2019 was a very interesting and challenging year Ontario’s energy market and indeed throughout Canada this past year.
The pressures on manufacturers of all sizes and sectors has led to increasing vigilance with respect to energy efficiencies. For SME’s and smaller electricity consumers in Ontario, this is especially important as the current economic reality is to consume as little as possible (or not at all). For larger users, strategies related to mitigating the global adjustment cost (over 60% of your total bill) has proven effective, but unfortunately is not an option for smaller consumers.
Carbon tax has been an issue for manufacturers everywhere. Unfortunately, even the smallest GHG (greenhouse gas) emitters and those who have implemented GHG reductions are still faced with this burdensome tax. It affected all of us individually too.
For our 2019 Energy Group Year-in-Review, we want to ensure all manufacturers remain vigilant when it comes to energy. As we enter the winter season, this is an important time to stay alert and manage your energy strategy.
Here are some excerpts from the EMC Energy Team’s latest 2019 Q4 market update:
Ontario Electricity Market:
With 11 months of the year behind us, the YTD HOEP average is just under $16.50 /MWh, which is 25% lower than the corresponding period from 2018. Despite being low overall, there is still variation in HOEP as October’s average was around $6.50 /MWh but so far in November we are triple that value at $19.13 /MWh.
In January 2020, Bruce Nuclear will take one of its generating units offline to begin the refurbishment process. Currently Darlington has one unit offline and has almost completed the refurbishment of it’s first unit, with a second unit scheduled to be removed from service in Q2 of 2020. It is possible that 2 units at Darlington may be offline at the same time, for a few months, in 2020. HOEP will likely increase in 2020 (and for the foreseeable future) as the nuclear units are refurbished.
We recommend that all EMC members consider locking in some of their consumption starting in the first half of 2020, if hedge prices are reasonable to implement. If you haven’t already done so, we strongly recommend putting aggressive targets in place now! The team still recommends, in general, fixing 60% of your peak volume in a Seasonal Strategy (winter/summer months only) at or below specified aggressive target prices. Please contact me and/or the team if you wish more information.
Global Adjustment – Class A: ICI Report Card and Potential Winter Peak Days
A mid year Class A & Peak Shaving performance report will be sent out shortly to all Class A participants in the EMC Energy program. The report will provide details, specific to your organization, including an estimate of the peak demand factor (“PDF”) percentage and estimated Global Adjustment cost for 2020-2021 (subject to change) and it will provide the actual hour/day and performance used to calculate the PDF percentage allocation on the prevailing 5 coincidental peaks.
For EMC members that are Class A, adjusting electricity consumption during peak demand days can be worth hundreds of thousands of dollars in cost savings. In a mild or average winter, we generally would not expect a winter day to be a Top 5 ICI day. However, recent North American weather forecasts are now predicting a cold winter (especially January and February).
If the forecasts are real, both North America and specifically Ontario will have the 2nd coldest winter in 9 years, just slightly warmer than the Polar Vortex winter of 2013/14. There is a better than 50/50 chance that the current #5 ICI day will be tested this winter under such conditions (Note: There has only been 1 winter day that finished as a Top 5 ICI Day since the spring of 2015). Class A participants should be prepared for a Red Alert day this winter.
Consultation of Industrial Electricity Prices: Update
From April to July 2019 this past year, the Ontario Government launched a consultation on industrial electricity prices. Key industries across Ontario participated, including Manufacturing, Automotive, Forestry, Mining & Agriculture. Representatives from EMC’s Energy team representative attended three of these sessions, as well as follow-up discussions between EMC, ministry staff and the Associate Minister of Energy Bill Walker.
The consultations focused on how the electricity system impacts industrial competitiveness. Feedback was received and further review will continue in the following key areas:
- Industrial Conservation Initiatives (ICI) and Operational Impacts
- Competitive Electricity Rates
- Economic Development Programs
- Regulatory Burden
Overall, the feedback suggested there were many opportunities to make changes to the provinces industrial electricity pricing framework in order for businesses to compete and to stimulate growth and investment in the future.
As an example, from this consultation, the Minister of Energy has tasked the Independent Electricity System Operator (IESO) to review and report back on current larger gas, wind and solar contracts in place (but expiring in next 10 years) and determine if there is a potential for cost savings.
Other areas of review include simplifying electricity bills, determining how the Global Adjustment (GA) charge is estimated, and assess and improve peak demand data publication processes and real-time data to determine factors that allocate GA costs to consumers. We will continue to provide regular updates as they become available.
Ontario Natural Gas Market:
While commodity prices are up in the last year, there is still upward pressure on prices mainly due to expected increases in LNG exports. End users who remain exposed to market pricing should consider taking a defensive position to protect against further upside heading into 2020. For members not yet engaged in a strategy for natural gas, the team has options to consider - tailored to your specific needs.
Alberta Electricity and Natural Gas Markets:
Alberta and Ontario are the only two Canadian provinces with deregulated electricity markets – meaning you can strategically affect your energy costs. EMC is supporting Alberta members with a number of industry-driven strategies that fit this province’s energy market, which tends to be a bit more volatile than in Ontario. Strategies vary as Alberta is a unique market, however the team has extensive experience and resources to support our Alberta members.
Saskatchewan, Manitoba, Quebec and Atlantic Canada Natural Gas Markets:
While the electricity markets are regulated in these regions, strategic energy management for natural gas is a definite option for EMC’s manufacturers, where distribution is available. We are pleased to continue supporting members with primary locations in these provinces, as well as implementing strategies for members with multiple plants across Canada.
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 just the past three years alone, we have helped EMC’s Energy Group members achieve energy cost savings of $30 million! This continues the tremendous year-over-year results our program has offered our manufacturers since its launch in December 2007.
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 has delivered great results for our members for the past 12 years!
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 for-profit retailers whose objective is to sign up firms without concern to the needs of the business. Our 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.
Looking forward to 2020, this has never been more important… but be careful of the doorknockers. With all of the challenges, the sky is in fact not falling. Be careful when dealing with energy salespeople who claim it is, trying to get you to sign up without care or thought to your overall business goals.
Again this year, our annual outlook survey showed nearly 30% of manufacturers have no energy strategy in place. Considering 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! On behalf of the EMC Energy Group, we look forward to continuing to serve you in 2020 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)