In the kickoff to a long-awaited consultation process on Resource Adequacy, the IESO tabled a new framework to competitively acquire capacity to meet short-, mid-, and long-term electricity system needs. It proposes three distinct methods suited to different time frames. On September 28, Leonard Kula, the IESO’s COO and Vice President of Planning, Acquisition and Operations, explained that the IESO sees quite different needs arising in the short, medium and long terms. By the end of this decade, a material amount of existing generation resources will come off contract. It will be important for the IESO to examine transition mechanisms for those that come off contract earlier. And, as mentioned elsewhere, some capacity needs are appearing as soon as the summer of 2021.
The IESO invited comment on a new framework in three parts:
• Short term: Capacity Auction
• Medium term: Capacity auctions or procurements focused on existing resources
• Long term: Procurement focused on new build projects.
Mr. Kula noted that when the IESO contracts for new build resources and with longer time frames, that amounts to transferring a significant amount of risk to the ratebase. While a certain amount of long-term contracting is likely prudent, from a risk management perspective the IESO would like to have a significant proportion of its investments in shorter time frames, to better distribute risk.
The objectives of the current Resource Adequacy Engagement are to:
• Establish a framework to competitively acquire capacity to meet short-, mid-, and long-term electricity system needs in a way that:
• Effectively balance cost and risk, and
• Ensure full implementation in time to address larger capacity needs forecast to begin in 2028.
The IESO explained that “Capacity auctions will be a part of this strategy and will remain the IESO’s primary mechanism for acquiring smaller amounts of capacity to meet fluctuating needs.”
In most power markets there are systems in place to ensure enough investment in capacity is made to ensure reliable operation. Although in principle a properly functioning market should be able attract investment required to supply the market, electricity markets in most jurisdictions have usually found that additional incentives are needed to attain the desired level of reliability.
The Resource Adequacy Stakeholder Engagement process builds on prior engagements that focused on competitively acquiring resources. The current engagement was originally scheduled to begin in January 2020 but was postponed twice, once because of a need for more planning and later because of the pandemic.
The IESO anticipates that the current engagement will identify work streams for subsequent engagements in November 2020, and bring high-level recommendations to the IESO Board in December. In the first quarter of 2021, the IESO plans to “Present (a) final high-level framework to stakeholders, outline plans for subsequent engagements to develop details needed to operationalize and implement the mechanisms, and develop the transition plan.”
For more information, see this location on the IESO website: