Using less drives up Electricity Prices again, signaling the Province should act

The IESO (Independent Electricity System Operator) just released their Monthly Electricity Report for February 2020 and surprise, surprise, costs went up and ratepayers and taxpayers will pay up!

While Ontario consumption was down by 51,938 MWh (what 75,000 average households would consume in one month) in February 2020, we should also note it had 29 days versus 28 days in 2019. That extra day would add approximately another 400,000 MWh of demand meaning daily consumption decreased by about 15,000 MWh.

So, if we consumed less how come the costs of generation went up?  

As Ontarians know the previous McGuinty/Wynne led governments bungled the electricity sector up so badly that it will take years to sort out.  A combination of things made costs of generation increase this February despite reduced consumption.

Let’s start with wind which, according to my friend Scott Luft, generated 1.555 TWh (TX and DX connected) in February 2020 versus 1.379 TWh in 2019. To cap things off we curtailed almost 96,000 MWh in 2020 versus about 52,000 MWh in 2019.  The combined costs in 2019 of wind generated and curtailed, was approximately $192.4 million (13.9 cents/kwh) and in 2020 it was $234.3 million (15.5 cents/kWh) or $41.9 million higher.  As if to make wind’s unneeded production obvious we exported 1.651 TWh in 2020 and 1.478 TWh in 2019.  One will note in both years wind generated less power than electricity exported—ie; it wasn’t needed!  To make the foregoing (surplus generation) sink-in, the exports in 2019 were sold at an average HOEP (market price) of $27.89/MWh (2.8cents/kWh) and in 2020 we sold them at a lower HOEP price of $14.68/MWh (1.5 cents/kWh).  What this means is our net exports* in 2019 generated $3.3 million more in revenue ($19.9 million) than 2020 ($16.6 million) despite having exported 61.4% less.

The results of the above means Class B ratepayers saw an increase in their February costs up from 11.6 cents/kWh to 12.8 cents/kWh (HOEP plus the Global Adjustment) whereas Class A ratepayers (by picking the “high 5” peak hours annually) saw their costs reduced from 8.22 cent/kWh to 7.46 cents/kWh.

What does the future hold?

With March having signaled the start of a shutdown of much of the economy due to the Covid-19 pandemic one should expect consumption will drop further. The drop in consumption in Ontario will also occur in neighbouring states and provinces meaning exports will drop as will the HOEP market price.  The result will be more wind and solar curtailment, more spilled hydro, more steamed-off nuclear at the time of year when our consumption always falls as warmer weather arrives but we have more sunlight and don’t need our air conditioners or furnaces on to the same extent.  All of that foregone generation and reduced exports will drive up the price of the delivered and consumed electricity. The result will bring further substantial costs for the ratepayers and taxpayers of the province.

While I believe we should be thankful Premier Ford on March 24, 2019 announced electricity rates for the ensuing 45 days would be billed at the off-peak rates for residential (annual average consumption of 9,000 kWh) and small business (annual consumption of 150,000 kWh or less) ratepayers, it is not a big deal! The one-time savings per “average” household will amount to about $50.00 and possibly $2,000 for the largest “small business”!

The question becomes why, under the “State of Emergency” the Ford governement declared, didn’t they act to reduce “first to the grid” rights of wind and solar and stop paying for curtailed power?   At the same time, they should have reduced time-of-use rates more than they did to encourage consumption which may eliminate some of the wasted generation we will undoubtedly experience for the next three months.

The time has come for the contracted suppliers of our electricity generation sector to join the rest of us during this pandemic and if they don’t, the Province should legislate them to show the world: “We are all in this together”!

*Total exports minus imports

Author: parkergallantenergyperspectivesblog

Retired international banker.

4 thoughts on “Using less drives up Electricity Prices again, signaling the Province should act”

  1. The Ford government is under intense pressure to turn off the turbines that are harming residents. Now we have children forced to be in their homes or on their properties 24/7 while schools are closed, so they’re being exposed to the noise, the LFN modulations, the acoustic pulsations/infrasound radiation nonstop. Elderly people, confined to their homes for their safety are also being exposed to this harm.
    These turbines need to be turned off in order to put an end to the outrageous hypocrisy. If this government truly does care for the safety of the people of Ontario, then they must show their sincerity by taking decisive action NOW.

    Liked by 2 people

  2. Thanks Parker for another insightful post in the hopes of a saner more humane future. Unfortunately I’m afraid we’re still controlled by the larger forces of “power politics” or those who really control our economy. Further the average citizen also appears to have become a victim of double jeopardy where not only do we suffer from unnecessarily high electricity costs (with many also suffering associated health impacts), but we’ll also take a hit when the inevitable cancellation or modification of the contracts happen due to dumb ass investments on our behalf by CPP, OMERS & the many mutual funds.

    * CPP $1.3 billion purchase of NextEra Ontario assets
    * CCP $1.6 Billion US purchase of Pattern Energy
    * OMERS purchase of Leeward Renewable Energy
    * etc. etc.

    Liked by 1 person

  3. Thanks Sommer – a great concern for MANY in this province.
    Another concern of mine – and I suspect of many – with the reduced rates to consumers, when will the cost difference be picked up? Are we ploughing this down the road on future generations? Again.
    On top of curtailments and exports, we have mass ‘subsidy’ for consumers for this current emergency situation in Canada. The debt we accumulate each day is insurmountable.

    Like

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