The Independent Electricity System Operator (IESO) announced on December 7, 2023 that it procured 1,867 megawatts (MW) of capacity for summer 2024 and 1,310 MW for winter 2024-2025 through its 2023 Capacity Auction (CA). The amounts procured were higher than the IESO’s pre-auction targets of 1,400 MW of supply for summer 2024 and 850 MW for winter 2024-2025.
The clearing prices for the 2023 CA were $367.41/MW-day for the summer and $146.96/MW-day for the winter – both higher than last year’s clearing prices of $306-day and $130-day, respectively.
The 2023 CA was the first auction that qualified MWs using a resource’s Unforced Capacity (UCAP), which represents the expected contribution of the asset’s total MWs to meeting peak demand needs.
The CA auction is increasingly being used to procure a greater amount of MWs to meet the province’s capacity needs. Since the start of the DR/CA in 2016, the capacity cleared for the summer has increased from less than 400 MW to 1,800 MW and from 400 MW to around 1,300 MW in the winter.
Most of the successful participants for the 2023 Capacity Auction capacity will participate as a DR or storage resource. Only six of the 45 successful participants will participate as gas-fired generation, oil-fired generation, or import. The capacity cleared by fuel type is shown in Figure 2.
Nonetheless, non-DR resources – such as thermal and imports – continue to play a prominent in the CA role since the IESO expanded it to include non-DR resources. The CA procured 192 MW of gas-fired generation supply for the summer of 2024 and 256 MW for the winter of 2024-2025 – with four participants in total providing gas-fired capacity. The IESO also cleared 300 MW of oil-fired generation supply for the summer of 2024 and 150 MW for the winter of 2024-2025 – with that capacity provided by Oswego Harbor Power LLC, a U.S. based company that owns and operates the 1,800 MW Oswego thermal plant. Similar to the previous CA in 2022, Hydro Quebec (HQ) continued to supply 300 MW of capacity for the summer of 2024.
Power Advisory Commentary
The growing capacity quantity and clearing price are not surprising given the tighter supply conditions Ontario is experiencing. The IESO expects to target around 2 GW of short-term capacity through the CA over the long-term. Likely this will create a robust market for short-term capacity and overtime could result in moderating or lower CA prices. A complete picture of the CA is unavailable due to the IESO’s restrictive view on data sharing (i.e., publishing bid data after the auction).
It is not clear how much capacity was offered into both commitment periods in total and how much may have been offered at or near the maximum market clearing price. This information would provide clarity on the competitiveness and capabilities of future CAs to meet Ontario’s supply needs. Power Advisory continues to advocate for enhanced data sharing from the IESO. It should be noted that the IESO is launching a market and planning data stakeholder engagement in Q1 of 2024. 
Combined with the roughly 1,200 MW of capacity procured through the Expediated Long-Term (E-LT) RFP and the potential for further 2,500 MW of capacity from the Long-Term 1 (LT1) procurement, the IESO is rapidly expanding peaking capacity in the province in anticipation of demand growth and the end-of-life of the Pickering nuclear generating station. Developers of new capacity must navigate community engagement and permitting to reach commercial operation. This is no small feat in Ontario and recent rejections by municipalities for projects participating in LT1 demonstrates the long road ahead in expanding Ontario’s supply mix while maintaining safe, reliable and cost-effective operation of the electricity sector. The retention of 300 MW of oil-fired generation on the other side of Lake Ontario shows the challenges for many communities seeking sustainability objectives as well as local acceptance. Decarbonization of the electricity sector requires complex assessments and difficult trade-offs that must incorporate many different stakeholders and interests.