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Who We Are The Power System Demand & Price Conservation Electricity Pricing in Ontario

HOW THE WHOLESALE PRICE IS DETERMINED

Running Ontario's power system and the wholesale electricity market is a 24-hour operation, with offers to supply electricity coming in and prices being set every five minutes.

Here's a step-by step explanation of how Ontario's IESO maintains a reliable supply of electricity and, at the same time, determines the wholesale price of electricity .

Step 1 - How much electricity do we need?

Each day, the IESO issues forecasts of how much energy will be needed throughout the following day and up to the month ahead - including an "energy reserve," of roughly 1400 MW above what is actually consumed. This is extra supply that is on standby and called upon in emergencies. These forecasts are continually updated as new information comes in -- such as changes in weather. Typically, the IESO's day-ahead forecasts are highly accurate, with less than a two per cent variance from the actual demand figures.

Step 2 - Let the bidding begin.

Generators and importers of electricity review the forecast information and determine how much electricity they can supply and at what price. They send these "offers" to supply electricity into the IESO. Similarly, large-volume consumers of electricity that have the ability to change their consumption patterns on very short notice decide whether there are times of the day when they can cut back on energy use, and offer that into the market as well.

Step 3 - Matching Supply with Demand.

The IESO then matches the offers to supply electricity against the forecasted demand. It first accepts the lowest priced offers and then "stacks" up the higher priced offers until enough have been accepted to meet customer demands. All suppliers are paid the same market-clearing price. This is based on the last offer accepted. Some suppliers have signed contracts with the OPA to guarantee a fixed price for the energy produced. The difference between the market-clearing price and the contact price paid is trued up with funds collected through the Global Adjustment.

Step 4 - The Price is Set.

The IESO collects bids and offers until two hours before the energy is needed, so "pre-dispatch" prices, or the price of electricity before the bidding window has closed, can fluctuate as new bids come in. The IESO will issue its instructions to power suppliers based on the winning bids, who then provide electricity into the power system for transmission and distribution to customers. The IESO runs a real-time market, meaning purchases of electricity are made as they are needed.

There are occasions, when the best priced energy may not be available due to limitations on the transmission lines. In this case, that generator's offer is still used to help set the price, but another generator may be asked to provide the electricity.

You can watch market information throughout the day on the Demand and Price Information page which features price and demand graphs that continually update.

RELATED INFORMATION

Market Update
Read demand and price highlights for the previous month.

Power Outlook
The IESO issues assessments of available supply and forecasts of demand for the current quarter.