What to expect from the energy market in 2020, according to Enel X: Part 2February 6, 2020 REDWIRE is news you can use from leading suppliers. Powered by FRASERS.
Free REDWIRE e-newsletter
In this three-part article, Enel X North America Inc. offers its insights into Canada’s energy market this year and beyond. This second part deals with the Hydro Mess Act and Global Adjustment (GA) in Ontario. Read Part 1 here.
Fixing the Hydro Mess Act does not fundamentally change GA structure
As the Progressive Conservative government moved to redesign the Liberal party’s Hydro plan, many customers wondered what effects its fixing of the Hydro Mess Act might have on the future of the GA program. Under the legislation, the Ford government expects to generate significant savings by eliminating several energy-efficiency incentive and rebate programs and by moving conservation programs away from individual utilities and placing them under IESO administration. Under the Fair Hydro Act of 2017, the Liberals achieved an immediate 25 per cent decrease in hydro rates by refinancing a portion of the GA to be paid by electric ratepayers at a later date. Under the new plan, the Ontario government takes on the debt, maintaining the near-term price relief for consumers, but also largely leaving the situation unchanged. Importantly, the GA cost-recovery mechanism for Ontario’s largest electricity consumers, or Class A customers, appears to remain intact for the foreseeable future. Those customers, who can be charged upwards of $500,000 per megawatt-year based on their contribution to the system’s peak, will continue to benefit from opportunities to control those costs through demand management, onsite generation, and battery storage.
Low-priced forward contracts offer risk-management opportunity in Ontario
Aside from the GA, which can represent over 70 per cent of a customer’s electric supply costs when left unmanaged, ratepayers in Ontario enjoy some of the lowest commodity charges in North America. Due to its inverse correlation to monthly GA costs, prevailing wisdom has been to maintain exposure to real-time energy prices through the Hourly Ontario Energy Price (HOEP). Entering 2020, however, customers that manage the GA can find value in forward contract purchases to stabilize future costs. Forward contracts are currently trading just above historic lows, and nuclear refurbishments beginning in 2022 may inject future volatility into HOEP prices. As a result, large energy users may benefit by hedging that exposure to price risks by fixing a portion of their electric spending.
To learn about how Ontario businesses are leveraging energy-storage technology, read this whitepaper from Enel X, Understanding Ontario’s Energy Storage Opportunity.
To learn more, contact Enel X.