Stakeholder Update - March 12, 2025

In December 2024, stakeholders responded to the Request for Information (RFI) seeking solutions to mitigate supply adequacy risk during grid emergencies through strategic reserves.

There were 19 submissions that generally fit into one of four categories:

• Emergency demand response (Emergency DR)
• Virtual power plants (VPPs)
• Rules-based approach
• Project-specific solutions

The AESO is not interested in pursuing any project-specific solutions. We are confident in the ability of the Restructured Energy Market (REM) to leverage market forces to address broader supply adequacy.

Based on submissions from the RFI, the AESO is considering developing a framework for Emergency DR that works in combination with new design features in the REM, targeting incremental loads that will not be responsive under the REM.

We would like to further assess the merits of an Emergency DR framework by:

• Determining how the willingness to pay and volumes of Emergency DR to be procured should be established
• Determining the regulatory framework required to procure Emergency DR
• Understanding industry operations, capabilities, potential volumes and economics of various RFI respondents
• Understanding the capabilities of VPPs to provide Emergency DR

We intend to provide more information and engage stakeholders in the second half of this year to develop a potential framework for Emergency DR.

The AESO’s view on supply adequacy risk remains unchanged from the supplementary information published on October 30, 2024. The AESO continues to monitor supply adequacy, with increasing data centre demand and related impacts on grid reliability being a focus. At this time, the measures above capture the strategic reserve activities that are underway.

RFI Response - Highlights

Emergency demand response (“Emergency DR”)

Five proposals included the procurement of DR capacity that can be used during an EEA. This can be done via competitive auctions held on a seasonal basis, similar to existing emergency DR programs in other ISOs, such as ERCOT’s Emergency Response Service. Technical details may include response time, response duration, limits on the number of events called upon, and appropriate performance baselines, among others. To incentivize participation and performance, proponents suggested a compensation mechanism consisting of two parts: 1) availability payment, and 2) performance payment to be paid based on actual load reductions during dispatch events.

Virtual power plants

VPPs can integrate and coordinate large numbers of distributed energy resources (DER) such as backup generators, electric vehicle charging, small-scale batteries, and demand response.

VPP solutions that we received proposed turnkey services to enroll participants, dispatch, settle and provide customer support for emergency reliability resources.

Rules-based approach

Notable rules-based suggestions include increasing the volume of contingency reserve that can be procured, enabling Battery Energy Storage Systems (BESS) to be DOS-eligible, or allowing generation above maximum capability ratings. Other submissions indicated that the REM would address supply adequacy while others recommended solutions relating to interties.

Project-based solutions

Submissions in this group include new builds for distributed generation (small-scale gas plants), energy storage projects (batteries, pumped hydro, compressed air energy storage), and biomass.

Purpose

Strategic reserves are supply adequacy services (from either generation or load) procured and dispatched outside the existing market structure to meet supply adequacy needs during an Energy Emergency Alert (EEA). Strategic reserves would only be dispatched when market resources are exhausted, to prevent load shed when the grid is under stress and at risk of rotating outages.

We are gathering stakeholder input to inform the design and implementation of strategic reserves as an ancillary service.

Background

Over the mid-term, the AESO anticipates limited development of net dispatchable generation as investors seek policy clarity on the design and implementation of the REM, the Transmission Regulation and the Clean Electricity Regulations (CER). Supply adequacy may be challenged if significant CTG capacity retires and limited new dispatchable supply comes online.

Given the supply and demand uncertainties over the next five to eight years, the AESO is contemplating strategic reserves as supply adequacy insurance during those few occasions throughout the year when we are in an EEA and at risk of rotating outages. Strategic reserves would be out-of-market capacity that could include options such as CTG units that exit the market, demand response, and backup supply. Strategic reserves would be designed to maintain the market price signals necessary for investment in the market.

Several U.S. jurisdictions have implemented similar programs or products to ensure sufficient extreme event supply. The AESO will ensure that any strategic reserves options to address supply adequacy will not alter market price signals as support for investment and retirement decisions.