Ontario Electricity Market

1
Ontario Electricity Market

• Andy He
• Independent Electricity System Operator March
  26, 2007

2
OVERVIEW

• Part I Review of Electricity Production Process
• Part II The Path Towards Deregulation
• Part III Wholesale Market Design
• Part IV Offer Strategy

3
What is a Power System
Factories
Generators
High Voltage Transmission Lines
Lower Voltage Distribution Lines
Most customers
4
The Path Towards Restructuring
Electricity Act, 1998
Electricity Pricing, Conservation and Supply
Act, 2002
Lakeview phased out in April 05
White Paper
IPSP
IESO
96
98
99
03
97
00
01
02
04
05
06
07
Market Rules begin
OPA
Market Design Committee
Wholesale Market Opens
Early Movers and CES contracts
Electricity Restructuring Act, 2004 (Bill 100)
Macdonald Report
MDC submits final report with Market Power
Mitigation Framework
2002 2003 2004 2005
2006 HOEP 52.00 54.05 49.95
68.49 46.38
5
Wholesale Market Design
6
The Present Market
IESO - Administered Markets
7
Optimization Objective of the Real-Time Markets
Value of Electricityproduced as indicated by
Energy demand from non-dispatchable loads and
bids by dispatchable loads and exporters
Cost toproduce Electricity as indicated by
offers to supply Energy Operating Reserves
(generators and importers)
Total Surplus
-

Algorithm maximizes economic gain from trade for
all market participants
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Bid and Offer Basics

IMO - Administered Markets
Real-time Energy
Three hours before the delivery hour
9
Typical System offer Curve
2,000.00
1,500.00
1,000.00
500.00
/MWh
0.00
5000
10000
15000
20000
25000
-500.00
-1,000.00
-1,500.00
-2,000.00
MW
Nuclear and baseload hydro
10
A Typical Unit Level Offer Curve
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Typical Bid Curve
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Solving for the Market Clearing Price
Price
Offers
MCP
Bids
Quantity
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Operating Reserve

• Stand-by capacity that is available to be
  converted into energy in the event of contingency
  (forced outage of generator or transmission)
• IESO sets requirements based on Industry
  standards (1380MW)
• Three classes of Operating Reserve
• 10 minute spinning - 25 of the largest single
  contingency (-- one Darling unit)
• 10 minute non-spinning - 75 of the largest
  single contingency
• 30 minute - 1/2 of the second largest contingency

14
Optimization Occurs Across Both Energy and
Operating Reserve Markets

• Fixed generation capacity can be used to supply
  energy or OR (substitutes)
• Algorithm simultaneously solves for energy and
  three classes of OR
• Price for each product set as the incremental
  cost of requiring one more MW of product
  (opportunity cost of the last MW that serves the
  market)
• Incremental cost includes opportunity cost of
  converting capacity from one product to another
  (in shortage conditions the OR price the energy
  price)

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Factors Affecting Electricity Price

• Fuel price, especially natural gas price
• Demand/supply condition
• relative external prices (import and export)
• Market design
• Transmission congestion
• Market power (no evidence of exercising market
  power found by MSP)

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Monthly Electricity Price Since April 05
17
Fuel Prices and HOEP
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Offer Strategy (SFE)
Offer Curve
MC
MR1
D3
D2
MR2
MR3
D1
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Exercise

• August 1, 2006
• Four groups, each with an identical unit
• The actual outputs and offers are known
• Residual demand and MC of each unit is in the
  graph
• Try your optimal bidding strategy based on given
  information
• Will you be hired or fired?