Market Evolution in Ontario

Adam Butterfield

Senior Manager, Electricity Resource Development

April 10, 2018

CanWEA Spring Forum 2018

Calgary, Alberta

• About Ontario’s Independent Electricity System Operator (IESO)

• Wind energy in Ontario

• Overview of Market Renewal

• Non-emitting Resources Subcommittee

• Non-emitting Resource Request for Information

Agenda

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Enable province-wide energy conservation Administer the wholesale electricity market Work closely with communities and stakeholders

Reliably operate Ontario’s province-wide system 24/7

Enable innovation

Plan for Ontario’s future energy needs

IESO: Who we are and what we do

Ontario’s Supply Mix

2017 Transmission-Connected

Generation Capacity Energy Output

4 *Source: 18-Month Outlook, released March 2018

The challenge for all System Operators is to find ways to operate the grid cost effectively as it becomes increasingly digitized, de-

centralized, de-carbonized…. and much less predictable

A Changing Sector

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• Fundamental redesign of Ontario’s electricity markets

• Demands of a modern grid are rapidly evolving

• Reforms are required to continue to manage the grid reliably and cost effectively

Market Renewal Overview

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Market Renewal

Scoping Market Renewal

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An ENERGY work stream

A CAPACITY work stream

• Single Schedule Market

• Day Ahead Market

• Real Time Unit Commitment

• Incremental Capacity Auction

More frequent Intertie Scheduling and other Operability/Flexibility projects also being explored

Near-term market enhancements consistent with Market Renewal continue to be pursued

• Subcommittee of the Market Renewal Working Group

• To ensure characteristics of non-emitting resources are reflected in Market Renewal and the future market

• Will develop a report for Q3/4 2018 that explores:

1. Participation

2. Market Efficiencies

3. Commercial Mechanisms

Non-Emitting Resources Subcommittee

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Non-Emitting Resource RFI

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• Will expand the IESO’s understanding of:

– The technical characteristics of existing resources and potential projects

– The potential barriers to participation different resource types are or may be facing

• Conducted in two phases over the course of 2018:

– Phase 1 (submissions due May 4): Input on participation in the current and future electricity markets

– Phase 2 (to be issued later in 2018): Input on resource development and broader considerations

The RFI is not part of Market Renewal

– However, Phase 1 aligned to support the Non-Emitting Resource Sub-Committee (NERSC)

– Phase 2 will help inform the next steps that follow from the work of the NERSC

– Input will be used to support Market Renewal and other IESO initiatives

NER RFI and Market Renewal

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Future Markets

NERSC

RFI

INTEGRATION

NERSC, RFI and the Big Picture

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Market Renewal

Stakeholder

Engagements

High-Level

Designs

NERSC

RFI Phase 1 RFI Phase 2

2018 2019

Detailed Design

Future Evolution

Address uncertainty

Create a more flexible marketplace

Clearly defined “unbundled” products and services

IESO Vision for the Future

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• Participate in shaping the future market

• “Potential barriers” – more detailed input/feedback

• It’s not only about building new facilities – broaden service offerings from existing wind farms

Final Thoughts – How can you help?

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IESO Resources – Keep in Touch

Appendix: Market Renewal work streams

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Single Schedule Market

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Replace Ontario’s two schedule system with a single schedule market that better aligns price with dispatch

Reduced complexity

unlocks other design

changes

Improved price signals

increase efficiency of dispatch and investments

Together, these outcomes will reduce the production cost of electricity

Day-Ahead Market

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• A new market allowing suppliers/consumers to lock into guaranteed prices for supply/consumption a day ahead of when it is required

What is changing?

• Efficient way of improving operational certainty for system operators as real-time approaches

• Improves financial certainty for dispatchable resources

• Establishes a hedge against price volatility in the real-time market caused by changes in supply and demand

What are the benefits?

Enhanced Real-Time Unit Commitment

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Unit commitment processes provide financial incentives that ensure resources with long lead times to provide energy are available when they are needed

Ontario’s current real-time commitment process has a number of shortcomings (e.g., does not consider start-up costs, makes commitments based on a one-hour period)

The enhanced real-time unit commitment process will include start-up costs and a longer timeframe to make more efficient commitment decisions

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Incremental

• Will secure resources to meet system adequacy needs that are not met by contract or rate regulation

• Contracted and regulated capacity will not be eligible to participate

Capacity

• Will procure a single uniform capacity product

• Other products and services will be incentivized via other revenue streams

Auction

• A stable long-term mechanism that will secure capacity in a technology agnostic manner from diverse resource types

• Fundamental change in risk allocation from contract paradigm

Incremental Capacity Auction