On October 1, 2026, the IESO announced it secured additional short-term capacity through a bilateral agreement for 600 MW of imports from New York for the 2026/2027 winter period. The IESO also increased its capacity targets by 200 MW for both the summer 2027 and winter 2027/28 periods in the upcoming annual Capacity Auction to 2,000 and 1,400 MW, respectively.1
As a result of the announcement, the IESO has now delayed the pre-qualification period for the upcoming capacity auction to Friday, October 9, 2026.
Based on a tightening supply/demand balance – as outlined in the IESO’s recent Reliability Outlooks and covered by Power Advisory here for Q2 2026 and here for Q3 2026 – securing additional short-term capacity will mitigate the capacity constraint facing the province over the next year. The additional capacity secured will likely result in the next Reliability Outlook demonstrating a Reserve Above Requirement (RAR) metric that is above the adequacy threshold used to approve outages – as opposed to being below it as shown in the last two Reliability Outlooks.
The increase in Capacity Auction targets comes after the IESO recently lowered the amount of non-firm imports that it will rely on for reliability purposes by 200 MW for the summer period – aligning with the 200MW increase in capacity targets that have been applied for both the summer and winter capacity periods in the upcoming Capacity Auction. The increase in Capacity Auction targets does not resolve the need forecasted for April 2027 – which occurs before the obligation period for the upcoming auction and required an alternative means to secure capacity. The IESO noted that the need to increase the Capacity Auction target by 200 MW was in response to “facility maintenance recently requested to start this upcoming winter period through 2027 and 2028”, but it is unclear whether the maintenance request was reflected in the latest Reliability Outlook or came afterwards.
The bilateral contract with a resource in New York aligns with one of the five mechanisms the IESO can use as part of its Resource Adequacy Framework:
Power Advisory Commentary
The era of long-term capacity surpluses in Ontario is officially over. The IESO’s decision to enter into bilateral negotiations with a proponent – that includes an oil-fired generator in New York state – to secure 600MW of capacity over a six-month contract is the latest sign of an increasingly tight supply/demand balance. While this approach aligns with the option for bilateral negotiations to secure needs that “cannot be addressed in a practical and timely way through competitive processes”, it has not been common practice in Ontario.
The bilateral agreement highlights that the suite of existing competitive procurement streams that the IESO has launched – that include its annual Capacity Auction and 5-year terms for existing assets – could not address the need within the short timeframe. The previous Reliability Outlook Seasonal Update stated that the supply shortage would be managed by “shifting planned outages”, but at some point since the Q2 2026 Reliability Outlook, the approach to meeting supply needs seems to have evolved to include bilateral negotiations. This speaks to the challenges that the IESO faces in operational planning: in tight supply conditions, even a small change in the demand forecast or generation availability can lead to concerns about resource adequacy that may not be easily addressed by competitive means.
The announcement to enter into a bilateral contract comes after it was understood that the province was facing capacity constraints due to nuclear refurbishments. The most recent refurbishment schedule showing the amount of capacity that was going to be taken offline was published in the March 2026 Annual Planning Outlook, which followed multiple APOs prior to that showing a similar schedule.
It has also been known for some time that Darlington would undergo a station-wide Vacuum Building Outage (VBO) in 2027, with the Q2 2026 Reliability Outlook identifying the VBO as a contributing factor to the two weeks of inadequate supply in April 2027. The IESO’s announcement for securing the short-term capacity from imports pointed to a recently requested facility maintenance, yet it is not clear if this refers to nuclear outages reflected in the recent Reliability Outlooks or to new requests. The announcement provides limited detail on the maintenance driving the need, how the decision was made to pursue bilateral negotiations, or the costs of the agreement.The decision to purchase winter capacity from imports also comes after the most recent Capacity Auction failed to procure the target amount in the winter 2026/27 period and the price hit $725/MW-Business Day – the highest ever capacity price in Ontario.
While the IESO has a responsibility to meet reliability requirements, it also designs and administers multiple competitive procurement mechanisms to meet those requirements in a cost-effective and economically efficient manner. A bilateral contract for capacity outside of Ontario and a change in annual capacity targets should be supported by a clear rationale for why the approach changed from one based on shifting outages to one that resulted in procuring capacity and how the successful counterparty for the bilateral agreement was selected. Transparency on why a short-term capacity bilateral agreement was needed can support continued confidence in the competitive procurement mechanisms that the IESO mostly relies upon to secure capacity, as it may have been the only viable option in this tight timeframe. Market Participants and ratepayers more broadly will benefit from additional clarity from the IESO relating to the process that the IESO applied in pursuing a short-term bilateral agreement for firm imports from New York and how the cost of the agreement compares to alternatives, if any were available.