Ontario has taken a big step toward integrating energy storage into its grid with the recent completion of a request for proposals (RFP) for energy storage, but in other respects, the province is still catching up with some organized wholesale markets in the United States.

Ontario, like many other regions, is exploring how energy storage can be integrated into the day-to-day operation of its electric grid. The province’s Independent Electricity System Operator (IESO) recently concluded the second phase of a solicitation process with the award of nine contracts representing 16.75 MW of storage to five companies.

The first phase of the solicitation, IESO in July 2014 awarded contracts representing 33.54 MW to five companies.

The overall solicitation grew out of a province mandate that calls for the procurement of 50 MW of storage resources. When the solicitation was on the drawing board, the IESO and the provincial utility, the Ontario Power Authority, were separate entities, and IESO had more of a need for short-term storage resources while OPA wanted longer duration resources. IESO and OPA merged in January 2015, but the two-phase design of the solicitation was retained.

The first phase sought storage projects that could provide either frequency regulation service or reactive support and voltage control service. The projects would connect directly to the grid or, in some cases, to the distribution system in southern Ontario and are expected to be in service by the end of the third quarter of 2016.

Most of the resources that came out of the first phase RFP use battery storage, with the biggest awards going to Hecate Energy of Nashville, Tenn., for a 14.8 MW battery storage project and to Convergent Energy+Power, based in New York, for a 12 MW project that combines battery and flywheel technologies.

The second phase of the solicitation, completed in November, was designed with longer-duration storage in mind, specifically a four hour “bridge” that would aid IESO in intraday balancing of the grid with storage solutions that can ramp up quickly and that can act as both load and generation.

IESO’s ability to balance supply and demand will be increasingly important as Ontario adds more renewable resources to its generation mix. In March, IESO launched an RFP for 565 MW of renewable resources, comprised of 300 MW of wind, 140 MW of solar, 50 MW of bioenergy and 75 MW of hydropower.

Overall, Ontario is aiming to have renewable energy comprise about half of the province’s installed capacity by 2025.

IESO declined to give technological details on the individual projects, but the RFP was designed to encourage a range of technologies.

In that respect it was successful in attracting winning proposals for hydrogen conversion and thermal storage in the first RFP and for both solid state and flow batteries in the second RFP, as well as a proposal for a compressed air storage project by Baseload Power Corp.

In some respects, the RFPs serve as pilot program, but not from a technological point of view. The point of the RFP was not proof of concept in terms of technology, Shawn Cronkwright, director of renewables procurement at IESO, told Utility Dive.

“We are looking to get the economics right,” he said, and “to move the entire ecosystem along.”

IESO vs. U.S. storage markets

The economics of storage on Ontario’s grid are quite different from those in U.S. markets such as the PJM Interconnection.

The most obvious difference is that IESO does not have a capacity market. PJM has a competitive capacity market, as do ISO-New England, the Midcontinent ISO, the California ISO and ISO-New York. The Southwest Power Pool and Electric Reliability Council of Texas lack them, similar to IESO.

In the first phase RFP, IESO is signing three-year contracts that are expected to cost $14 million in aggregate each year.

The projects selected in the second phase will receive 10-year contracts that are expected to cost $9 million a year.

The longer term of the second phase contracts is designed to match the useful lives of the assets. The first phase contracts are designed to be able to be linked to market-based rates in the future.

IESO is studying the implementation of a capacity market like PJM’s but for now the grid operator secures capacity by signing contracts. The rates in the storage contracts are based on market rates with a top-up provision.

That arrangement reflects the state of Ontario’s grid. While the province is ahead of U.S. counterparts in reducing greenhouse gas emissions – the last coal plant in Ontario was shuttered in April 2014 – the province is further away from having a grid with market-based rates. Most of the generation is still government owned and most of the output is sold under contract. IESO runs a wholesale market in which prices are set hourly, but there is no locational pricing as is common in U.S. wholesale markets.

The best point of comparison for the IESO storage procurement process is not with ISOs in the United States, but with investor-owned utilities, Johannes Rittershausen, CEO of Convergent Energy+Power, a storage developer told Utility Dive.

“It is a question of whose balance sheet the liability is on,” he said. Contracting with IESO is more like contracting with an investor owned utility than with PJM.

From a developer’s point of view there is a benefit to being able to sign a long-term contract with IESO or with an IOU; having a creditworthy offtaker helps secure financing for a project. In that vein, Convergent early in December won a contract for a 10 MW, 40 MWh storage project from Pacific Gas and Electric that was part of the first round of PG&E’s competitive storage solicitation.

Another difference with the IESO procurement process is that “they are looking for a basket of technologies, not necessarily the lowest cost technologies,” Rittershausen said. For instance, flywheel technology was included in the first-phase RFP. The Convergent project that IESO selected in that round calls for 7 MW of battery storage and a 5 MW flywheel.

While that process encourages development of an array of technologies, it can also attract criticism. IESO’s storage procurement process reflects the province’s “political enthusiasm for storage” irrespective of costs, said Tom Adams, an independent energy and environmental advisor and researcher. He says the government is neglecting under-utilized, existing pumped hydro resources in favor or procuring “exotic technologies.”

In a blog post, Adams cited an Ontario government report released by the Ministry of Energy in June that suggests that energy storage is not cost effective.

The proof of that concept may not come for several years. In the meantime, IESO will have collected a lot of operational data from storage projects that are now getting under way.