COVID-19 Impacts on Ontario Energy Demand and Global Adjustment

July 8, 2020 Scott McNeil-SmithEnergy News 215 Views

Pandemic recovery and summer weather are impacting typical energy consumption patterns for Ontario’s manufacturing sector.  As well, the resulting peak demands that affect the Global Adjustment (GA) have been impacted.

While summer energy prices have been known to burn many manufacturers not protected by the EMC Energy team’s ‘sunscreen’ (custom energy procurement strategies), the lack of predictable consumption patterns are placing greater demands on timely and accurate intelligence necessary for effective forecasting. This is due to shifts in production as a result of the industry’s efforts to recover from the impacts of COVID-19.

Pandemic Impacts on Ontario Manufacturing and Energy Sectors

Along with the response from the federal and provincial governments, COVID-19 has caused a substantial decrease in power demand in Ontario. The IESO (link) for Ontario has estimated that 1,000 to 1,500 MW of industrial/commercial demand was lost in March/April 2020.  However, some demand has returned since Ontario began a phased re-opening of the economy in May 2020.

Through March/April 2020, and as a result of the pandemic, residential demand has increased between 5% to 8% as more people worked from home during this time.  The minimum overall Provincial demand in May 2020 was 9,831 MW – the only time since 2008 that the minimum monthly demand has fallen below 10,000 MW.

Energy Intelligence Leads to Savings for Manufacturers, Global Adjustment, Peak Demand, IESO

The commodity price has been quite low and consequently the Global Adjustment has been very high.  The Province capped the GA Class B rate at $115.00 /MWh for April to June as a temporary relief measure.  Class A consumers will benefit as well for April to June, but all recipients of the GA relief have to repay the benefit over 12 months in 2021. For more information on GA Class A and Class B, please contact us.

“Even with reduced COVID-19 demand in Ontario, we have seen air conditioning load trump the pandemic,” said Steve Williams, Senior Energy Analyst at ECNG Energy Group and one of the subject-matter-experts with EMC’s energy team. “People still like to stay cool in the hot, humid weather. Fortunately for this Class A base year we have already seen peak demands above 20,500 MW on the hottest days.  This level of demand bodes well for seeing some relatively normal peak days in the heat waves expected in July and August.”

Ontario Announcement - Global Adjustment Changes Due to COVID-19

On June 26th, the Ontario government announced efforts to help large industrial and commercial companies return to full levels of operation, without the fear of electricity costs spiking, by providing more stable electricity pricing for two years.  In its announcement, the province also recognized electricity consumption in Ontario has been below average, placing more pressure on higher Global Adjustment costs to cover, as a result of the pandemic. Peak hours generally occur during the summer when the weather is hot and electricity demand from cooling systems is high. However, the province is forecasting a reliable supply of electricity to accommodate increased usage.

The announcement effectively freezes the Peak Demand Factor (PDF) for the next two years for Class A companies who participate in the Industrial Conservation Initiative (ICI). The full gameplan is not yet available, however EMC’s Energy Team is working to answer the following questions:

  1. Is this mandatory?  Can firms curtail this year to try and lower their PDF or must they use the current PDF?
  2. What is the definition of a “New Participant” and does this only include those who have never participated / qualified as a Class A consumer?

"Today's action will reduce the burden of anticipating and responding to peak hours for more than 1,300 ICI participants, with 2,000 primarily industrial facilities in Ontario," said Bill Walker, Associate Minister of Energy. "Now these large employers can focus on getting their operations back up and running at full tilt."

What does this mean for manufacturers/you?

There is no action due at this time.  Our Energy Team will be reaching out to all affected energy group participants in the coming weeks. The team will determine which category each location falls into and will reach out based on their specific situation and strategy recommendations.

At the moment (with about 95% certainty), it looks like this will be mandatory for Class A manufacturers for the July 2020-June 2021 period, however these firms will be able to opt into Class B if they decide to next year. For Class B manufacturers who wish to qualify for Class A, please contact us to chat about your energy strategy.

These firms should continue to curtail to ensure they have a good PDF for next year. Pending confirmation of the details, our GA Alert Service is still fully operational and advising members daily of the forecast coincidental peak hours. This week alone has seen several RED ALERTS due to the current heat wave and increased demands.

More news on this will follow to members directly, however if you have any questions, please reach out to Karen Playfoot or Scott McNeil-Smith at any time.

Energy Demand Coincides with Manufacturing Output

Looking towards pandemic recovery, the fluctuation in energy demand also coincides with the other pandemic impacts, particularly the 9.2% drop in sales in March 2020, followed by an even greater 28.5% drop in April 2020. Manufacturing employment also took a hit sector-wide, dropping from 1.7 million nationally at the beginning of March, to 1.4 million in April and up slightly to 1.52 million in May. Understanding sector recovery efforts will play a key role in forecasting energy demands in the coming months.

As discussed in our recent Q2 Energy Market Update, as the world tries to navigate both the health and economic impacts of COVID-19, these are unprecedented times. With coronavirus information evolving daily, its effects will be far-reaching and long-lasting on the economy. How impactful and for how long these impacts will be felt are questions everyone is trying to figure out.

Due to the warm winter, abundant generation and more recently the economic impact of the COVID-19 pandemic in Ontario, the average Hourly Ontario Electricity Price (HOEP) for 2020 YTD (at the time of publication) is quite low; just under 1.3 cents/kWh. At this level of wholesale pricing, we see relatively little value in hedging anything further for the balance of 2020. Importantly, we urge you remain vigilant with respect to your activities.

Energy Intelligence Leads to Savings for Manufacturers

Our goal is NOT to sell energy or promote any one solution to the manufacturing sector. Our overarching goals, with this manufacturing-driven initiative, are to ensure you have:

  • the best information possible
  • the ability to better manage energy costs and consumption for your company
  • the information you need to make informed decisions and achieve cost savings through custom strategies
  • access to best practices
  • understand how to leverage the significant energy volume within participating EMC member companies.

How we help you succeed – a member of the manufacturing industry - depends entirely on our team of subject-matter-experts. Your energy strategy is about more than data and the use of algorithms to predict events. EMC’s Energy Team relies on our people and our ability to communicate with and listen to manufacturing decision makers.

This year alone, EMC’s Energy Team has saved participating manufacturers
over $11.4 million and over $42 million in the last four years!

Now in its 13th year, EMC’s energy initiatives are helping manufacturers to mitigate energy price volatility and access savings, resources and best practices.

We are here to help!

Our team is currently scheduling one-on-one energy outreach sessions with our Virtual Energy Advisor service, at no cost to you or your company.  This is a great opportunity for you and your team to learn more about energy trends, options and impacts.  Topics addressed by energy subject-matter experts include strategic procurement, mitigating global adjustment, curtailment, sustainability options and projects, and other available options that can impact your overall energy strategy. 

Did we mention these are value-added services included with Energy Group participation?  Just another example of how EMC is helping manufacturers succeed, grow and become more competitive here in Canada.  By taking advantage of the features and benefits of the EMC Energy program, increase your free time and gain confidence in being a bit more “hands free” of your energy costs.

If you have any questions or would like to discuss how EMC’s Energy Team is bringing peace of mind to manufacturers across Canada, please contact Karen Playfoot or Scott McNeil-Smith at any time.