Just like that ‘burn’ you experienced this Summer, Winter weather can drive high-demand on Power and Natural Gas too. That frostbite you feel may just be your energy bill in the dead of Winter. Are you ready for It?
This past summer we felt weather hot enough to cook an egg on the hood of your car, and peak days which caused spikes in your energy bills. Now that we are approaching the time of the year when its cold enough to stick-freeze your tongue to the hood of your car (not something we recommend), many industries can be lulled into a sense they are out of the energy woods until next summer.
A lot has gone on in Ontario’s energy market this past year. The change in provincial government has brought an end to Cap & Trade, but not necessarily a Federal carbon tax. Moreover, the Global Adjustment remains a top concern for all manufacturers.
In our year-in-review / update, we want to ensure all manufacturers remain vigilant when it comes to energy, as we enter the season of ‘Jack Frost nipping at your nose’. Here are some excerpts from the EMC Energy Team’s latest Q4 market update:
While electricity prices have been fairly low as a commodity, they are higher by a significant percentage over 2017. YTD, the Hourly Ontario Electricity Price (HOEP) for 2018 is approximately 2.33 cents/kWh (as of last week), up over 50% from the 2017 average of 1.4 cents/kWh. HOEP is showing signs of maintaining some momentum into 2019.
The trend line (in green) shows a rising forecast, our team’s estimate is for an increase in 2019 to 2021, although there will still be monthly variations as shown above.
Class A GA and Ontario Demand Peaks
It’s the Global Adjustment that is still burning manufacturers – even with the colder weather. Representing the largest portion of our electricity bills, most manufacturers have indicated this is the single biggest threat to their cost competitiveness. GA costs have risen exponentially over the years, however 2018 YTD is a bit lower than last year, but the total landed cost moderately higher.
Lowering the GA Class A threshold to 1 MW for everyone and 500 kW of monthly demand for manufacturers and greenhouses, predicting the top 5 demand days / hours in Ontario became more difficult than in past years, due to the magnitude of the demand response that is generally activated on a peak day.
During times of the year when weather, economic and other factors affect energy markets and peak usage, one of the key related supports we provide is the GA Alert Service, which advises (down to the hour) when the peak measurement for global adjustment will be and what the best actions might be. Helping manufacturers with their energy strategies is important, but to know when to curtail energy consumption to maximum effect is key.
Our GA Alert service was very busy again this year, where we relayed ‘RED, YELLOW and GREEN’ day alerts, including changing conditions, including weather forecasts, IESO demand forecasts and actual day after demand reconciliations by the IESO. During the May 1 to Oct 22 period this year, EMC’s Energy Team and our GA Alert Service had a 100% success rate in predicting the top 5 peaks (so far). The true measure is the ratio. Our team issued 31 alert days, with only 11 predicted as ‘red alerts’. EMC members who were able to curtail their energy consumption during these alerts, significantly reduced their GA costs, while also avoiding consumption during the accompanying price spikes. Considering the rate at which the peaks can now move, this is an outstanding result.
May 2018 3 Yellow
June 2018 3 Yellow, 2 Red
July 2018 5 Yellow, 6 Red
Aug 2018 7 Yellow, 2 Red
Sep 2018 2 Yellow, 1 Red
We had a very hot, humid summer which contributed to the increased number of alert days, but also the IESO’s margin of error on forecasting the peak demands was relatively large this year. It wasn’t unusual to see a 500 to 1000 MW difference between forecast and actual. The current peak days are shown below:
As we approach the winter season, EMC’s Energy Team is indicating the risk of a winter peak is low at the moment, however it is possible. In recent winters, we did see a couple of peaks occur during very cold days, however this followed a mild summer, so the peaks were set lower. A winter peak will have to displace one of the above hours to be considered. The team will trigger a GA Alert, should the potential arise.
As most EMC members know, the standard natural gas year starts in November. Most contracts are priced as November to October. As we now enter a new gas year, we turn our attention to the periods covering 2020 (November 2019 to October 2020), 2021 (November 2020 to October 2021) and 2022 (November 2021 to October 2022).
While surging natural gas production in 2018 is often in the headlines, what is sometimes missed by casual reviewers of the market is that demand has increased more than supply in 2018, a combination of increased power generation, industrial demand, exports to Mexico and increased LNG exports. Furthermore, entering the natural gas winter season (November 1 to March 31), storage levels are being monitored carefully by the market.
Natural Gas storage is essentially inventory that ensures that demand centres have enough gas to supply all consumers during the winter season. This coming winter, we are entering the lowest storage levels since 2005 (chart below).
Our team has indicated securing your natural gas price now for a 2 or 3-year term starting November 2019 will, in most cases, result in a lower natural gas cost compared to the last 5 years. We are recommending you consider least 50% of your overall needs for this period. Another area our team has been successful is with managing transportation costs, which have been exceeding the cost of the gas itself.
Keep in mind, the above outlook provides a general overview. EMC’s participating manufacturers each receive tailored recommendations for energy procurement and management strategies, and vary for each member, based upon individual needs, consumption patterns and risk tolerance objectives.
Further to our ongoing updates on carbon, the Federal government has confirmed their intention to implement a carbon backstop (tax) effective January 1, 2019 for Output-Based Pricing System (OBPS) industrial facilities with emissions above a certain threshold and Fuel Surcharge as of April 1, 2019 on all other fossil fuels (natural gas) consumed by low emitters.
The Federal Backstop Program will initially be similar to Cap & Trade (3.91 cents/m3) but is set to increase substantially quicker with prescribed annual increases of roughly 2 cents/m3 each year thereafter. For those emitters over 10,000 tonnes of CO2e per year (roughly 5.4million m3 of natural gas per year), please feel free to contact the EMC Energy team to discuss your options regarding the OBPS and how to get registered.
The Ontario government has announced their legal challenge of the Federal program, and are expected to release their own Carbon Reduction scheme shortly (as outlined in Bill 4 ), in addition to applying continued legal and political pressure to block the Federal Backstop. EMC will continue to provide updates over the next several months as these efforts come to bear.
On behalf of EMC’s Energy Team, I am pleased to report that we have once again delivered significant results for our member manufacturers. In 2017 we helped members achieve energy cost savings of nearly $10 million, and 2018 was no different. Almost $20 million in just the last two years. Equally as important, we have achieved this by providing our members with a unique model of service, support and outstanding content. Kudos to our whole team and the long standing partnership with ECNG Energy, who for nearly 12 years have delivered great results for our members.
Even though EMC is not-for-profit and our energy program is the only one of its kind for manufacturers in the province, we are still often compared with retailers who’s objective is to sign up firms without concern to the needs of the business.
EMC’s model is to connect members with a team of energy subject-matter-experts and leverage the huge advantage that comes from being a part of Canada’s largest manufacturing consortium. Our goal is not to sell energy or push any one strategy, rather to ensure our manufacturers have the best information possible, to make informed decisions and the resources and tools they need to succeed here in Canada.
In a recent outlook survey, we noted nearly 30% of manufacturers have no energy strategy in place. In light of what industry is facing, I find this astounding. For those companies, we do not advise just giving into the ‘door knockers’ by signing up to an expensive all-in and restrictive contract. We recommend taking a holistic approach to strategy, procurement and energy efficiency, ideally with an organization with proven care and concern for the health of your business. Should you have questions or wish to discuss your energy needs, please be sure to connect.
All the best from EMC’s Energy Team! We look forward to continuing to serve you in 2019 and wish you a Merry Christmas and a safe, prosperous and Happy New Year!
National Director, Projects and Partnerships / Energy Programs Lead
Excellence in Manufacturing Consortium (EMC)