Until now, it has generally been a one-way street: utility companies operating big power plants generate energy and distribute it to businesses and homeowners.
But more and more we are seeing customers generating, transmitting, and storing their own power, and in some cases selling it back to the grid. That was the message at a panel at the International Economic Forum of the Americas conference in Toronto last week.
Experts have a name for these small-scale activities: distributed energy. It’s a phenomenon that is growing rapidly in Ontario: This month, the Independent Electricity System Operator (IESO) reported distributed energy now accounts for 3,600 megawatts of installed supply, up from practically nothing a decade ago.
With many Ontarians angry over the price of energy, distributed energy has a distinct appeal: Instead of having to take a utility company’s electricity and pay the price it demands, customers can generate cheaper energy for themselves, and sell it back to the grid when they have a surplus.
“As a result, you have smart homes, businesses and institutions that can choose the more efficient way to meet their needs … the best form of energy available at any one time,” says Jatin Nathwani, executive director of the Waterloo Institute for Sustainable Energy. “We should think of the system as a smart-energy network.”
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Distributed energy can create new value, lower customer costs and enhance the reliability of the power supply if resources are properly embedded into the distribution system, Nathwani explains.
During Hurricane Sandy, New York City saw the importance of energy resiliency first hand. “The storm left eight million people without power in New York, and some of the hardest hit areas were left without power for two weeks,” an IESO report found. “In the heart of New York City, however, NYU’s Washington Square campus remained powered by a 13.4 MW natural gas-fired combined heat and power system that had recently been installed.”
In Ontario, companies and institutions such as Metrolinx have also installed similar systems to provide heat and power in case of a disruption in the grid.
Distributed energy resources also offer opportunities for rural, remote and poorer communities around the world, Nathwani says, by providing “the most effective pathway for energy services at a much lower barrier, in terms of investment requirements, compared to extending the centralized grid.”
Increasing the number of localized energy sources could also lower greenhouse gas emissions, because the energy doesn’t need to be transmitted as far, so the power that’s generated is used more efficiently.
Yet distributed energy also complicates the electricity picture in many ways, and it’s unclear the province is truly ready for a distributed energy future.
This month in the speech from the throne, the Liberal government announced an eight per cent subsidy on electricity provided to residences and small businesses, equal to the provincial portion of HST. The move was widely seen as a way to pacify voters angry over the cost of energy and the cancellation of a similar subsidy program last year, calculated to help the Grits as they gear up for an election in about 20 months’ time.
A recent report by the province’s financial accountability officer concluded that annual home energy prices in Ontario are not particularly high when compared to the cost of power in many other provinces. But that doesn’t match public perception, and it’s true that Ontarians are paying more for power than they used to.
A number of factors are contributing to the increase in Ontario’s energy prices , including the cost of repairing aging infrastructure and long-term contracts for renewable energy at fixed prices. Another key factor is falling demand over the last 10 years. The IESO attributes that to distributed energy resources, increasing and improving conservation practices, changes in the economy and pricing effects. Distributed energy resources can create a problem for traditional utilities by decreasing demand for their services, in other words, forcing those utilities to increase prices to cover their fixed costs.
Even so, this “will not be the end of utilities by any stretch,” says Susan Kennedy, founder and CEO of Advanced Microgrid Solutions in California. “It’s not a death spiral for utilities but a massive dislocation of their current revenue streams.”
Isabelle Kocher, CEO of ENGIE, which bills itself as the largest independent energy producer in the world, estimates that at least 50 per cent of energy will come from “very decentralized energy systems” in the future.
But Nathwani argues that Ontario’s distribution network is not yet up to the task: “Distribution in Ontario is in the stone age,” he says. When it comes to determining rates, for example, the system is not currently designed to put power back on the grid, and that there is little current capacity for innovation within the utilities.
“While these resources make important contributions to meeting Ontario’s demand for electricity, they can also pose some unique challenges for operating our system, as the lines between transmission and distribution begin to blur,” says Michael Lyle, vice president of planning of law and aboriginal relations for the IESO.
“We need a long-term, integrated view and we need to break down regulatory barriers,” Nathwani says. “Ontario would be in a far better place if we take the strength of our electricity sector to help decarbonize the economy.”
Sarah Reid is a freelance journalist and a recent graduate of the Munk Fellowship in Global Journalism.