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Standby Power Difficult to Deploy for Demand Response
March 25, 2011
By Barbara Carss
A requisite capital investment could generate some bonus revenue at Toronto’s Union Station. In 2010, Toronto City Council endorsed a proposal to enroll two new standby generators in Ontario’s Demand Response 3 (DR3) program, which pays contracted participants to divert generation to the grid or shed electricity load during periods of peak demand.
City officials foresee potential income in the range of $350,000 annually or $1.75 million over the five-year contract, but the process of securing that contract is unlikely to be easy. Thus far, the DR3 program has been predominantly weighted to load curtailment as prospective participants face hurdles in obtaining environmental approvals to make use of generators for anything but emergency power.
"The emissions requirement is so stringent it excludes practically every stationary diesel engine available,” says Bill McMillan, Director of Business Development with GAL Power Systems, who initially viewed the DR3 program as a lucrative opportunity for clients with standby generating capacity. “A natural gas engine can meet it fairly easily, but there are other issues that can make natural gas impractical.”
AGGREGATOR AND APPROVALS PENDING
Toronto officials are just beginning the process to obtain a Certificate of Approval (CofA) from Ontario’s Ministry of the Environment (MOE) that would allow the two 1.25-megawatt (MW) generators to produce electricity for the power grid for up to 100 hours every year. The generators aren’t slated for delivery to Union Station, where a $640-million redevelopment project is now in progress, until 2012.
In a first step, the City will issue a request for proposals for an aggregator – i.e. one of the companies the Ontario Power Authority (OPA) has authorized to enlist and coordinate DR3 program participants and then deliver a collectively accumulated reduction and/or generation target when called upon to do so.
Possible choices have already shrunk to five from the field of eight aggregators the OPA initially selected in 2008. Toronto Hydro Energy Services Inc. abandoned its efforts to act as an aggregator in 2009 and two US-based companies have also withdrawn from the program. However, Toronto officials have informal assurance that prospective bidders are interested.
“We have talked with three of them and they are prepared to work with us in getting the Certificate of Approval,” reports Jim Baxter, Director of Energy & Strategic Initiatives for the City of Toronto.
To gain approval, the equipment will have to comply with new stricter emission limits that are now in effect in Ontario. For example, generators could previously exhaust up to 1 kilogram (kg) of nitrogen oxides (NOx) per megawatt-hour (MWh) of power production, but the allowable level dropped to 0.4 kg/MWh on January 1, 2011. Allowable levels of particulate matter were reduced from 0.2 kg/MWh to 0.02 kg/MWh and the permitted level of hydrocarbons, excluding methane, were cut from 1.3 kg/MWh to 0.19 kg/MWh.
EMISSIONS AND EFFICIENCY DIVERGE
Union Station’s new standby generators will have bi-fuel engines that operate on a mixture of diesel and natural gas, which is expected to be no greater than 40% diesel. Yet, for the purpose of the CoA, they’ll be viewed as if they run solely on diesel.
“The MOE does not accept bi-fuel because what happens if you don’t have natural gas available and you are called on to start?” McMillan notes. “If you are going to go for bi-fuel you need to assume the worst case scenario, and that’s 100% diesel.”
The City chose these engines for their more compact assembly and because emergency power provision is the uppermost reason for the purchase. “Natural gas engines are bigger than diesel and we ran into a space constraint,” Baxter explains. “The equipment is being installed to supply standby power for Union Station regardless of whether there is a DR3 project or not.”
Other logistical issues also tend to make decision makers favour diesel when choosing generators for backup power. Many building operators perceive that natural gas generators don’t have sufficient torque to quickly take on large loads, while the building code requirement for on-site fuel storage for standby generators makes diesel something of a default option. Natural gas generators are also costlier.
“The industry is less familiar with natural gas generators and people are therefore more cautious about them,” observes Michael Lithgow, the Manager of Corporate Energy and Municipal Energy Conservation Officer for York Region. Meanwhile, diesel engines can be outfitted with synchronous switchgear and emission control equipment in order to meet the MOE’s emission standards, although that will be an extra expense that prospective participants will have to factor into their payback calculations.
OBSTACLES OUTWEIGH PAYBACKS
The DR3 program’s dual-rate structure pays participants a so-called availability rate for simply being on standby and ready to respond. That is calculated on megawatts of capacity and pro-rated to the length of the contract – one, two or five years – and the participation commitment per year, which will be either 100 or 200 hours.
Once called upon, DR3 enrollees will have to divert generation to the grid or shed electricity load within 2.5 hours. That’s compensated with a higher rate and tallied according to megawatt-hours of load they’ve displaced.
Even the most lucrative payback from a five-year contract for 200 hours per year will not recompense the cost of the installing the generator, but organizations that require standby generation anyway can generally make a business case for participation. In York Region, for example, the added capital cost for a DR-capable standby generator at a regional water pumping station was deemed worthwhile when balanced against estimated revenues of $70,000 per year that a DR program could provide. (In this case, a Region-specific program separate from the OPA’s DR3 program.)
However, regulatory obstacles proved to be more difficult. The Ministry of the Environment decreed that an environmental screening process would be necessary because the generator’s capacity exceeds 1 megawatt (MW), even though York Region planned to restrict that capacity to 950 kilowatts for demand response and unleash the full 1.5 MW capacity only in the event that the generator was needed for emergency power to operate the pumping station. Regional officials then decided not to take the MOE’s required step.
“We are not prepared to do that for this site at this time, partly because we have a capital upgrade going on there and we don’t want to interfere with that, and partly because Environmental Assessments are very time consuming and expensive,” Lithgow says.
Proponents in Toronto have not considered an Environmental Assessment in their plans, but the requirement would seem to be likely because the two Union Station generators have production capacity greater than 1 MW.
“If we are required to go through an Environmental Assessment that would have a fairly major impact on the proposal,” Baxter acknowledges. “But we have not anticipated doing an EA on this. At this point, we don’t have any blips on the radar.”
PONDERING TRADEOFFS
The City of Calgary recently built a 100-MW single-cycle gas-fired generating plant to respond to peak demand, and Baxter suggests that the tradeoff environmental fallout from running standby generators might be preferable. “There are a very low number of run hours per year on this so it’s an appropriate way of dealing with this issue,” he maintains.
Similarly, plans are moving forward for a new 393-MW natural gas-fired peaking plant in York Region – a move that the Ontario government has facilitated with a regulation to streamline the approvals process and exempt the plant from the requirement for municipal site plan approval in its host municipality, King Township. Baxter predicts more such choices will have to be made as the provincial government fulfills its pledge to shut down coal-fired power production.
“The system still needs a way to match supply and demand,” he says. “When you look at Toronto, we are in a transmission-constrained environment. I think we are going to need to prove the ability to lower our demand and basically improve the energy reliability of the City of Toronto.
Despite current hurdles, McMillan remains optimistic about the potential to harness standby generation. “We want to pursue it whether it’s bi-fuel, natural gas or pure diesel,” he affirms. “What we try to stay on top of is the technology that can help us in emissions controls that are cost-effective.”
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