Ontario Energy Board Consultation on Efficiencies in the LDC Sector

Presented by Northland Power and Kitchener Wilmot HydroFebruary 18, 2004

2

• Joint submission of Northland Power and a number of major LDCs

• In response to the OEB Discussion Paper: Review of Further Efficiencies in the Electricity Distribution Sector dated February 10/04

• Discussion Paper invited stakeholders to provide views on additional issues that should be considered when addressing the efficiency of Ontario’s electricity distribution sector.

Background

3

Purpose and Definition

Purpose: Distributed generation represents an opportunity that can improve the operational efficiency of LDCs, reduce operating costs and provide net electricity system supply benefits

Definition: Any generation that is located in relatively close proximity to electrical load (ECSTF Task Force)

4

Introduction to

Northland Power

Northland Power is an Ontario Based Independent Power Producer established in 1987

• Operates three power plants in Ontario and one in the Ukraine with a total capacity of 457 MW

• Developer of gas fired cogeneration/DG, wind power and biomass projects

• Active participant in restructuring of Ontario’s electricity sector

• Responsible for many technical and financial innovations in the electric power sector

5

Distributed Generation

Initiative

Northland Power working with a number of major LDCs to:

• Identify candidate generation sites

• Jointly review the feasibility of installing gas fired DG projects (simple cycle and cogeneration)

6

System Benefits of Distributed

Generation

Benefits Potentially Realized by LDCs • Avoidance of capital costs for expansion of transmission,

transformation and distribution systems:• Growing LDCs require additional municipal

transformer stations every 5-10 years• Transmission costs can average about $2 million/km• New transformer capacity for both Hydro One and

LDC can average $8-$12 million per 50 MVA of capacity

• Injection of new capacity in lieu of transmission and transformer capacity can defer/displace such expansions

7

Benefits Potentially Realized by LDCs (Cont’d) • Reduction of transmission and distribution system

losses• Line losses amount to 3-4% depending on voltage• Transformer losses are about 1.0%• Improved voltage at point of connection during on-

peak periods • DG plants can be located closer to loads, thus

improving voltage and reducing losses from transmission, transformation and distribution

System Benefits of Distributed Generation

8

System Benefits of Distributed Generation

Benefits Potentially Realized by LDCs (Cont’d) • Increased reliability at the LDC level

• DG diversifies sources of power and reduces amount of capacity of outage per incident (eg 40 MW vs 800 MW)

• Generation supplied locally can improve reliability for LDCs on radial supply

9

Benefits Potentially Realized by LDCs (Cont’d) •Other System Benefits

• Can be sited to supply locally defined “critical loads”

• Additional revenue from land leases and/or other sources

• Improves reactive power (power factor)

System Benefits ofDistributed Generation

10

System Benefits of

Distributed Generation

Benefits Potentially Realized by the Community• Can supply waste heat to the community

(district energy) and industry (cogeneration)• Attracts development to the community• Provides local employment

11

System Benefits ofDistributed Generation

Province Wide Benefits of Distributed Generation • Provides environmental benefits over large coal

plants• Displaces high priced imported on peak power• Reduces IMO fees, transmission network charges

and market uplift charges ($5-$10.00/MWh)• Enhanced market liquidity due to greater number of

participants• Improves the load factor of the transmission and

transformation system

12

System Benefits of Distributed Generation

System Benefits Compared to Large Central Generating Plants

• Shorter development and construction schedules• Faster and easier to permit • More flexible operating characteristics (faster start up

time – greater ancillary benefits)• Less financial, development, construction and operating

risk for Ontario’s rate payers (smaller increments of investment)

• Improved reliability of supply:• Faster return to service after outages• Diversification of supply

13

• OEB should adopt a broad scope in reviewing opportunities for LDC efficiency improvements and should include measures that improve the operating efficiency of the LDCs distribution system

• DG can increase the operational efficiency of LDCs, reduce operating costs and provide net electricity system supply benefits

• LDCs have an important role to play in facilitating DG in Ontario

Conclusions

14

Recommendations

• DG is an important component of Ontario’s power supply portfolio and the OEB should revise market rules to recognize DG benefits

• The Board should develop appropriate regulatory incentives to facilitate DG

• Generation alternatives should be considered by the Board when reviewing transmission and transformation expansion applications

• LDC rate payers should benefit from LDC involvement in DG

• A portion of the system benefits provided by DG should be allocated to the DG project since LDC rate payers will benefit from LDC involvement in DG