It’s “essential” that Ontario bring the power market up to date, said Len Kula, Independent Electricity System Operator COO and Vice-President, Planning, Acquisition and Operations, speaking at the 16th annual Power Summit in Toronto February 28.
“Managing the grid efficiently requires having a market design that sends the right signals and incents good decision-making,” he said. “Decarbonization has radically changed our supply mix. Assets are being added to the grid in innovative new ways, particularly at the distribution level, and technology is enabling consumers to become far more engaged than they ever were in the past.”
The market needs accurate price signals for the growing range of different energy products, like flexibility and ancillary services, he argued. “Accurate price signals that reflect underlying system conditions will allow market participants to make informed decisions about when and where to participate. But efforts to date have focused on managing that change and applying band-aid, short-term market design solutions that have proven to be unsustainable.
The IESO is approaching Market Renewal as a foundational change, he said. In the past, it would have focused on long-term procurements by technology type to meet the need. That provided reliability, but sometimes at a higher-than-necessary cost.
The IESO is looking at its redesign of the market in three distinct timeframes, and under four key initiatives:
Initiatives in the near term include: improved interim flexibility, allowing capacity exports, operating reserve changes by making better use of new and existing resources, and enhancing the demand response auction.
Market Renewal is about creating clearly defined energy and capacity products and services that better recognize their value to the grid. It will address relatively fundamental power market design issues over the medium term, recognizing that it will take “a few years” to implement.
And in the long term, it’s anticipated that these efforts will lead to the creation of a marketplace that “attracts the resources Ontario needs, that can accommodate the emerging technologies when they become economic, that can adapt to the evolving capabilities of stakeholders.”
The key initiatives Mr. Kula identified as:
• Design and establishment of a single schedule market
• Creation of a day-ahead market based on the single schedule price and dispatch system
• Creation of an enhanced real-time unit commitment process to improve resource scheduling and commitments in real-time
• An incremental capacity auction to improve the way Ontario acquires supply to meet medium- and long-term needs.
All four market renewal initiatives have completed the first phase of development, during which stakeholders got up to speed on the underlying principles and issues. All initiatives have also made significant in-roads into phase 2, an in-depth review of the design options and the recommendations of the IESO. The high-level design documents should be ready for stakeholder review by the end of this year. At that time, IESO staff will be looking for stakeholder feedback indicating that all individual design decisions integrate effectively together. From that point, the IESO will be able to move into phase three, detailed design and implementation, in 2019.
Market Renewal will provide cost savings, Mr. Kula said. An IESO-commissioned independent study found that all the proposed changes to the electricity market could unlock province-wide efficiency savings of between $2.2 billion and $5.2 billion over a 10-year period. But the benefits are expected to extend beyond that timeframe, he said.
The proposed single schedule market will ensure a pricing system that accurately reflects the cost of producing or consuming electricity at a given place or time, and this will mean more efficient market participation. It will reduce the need for out-of-market payments and decrease the complexity of the market settlement process, which will increase transparency for everyone. It will enable a day-ahead market, which is a tried-and-tested approach to reducing the risk of producing and consuming electricity in real time. A day-ahead market will also help the IESO schedule resources with more certainty.
A subcommittee has been formed to help clarify how non-emitting resources can participate in the future market design and explore how these resources might impact market outcomes, in light of Ontario’s clean energy supply mix. As part of that work, the IESO issued a Request for Information in mid-March. The RFI will be issued in two phases with the first focusing on the technical and operational characteristics of non-emitting resources. The second phase will centre on commercial and regulatory considerations and is targeted to be released toward the end of the summer.
— Condensed from a presentation by Len Kula, COO of the IESO, February 28