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Posted in: Energy Policy | Ontario | Procurement

Mar 10, 2017

Study Estimates Billions of Dollars in Benefits From IESO's Market Renewal Project

By David Stevens

A recent study prepared by the Brattle Group and others for Ontario's Independent Electricity System Operator (IESO) estimates that Ontario could realize net benefits of $2.2 billion to $5.2 billion from reforming the wholesale electricity markets. This would be achieved through the IESO's proposed Market Renewal Project. The benefits would start around 2021 and would primarily flow to Ontario consumers. Based on the analysis outlined in the study, the Brattle Group recommends that the IESO proceed with developing a market design for Market Renewal and identify options to maximize benefits and minimize associated costs.

The IESO's Market Renewal Project, which was commenced in 2016, is aimed at "overhauling" Ontario's "two-schedule" wholesale electricity market. The current market approach (which was intended to be temporary, but which has been in place for 15 years) uses one scheduling sequence that takes into account system constraints to schedule generation and uses another scheduling sequence to determine price based on an unconstrained transmission system. This results in inefficiencies.

As seen in the following excerpt from the Brattle Group study, there are three workstreams associated with the Market Renewal Project:

  1. Energy: Move to a single-schedule market, including locational marginal pricing for suppliers, improved generation commitment and dispatch in real time, and a financially-binding day-ahead market.
  2. Operability: Increase system flexibility and improve utilization of interties with neighboring systems to reduce the cost of surplus-generation conditions, variable renewable generation uncertainty and the need to curtail resources.
  3. Capacity: Improve procurement of resources to meet the province's resource adequacy needs through an incremental capacity auction that stimulates competition from all qualified supply resources in a technology-neutral manner.

The Brattle Group estimates that substantial savings can be achieved through each workstream. Among other things, the savings will be achieved through improving the electricity system's ability to identify and use the lowest cost resources (including interties) to meet demand and by reducing curtailment and increasing export revenues. There is an expectation of greater competition and lower costs for future generation requirements. The benefits are estimated at $160 million per year in 2021, to as much as $670 million in later years. In total, the benefits over ten years will be more than $2 billion (and could be as much as $5.2 billion).

The final section of the Brattle Group study is titled "Findings and Recommendations." It starts with the overall recommendation that the IESO continue to pursue the Market Renewal effort, because of the significant associated significant policy and economic advantages. This section of the study also offers a number of specific recommendations for consideration by the IESO, stakeholders and policymakers in order to maximize the benefits and mitigate the risks of Market Renewal. These recommendations are grouped under headings such as Policy Alignment and Future-Readiness, Energy Market Reforms, Operability Reforms, Capacity Auction, Long-term Contracts and Implementation Process and Costs.

The Brattle Group study has been presented to the IESO's Market Renewal Working Group. Interested parties are invited to provide any comments to the IESO by March 22, 2017.

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