The wholesale price is an hourly price set by the IESO-administered electricity market, where the forces of supply and demand converge to establish a single price for electricity.
Businesses pay the wholesale market price if they use more than 250,000 kilowatt-hours of electricity in a year. Businesses that pay the wholesale price usually have more than $2,000 per month in electricity costs.
The wholesale price changes from hour to hour, based on a range of factors that influence supply and demand.
The Cost of Supply
There are more than 35,000 megawatts (MW) of supply or capacity in the province, but not all of it is available at any one time. Maintenance, refurbishments and power line repairs can all affect how much generation is available. The types of generation available can also affect the wholesale price, as each type incurs a different cost to produce electricity.
Effects of Demand
The largest influence on price is how much we consume and when we consume it. The level of consumption depends on whether it is day or night, weekday or weekend, summer or winter, with the single largest influencer being temperature.
Weather Plays a Large Role
The IESO typically sees a large increase in demand on sweltering hot days when air conditioning use is widespread. On cool days, there is lower demand, due to lower heating or cooling requirements in the province. By way of comparison, the peak weekday demand in the spring, when temperatures hover around 14 degrees, can be thousands of megawatts lower than the peak demand on a 30 degree weekday in the summer.
The chart below shows electricity demand during the highest peak day of 2012. From noon until 8 p.m., Ontario used more than 24,000 MW of electricity.
The electricity price during that time was 13.2 cents per kilowatt-hour. That's almost four times higher than the average electricity price in July.
Tracking weather patterns and using electricity wisely during those times can help your business save money.
Our electricity system is evolving and understanding when and why electricity prices fluctuate is key to benefiting from new technologies and best practices that respond to a changing hourly wholesale price to lower your overall electricity costs.