IEEE Power & Energy Magazine - March/April 2022 - 48

NWA projects can help utilities and regulators reduce system
costs and costumer bills if DERs are the less costly solution for
meeting incremental load growth.
bills if DERs are the less costly solution for meeting incremental
load growth.
DERs offer value in other ways, for instance, by participating
in wholesale markets to provide system-level services.
They can also provide valuable resilience benefits to
end consumers and communities. Similarly, using DERs
as NWAs represents one of the major ways DERs can provide
services to the electricity system. While NWAs are
nascent in the power and utility industry, there are many
pilots underway, and some jurisdictions, such as New York,
have begun larger-scale implementation. Approaches to
NWA projects involve utility programs, such as incentives
for energy efficiency, and request-for-proposal processes for
procuring solutions. However, auctions can also be used to
acquire services from DERs, including securing and operating
DERs for NWA purposes.
Auction mechanisms are well suited to facilitating
transactions to enable NWA projects, including identifying
the parties to involve, discovering economically efficient
prices, and guiding the allocation of resources. Auctions
generally have open, fair, and transparent (while privacypreserving)
processes that can lower transaction costs and
other barriers to entry. The approach is beneficial to smaller
participants that may be using new technologies and have
fewer financial resources than larger and more established
organizations. Repeated auctions enable participants to
observe outcomes under various conditions, helping them
learn and identify suitable bidding strategies, leading to
more predictable behavior and results. Importantly, auctions
can involve complex clearing processes that account
for constraints in what transactions can be accommodated
while requiring only simple inputs from bidders. In other
words, complex transactions can be simply facilitated from
a participant's perspective.
It was with the benefits of auctions in mind that Ontario's
Independent Electricity System Operator (IESO), in Canada,
initiated the York Region NWA Demonstration in 2018.
The project is funded by the IESO and Natural Resources
Canada, with Alectra Utilities, the electricity distribution
company in the demonstration area, acting as the distribution
system operator (DSO) and delivering the project. The
demonstration explores how a DSO could use local auctions
to procure distribution-level electricity services from DERs
while simultaneously coordinating with the transmissionlevel
wholesale market. It tests auctions as means to secure
and operate DERs to enable their use as NWAs. The project
contributes to foundational work toward developing
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distribution-level markets. Auctions similar to those in the
demonstration will likely be a feature of transactive energy
systems in the future, where electricity resources participate
in an automated manner to provide grid services. This article
provides an overview of the design of the demonstration's
three auction processes for capacity, energy, and reserves,
including results to date and insights into learnings.
NWAs
DERs, such as generation, storage, and demand response
resources connected to the distribution system, are capable
of providing a range of services to the grid. One of the most
promising use cases involves harnessing DERs as alternatives
to constructing new transmission and distribution (T&D)
network infrastructure, including traditional substations and
lines. Through the inclusion of DERs, investments in T&D
solutions can be deferred or avoided, reducing system costs
if DERs are the more cost-effective solution. Services procured
in an NWA project can be sourced from consumerowned
DERs and DERs owned by independent providers,
opening opportunities for private investment and for consumers
to reduce their utility bills.
The interest in NWAs is driven by the material installation
of DERs across many jurisdictions in recent years and
the expectation that the trend will continue. NWA projects
represent a new and incremental opportunity to use DERs
to provide grid services and generate value. In the demonstration,
three separate services for capacity, energy, and
reserves have been designed to facilitate the use of DERs
as NWAs. Generally, local resources sited close to the end
consumer load can be an alternative to new network infrastructure
and more remote, larger centralized resources.
For example, a project involving alternatives to distribution
infrastructure would seek services from DERs located in the
distribution area downstream of the assets being deferred.
In other words, smaller resources located close to end consumers
can be used to meet local demand without having to
build remote centralized generating stations (GSs) and the
network infrastructure to deliver the electricity.
A highly simplified example of an NWA project at the
distribution level is depicted in Figure 1. In Figure 1(a),
the existing system is shown, with a centralized GS, the
transmission-distribution interface, a transformer station
(TS), and a distribution-connected load. The transmissionconnected
generating station and TS are at their maximum
capacity to generate and deliver electricity. Any growth in
demand will necessitate new infrastructure investment. In
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IEEE Power & Energy Magazine - March/April 2022

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