To ensure long-term capacity planning needs are met, the province has relied on contracting for resources through the Ontario Power Authority. This approach was put in place to ensure reliability was maintained while the province phased out coal-fired generation and managed record peak demand. As a result, Ontario currently enjoys a reliable, well-functioning electricity system.
Although the province has adequate capacity today, in a few years, it will require additional capacity due to expiring generation contracts, upcoming nuclear refurbishments and the retirement of the Pickering nuclear generating station. Given Ontario's strong supply position and the proven record of capacity markets in other jurisdictions, it is an ideal time to consider the potential for a capacity market here at home.
As a result, the IESO is now looking at how a made-in-Ontario capacity market could provide for incremental power needs. Implemented properly, a capacity market would work alongside existing contracts and regulations to deliver resources as and when required.
This new approach would provide a more efficient and transparent mechanism for procuring capacity – and ultimately provide significant savings to electricity consumers.
The Benefits of Capacity Markets
A capacity market is an auction-based process that allows numerous resources to compete to provide power at some point in the future – typically anywhere from 1-3 years ahead.
One of the key benefits offered by capacity markets is increased flexibility. A capacity auction helps electricity system planners by giving them options to adjust to unforeseen or temporary changes in supply and demand. They also add transparency by sending a clear signal as to what capacity is worth in the province, or a region, at a given point in time.
Ultimately, consumers stand to gain with the introduction of a well-designed capacity market in Ontario. Research shows that the average capacity cost in three U.S. jurisdictions currently using a capacity market is less than half that in Ontario. Lower capacity costs help drive down all-in energy costs, which leads to lower bills for consumers.
Consumers also benefit because a capacity market ensures they only pay for the capacity they need and at a price that reflects its value to the electricity system. This ensures that the long-term risks of investing in capacity are borne fairly between electricity consumers and investors.
Finally, capacity markets allow all types of resources – including conventional generation, demand response and new technologies – to compete on an equal footing. In auctions elsewhere, imports, demand response, facility upgrades and facilities that would otherwise have been retired, have all won the right to provide capacity at various points. At other times, capacity markets have resulted in the selection of new-build generation at very competitive prices.
Soon, the IESO will be launching a comprehensive stakeholder process to engage with the sector on the design and structure of a capacity market in Ontario. More information about this effort will be posted on the Stakeholder Engagement page.
Capacity Market Information Sessions
August 13, 2014
The IESO will be hosting an open session on August 13 to discuss the benefits that a capacity market might bring to Ontario and the elements that will contribute to developing a made-in-Ontario design. The meeting will also introduce the timelines for initiating a formal stakeholder engagement.
This discussion follows an information session held in April, which provided attendees with an overview of the principles of a capacity market and perspectives from other jurisdictions. A summary of that session can be found here - www.ieso.ca/Documents/consult/Capacity_Market_Information_Session-Meeting_Summary.pdf.
The meeting will be held on Wednesday, August 13 from 9:00 am to 12:00 pm near Pearson airport. To register, email firstname.lastname@example.org.
April 8, 2014
The IESO is moving forward to determine the benefits of a capacity market to help address the province's mid-term energy needs. This meeting provided attendees with an overview of basic principles, as well as a discussion from participants in other jurisdictions about their experiences in capacity markets.
Agenda | Backgrounder | Welcoming Remarks by Ted Leonard | Capacity Market Primer (NERA Economic Consulting) | Capacity Market Information Session (ISO New England) | Meeting Summary