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IESO Update | Capacity Auction

By EnPowered on Sep 1, 2020 2:45:17 PM

On Friday (August 28th), the IESO announced changes to the province's first ever Capacity Auction. Due to the ongoing supply and demand disruptions caused by COVID-19, the system operator has decided there will be no capacity auctioned for the 2021-2022 winter period.

Leading the Virtual Energy Movement, EnPowered simplifies energy management.This article discusses the changes to the IESO's capacity auction and what that means going into 2021.

Uncertainty due to COVID-19 has already led the IESO to postpone its scheduled June 2020 Capacity Auction until later in the year. Currently, the Capacity Auction will take place on December 2nd, 2020 - and will see the following changes implemented:

  • Firstly, the IESO has announced that its capacity auction target for Summer 2021 (May to October) will be 700MW in order to help mitigate against demand side volatility due to COVID-19: 2020 saw the first (and second) ever emergency demand response events. Moreover, as shown in the IESO's Forecasting and Planning Update, capacity needs in the summer period are forecast to grow over the next number of years. 
  • The IESO has also announced that there will be no capacity auctioned for the Winter 2021 period (November 2021 to April 2022), due to lower seasonal demand and because capacity surpluses are forecast for the next couple years.

EnPowered Analysis

The IESO's decision to forgo auctioning winter capacity is understandable given that demand is historically lower during that season, nor has there ever been a demand response emergency called during winter. Consequently, the IESO does not want to pay for capacity that it does not need. We anticipate that financial burdens incurred due to COVID-19 are also informing the IESO's decision, as past average winter availability payments amount to $26,298 per MW. A quick calculation based on the auctioned capacity for the 2020-2021 winter period (919.3MW) shows that forgoing winter capacity saves the IESO more than $24.1 million.

While the IESO's bottom line benefits from this decision, this move does slightly hinder demand-side investment: hollowing out the ICI and demand response (DR) programs on such short notice does make things harder for businesses.

  The IESO stands to save $24.1 M by cutting the Winter capacity auction.  

 

Our Product Lead for Demand Response, James Roth, states "With a potential of $24M in savings, The IESO's decision to drop capacity for the Winter 2021/2022 obligation period is understandable from a cost savings perspective but not exactly from a grid reliability standpoint. COVID-19 has brought with it lots of uncertainty as to grid requirements, which may lead one to believe it would be important to have a diverse set of tools the IESO could call upon in the event of an emergency. Dropping the call for capacity removes mechanisms, in this case Demand Response resources, from the IESO's tool belt, which proved it's value during July 2020 when the operator called two emergency events."

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