Pricing Outcomes: A Framework for a 21st Century Electricity Market for Ontario

Produced by the Mowat Centre at the School of Public Policy and Governance, University of Toronto.This paper, the latest in Mowat Energy’s On the Grid series, analyzes the impact of this development on the wholesale energy market in Ontario and recommends a path forward for effective continued investment in low-carbon energy generation. Driven by technological change and government policies, Ontario electricity generation is now dominated by nuclear, hydro, wind and solar. Compared to fossil fuel generation, these energy sources are all low-carbon and have low marginal costs, but large upfront construction costs. The growth of these resources is therefore disrupting the wholesale electricity market, which so far has been based on generators bidding at their marginal costs. The paper concludes that, in order to ensure that the investment we need in low-carbon energy continues, we need to refocus the wholesale electricity market away from pricing outputs and toward pricing outcomes