The widespread adoption of localized electricity generation and storage known as distributed energy resources (DERs) should be supported by the Ontario government, a report from the Ontario Energy Association and Energy Storage Canada states.

“We feel we need to take some steps to more fully enable DERs in Ontario,” Vince Brescia, president and CEO of the Toronto-based association, told Sustainable Biz Canada in an interview. The Ontario Energy Association represents the province's energy industry, including the biggest utilities.

DERs include rooftop solar panels on homes, battery storage systems, demand-response technologies and even electric vehicles. These linkages can help reduce carbon emissions, lower energy bills and boost energy resilience, according to From Small to Mighty: Unlocking DER's to Meet Ontario's Electricity Needs, prepared for the two organizations by Toronto-based power plant consultant Power Advisory.

Research from Dunsky Energy + Climate Advisors concluded over 10,170 megawatts (MW) of DER capacity was deployed in Ontario as of late 2022. DERs can satisfy Ontario’s future electricity needs without more natural gas generation or nuclear power plant refurbishments, Dunsky’s research found.

To roll out more DERs, the report proposes a variety of policy changes such as promoting regulatory and revenue certainty, and expanding support programs.

Why DERs should be expanded

DERs can play a part in Ontario’s need to meet rising electricity demand, the report states. The province will need 75 per cent more power from 2024 to 2050, but procurements of large generation led by the Independent Electricity System Operator (IESO) have missed their targets.

DERs are often more cost-effective, can be operational in under half the time, and likely to face fewer obstacles from communities compared to large-scale generation projects, the report argues. Many DERs are sitting idle, when they could be generating electricity, Brescia said.

“By taking advantage of DERs, we’re using an existing asset, an existing grid, more fully, which can provide cost savings for customers over the alternatives.”

The majority of the IESO’s DER contracts are 10 kilowatts or less, and only DER projects exceeding one MW are eligible for long-term procurements. Behind-the-meter projects are not eligible, further limiting use.

Market dynamics and barriers such as regulatory roadblocks and pricing uncertainty are also hindering mass adoption.

The policy and regulatory landscape has not changed to put the DER sector on a level playing field with its bigger peers, Brescia said. Power flowed in one direction for over a century, but newer technologies introduce multiple streams. Governments “need to start to evolve our policy and procurement systems to recognize and fully take advantage of this potential,” the president and CEO said.

Partnering with the utilities

Local distribution companies (LDCs), the utilities that transport electricity to homes, have a pivotal role in the prescriptions laid out in the report. DER procurements should be led by LDCs, the report argues, because they can be more focused on local projects, already deal with DER-related processes, and are investing in grid modernization.

Those changes include giving LDCs flexibility on procuring DERs and clarifying to LDCs what classifies as grid modernization activities.

Utilities can be incentivized to build DERs with policies that encourage making investments to optimize DER integration and deployment, and participation in the wholesale market.

LDCs should be permitted to set up local flexibility markets, a system that motivates electricity users to adjust their expected power use, Brescia said.

Investment into the local flexibility markets must also be opened up, he continued. As the IESO runs a bulk market, it limits the liquidity that investors can put toward DERs, Brescia explained. Enabling small investments will “allow DERs to take off” and cement certainty in the market.

A walk-jog-run path to adoption

To illustrate how LDCs can expand DER deployment, Power Advisory devised a “walk-jog-run” framework that mirrors the gradual transition it anticipates.

During the “walk” phase foundational investments and LDC-led DER procurements would be made. Here, local markets can be built and some barriers torn down, Brescia said.

At the “jog” stage, coordination between LDCs and the IESO would be enhanced, local flexibility markets created, and DER capacity grown to meet Ontario’s near-term supply needs.

Finally at “run”, DERs will be fully integrated into the wholesale and distribution markets. The IESO will have set the rules, systems and tools for DERs to be a critical component of Ontario’s electricity grid.

The provincial government referred to DERs in its energy blueprint, a sign to Brescia it is “aware of the benefits of this, the untapped potential”. LDCs, DER providers and energy customers are all interested, he said.

In January, the Ontario Energy Association plans to release a report on grid modernization as a companion piece to its latest paper.