The Ontario Electricity Market - Global Adjustment Model, Over-contracted Supply Estimation, and Price Decomposition

The Ontario government has implemented guaranteed price contracts with renewable and nuclear electricity producers. When generation of the contracted supply is greater than Ontario's demand (less imports), the excess electricity must be exported and/or some contracted generators must be temporarily shut down (some still receive payment). This paper estimates over-contracted generation loss from 2006 to March 2012 and finds the yearly loss for 2011 was approximately $17.7 million dollars added with the forced shut down cost of $20.1 million. The export industry reduced the potential loss by $5.6 million by paying the lndependent Electricity System Operator wholesale market price (lower than the contracted rate) for the excess contracted generation. The argument for keeping a discrepancy between export price (wholesale) and Ontario's consumer price (wholesale + global adjustment) is based on this value. The Ontario lndependent Electricity System Operator market wholesale price dropped significantly with the decrease in the price of gas in 2009 (discovery of shale gas). However, from 2008 to 2011, the overall Ontario consumer price has increased, by $17.19/MWH to $20.00/MWH. At least $10.19/MWH of this increase is due to Ontario Power Authority renewable energy contracts and OPA programs