How the Wholesale Electricity Price is Determined
The wholesale price is dynamic, changing hourly based on the demand for electricity in Ontario and the availability of supply.
Forecasting demand for electricity
Each day, the IESO issues forecasts of expected demand for the days and weeks ahead. These forecasts are continually updated as new information, such as changes in weather, becomes available. This forecast includes an "energy reserve" of roughly 1,400 megawatts (MW) which ensures that additional supplies of energy are available should an unanticipated event take place on the power system.
Offers to supply and bids to purchase are submitted into the electricity market
Generators and electricity importers submit "offers" to the IESO indicating the amount of energy they are willing to supply and at what price. At the same time, a small number of large consumers and exporters submit “bids” into the market advising how much electricity they are willing to consume and at what price.
Setting the market price where supply meets demand
The IESO accepts the lowest-cost offers to supply electricity until sufficient megawatts are available to meet Ontario’s demand. The IESO then dispatches generators and importers to provide electricity based on their accepted offers. Some types of generators are more expensive to operate than others − as a result, the wholesale price of electricity rises as more expensive forms of generation are brought online to meet demand. A new market clearing price for electricity is set every five minutes.
Charging the wholesale price to large consumers
The average of the twelve market clearing prices set in each hour is called the Hourly Ontario Energy Price, or HOEP. The HOEP is charged to large consumers that participate in the market, as well as local distribution companies (LDCs) who in turn recover it from business customers that pay the wholesale market price.
The wholesale market price is incorporated into the time-of-use (TOU) rates which also include other commodity costs. See electricity prices for Residential and Small Business Customers.