Following more than two years of stakeholder engagement, the Independent Electricity System Operator (IESO) announced on July 16, 2019 its decision of stop further work on the current High Level Design (HLD) for the Incremental Capacity Auction. The IESO cited as rationale the belief that Ontario’s near term limited capacity needs can be met through existing and available resources such as Demand Response, imports, generators that are coming off long-term contract, uprates and energy efficiency.
The decision also means that the bottom up “Business Case” being developed by the IESO will now exclude the costs (and benefits) of a capacity auction as a component of the Market Renewal Program (MRP) relative to a “Base Case” (however defined). While work on implementing a “Transitional Capacity Auction” will continue, it is unclear how the assumption that existing assets will continue to operate, and perhaps be uprated, will be met.
Throughout the development of the MRP, the IESO has recognized that long lead time, capital intensive, long life span facilities such as hydro (also called waterpower) are expected to require mechanisms alongside a Capacity Auction in order to be incented and sustained. The province has successfully procured new waterpower under 40-year contracts and re-contracted existing operating facilities for 20-year terms. Waterpower assets contracted more than 30 years ago help to moderate prices and could continue to do so for decades to come.
Ontario’s rate regulated waterpower portfolio is foundational to system reliability and, as evidenced in the graphic below, our entire waterpower fleet provides outstanding bang for the buck.
In developing Made-in-Ontario solutions, it is important that the IESO assess alternatives that are most practical in an Ontario context. Owners and operators of waterpower resources make long-term capital investment plans for their infrastructure to achieve public safety, water management and electricity production objectives.
Waterpower generation can be contracted through competitive processes and continue to help ensure that future electricity needs will be reliably met at the least cost to Ontario electricity customers.