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for consumers precisely because it is produced close to the point of
consumption. When deployed e昀케ciently, this kind of advantageous
location can lower not only the amount of electricity that is lost in
transmission but also the capital cost of infrastructure needed to move
electricity from one part of the system to another.
Policy makers, regulators and private investors have in some cases begun
treating small scale initiatives collectively as a major new energy resource
capable of both reinforcing and greening the grid. For example, in the United
States, innovative companies are aggregating thousands of DERs into Virtual Power Plants (VPPs), providing power services comparable to major new
generation projects. While VPPs can’t be expected to replace all of society’s
needs for wholesale generation, recent research 昀椀nds that they could take a
bite out of the need for new infrastructure, building critically needed power
capacity relatively quickly and economically, and with smaller environmental footprints than some of their potential large scale competitors.
It now appears that market forces and new forms of competition will
in昀氀uence how market share gets divided up between large-scale and
small-scale resources in the years ahead. Ultimately this could spell
signi昀椀cant change for the power grid at the same time as increasing
electri昀椀cation makes the grid more important than ever.
How will the new program work?
In Ontario, the principles for most new electricity supply come from directives
and policies set by the provincial government, while the design of procurement
programs is managed by the IESO.
The IESO uses a Resource Adequacy Framework to guide how key features and terms
of its procurement programs will be chosen. Certain mechanisms work better for
securing short term resources while others are more e昀昀ective for stabilizing longterm certainty of supply.
The IESO outlines 昀椀ve categories of procurement as follows:
CAPACITY AUCTION – Balances 昀氀uctuations in system capacity needs from one year
to the next executed on an annual basis. Executed on an annual basis.
MEDIUM TERM PROCUREMENTS – Provides existing resources with greater
certainty through shorter forward, periods and 昀氀exible, 昀椀ve-year contracts. Every 2
to 3 years as needed.
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