The IESO is developing new solutions to help reduce the future cost of new generation and other forms of electricity supply. Similar to markets elsewhere, the IESO's incremental capacity auction would establish a level playing field that allows all types of resources to compete to meet the province's future capacity needs. The result would be a more dynamic market, increased transparency around the cost of capacity, and greater innovation in the electricity sector.
Watch this video to see how a made-in-Ontario capacity auction can help meet the province’s incremental energy needs while reducing the cost of securing new supply.
Over the last ten years there have been significant changes to the supply mix as the province has replaced its aging infrastructure. Coal-fired generation has been phased out, while natural gas, wind and solar generation have joined the provincial supply mix, helping to meet the province's demand for electricity. Even more changes are on the way. A series of refurbishments at the Darlington and Bruce nuclear facilities are slated to begin in 2016 and continue until 2031. In addition, units at the Pickering nuclear station are scheduled to close in the early 2020's. Existing contracts with generators also start to expire during that same period. Ontario will need new sources of supply to maintain reliability during the refurbishments and beyond. This presents an opportunity for Ontario to take a different approach to meeting the province's future energy needs.
The province currently secures new capacity by signing long-term contracts with generators. This approach has been instrumental in ensuring reliability over the years. Yet, it is also clear that electricity demands are changing – with economic and technological change influencing the way consumers use electricity. Long-term contracts alone cannot provide the flexibility needed to match changes in demand and supply year over year.
Jurisdictions around the world have implemented open auctions that allow all types of suppliers to compete to provide capacity – and with much success. In these markets, system operators typically secure capacity for shorter periods relative to long term contracts. This approach provides more flexibility to respond to changes in demand. For suppliers it means there is a regular mechanism to get paid for capacity they can supply to the market. For consumers it ensures that capacity is secured at lowest cost.
Capacity Auction Benefits
• Injects greater competition into the electricity system
• Taps into unused capacity at existing generators
• Encourages demand response, a growing supply source where consumers lower energy use to meet system needs
• Fosters innovation in new supply technologies such as electricity storage
• Provides transparency of costs of investing in new generation and other forms of supply
• Ensures supply capacity is better matched to annual changes in demand
The IESO and its stakeholders are currently undertaking a major initiative to renew the foundations of Ontario's electricity market design. As part of the Market Renewal Project, the IESO and its stakeholders will work together to develop an incremental capacity auction for Ontario.
A key objective of the Market Renewal Project is to ensure that Ontario's market design is able to capture the full benefits of an evolving sector. New technologies like storage and electric vehicles, falling technology costs for renewable generation, and increased demand side participation can provide new opportunities to meet system needs. An incremental capacity auction would provide an open platform that allows all resource types to compete to meet Ontario's resource adequacy requirements. This approach supports innovation, allowing new resources to compete on an equal footing with traditional sources of energy supply.
Ontario's Demand Response (DR) Auction, launched in December 2015, provides a new, competitive and cost-effective mechanism for procuring demand side resources to help meet the province's capacity needs. The IESO is also working with stakeholders to develop a capacity export mechanism to allow resources that are not needed to meet Ontario's reliability needs to export their capacity, providing a new revenue stream for eligible generators. Experience with the DR Auction and capacity exports will help to inform the development of an incremental capacity auction for Ontario.