Update on the Market Renewal Program Update to Technical Panel September 26, 2017
Overview Introduction Defining Market Renewal Update on Engagement and MRWG Priorities Looking Ahead Appendix: Why We Need to Renew the Market 2
What is Market Renewal? The Market Renewal Program (MRP) is the most ambitious set of enhancements to Ontario s electricity market design since our market opened in 2002. It will address known issues with our existing design and deliver ratepayer value by meeting system needs more cost-effectively. Market Renewal will deliver a market place that will send transparent price signals to meet different system needs. It will: improve the utilization, scheduling and dispatch of existing assets in the day-ahead and real-time increase competition among resources, with a goal to deliver greater efficiency and flexibility achieve resource adequacy in more cost-effective and transparent manner that reduces and/or defers the need to build new resources Market Renewal is being designed to work effectively within Ontario s policy framework, while also preparing us for further changes in the sector. For example, by sending clear price signals and lowering barriers to entry, it will better enable new emerging technologies and empower consumers to play a greater role in the sector 3
Market Renewal: A More Efficient Market Market Renewal will drive a more efficient market structure to procure, commit, and dispatch needed resources Improve efficiency and transparency by sending effective price signals to enable informed decision making Ensure existing and new resources can recover many of their costs through market mechanisms Reduce administrative burden and reset boundaries between the markets and the participants 4
MRP Mission and Guiding Principles The IESO has worked closely with stakeholders to develop an agreed upon mission and set of principles for Market Renewal 5
Defining Market Renewal 6
The Future Market Market Renewal will lead to a system with transparent revenue streams for needed services and provide an opportunity to re-align risk sharing All streams together will provide incentives for existing and new resources, rather than one single tool or program All resources should have the opportunity to compete and will earn more or less revenue depending upon how they can meet what the system actually needs Innovation and competition will drive cost-effective outcomes Other elements, foundational to the IESO, will likely need to be evolved to appropriately support the future market 7
Defining the Market Renewal Program Initiatives in advance of MRP Interim Flexibility/ Operating Reserve Changes DR Auction Enhancements & Capacity Exports Market Renewal Program Intertie Scheduling & Permanent Flexibility Product (TBD) Single Schedule, Day-Ahead Market, Real-time Unit Commitment Capacity Auction MRP lays the foundation for a renewed Market ; without these changes, IESO will continue to have to use inefficient tools to adapt to changes and implement policy The Future Market Other Marketbased Products Evolved Roles for DER/LDC Environmental Attributes Market Flexibility & Ancillary Services Energy Market Capacity Product Important and strategic opportunities for IESO to advance and renew the entire market and sector, but not part of the current scope for the Market Renewal Program These mechanisms will likely have to continue to be enhanced even after MRP is done to keep pace with the changes in the sector 8
MRP: One Piece of the Puzzle Market Renewal is key to drive transformation of the IESO and the sector and ensure we meet system needs at lowest costs But other key issues need to evolve alongside MRP, for example: Integration and operation of nonemitting resources and emerging technologies Meeting emerging flexibility needs Policy choices and frameworks IESO-LDC Interoperability Governance Planning Planning Governance MRP Policy Framework Flexibility LDC Interoperability Nonemitting resources 9
MRP Linkages to the Strategic Issues The MRWG has identified 10 key issues that are overarching and bigger than MRP but will likely need careful consideration for MRP Resource consideration: DR, Conservation, Storage, DER, Non-emitting, other emerging IESO considerations: Planning, Contracts, Flexibility, LDC Interoperability Sector considerations: Governance, Gas-electric interface, policy framework They have developed near and long-term problem statements that outline their particular linkage to MRP In the process of identifying next steps and approaches to working through these issues Many of these issues will undergo evolution, renewal and enhancements separate but in parallel with MRP 10
Sub-committee on Non-Emitting Resources The MRWG has agreed to establish a sub-committee that will explore the linkages between MRP and non-emitting resources The MRWG has indicated that: Membership on the sub-committee will not be limited to MRWG members Scope is in the process of being determined, but the sub-committee will likely explore: 1. design issues for non-emitting resources within MRP; and 2. potential future market issues related to managing a very low-carbon electricity sector 3. potential options for incentivizing non-emitting resources in a manner that is consistent with Market Renewal 11
The Future Market and Clean Energy Policy Market Renewal can work seamlessly with additional market mechanisms to support low carbon resources Competitive market-based mechanisms will ensure these policy goals are met in the most cost-effective and innovative manner Like Cap and Trade, there is an opportunity to create greater harmonization with other markets to allow for trading Cap and Trade REC Market RPS Policy Clean Energy Auctions Tax Credits Other options TBD Cap and Trade is an efficient mechanism to meet carbon goals. Many other mechanisms can be explored to work alongside cap and trade and market renewal. 12
Update on Engagement and MRWG Priorities 13
SE Progress and Timelines Single Schedule Market (SSM) and Incremental Capacity Auction (ICA) are into Phase 2 (Options) now Engagement for Day-Ahead Market (DAM) and Enhanced Real-time Unit Commitment (ERUC) will start this Fall 14
MRWG: 2017/18 Priorities To effectively move the program forward, MRWG members have identified four key near term actions: 1 Prepare a MRWG joint report this fall that encompasses what MRP is (and is not) and outline a clear work plan going forward 2 Deliver design documents for SSM and ICA Q2/3 2018 3 Work together to consider market based options for meeting flexibility need in the short-term that are aligned with MR 4 Continue to foster and enable capacity exports in the short-term to deliver ratepayer value and showcase market-based solutions MRWG Membership will also be revisited to ensure that all members are attending, participating and contributing 15
Priority 1: MRWG Report Goal of the report is to deliver key messages to a broader audience define what MRP is and what it is not To be used by IESO, MRWG members (and broader stakeholders) to communicate the benefits of MRP Navigant is supporting the IESO and MRWG in drafting the report. Key considerations are: Be concise and written in plain language Be a product of the MRWG Be published before the end of 2017 16
Priority 2: Complete Design for SSM and ICA Both engagements have ambitious schedules to ensure a high-level design document can be completed by Q3-2018 Fundamentals (Education) Sessions have been completed We are now into the Options phase In the engagements some key topics have started to be discussed. For example: Load pricing in SSM and Demand Curve and Target Capacity in ICA As part of the Co-Design model, stakeholders are expected to provide feedback on the presented options Provide guidance to the IESO on what additional information, assessments and analyses are required before driving towards a decision 17
Phases of High Level Design SE Meetings are the primary vehicle for design discussions Phase 1 will outline design elements, provide education, and define scope Phase 2 will explore options for the design elements and develop preliminary decisions Phase 3 will finalize decisions for all design elements and complete the High-level Design (HLD) document Throughout this process, we are looking for stakeholders to actively and collaboratively work with us on the design 18
Design Phase: Roles and Responsibilities Substantial consensus Where we cannot achieve consensus, IESO has final decision-making authority 19
Priorities 3 & 4: Flexibility and Capacity Exports IESO has proposed an interim solution to get more flexibility onto the system Utilize 30 min OR to get more resources online within a transparent and competitive framework In the process of gathering feedback and conducting more analysis IESO has outlined that it will work with HQ to enable capacity exports in the near-term Draw on experience with NYISO MISO to be explored next PJM is a possibility and linked to ITC merchant line 20
Looking Ahead ICA Monthly meetings to discuss design options Eligibility, performance obligations, cost recovery, target capacity, commitment periods SSM Monthly meetings to discuss design options Price formation (energy price, load pricing, OR and intertie pricing), settlement, market power DAM / ERUC Education sessions will start this fall Key linkages to the other work streams will be identified MRWG Address strategic issues and focus on seams issues between the projects Sub-committee on non-emitting resources will be launched Flexibility & Exports Flexibility engagement is underway stakeholder feedback needed on proposed near term solution IESO in contact with HQ and MISO to further enable capacity exports Broader IESO IESO will be engaging more broadly with the sector on Governance and changes to Operating Reserve Review of IESO strategy may result in additional engagements on a number of important files 21
Questions? 22
Appendix: Why We Need to Renew the Market 23
IESO at Crossroads: Continue with Band-Aids or Fix the Foundation? Current market design is resulting in higher costs and is not sustainable. In the past, the IESO has managed these through ad-hoc band-aid solutions. Market Renewal is fixing these inefficiencies and laying the foundation for future enhancements. Market Renewal Holistic solutions to create more certainty and transparency for market participants Energy Single Schedule System Day-Ahead Market Enhanced Real-Time Unit Commitment Capacity Capacity Trade Incremental Capacity Auction Operability More Frequent Intertie Scheduling Investigate other opportunities 24
What are the current Inefficiencies in the Market? Energy Two Schedule Pricing System Out of market payments and gaming opportunities result in higher costs Muted price signals send inaccurate information to consumers, suppliers and investors Unit Commitment Sub-optimal commitment decisions both day-ahead and real-time do not utilize Ontario s fleet optimally Opaque, after the fact cost recovery without competitive drivers Capacity Locked in much of our capacity for long-term with ratepayers bearing most of the market risks Procurements have not fostered innovation or unlocked broad range of capacity (e.g. imports, uprates, emerging technologies etc.) Operability Transformation of our generation fleet is leading to operational challenges Forecast inaccuracies can lead to reliability issues if we over-forecast wind/solar output (and under-forecast demand) 25
Energy Workstream: Increased Certainty and Improved Asset Utilization A Single Schedule is the enabling change that is needed to achieve further efficiencies in scheduling and optimizing energy and ancillary services Day Ahead Market Providing the opportunity for production and consumption decisions to be made with certainty day-ahead is beneficial to all market participants and the IESO Enhanced Real Time Unit Commitment Optimizing unit commitment over a longer timeframe based on a competitive platform, while ensuring commitment costs are transparent will ensure improved utilization of assets in real-time Drive more certainty and participation into the day ahead Optimize units over a longer timeframe based on competition 26
Capacity Workstream: Enhanced Competition and Transparency Introduce an incremental capacity auction to competitively procure incremental resources when they are needed based on a platform that is resource neutral Auctions have proven highly effective in achieving low cost outcomes in many markets across North America and Globally DR auction shows how the concept could work in Ontario 27
Operability Workstream: Increased Flexibility With a growing role for intermittent and decentralized resources, Ontario s electricity sector will require increased flexibility The IESO is working with stakeholders to identify solutions for near term needs through the Enabling System Flexibility engagement To meet longer term needs, Market Renewal will: Introduce more frequent intertie scheduling Explore additional opportunities to increase flexibility 28
How the Pieces Fit Together The Market Renewal Program is a collection of a number of discrete projects that work together to improve the operation of our electricity markets Incremental Capacity Auction (ICA) Developed to maintain resource adequacy The procurement mix drives day-ahead and real-time energy markets Occurs several years before operation Day-Ahead Energy Market (DAM) Market to procure energy resources the day before operation Stabilizes real-time markets Generally occurs 24 hours before operation Enhanced Real- Time Unit Commitment (ERUC) Re-optimize unit commitment for the real-time market over multiple hours to improve system efficiency Generally occurs 3-24 hours before operation Single Schedule Market (SSM) Pricing reflects system constraints more transparently on a real-time basis Occurs 5-15 minutes before operation 29