New Electricity Auctions Will Drive Down Costs for Ontario's Consumers
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IESO Capacity Auctions will competitively procure resources for Ontario electricity needs, boosting reliability and resource adequacy through market-based bidding, enabling demand response, energy storage, and flexible supply to meet changing load and regional grid conditions.
Essential Takeaways
A competitive, technology-neutral auction buys capacity at lowest cost to keep Ontario's grid reliable and flexible.
Competitive auctions procure capacity from demand response, storage, supply
Annual capacity auctions begin in late 2022; high-level design released
Enhances reliability, resource adequacy, and regional grid flexibility
Moves from prescriptive 20-year contracts to market-based, flexible procurement
Forecasts $3.4B savings over 10 years for Ontario electricity consumers
The Independent Electricity System Operator (IESO) is introducing changes to Ontario's electricity system that will help save Ontarians about $3.4 billion over a 10-year period. The changes include holding annual capacity auctions to acquire electricity resources at lowest cost that can be called upon when and where they are needed to meet Ontario electricity needs.
Today's announcement marks the release of a high level design for future auctions, with changes for electricity consumers expected as the first is set to be held in late 2022.
"These auctions will specify how much electricity we need, and introduce a competitive process to determine who can meet that need. It's a competition among all eligible resources, and it's the Ontario consumer, including industrial electricity ratepayers, who benefits through lower costs and a more flexible system better able to respond to changing demand and supply conditions," says IESO President and CEO Peter Gregg.
In the past decade, electricity supply was typically acquired through very prescriptive means with defined targets for specific types of resources such as wind and solar, and secured through 20-year contracts. While these long-term commitments helped Ontario transform its generation fleet over the last decade, electricity cost allocation also played a role, but longer term contracts provide limited flexibility in dealing with unexpected changes in the power system.
"Imagine signing a 20-year contract for your cable TV service. In five years' time, electricity rates could be lower, new competitors may have entered the market, or entirely new and innovative platforms and services like Netflix may have emerged. You miss out on opportunities for improvement by being locked-in," says Gregg.
Provincial electricity demand has traditionally fluctuated over time due to factors like economic growth, conservation and the introduction of generating resources on local distribution systems, with occasional issues such as phantom demand affecting customers' costs as well. Technological changes are adding another layer of uncertainty to future demand as electric vehicles, energy storage and low-cost solar panels become more common.
"Our planners do their best to forecast electricity demand, but the truth is there's no such thing as certainty in electricity planning. That's why flexibility is so important. We don't want Ontarians to have to pay more on the typical Ontario electricity bill for electricity resources than are needed to ensure a reliable power system that can continue to meet Ontario's needs," says IESO Vice President and COO Leonard Kula.
