Brattle economists have authored a report that concludes the Independent Electricity System Operator’s (IESO) proposed Market Renewal efforts to reform the province’s wholesale electricity markets could provide significant benefits to customers and suppliers in Ontario. These benefits significantly outweigh estimated implementation costs.
Ontario’s Market Renewal initiative, which will include significant changes to Ontario’s wholesale electricity markets, would be the first significant overhaul to Ontario’s 15-year old “two-schedule” market. The Brattle study, which was undertaken with participation of and significant input from IESO staff and IESO stakeholders, estimates the net benefit that Ontario could realize through implementation of a locational energy market, improving the system’s operating flexibility, and the introduction of an incremental capacity auction for maintaining resource adequacy.
The Brattle study estimates province-wide efficiency and customer benefits of CAD $3.6 billion over a ten-year period in 2021 present value terms, compared to implementation costs of only approximately CAD $200 million. The authors find the present value of net benefits to range from CAD $2.2–$5.2 billion, with both customers and other market participants sharing in these gains. Additionally, the benefits from Market Renewal are likely to grow over time as Ontario’s electricity sector continues to decarbonize, existing contracts expire, and the sector becomes more distributed in nature.
The study finds the primary benefits of Market Renewal will be associated with:
- Fuel, emissions, and operations and maintenance (O&M) cost savings
- Reduced curtailment/spilling of non-emitting resources
- Increased revenues for exporting power and reduced costs for purchasing imports
- Investment cost savings
- Reduced gaming opportunities, administrative complexity, and unwarranted transfer payments
- Supporting competition and innovation
- Alignment with provincial policy goals
Based on the significant net benefits to Ontario found in the Brattle study, the authors recommend that the IESO and stakeholders proceed into the design stage of Market Renewal. To maximize the benefits and mitigate the risks of Market Renewal, they also recommend that available design choices are carefully examined, taking advantage of recent experiences in other markets, to implement the design elements that are most beneficial in addressing Ontario’s unique fundamentals and policy environment.
The study, “The Future of Ontario’s Electricity Market: A Benefits Case Assessment of the Market Renewal Project,” is authored by Brattle Principals Johannes Pfeifenberger, Kathleen Spees, and Judy Chang, Senior Associate Mariko Geronimo Aydin, Associate Walter Graf, and Research Analysts Peter Cahill, James Mashal, and John Imon Pedtke. The Brattle team was supported by Vikki Harper, Ken Donald, and William Schwant of Utilicast. The report can be downloaded below.