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The path forward: ensuring resource adequacy central to 2021 priorities

The province’s electricity landscape is changing – and fast. After a period of robust supply, a number of factors – including expiring contracts, nuclear refurbishments and retirements, and growing demand – will create a growing capacity gap in the province over the second half of the decade. Against this backdrop, the IESO has established clear priorities to enable Ontario to continue to meet system needs cost-effectively and reliably, while laying the foundation for future change.

The priorities for 2021 are diverse, but the ways in which they will be delivered have one thing in common: they are underpinned by a commitment to providing greater transparency at every stage in the process. Engaging stakeholders has always been core to achieving better outcomes for Ontario’s electricity system – but changing needs and circumstances have reinforced the importance of seeking input, promoting a common understanding of the issues at hand and making clear the rationale for decisions.

In 2021, advancing the multi-year Market Renewal Program – an area where engagement has been critical – will continue to be a priority. Designed to achieve significant operational efficiencies and support the grid of the future, implementation of the project will deliver significant value to the system and ratepayers – an expected $800 million in benefits in the first 10 years alone.

With Board approval of market design expected in Q1, the IESO will shift its focus to implementation. This includes developing amendments to market rules and manuals, and ensuring training and other programs are in place to enable participants to operate effectively in the new markets. In parallel with this work, the IESO will also continue to address opportunities to improve efficiencies in the existing markets, including those identified by the Ontario Energy Board’s Market Surveillance Panel.

Fundamental reforms to the markets promote operational efficiencies and provide a framework to facilitate change in the years ahead. But the capacity gap emerging over the second half of the decade has created a new sense of urgency for both the IESO and for current and prospective market participants looking for certainty and guidance on how they can compete to deliver electricity services. To provide clarity around the mechanisms that will be used to acquire capacity across all time frames, the IESO engaged with stakeholders on a draft resource adequacy framework, which was shared with stakeholders in January and is now moving into implementation.

This year, the IESO will continue to work with stakeholders to operationalize the framework, particularly the mechanisms for procuring capacity over the medium and longer term, which are expected to enhance competition in the latter half of the decade. In the interim, the annual capacity auction, which will evolve in coming years to improve competition and performance, will be the primary mechanism for meeting changing capacity needs in the short term.

Understanding the system needs outlined in the Annual Planning Outlook, and developing competitive mechanisms to address them, is only part of the resource adequacy equation. Meeting future needs cost-effectively will depend on optimizing the participation and types of resources that can compete in the markets – another key priority in 2021.

Moving forward, efforts to increase participation of distributed energy resources (DERs) in IESO markets will focus on developing a roadmap for the integration of DERs, as well as conducting studies to determine the potential benefits of hybrid resources, such as pairings with energy storage and wind or solar. The IESO will also work with stakeholders on a plan to enable existing resource types to participate more fully in the wholesale markets.

In recent years, growing interest in electricity choice and planning at the local level has put a spotlight on the role of community involvement in developing solutions. It also highlighted the value of an integrated approach to meeting local needs, and of considering the merits of DERs and energy efficiency as alternatives to traditional generation and transmission infrastructure.

Addressing community-level and regional electricity needs in tandem will be part of the shift toward a more integrated model. In southwestern Ontario, where agricultural demand is expected to double within five years, this approach has resulted in solutions ranging from transmission enhancements and local generation capacity, to energy efficiency and innovation, including projects funded by the IESO’s Grid Innovation Fund.

Business transformation to respond to the current realities of these uncertain times will also be important this year. The continued pandemic has changed how we work and interact with each other – working from home will be standard business practice. Organizations are also examining company culture and actions needed to build a safe, equitable, diverse and inclusive workplace - the IESO is no exception. We are committed to being an organization with highly-engaged employees, dedicated to providing a reliable and cost-effective energy supply.

This is a pivotal year – one where our current vantage point provides a very different perspective than in years past. Discussions about meeting future needs will have much more tangible implications for our electricity system, and the work we do together this year will forge a common path forward to ensure reliability over the next decade.