IESO Capacity Auction Update

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Changes are afoot for the way Ontario’s energy market operates.

After many missed attempts at opening up Ontario’s annual Demand Response Auction to a wider range of resources, the IESO is planning on moving forward with a Capacity Auction this December 2020.

This article will outline which new resources are able to take part in the Capacity Auction, and specifically, the following questions will be answered:

  • Which resources can take part as of December 2020?
  • Which resources cannot take part as of December 2020?
  • What is the participation schedule for the December 2020 Capacity Auction?

These changes offer new opportunities for energy companies and suppliers along with increased competition, but with any change comes uncertainty, so let’s take a closer look at just what is changing and what kinds of resources will be able to participate in the December 2020 Capacity Auction.

The IESO was seeking to gradually evolve the Demand Response Auction last December to a Capacity Auction, by including Dispatchable Generators in the mix.

This change was delayed however due to a complaint made by AMPCO (Association of Major Power Consumers of Ontario) stating that the inclusion of Dispatchable Generators in the auction was unfair to existing Demand Response resources. Specifically, the complaint related to the fact that generators are compensated for their availability along with energy delivered to the grid, which was not the case at the time for DR resources resulting in an uneven playing field.

The issue was resolved with an adjustment to market rules and a Capacity Auction was planned for June 2020. Due to the spread of COVID-19 and attendant uncertainty in the market, the June Capacity Auction was delayed once again to December 2020.

Which resources can take part come December 2020?

The IESO’s list of eligible resources for December 2020 include DR resources, which can participate as one of the following types:

  • Dispatchable loads
  • Physical hourly demand response
  • Virtual hourly demand response (residential) or virtual hourly demand response (industrial and commercial).

Further groups of eligible resources include capacity generation resources – but these must be registered in the IESO Administered Market (IAM) – as well as both non-committed and dispatchable generators.

System-backed capacity resources and capacity storage resources are also eligible; however, the latter must be registered with IAM as dispatchable generators, licensed with the Ontario Energy Board (OEB), and non-committed.

Which resources cannot take part come December 2020?

As of December 2020, the list of ineligible resources include;

  • rate regulated facilities
  • energy efficiency resources
  • self-scheduling resources
  • hybrid injections
  • withdrawal resource-backed capacity imports

Naturally, resources that are not registered in the IAM at the time of capacity enrolment are not eligible to participate, nor are resources from other jurisdictions that are not permitted in Ontario (e.g. coal power).

What is the participation schedule for the December 2020 Capacity Auction?

If you are planning to take part in the IESO’s Capacity Auction going forward, you will need to take four periods into consideration: the pre-auction period, auction period, forward period, and obligation period.

The Pre-Auction Period begins approximately two months before the capacity auction. At this time the IESO will publish a report on how much capacity it is soliciting, as well as information on key milestones, parameters, and zonal constraints. The target capacity will be set to reflect the province’s immediate needs, and will incentivize the participation of a wider range of actors in order to increase competition.

The Auction Period refers to the length of time from when the IESO begins to accept capacity offers to the time that the IESO posts the results. The Forward Period denotes the time between the end of the auction and the first day that participants are obligated to deliver their Capacity Obligations. This period is 11 months long for the Summer Obligation Period, and 17 months long for the Winter Obligation Period.

The Obligation Period runs from May 1st to October 31st for the Summer Obligation Period and from November 1st to April 30th for the Winter Obligation Period. This time frame is when participants receive payments based on their total cleared capacity and the applicable auction clearing price.

It should be noted that the IESO will not be accepting capacity for the Winter 2021 obligation period due to heightened uncertainty in system need currently being experienced.

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