Resource Adequacy Framework

After years of surplus, a capacity gap in the mid-2020s will emerge, translating into capacity and energy needs in the latter half of the decade. These needs will continue through 2040, with demand expected to increase one per cent per year during this period. The IESO has been working with sector stakeholders to develop approaches to address these reliability needs in a timely, cost-effective and flexible manner.

Better aligning acquisitions with evolving system needs

To help address this shortfall, a Resource Adequacy Framework sets out a long-term competitive strategy to acquire resources while balancing ratepayer and supplier risks and recognizing the unique characteristics and contributions of different resource types. Designed to facilitate the transition to a more competitive procurement environment and better aligning acquisitions with evolving needs, the framework incorporates the mechanisms that will be used to purchase capacity in all time frames: short, medium and long term. To maximize competition, acquisition mechanisms are expected to be open to all resource types that meet eligibility requirements.

Short Term: With a short forward period (less than 12 months in advance), the IESO Capacity Auction offers greater flexibility to adapt to changing system needs at the lowest cost to consumers and mitigate uncertainty associated with over/under supply. Auctions operate on a fixed schedule, offering predictability to the market. With planned enhancements over time, the auction is expected to attract a broad mix of resources, enabling the IESO to procure significantly more capacity, and improve resource reliability and market performance.

Medium Term: When needs (capacity, energy and/or operability characteristics) can be met by a number of resources, the IESO will be able to choose mechanisms (RFP or capacity auction) with a three- to five-year commitment period. This time frame will provide certainty, while ensuring the IESO is not locked into commitments that are no longer reflective of changing needs.

Long Term: When an identified need can not be met by existing or readily deployable assets, the IESO may need to facilitate investment in new build or major upgrades to existing resources through a longer-term contract. As uncertainties necessarily increase in proportion to the length of the forecast, this component of the framework will need to balance forecast certainty with the need for cost-effective investments.

Targets for each mechanism and framework will also have to be set in an integrated way to avoid under- or over-commitment of resources. This approach to resource acquisition will also have to be pragmatic, recognizing that government directives in the sector accommodate objectives beyond balancing supply and demand. As details for the medium term and long term mechanism are developed with stakeholders, additional information will be available on this page.

Enhancing Capacity Auctions

In Ontario, capacity auctions secure resources needed to meet peak demands, with a diverse range of supply options competing to be available for summer and/or winter peak energy needs. Having a flexible and competitive mechanism that can respond to changing system needs each year delivers significant value to ratepayers and ensures cost-effective reliability.

In an important milestone for Ontario’s electricity sector, the IESO secured 992.1 MW of capacity from a broad range of resources in last December’s province-wide capacity auction. Successful participants are providing capacity this summer, from May to September 2021, and include industrial and commercial consumers providing demand response, imports, generation and energy storage.

The experience with the most recent auction has reinforced the value of this mechanism in meeting short-term needs, and demonstrates why it will be relied on more in the years ahead as our system needs grow. As a result, the IESO will be enhancing the role of Capacity Auctions to help these needs and will be introducing minimum and maximum targets for summer and winter periods. More information about these capacity targets will be included in the Annual Acquisition Report.