On January 22, the IESO released its first Annual Planning Outlook, a comprehensive set of assessments and projections intended to underlie a wide range of planning decisions by the IESO and the private sector. The Annual Planning Outlook (APO) contains current data on demand and supply forecasts, resource adequacy, transmission planning, emissions, and other issues important to ensuring the reliability of the provincial power system and the operation of power markets. This is the first public document of its type, although the IESO has previously produced an “Ontario Planning Outlook” to support the Long Term Energy Plan, which was most recently updated in 2017.
The IESO stresses that the APO does not contain recommendations on how to meet future supply needs. Instead it focuses on dissemination of technical data that will support decision making by the government and industry, and participation by stakeholders in various planning processes. A number of consultation processes are underway or anticipated in the near future that could lead to decisions and recommendations on the supply mix, electrification, and other issues with long term implications.
The IESO says, “By providing timely and transparent information about future electricity needs on a regular basis, the Outlook is intended to guide investment decisions and market development.” It summarizes current conditions saying, “Ontario is in a stable supply situation after years of investment in new generation. There are enough existing and available resources to meet our needs for the next decade. This puts us in a position to focus on increasing the cost-effectiveness of the electricity system by introducing more competition and stimulating innovation. New commitments for existing and available resources will be needed starting in 2023 as generation contracts expire and nuclear refurbishments get underway. Capacity auctions will provide a platform for these resources to compete to meet Ontario electricity needs at lowest cost. Energy efficiency can also be a cost-effective way to address targeted system needs.”
Of note, the pattern of declining electricity demand in Ontario has recently reversed. “After years of decline, demand is increasing. Electricity demand is expected to increase slowly and steadily due primarily to electrification of transportation, a booming agricultural sector, and modest growth in the residential and commercial sectors.”
In order to meet this rising demand, new resources and new approaches to securing resources will likely be needed. The IESO says, “Over the long-term, additional market-based approaches will be required. As demand continues to grow, more contracts expire, and Pickering retires, additional market-based approaches will be needed. New resources that require large capital commitments and long development timelines, such as large hydroelectric facilities, require different solutions.”
As has been widely reported, the province anticipates a shortfall in generating capacity beginning in 2023. However the shortfall will not be serious enough to require construction of major new generation capacity, the IESO believes: “A capacity need emerges in 2023, initially limited to several hours of the year, as existing generation contracts expire and nuclear refurbishments are underway. Ontario has enough existing and available resources to meet this need over the next decade. Capacity auctions can meet this need, while energy efficiency and a proposed Pickering extension would help reduce it.”
A number of consultants and market participants seem to interpret the situation differently, even though they are relying on the same basic data. For example, Jason Chee-Aloy of Power Advisory LLC, speaking at the IJ Global Canadian Power Finance Conference on January 23, noted that there is a need for approximately 2000 MW of capacity in several years, and said, “There is no realistic way to attract this capacity without contracts.” Travis Lusney, also of Power Advisory, published observations on the capacity situation. See “NERC identifies concerns with supply adequacy,” elsewhere this issue.
APPrO and others have expressed concern that the APO appears to assume that most existing generators will continue to operate after the expiry of their supply contracts. Many of these facilities would require significant capital investment to continue operating. However it’s not made clear in the APO how market prices or procurement mechanisms can be relied upon to attract enough of this kind of capital investment.
Chris Benedetti of Sussex Strategy Group observes that, “Two elements of the forecast sensitive to government decision making are the ICI and the future of energy efficiency programming. The Ministry of Energy, Northern Development and Mines (MENDM) has and continues to consult on industrial rates and the ICI program. Deliberations on a post-2020 CDM framework that could potentially affect the demand forecast are pending.”
The IESO notes that additional information related to the APO will be released in the coming weeks. It is expected that further analysis and commentary on the APO from other parties will also become available in the near future and feed into a number of consultations and public discussions on the APO and its implications. Current legislation requires that the government complete an update to the Long Term Energy Plan, including stakeholder consultation, by the end of the year.
The IESO has scheduled a Technical Planning Conference on February 19 in downtown Toronto. The agenda includes a review of the key insights from the Annual Planning Outlook, updates on regional and bulk system planning, and a preview of what stakeholders can expect from existing and new engagements related to IESO planning.