental capacity market. ⁷² The impact of this on DER development is unclear, although US experiences suggest the market is likely to be dominated by existing gas-fired assets and leave little room for innovation or new entrants.⁷³

At the same time, the IESO and OEB have undertaken a number of initiatives intended to examine barriers to DER development in Ontario. Their activities seem to flow from sensitivity to long-standing criticism that the existing regime is not innovation-friendly. There is also recognition that other jurisdiction in North America moving past Ontario in terms of DER development and policies.

The IESO

In June 2019, the Energy Transformation Network of Ontario issued a report titled “Structural Options for Ontario’s Electricity System in a High DER Future.”⁷⁴ The report is designed to address “…options for the allocation of roles and responsibilities for DERs in Ontario.”⁷⁵ The report also examines “…the potential for conflicts of interest and synergies among the roles and responsibilities required for DER integration into Ontario’s electricity system, and existing entities in Ontario’s electricity sector.”⁷⁶ One of the major issues in the report “…is the question of who should own, operate, buy and sell, services related to DERs.”⁷⁷

In particular, the report raised the question of the role of LDCs in DER development and of how, or whether, an LDC operates in the DER space. The role of LDCs as DER developers has emerged as a significant point of controversy. As DSOs, the LDCs are seen to have potentially significant competitive advantages, if not natural monopolies, in the DER space.

In August 2019, the IESO announced an intention to test the province’s first Local Electricity Market (LEM). According to the IESO, the benefits of the LEM are:

The local electricity market will allow resources like solar panels, energy storage, and consumers capable of reducing their electricity use to compete to be available during periods of high demand. Leveraging existing local resources could help avoid the need to invest in new transmission lines and stations, while competition will drive down costs.⁷⁸

The IESO is beta testing the LEM. If it is successful, the project would lend itself to a larger-scale implementation. At the same time, it begs questions about the relative roles of the IESO and LDCs in facilitating DER development.

The OEB

In March 2019, the OEB initiated a consultation process dedicated to “develop a comprehensive regulatory framework that facilitates investment and operation of DERs on the basis of value to consumers and supports effective DER integration…”⁷⁹ A notable step toward the intent to fully embrace DERs and innovation, in general, is the recently announced OEB Sandbox.

The purpose of an innovation sandbox is to allow the OEB to provide an “accessible way…to support innovators to test new ideas, products, services, and business models in the electricity and natural gas sectors.”⁸⁰ The OEB has committed to continuous reporting on the results of the sandbox. To date, the OEB has indicated that the majority of the sandbox participants are interested in learning about regulatory barriers to their projects.⁸¹ With regards to regulatory barriers, the sandbox has limited authority to offer exemptions or workarounds.

One of the goals of the innovation sandbox is to assist the OEB in understanding what is happening in the niche, but also to potentially consider changes to the current regulatory structure.⁸²

The Provincial Government.

The refurbishments of the Bruce and Darlington nuclear facilities and the “life-extension” of the Pickering facility provided the centrepieces of the previous Liberal government’s 2017 Long-Term Energy Plan. However, there was also an emphasis on facilitating innovation, and specific references to grid modernization, energy storage, EV integration and DERs.⁸³

There were also some surprising references to energy storage, smart grids and DERs in the new Progressive Conservative provincial government’s December 2018 Made in Ontario Environment Plan.⁸⁴ The document was otherwise primarily concerned with dismantling the previous government’s cap and trade system for GHG emissions.⁸⁵ The province has yet to follow-up on DER related elements of the plan.

Discussion and Analysis: A Transformation or Reconfiguration?

The MLP framework suggests that the development of DERs in the niche, combined with landscape pressures in the province, could facilitate a transition within the regime. However, how the process will play out in Ontario remains an open question.

The existing regime actors, in the forms of the OEB, IESO, LDCs and Ministry of Energy, Northern Development and Mines have all demonstrated interest in DER development, recognizing it as a major point of technological innovation in the sector. Substantial niche-level activity is occurring in the province around DERs and their underlying technologies through a variety of venues. These include LDCs, third-party entrepreneurs engaged in GA-busting, demand response and ancillary market activities, as well as IESO sponsored initiatives. At the same time, the primary direction of the regime remains oriented towards the refurbishment of nuclear assets. That, along with the dominant role existing natural gas-fired facilities are likely to play in the proposed incremental capacity market, and flat demand growth, seems to leave little room for larger-scale DER development.

While the regime is seeking to enable DERs at the margin, a deliberate technological substitution strategy is not being pursued. Rather the regime seems to want what Geels et.al. term a transformation. Such an approach envisions an embedding of the new DER technologies into existing system where they provide obvious benefits, while maintaining the roles and viability of the existing major actors such as OPG, Hydro One, the LDCs, and gas developers/operators. The regime’s commitments to nuclear refurbishments and the existence of a large, underutilized gas-fired generating fleet reinforce its sensitivity to risks of asset stranding if DERs deployment becomes too successful.

The unknown landscape-level variable in this equation is whether DER development becomes a force unto itself, which will happen regardless of what the regime does — a reconfiguration or re-alignment, in the terms of Geels et.al., as have been seen in sectors like music (MP3), accommodations (AirBnB), and taxi services (Uber).

Pilot projects like the Alectra Powerhouse suggest that the enabling technologies for large scale DER deployment are available in the forms low-cost small scale renewable generation technologies, scalable advanced storage, and the necessary control and integration technologies.

The primary limiting technological factor is the need to upgrade distribution-level systems and their management and control systems to enable DER development.

Behind that factor is the need for business models that generate enough revenues to justify the necessary investments in distribution infrastructure. To some degree, such models seem to be emerging for third party developers in the large industrial and commercial sectors in the areas of DR aggregation, and behind the meter “GA-busting” services.

The situation in the residential and small commercial market is more complex. The base of large numbers of small consumers requires higher levels of aggregation than single or small numbers of large consumers to provide useful services and resources. Ontario’s LDCs have been signaling their interest in playing these roles, although the regulatory and business models for them to do so have yet to be defined.⁸⁶ Moreover, there are debates over the extent to which LDCs should be limited to providing basic infrastructure versus playing an active role DER development and management, potentially in competition with third-party providers.

Residential and small business consumer attitudes towards DERs are still at a formative stage, although it can be expected that cost, reliability, and resiliency benefits will be important considerations.⁸⁷ For potential third-party providers, who will fall in the categories of new entrants and start-ups, there is an additional question of whether residential/small commercial consumers will accept them as DER providers given the poor history of electricity retailers in Ontario.⁸⁸ There are also more general growing public concerns over data security and privacy.⁸⁹ LDCs may emerge as the default DER developers at the residential/commercial level given their relatively strong trust ties to the customer bases, reputation for long-term stability, institutional capacity to identify, finance and operate the required infrastructure, and the consideration that they operate under a clear legislative regime around privacy and data access issues through the Municipal Freedom of Information and Protection of Privacy Act.⁹⁰ Third party DER aggregators may find partnerships with LDCs the best option in this context.

Conclusions

There are three possible outcomes for DERs. The first is the regime will attempt to limit DER development by failing to enable the infrastructure upgrades need to support DER deployment beyond the pilot or ‘sandbox’ stages. That option would leave the province relying principally on legacy nuclear, gas and hydro assets, maintaining the status quo. The second possibility is that DERs will become so desirable and accessible to consumers they will become an unstoppable force — a re-alignment or reconfiguration in socio-technical transition terms. The third possibility is a transformation along the lines of what seems to be envisioned by the existing regime, although the business and regulatory pathways for DERs beyond the niche remain uncertain.

More widely there remains in Ontario an underlying problem of the lack of any framework for these types of discussions about the future structure of the province’s electricity system to occur. The IESO, OEB, EDA and others around have initiated a series of ad hoc processes around DER development. However, in the absence of any overall long-term planning framework there is no regular public process for the consideration of the impacts and opportunities presented by emerging technological developments, and other landscape-level challenges for the system. Without such structures, these challenges will continue to be dealt with on an ad hoc basis, to the long-term detriment to the system as a site for innovation, and in terms of its economic and environmental sustainability.

* Professor Mark Winfield, Ph.D. is the Co-Chair for Sustainable Energy Initiative, Faculty of Environmental Studies at York University.

** Amanda Gelfant, LL.B, MES is a Research Associate for Sustainable Energy Initiative and an Independent Cleantech Consultant.

1. Government of Ontario, Ministry of Energy, Ontario’s Long-Term Energy Plan: Delivering Fairness and Choice, (Queen’s Printer for Ontario, 2017) at 68.
2. The National Association of Regulatory Utility Commissioners, “Distributed Energy Resources Rate Design and Compensation” (2016) at 45.
3. Pepermans, G., Driesen, J., Haeseldonckx, D., Belmans, R. and D’haeseleer, W., “Distributed generation: definition, benefits and issues”, Energy Policy, 33:6 (2005) at 787–798; US Department of Energy, The Potential Benefits of Distributed Generation and the Rate-Related Issues That May Impede Its Expansion, DOE 2007; J. Marsden, “Distributed Generation Systems: A New Paradigm for Sustainable Energy,” in IEEE Green Technologies Conference (IEEE-Green), Baton Rouge, LA, 2011.
4. Ibid.
5. Mudathir Funsho Akorede, Hashim Hizam and Edris Pouresmaeil, “Distributed Energy Resources and Benefits to the Environment,” Renewable and Sustainable Energy Reviews 14(2) (2010) 724 at 725.
6. Brian Rivard, “Don’t leave me stranded: What to do with Ontario’s Global Adjustment”, Ivey School of Business, Energy Policy and Management Centre, (July 2019); See also Bruce Cameron, Richard Carlson and James Coons, “Canada’s Energy Transition: Evolution or Revolution” (Toronto and Ottawa: Pollution Probe and QUEST, 2019), online:<https://www.pollutionprobe.org/wp-content/uploads/QUEST_Pollution-Probe-Policy-Innovation-Report.pdf>.
7. J. Brooks, “Should limits be placed on DERs”, Ontario News: Association of Independent Power Producers of Ontario (2019), online: <https://magazine.appro.org/news/ontario-news/5964-1566177328-should-limits-be-placed-on-ders.html>; Paul B. Sommerville, “Distributed Energy Resources: The Role of Regional Planning, New Benefit-Cost Methodologies and the Competitive Landscape” Toronto Mowat Centre, 2019, online:<https://munkschool.utoronto.ca/mowatcentre/wp-content/uploads/publications/190_OTG_distributed_energy_resources.pdf>.
8. “Structural Options for Ontario’s Electricity System in a High DER Future”, Energy Transformation Network of Ontario (ETNO) (Toronto: IESO, June, 2019) 8 at 21; supra note 6 Canada’s Energy Transition.
9. Mary Lawhon and James Murphy, “Socio-technical regimes and sustainability transitions: Insights from political ecology”, Progress in Human Geography 36(3),354-378, Originally from: Ron A. Boschma, and Jan G. Lambooy, “Evolutionary economics and economic geography”, Journal of Evolutionary Economics, 9 (1999) 411-429.
10. Stephen McCauley and Jennie C. Stephens, “Green Energy Clusters and Socio-technical Transitions: Analysis of Sustainable Energy Cluster for Regional Economic Development in Central Massachusetts USA”, Sustainability Science, 7(2) (July 2012) 213 at 214.
11. See, for example, Frank W. Geels, Florian Kern, Gerhard Fuchs, Nele Hinderer, Gregor Kungl, Josephine Mylan, Mario Neukirch and Sandra Wassermann, “The enactment of socio-technical transition pathways: A reformulated typology and a comparative multi-level analysis of the German and UK low-carbon electricity transitions (1990-2014)”, Research Policy, 45:4, (2016) 896-913; Daniel Rosenbloom, and James Meadowcroft, “The journey towards decarbonization: Exploring socio-technical transitions in the electricity sector in the province of Ontario (1885-2013) and potential low-carbon pathways” Energy Policy (2014) 65 at 670-679.
12. Mark Winfield, Shahab Shokrzadeh and Adam Jones, “Energy policy regime change and advanced energy storage: A comparative analysis” Energy Policy, 115 (2018) 572 at 573.
13. Frank W. Geels, “The multi-level perspective on sustainability transitions: Response to seven criticisms”, Environmental Innovation and Societal Transitions,1:1 (2011) 24 at 26.
14. Frank W. Geels and Johan Schot, “Typology of sociotechnical transition pathways”, Research Policy 36(3) (2007) 399-417.
15. Ibid.
16. Supra note 13 at 27-28.
17. Supra note 11 Geels et.al.
18. Ibid; Toby D. Couture, Karlynn Cory, Claire Kreycik and Emily Williams, “Policymaker’s Guide to Feed-in Tariff Policy Design”, National Renewable Energy Laboratory, U.S. Dept. of Energy, 2010.
19. Supra note 11 Geels, et.al.
20. Ibid.
21. Ibid.
22. “Media. Year-End Data, Supply”, Independent Electricity System Operator (IESO), online:<http://www.ieso.ca/en/Corporate-IESO/Media/Year-End-Data>.
23. “Hydroelectric Power”, Ontario Power Generation, online: <https://www.opg.com/powering-ontario/our-generation/hydro>.
24. Government of Ontario, “The End of Coal”, Environment and Energy, online:<https://www.ontario.ca/page/end-coal>.
25. “Supply Overview: Transmission Connected Generation”, The Independent Electricity System Operator, online: <http://www.ieso.ca/en/Power-Data/Supply-Overview/Transmission-Connected-Generation> (accessed October 30, 2019).
26. “Technical Planning Conference Presentation”, The Independent Electricity System Operator, September 13, 2018, Slides 39 and 42, online: <http://ieso.ca/Sector-Participants/Planning-and-Forecasting/Technical-Planning-Conference>.
27. Supra note 11, Rosenbloom and Meadowcroft.
28. Government of Ontario Ministry of Energy, “Ontario’s Long-Term Energy Plan: Delivering Fairness and Choice”, Queen’s Printer for Ontario, 2017 at 45.
29. Supra note 8, ETNO.
30. “Demand Overview Historical Demand”, Independent Electricity System Operator, online: <http://www.ieso.ca/en/Power-Data/Demand-Overview/Historical-Demand>.
31. Ontario, Ministry of Finance, “Ontario’s Long-Term Report on the Economy” (Toronto: Queen’s Printer, 2014), online: <https://www.fin.gov.on.ca/en/economy/ltr/2014/ltr2014.pdf>. See also Mark S. Winfield, “Electricity Planning and Sustainability Assessment: The Ontario Experience,” for R.B. Gibson, ed. Sustainability Assessment: Applications. (London: Earthscan 2016).
32. Environmental Commissioner of Ontario, “Energy Conservation Report” 2019 (Toronto: ECO, 2019); Independent Electricity System Operator, “Technical Planning Conference Presentation,” September 13, 2018, Slide 23.
33. Data from IESO, “Power Data: Historical Demand”, online: <http://www.ieso.ca/en/Power-Data/Demand-Overview/Historical-Demand>.
34. “Supply Overview : Imports and Exports”, Independent Electricity System Operator, online: <http://www.ieso.ca/en/Power-Data/Supply-Overview/Imports-and-Exports>.
35. Environmental Commissioner of Ontario, “Climate Action in Ontario: What’s Next”? 2018 Greenhouse Gas Progress Report, (Toronto: ECO 2018).
36. Ontario Energy Board, “Historical Natural Gas Rates”, online: <https://www.oeb.ca/rates-and-your-bill/natural-gas-rates/historical-natural-gas-rates>.
37. US Environmental Protection Agency, “Climate Change Impacts: Climate Impacts on Energy”, online: <https://19january2017snapshot.epa.gov/climate-impacts/climate-impacts-energy.html> (accessed October 30, 2019). See also ECO, Facing Climate Change: 2016 Greenhouse Gas Progress Report (Toronto: ECO, 2016).
38. CBC, “Tens of thousands in Atlantic Canada still in the dark after Hurricane Dorian,” September 9, 2019, online: <https://www.cbc.ca/news/canada/nova-scotia/tens-of-thousands-still-in-the-dark-after-hurricane-dorian-1.5275706>.
39. Mark Winfield, “Ontario’s hydro: some unwelcome truths”, Policy Options, 2018, online: <https://policyoptions.irpp.org/magazines/may-2018/ontarios-hydro-unwelcome-truths>.
40. Supra note 12.
41. Stephen Lacey, “This is what the Utility Death Spiral Looks Like”, Greentech Media, March 2014, online: <https://www.greentechmedia.com/articles/read/this-is-what-the-utility-death-spiral-looks-like>.
42. See, for example, Nicole Mortillaro, “Why living ‘off the grid’ isn’t possible for most Canadians”, Global News, July 16, 2016, online: <https://globalnews.ca/news/2819121/why-living-off-the-grid-isnt-possible-for-most-canadians>.
43. Natanel Lev, “Towards Decentralized Power Systems: Market & Regulatory Frameworks for Ontario”, MES/JD Major Research Paper, Faculty of Environmental Studies, York University, May 2019, online: <https://sei.info.yorku.ca/files/2019/05/Lev_MRP_Final.pdf>. See also Ignacio Perez-Arriaga and Christopher Knittel, “Utility of the Future: An MIT Energy Initiative Response to an Industry in Transition” (Cambridge MA: MIT, 2016), online: <https://energy.mit.edu/wp-content/uploads/2016/12/Utility-of-the-Future-Full-Report.pdf>.
44. Navigant, “The Power to Connect”.
45. Ontario Energy Board, “Board Policy: A New Distribution Rate Design for Residential Electricity Customers,” April 2015, online: <https://www.oeb.ca/oeb/_Documents/EB-2012-0410/OEB_Distribution_Rate_Design_Policy_20150402.pdf>. On the implications of this development see Julia Zeeman, “Emerging Business Models for Local Distribution Companies in Ontario,” (Toronto: Faculty of Environmental Studies, 2016), online: <https://sei.info.yorku.ca/files/2016/09/MRP_-JZEEMAN_2016_Final-.pdf>.
46. Federal Energy Regulatory Commission (FERC), “Electric Storage Participation in Markets Operated by RTOs and ISOs”, Washington DC, 2016.
47. MacWhirter, R., and Mark S. Winfield, “Competing paradigms, policy windows and the Search for Sustainability in Ontario Electricity Policy,” in G.Albo and R.MacDermid eds., Divided Province: Ontario Politics in the Age of Neoliberalism, Kingston/Montreal: Queens-McGill University Press 2019). See also G.Veigh, Energy Policy – Transition Briefing “Establishing greater evidence-based analysis of Ontario’s energy procurement” (Toronto: On360, 2018), online: <https://on360.ca/30-30/ontario-360-reforming-ontarios-energy-policy-transition-briefing>.
48. The Energy Statute Law Amendment Act, 2016, S.O. 2016, c 10.
49. The Electricity Restructuring Act, 2004, S.O., c 23.
50. Supra note 47 MacWhirter and Winfield. See also supra note 47 G.Veigh.
51. Ron Clark, Scott Stoll, Fred D. Cass, “Ontario Energy Law: Electricity”, LexisNexis Canada Inc., December 2012, at 312.
52. Ibid at 309.
53. “Connecting Today, and Powering Tomorrow”, Independent Electricity System Operator, online: <http://www.ieso.ca>.
54. Supra note 12.
55. Minister of Energy, Northern Development and Mines, “Minister’s Directive: Discontinuation of the Conservation First Framework”, March 29, 2019, online:<http://www.ieso.ca/en/Corporate-IESO/Ministerial-Directives>.
56. Mowat Energy, “Background Report on the Ontario Energy Sector” (Toronto: Mowat Centre, 2016), Ch.3, online: <https://munkschool.utoronto.ca/mowatcentre/wp-content/uploads/publications/134_EET_background_report_on_the_ontario_energy-sector.pdf>.
57. See, for example, Alectra Utilities Power House, online: <https://www.powerstream.ca/innovation/power-house.html>.
58. Frank W Geels, “Socio-technical Transitions to Sustainability: The Multi-level perspective and policy implications”, Manchester Institute of Innovation Research, Manchester University, August 2013 at 15.
59. Mark Winfield and Scott Weiler, “Institutional diversity, policy niches, and smart grids: A review of the evolution of Smart Grid policy and practice in Ontario, Canada”, Renewable and Sustainable Energy Reviews, 82(P2) (2018), 1931-1938.
60. Hamidreza Zareipour, Claudio A. Canizares and Kankar Bhattacharya,“The Operation of Ontario’s Competitive Electricity Market: Overview, Experiences, and Lessons”, IEEE Transactions on Power Systems, 22:4, November 2007 at 6.
61. IESO, “Markets and Related Programs, Ancillary Services Market”, online: <http://www.ieso.ca/en/Sector-Participants/Market-Operations/Markets-and-Related-Programs/Ancillary-Services-Market>.
62. International Renewable Energy Agency, “Innovative Ancillary Services: Innovation Landscape Brief”, 2019, online: <https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2019/Feb/IRENA_Innovative_ancillary_services_2019.pdf?la=en&hash=F3D83E86922DEED7AA3DE3091F3E49460C9EC1A0> at 12.
63. “Markets and Related Programs: Demand Response Auction”, Independent Electricity System Operator, online: <http://www.ieso.ca/en/Sector-Participants/Market-Operations/Markets-and-Related-Programs/Demand-Response-Auction>.
64. Innovation at Alectra Utilities, Power House, online:<https://www.powerstream.ca/innovation/power-house.html>.
65. Brian Rivard, “Don’t leave me stranded: What to do with Ontario’s Global Adjustment”, Ivey School of Business, Energy Policy and Management CentrePolicy Brief, July 2019 at 2.
66. See “Price Overview: Global Adjustment”, Independent Electricity System Operator, online: <http://www.ieso.ca/en/Power-Data/Price-Overview/Global-Adjustment>.
67. Supra note 65 at 4.
68. Ibid.
69. For example, see Powerconsumer Inc., online: <https://www.powerconsumer.com>.
70. Jason Deign, “Batteries Benefit From Ontario’s Bizarre Energy Market”, Greentechmedia, June 3, 2019, online: <https://www.greentechmedia.com/articles/read/batteries-benefit-from-ontarios-bizarre-energy-market>.
71. “Ontario Moving Forward with Nuclear Refurbishment at Darlington and Pursuing Continued Operations at Pickering to 2024”, Independent Electricity System Operator, January 1, 2016, online: <http://www.ieso.ca/en/Corporate-IESO/Media/News-Releases/2016/01/Ont-Moving-Forward-with-Nuclear-Refurb-at-Darl-and-Pursuing-Continued-Ops-at-Pickering-to-2024>.
72. “Incremental Capacity Auction High-Level Design”, Independent Electricity System Operator, (Toronto: IESO, 2019), online: <http://www.ieso.ca/en/Market-Renewal/High-Level-Designs/Incremental-Capacity-Auction-High-Level-Design>.
73. Adlar Gross, “Distributed Energy Resources (DER) and Energy Storage Capacity Markets: Experience from the US and Implications for Ontario’s Incremental Capacity Auction” (2019) York University Working Paper, online: <https://sei.info.yorku.ca/files/2019/06/Capacity-Market-Working-Paper-June-2019.pdf>.
74. Supra note 8 at 1.
75. Ibid.
76. Ibid.
77. “Exploring Models for the Effective Integration of DERs”, Independent Electricity System Operator, June 2019, online: <http://ieso.ca/en/Powering-Tomorrow/Technology/Exploring-models-for-the-effective-integration-of-DERs>.
78. “Demonstration Project to Test Ontario’s First Electricity Market”, Independent Electricity System Operator, August 29, 2019, online: <http://www.ieso.ca/en/Corporate-IESO/Media/News-Releases/2019/08/IESO-Demonstration-Project-to-Test-Ontarios-First-Local-Electricity-Market>.
79. Ontario Energy Board (OEB), “Responding to Distributed Energy Resources” (DERs) (Toronto: OEB March 2019 onwards), online: <https://www.oeb.ca/industry/policy-initiatives-and-consultations/responding-distributed-energy-resources-ders>.
80. Ontario Energy Board (OEB), “OEB Innovation Sandbox: What is the Innovation Sandbox?”, online: <https://www.oeb.ca/_html/sandbox/index.php#>.
81. Ontario Energy Board (OEB), “OEB Innovation Sandbox: Reporting”, online:<https://www.oeb.ca/_html/sandbox/reporting.php>.
82. Ontario Energy Board (OEB),“OEB Innovation Sandbox FAQ”, online:<https://www.oeb.ca/_html/sandbox/faq.php>.
83. Government of Ontario, “2017 Long-Term Energy Plan: Delivering Fairness and Choice”, Chapter 3, online: <https://www.ontario.ca/document/2017-long-term-energy-plan/chapter-3-innovating-meet-future>.
84. Ministry of the Environment, Conservation and Parks, “Preserving and Protecting our Environment for Future Generations”, (Ontario. Queen’s Printer. 2018), online: <https://www.ontario.ca/page/made-in-ontario-environment-plan>.
85. Mark Winfield, “The Ontario Climate Change Plan: An Assessment”, online: <http://marksw.blog.yorku.ca/2018/12/03/the-ontario-climate-change-plan-an-assessment>.
86. Navigant Research, “The Power to Connect.”
87. Canadian research on consumer acceptance of DERs is limited. On energy storage, see Gaede, J., C. R. Jones, S. Ganowski, and I. H. Rowlands, “Understanding lay-public perceptions of energy storage technologies: Preliminary results of a questionnaire conducted in Canada”, Energy Reports, 2019 (in press), online: <https://uwaterloo.ca/social-acceptance-of-energy-storage-systems/publications/understanding-lay-public-perceptions-energy-storage-0>. On consumer acceptance on DERs generally, see Marteen Wolsink, “The Research Agenda on Social Acceptance of Distributed Generation in Smart Grids: Renewable as Common Pool Resources”, Renewable and Sustainable Energy Reviews, 16:1 (January 2012), 822; Soland, M., Loosli, S., Koch, J. et al. “Acceptance among residential electricity consumers regarding scenarios of a transformed energy system in Switzerland — a focus group study,” Energy Efficiency, (2018) 11: 1673, online: <https://doi.org/10.1007/s12053-017-9548-x>.
88. See Donald N. Dewees, “Ontario’s Retail Energy Sector: Market Evolution, Market Data and Consumer Protection”, Presentation to OEB, December 8, 2014, online: <https://www.oeb.ca/oeb/_Documents/EB-2014-0158/ECPA_Review_Presentation_Dewees.pdf>.
89. Re: the Sidewalk Labs initiative in Toronto, Laura Bliss, “How Smart Should a City Be? Toronto Is Finding Out” Citylab, September 7, 2019, online: <https://www.citylab.com/design/2018/09/how-smart-should-a-city-be-toronto-is-finding-out/569116/>. See also Ontario Information and Privacy Commissioner, “Building Privacy into Ontario’s Smart Meter Data Management System: A Control Framework” (Toronto: IPC 2012).
90. Municipal Freedom of Information and Protection of Privacy Act, R.S.O. 1990, c M.56.