Electricity Prices jump over 3,000 % in one hour
Recent events evolving at the Independent Electricity System Operator (IESO) should make anyone familiar with the Ontario electricity sector and IESO’s forecasting ability very nervous.
December 4, 2014, at hour 18, the HOEP (Hourly Ontario Energy Price) jumped to $986.76 (98.7 cents/kWh), and earlier that week, on December 2^nd it jumped to $643.00 (64.3 cents/kWh) at hour 17 (5 PM).   IESO’s forecast for hour 18 on Dec. 4th was that the HOEP would be $65.00 (6.5 cents/kWh)—that forecast was way off.  The latter jump was caused because Hydro-Quebec had a transmission failure and sought to import electricity from Ontario; in that hour we supplied them with 1,242 MW with a value (if we got paid the HOEP market price) of $1.2 million.  Is this neighbours helping neighbours, or simply taking advantage of the circumstances?
But that wasn’t the case with the December 2^nd jump: Ontario demand peaks much later in the day as a result of time-of-use (TOU) pricing which drops at 7 PM, but it sure does make one wonder why what is supposed to be an orderly trading market should exhibit such volatility.   Is it related to the intermittent nature of wind and solar, the fickleness of consumers, the 1,600 megawatts of imbedded wind and solar generation, intended or unintended market manipulation, or just bad forecasting?
Until recently, the only major source of energy traded/offered on the HOEP market was “unregulated” hydro produced by Ontario Power Generation, but that disappeared with the change in government regulation 53/05 (Payments under Section 78.1 of the Act).  So, with almost all of Ontario’s generation guaranteed specific pricing under long-term contracts, shouldn’t IESO have the capability to contain volatility in the HOEP?
For another example of market volatility, one can compare the value of electricity on March 1, 2014, 2013, 2012 and 2011.  Total demand including exports in megawatt hours (MWh) respectively was 448,852 MWh, 444,552 MWh, 450,648 MWh and 450,338 MWh.   The difference between the highest March 1^st demand and the lowest was 1.2%, but the difference in what the HOEP market valued that production at was 982%.   The HOEP for March 1, 2014 valued that day’s total market demand at an average of $249.00/MWh (24.6 cents/kWh) but valued the somewhat higher total market demand of March 1, 2012 at only $23.00/MWh (2.3 cents/kWh).
Can the ratepayers of Ontario look forward to more of these strange pricing phenomena that appear with greater frequency, or will the Auditor General take a look to determine what is causing the sudden and potentially damaging inability of IESO to forecast demand and stabilize those price blips?  Ontario already has the highest electricity prices in Canada, forecast to head even higher.  In my opinion there is no need to speed up the process though bad forecasting.  The cost of power for just that hour 18 on December 4^th, exceeded the average HOEP price for a 24-hour day in 2013, coming in at over $16 million versus an average of slightly over $10 million for a full 24 hours!
Oil prices drop by 40% and every news outlet covers it, but electricity prices in Ontario spike by over 3,000% in just one hour and no one notices.
©Parker Gallant,
December 10, 2014