New Electricity Auctions Will Drive Down Costs for Ontario's Consumers
March 25, 2019The 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, the first of which 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 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, 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, prices 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. 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 for more 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.
Capacity auctions are one component of a series of fundamental changes to our electricity market that are underway. Through the Market Renewal Program, the IESO is leading efforts to create significant cost-efficiencies for Ontario’s energy consumers by redesigning electricity markets, removing barriers to innovation and encouraging greater competition. Market renewal focuses on improving how we supply, schedule and price electricity to meet Ontario’s future needs at lowest cost.
About the IESO:
The IESO manages the province’s power system so that Ontarians receive power when and where they need it. It plans and prepares for future electricity needs and works with its partners to guide conservation efforts.
IESO Media Contact