Category: ⚡ Markets & Operations
Complexity Level: ●●●○○ (Level 3 – Intermediate)
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Electricity prices in Ontario’s wholesale market are determined through the interaction of generator offers, electricity demand, and power system constraints.
Prices reflect the marginal cost of supplying electricity during each market interval. These prices provide signals that influence generator operations, electricity consumption, and long-term investment decisions.
The Independent Electricity System Operator (IESO) calculates market prices as part of its dispatch and market-clearing processes.
Market Clearing Price
The price of electricity determined by the electricity market for a given time interval, based on the cost of the last generator required to meet system demand.
This price is sometimes referred to as the marginal price, because it reflects the cost of the marginal generator.
⚡ Electricity prices are determined by the marginal generator.
The generator that is last needed to meet demand often determines the market price for all electricity produced during that interval.
Wholesale electricity markets typically use marginal pricing.
Under marginal pricing:
This pricing approach ensures that electricity is supplied efficiently.
Electricity pricing is closely linked to dispatch decisions.
Dispatch determines which generators produce electricity, while pricing reflects the cost of the marginal generator used to meet demand.
Changes in dispatch decisions—such as bringing additional generators online—can therefore influence market prices.
Related topic:
Dispatch
Electricity prices can also be influenced by transmission constraints.
For example:
These constraints can cause price differences across locations in some electricity markets.
In Ontario, transmission constraints may affect dispatch outcomes and pricing dynamics.
Related topic:
Transmission System
Electricity prices can change rapidly due to shifts in supply or demand.
Common factors affecting price volatility include:
Market participants monitor these conditions closely when making operational or trading decisions.
Electricity market settlements may include adjustments beyond the basic market price.
These adjustments can account for:
These financial mechanisms ensure that market participants are appropriately compensated for their contributions to system reliability.
Related topic:
Electricity Settlements
Consider a summer afternoon when electricity demand increases significantly.
This mechanism allows electricity markets to coordinate supply efficiently.
➡ Next Topic:
Ancillary Services
This topic explains additional reliability services that support stable operation of the electricity system.
Last Updated: 2026-03-27