Ontario's Power System

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.

Watch the short video below for an explanation of how an electricity market works in Ontario.

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.

Market Renewal

When the current electricity market opened in 2002, the electricity landscape looked very different from today. 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.

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 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.

Based on an assessment of the operational, reliability and financial impacts and costs associated with implementation of the new energy market, a 2019 Market Renewal Program business case shows net benefits will reach at least $800 million during the first 10 years – and continue well beyond that period.

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.

Capacity Auction

The IESO's Capacity Auction has replaced the former Demand Response Auction to enable competition between additional resource types. Capacity auctions help meet Ontario’s reliability needs in a cost effective manner while allowing the IESO to transparently adjust to changing system needs. Learn more about capacity auctions.

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.

• 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.