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Feeling the Heat? Extreme Weather Drives High-Demand on Electricity, but it’s the Costs that are Burning Manufacturers

July 10, 2018 Scott McNeil-SmithEnergy News

As anyone who stepped outside last week knows, the weather was hot.  Cook an egg on the hood of your car hot.  Not a surprise for the first week of July, but compared to the relatively cool temps experienced recently and the wet and mild weather earlier this year, this week hit everyone a bit hard – especially industry.

While not solely an Ontario issue, heat and extreme weather warnings throughout many regions in the province resulted in much higher demands on electricity.  In fact, the 3 highest demand days so far this year occurred last week (July 3, 4 and 5), with Ontario demand topping 23,000 megawatts (MW) and available generation during this time approximately 27,000 MW.

Power markets also responded to this demand, where on Thursday morning (July 5 the highest demand day so far), the market clearing price for electricity had spiked at 10:00 AM to $348.27 per MW.  By comparison the next day, due to milder weather and lower demand, the price of electricity at 9:00 AM was actually $0 (yes zero)! (Source IESO)

That said, the weighted monthly average Hourly Ontario Electricity Price (HOEP) was around 1.8 cents/kWh (June, $18.34/MWh) – in itself a competitive and manageable cost for power – but add in the Global Adjustment (GA) and all the other legislated costs and taxes and total bill becomes much higher, leaving manufacturers to feel the heat in more ways than just temperature. 

It’s an intentional coincidence that the highest demand days are also the days that have the greatest impact on GA costs.

Guaranteed to start a heated discussion within any group of manufacturers, GA is something everyone in Ontario has to pay.  On average, it represents more than 60% of our electricity bills and has increased significantly over the past 5+ years. 

For those new to the conversation, there are two rate classes in Ontario’s market:  Class B consumers (residential and small business) are billed regulated time-of-use (TOU) rates which have GA costs embedded.  Class A consumers (>500 KW peak demand) are assessed GA costs based on the percentage their coincidental peak demand contributes to the top five Ontario system peaks.

Typically comprised of medium to large businesses, industries and processors, Class A consumers who can curtail power consumption during the top five system peaks will significantly reduce their GA costs. 

The key is to know when they will occur and to have a strategy in place to properly manage this.  During a week like last week, that’s where EMC’s Energy Team really shines in helping members to know when those peaks will occur and how to ensure they are able to minimize the impacts.

The cost of electricity itself (ie the electron) is not the problem.  It’s all the ‘slush’ (see inset) that gets added, making Ontario the most expensive and least competitive jurisdiction for power in North America.  I’m not saying these programs aren’t important, many of them they are.  However, when costs are piled onto everything else manufacturers have to manage, remaining competitive vs. companies in regions which don’t have these costs is a major concern.

An EMC member in Eastern Ontario recently commented how they are competing with a company, producing similar products just across the border in New York State.  The cost of electricity both businesses have to pay is essentially the same.  The difference is the New York company doesn’t pay the added costs (ie GA) the Ontario firm is burdened with.

The GA cost alone more than eliminates any margin of advantage many Ontario companies might have had, even with better productivity, efficiencies and workforce capabilities.  As a result, manufacturers are continuously challenged to find better ways to reduce their energy consumption and mitigate costs… any way they can.

Global Adjustment (GA):

GA doesn’t just pay for conservation.  It is also used to pay for projects related to Renewable Energy Supply (wind, solar and the Feed-in-Tariff program), Biomass, Landfill and By-products, OPG's facilities, Nuclear and Natural Gas (supply agreements), Industrial Conservation Initiative (ICI), Industrial Electricity Incentive (IEI) Program, Storage, Regulated rates for nuclear and hydro generation as set by Ontario Energy Board, Ontario Electricity Financial Corporation, Contracts administered by Ontario Electricity Financial Corporation with existing generation facilities… and of course the conservation programs.

Over 11 years ago, EMC members asked us to find a better way to help manufacturers manage energy.  In particular, to leverage our consortium model and the huge volume of members to strategically tackle energy procurement, consumption, management and efficiencies. 

After a lengthy due-diligence process, EMC and our members opted to work with ECNG Energy to help facilitate the group activities.  ECNG is Canada’s largest and longest standing provider of energy management solutions for commercial, industrial and institutional markets and brought proven success and methodology to our members.

Now in its 11th year, EMC’s energy initiatives (including the only non-profit energy buying group in the province), are helping hundreds of manufacturers and processors to mitigate energy price volatility and access savings, resources and best practices.  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.

What Our Members Have to Say:

“EMC’s Energy Group provides a valuable energy hedge service that literally comes with no strings attached.  They provide detailed energy & gas market forecasts and make recommendations as to which forward contracts to enter into.  However, there is absolutely no pressure to do so and the client retains full control over which contracts to enter and which to not participate in.

The Energy Group also provides value by supplying customized energy usage charts, so we can track our usage during peak, off-peak and weekends, on a daily, weekly, monthly, or quarterly basis.  Their staff has always been very professional and quick to respond to our inquiries.”

Dante Ferrari, Celplast Metallized Products Limited

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 has been very busy the last 10 days, especially during this latest high-demand week, 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. While this week is not as extreme, it has been fairly warm and demand is high, but not in the range of the five top peaks. Should this change and approach the ‘YELLOW or RED’ zones, we will advise.  For those members on the program, please pay attention to all GA Alert service emails.

With many of our companies, the challenge is it’s difficult to predict exactly when they will occur because there’s always a chance for a higher day.  Having a team of experts guide our members allows them to make the decision of when to act, and those who are able to curtail energy during the peak hours will save significantly on their GA costs in the coming year. 

Last month (and in May/June each year) we worked with many members ensuring their optimal GA rate group is in place and on a daily basis, our energy group’s unique multi-supplier model and the combined volume of our membership allows us to leverage significant opportunities to achieve better cost management, savings and awareness, regardless of plant size. 

This activity alone has helped our members save millions of dollars.  In 2017 the total savings we helped members achieve was just under $10 million.  Did I mention these services are included in their Energy Group participation?  Just another example of how EMC is seeking to help manufacturers succeed, grow and become more competitive here in Canada.

While we experienced three of the highest demand days of the year (so far) last week, there’s a good chance there are others to come.  How are you going to beat the heat?  I suggest you may want to reach out to EMC’s Energy Team, to see how our not-for-profit model can help you to ensure your business doesn’t get burned.

Cheers from EMC’s Energy Team,

Scott McNeil-Smith
National Director, Projects and Partnerships / Energy Programs Lead