Electricity Market, Today and Tomorrow

At the centre of Ontario’s electricity marketplace is the IESO, connecting generators and suppliers that sell electricity and wholesale consumers who purchase it. Ontario’s real-time electricity market is a 24/7 operation, with the intersection between offers to supply electricity and bids to consume setting a wholesale price every five minutes.

The wholesale market price represents the cost of producing electricity in real time, based on changing supply and demand. The price does not include the cost of transporting electricity across the province or longer-term fixed costs such as building and financing grid infrastructure. These costs are recovered outside of the wholesale electricity market.

Aside from the electricity market, there are other markets for services such as operating reserve and ancillary services. Read more in Markets and Related Programs.

Why a wholesale electricity market?

Many jurisdictions throughout North America use wholesale electricity markets, including Alberta, New York, California and New England. They do this because competition to supply the market in real time ensures electricity is produced at lowest cost to consumers. A transparent market provides participants and system planners with useful demand, supply, and price data, which results in better decisions both in the near and long term.

Wholesale markets also work to open up the electricity sector and help level the playing field for different participants and technologies, for example, allowing consumers to compete against generators to provide services that help balance the system.

This diversity of participation makes the system more competitive and helps lower the cost of providing electricity service. New players are bringing with them new services and capabilities to help meet system needs, enabling the IESO to manage the system in more efficient and cost-effective ways.

Did you know?

Ontario’s competitive electricity market began operating on May 1, 2002.

Market Renewal

When the current electricity market was designed in the late 1990s and opened in 2002, the electricity landscape looked very different from today. Since then, coal-fired generation has been phased out; wind and solar generation have joined the provincial supply mix; and new types of demand response and storage resources are also helping to meet the province's demand for electricity.

Over the years, the IESO and its stakeholders have worked together to more efficiently schedule resources to meet demand, but the current market design has reached the limit of what can be achieved without more substantial reforms. Modernizing core elements of the market will improve market efficiency, lower costs, and unlock future opportunities for all participants.

Now is a good time to consider changes to Ontario's energy markets − the province has a strong supply situation and can benefit from over a decade of sector experience with wholesale markets. In particular, the IESO can draw upon past work aimed at enhancing market efficiency including the work of the Electricity Market Forum, Market Surveillance Panel and numerous market development stakeholder engagements. By proactively making change now, the IESO and its stakeholders can best prepare the province to manage challenges and benefit from the opportunities of an evolving electricity sector.

To prepare for the electricity sector of tomorrow, the IESO is working with stakeholders to pursue fundamental and enduring changes to Ontario’s electricity market through the Market Renewal project.

The Market Renewal project will provide increased opportunities for all participants in Ontario’s electricity market, with increased competition, flexibility and transparency resulting in efficiency gains for the entire electricity sector, including customers and suppliers. This project will see:

  • the wholesale electricity market evolved, providing more transparent market prices and mechanisms, such as day-ahead energy market, to provide greater certainty to both participants and the IESO;
  •  the introduction of capacity auctions to competitively and efficiently procure resources, ensuring Ontario has the resources it needs to meet demand cost effectively; and
  • enhanced market mechanisms, such as more frequent scheduling of energy imports and exports with neighbouring jurisdictions, that will help to meet emerging operability needs.

Market Renewal is expected to provide value for Ontario’s ratepayers by putting downward pressure on future costs while fostering an open and competitive marketplace with broad participation. More information about this project can be in found in the Market Renewal Backgrounder.

Learn more about the Market Renewal Project, an initiative to renew the foundations of Ontario’s electricity market design.

Consumers & Demand Response in Ontario

One of the key improvements of the market in recent years is the integration of demand response (DR). Demand response, which enables consumers to reduce their electricity consumption in response to prices and system needs, is playing an increasing role in Ontario's electricity sector. Rising electricity prices when the supply of electricity is tight encourage consumers to reduce or shift some of their energy use until other times of the day. Demand response taps into the abilities of consumers, such as factories, hospitals or even residential consumers to shift or reduce energy use, making DR an efficient approach to meeting energy needs by avoiding the needs to call upon more expensive generation resources.

Demand Response Auction

The annual DR Auction is part of the IESO's ongoing efforts to expand Ontario's DR capabilities. The Auction allows large consumers, as well as aggregators of smaller institutional, commercial, industrial and even residential customers, to compete to provide DR capacity for a summer or winter commitment period. These resources then help to meet Ontario's overall system adequacy needs.

For more information, see Demand Response Auction.

Other sources of Demand Response in Ontario

  • Demand Response Pilot Projects are used to better understand whether consumers providing DR are able to follow changes in electricity consumption and help balance supply and demand closer to real-time. In the market today, these services have traditionally only been provided by generators and other suppliers. Ten pilot projects each with unique technical characteristics, requirements and constraints and ranging from 1 MW to 35 MW in size,  represent up to 70 MW of DR. For more information, see Demand Response Pilot.
HCE Inc. is a demand response pilot project participant. They are contracted for 1.5 MW of demand response capacity.
  • Dispatchable loads are active participants in Ontario's electricity market that can adjust the amount of energy they consume in response to direct instructions from the IESO as often as every five minutes. Through the market, dispatchable loads provide the IESO with a price at which they no longer wish to consume a certain quantity of electricity. If the Ontario energy price goes higher than that price, these participants must reduce consumption to a specified level. These consumers also provide operating reserve to the system, agreeing to be on-call to reduce demand should there be an unexpected loss of generation. These market incentives allow consumers to reduce their own costs and potentially also generate a new revenue stream to support their business.
  • Wholesale consumers. Companies and institutions that use more than 250,000 kilowatt hours of electricity a year pay the wholesale price of electricity, which changes hourly depending on system conditions. These organizations often plan their energy use based on price trends in order to better manage their costs.
  • Class A consumers. Companies that have an average peak demand of greater than 1 MW can control their Global Adjustment (GA) costs by reducing their energy use during the five highest demand peaks in the year. If they successfully reduce their consumption on days when the system is reaching the peak, they can reduce their GA costs.
    Read more about Class A Eligibility.
  • Residential and small business consumers pay time-of-use rates, which offer different prices for on-peak, mid-peak and off-peak periods. This pricing structure encourages users to shift some of their usage from high-price peak hours to less expensive off-peak hours and reduce their impact on the system. Read more about Time-of-Use rates.