Price Overview

Ontario’s electricity markets are designed to support the efficient dispatch of resources needed to support system reliability. Suppliers and loads participate in day-ahead and real-time markets, which include locational marginal prices, zonal prices as well as operating reserve markets.

Here’s how electricity prices are determined in Ontario’s electricity market:

Locational Marginal Prices

Locational marginal prices (LMPs) represent the value of electricity at specific locations on the power system. They are widely recognized as the most efficient and transparent way to price electricity, as they reflect the costs of system dispatch. In Ontario, LMPs are directly charged to or paid to active Ontario-based resources and they form the foundation of prices in the IESO-administered markets.

Each LMP includes:

• A reference price - the incremental cost of electricity at a specific location on the grid called the ”reference bus”
• The cost of congestion - which reflects the incremental cost of moving electricity from the reference bus to a point of consumption
• The incremental cost of line losses incurred by serving a point of consumption from the reference bus.

There are almost 1,000 LMPs in the province which, along with the congestion and losses used to calculate the LMP, are available on the IESO reports site. LMPs for nodes with a capacity of 20 MW or more can also be found on the Market Data page. These prices apply to dispatchable generators, dispatchable loads, self-scheduling and intermittent suppliers as well as price-responsive loads.

Ontario Zonal Prices

The Ontario Zonal Price is the hourly, load-weighted average of LMPs calculated at non-dispatchable loads, such as local distribution companies that serve residential and most business consumers. This allows the total cost of serving these consumers to be spread across all non-dispatchable load. The IESO market produces both Day-Ahead and Real-Time Ontario Zonal Prices. The Day-Ahead Ontario Zonal Price is the main component of the Ontario Electricity Market Price, or Ontario Price, for short.

The Ontario Price

While most supply in Ontario is scheduled and paid for in the Day-Ahead Market, most consumers are charged based only on their real-time consumption. As a result, the IESO has created a new price – the Ontario Electricity Market Price, or Ontario Price, that accounts for this difference.

The IESO applies an adjustment called the Load Forecast Deviation Adjustment (LFDA) to the Day-Ahead Ontario Zonal Price based on the cost to supply changes in electricity needs in the real-time market. This adjustment is generally a very small component of overall costs given real-time prices only apply to a small percentage of total consumption. The Ontario Price is shown on settlement statements for non-dispatchable load and by local distribution companies for their wholesale customers.

Virtual Zonal Prices

Virtual transactions allow market participants to be settled on virtual zone price differences between the day-ahead and real-time markets. Virtual traders bid or offer energy in the day-ahead market, receive a schedule, get settled for that energy at the day-ahead virtual zonal price, and then get settled for an opposite transaction at the real-time virtual zonal price. No physical delivery or consumption of energy is required. This structure helps to converge prices between the day-ahead and real-time markets.

Intertie Prices

Intertie transactions with neighbouring jurisdictions are also settled through the day-ahead and real-time markets. Intertie prices comprise the Intertie Border Price (IBP), or the LMP at the Ontario side of the intertie, plus an Intertie Congestion Price. As such, intertie prices include the Ontario reference bus price plus the costs of congestion and losses between the reference bus and the intertie location. It also includes the cost of external congestion, and a binding limit meant to restrict the overall change in imports and exports from one hour to the next.

Operating Reserve

Operating Reserve is a critical reliability requirement which ensures that additional supply or load reductions are available should there be a sudden loss of supply or changes in system conditions. Dispatchable participants may offer one or all three classes of operating reserve into the market. If scheduled in the operating reserve market, they will be paid a stand-by payment to be ready to be activated should the need arise.

Learn more about Ontario market prices in the IESO’s Guide to Prices in the Renewed Market.