Class A. Class B. Minimize your Global Adjustment.
Surprised by the cost of electricity in your operations? Electricity costs in Ontario have more than doubled between 2008 and 2019, increasing on averaged 7.4% per year. This same trajectory is expected to continue for years to come.
Like to put a significant dent in your electricity costs? You will be surprised by how large the savings opportunity can be.
Where is the Opportunity?
- One avenue, whether for Class A or Class B, is generating all your baseload power needs on-site with natural gas as an electricity price hedge, leaving only your more minimal peak on the grid. Your savings are the difference between this and having all your load on the grid. The savings are still significant even after paying the proposed carbon tax.
- Another avenue, available for Class A customers only, is generating power on-site only during critical grid peak events. The advantage of this is that it mimics curtailment of your load on the grid under Ontario’s Industrial Conservation Initiative (ICI) demand response program. You get the savings of curtailment without the inconvenience and disruption of having to curtail your operations. Your ability to curtail during any possible peak event is never at risk because a natural gas generator can run all day, whereas a battery storage system is limited by the duration of the battery. You also have little carbon tax exposure because you only run the generation for peak events.
A Class A customer, with a solid baseload and a variable peak load could actually combine these two strategies.
How does the Class A Opportunity Work?
The market price of power in Ontario – the Hourly Ontario Electricity Price (HOEP) – is actually as low as it was in the 1970s, hovering in recent years around 2 cents per kilowatt-hour (kWh).
The effective electricity price for customers, however, is HOEP plus Global Adjustment (GA).
What is GA? It is all the above market costs in the electric industry.
Think renewable power contracts under the Feed-in-Tariff program, electricity conservation subsidies, capacity contracts for gas plants used for peak loads and even baseload contracts for nuclear power costs above HOEP. Not only do all of these go into the GA bucket, but so too does the cost of the not insignificant cost of the ICI program.
The combined cost of HOEP and GA was 11.5 cents per kWh in 2019. Add another 4 to 5 cents for your transmission and distribution costs and wholesale market and other regulatory charges, and you'll get the full picture of your cost of power.
How Big is the Class A Savings Opportunity?
Class A customers that curtail their load on the grid during critical grid peak events get a break against the cost of GA – the above market costs. It equals their share towards reducing the peak. If a customer curtails its whole load, for instance, it would only pay the price of HOEP and no GA.Visit the IESO website
Don’t believe this is can be significant?
The OEB’s Market Surveillance Panel calculated that the savings for customers earned under the ICI program were $1.2 billion in 2017. There is no cap on how much can be saved and the figure keeps growing as more customer perfect their curtailment abilities.
How Big is the Class B Opportunity?
Not as big as Class A, but still big enough for you to take is seriously.
If you are a Class B customer with a solid baseload of power, you have a very big incentive to meet your baseload power needs on-site, behind the meter. While Class B customers are smaller than Class A as a general rule, their inability to take advantage of the benefit of demand response / curtailment programs means they are stuck with the full cost of HOEP and GA – including the subsidy for the ICI program.
Getting a fixed price your Class B baseload power needs is like getting an electricity hedge. Your savings are the arbitrage between the hedge and your costs with all your load on the grid.