Smart Pricing for Ontario Electricity Outline of Presentation

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2 2 Outline of Presentation Data Sources Ontario s Embarrassment of Riches! So What is the Problem? What Can We Do About It? What Does a Smart Pricing Plan Need to Do? OSPE s Smart Electricity Price Plan Why Should the Smart Pricing Plan be Voluntary? Summary Q/A

3 3 Data Sources The Ontario electricity demand, generation and electricity price data were obtained from the IESO website at The smart meter data used in the residential air conditioning load shift example was provided by the consumer who participated in the load shift study. Electricity production cost data was obtained from: the Ontario 2013 FIT Rate Schedule the Projected Costs of Generating Electricity, 2010 Edition, Organization for Economic Co-operation and Development, median case with no carbon tax the Ontario Energy Board Regulated Price Plan analysis report at its website at for actual generation costs in Ontario by technology type (including the impact of curtailment).

4 4 Ontario s Embarrassment of Riches! Ontario has more low emission electricity than it needs due to a combination of events: Great recession with lower than planned growth in demand, Successful conservation program, and Successful carbon reduction program from: Phase-out of coal-fired plants combined with: Restart of 6 nuclear reactors Introduction of CCGT gas-fired plants Introduction of renewables (wind, solar, bioenergy) Modest increase in hydroelectric capacity Barring any surprises, in 2015 Ontario s electricity sector will achieve the IPCC 2050 goal of 80% reduction in CO 2 emissions from 1990 levels that s 35 years ahead of schedule!

5 CO 2 Emissions (MegaTonnes) Smart Pricing for Ontario Electricity 5 Ontario s Embarrassment of Riches! Historical emissions Emissions projection 25.5 MTonnes in MTonnes in MTonnes in Notes: The above graph appears as Figure 20: Greenhouse Gas Emissions Forecast in the Ministry of Energy 2013 LTEP. Emissions in any one year could be higher, or lower, than the projection depending on the specific operating conditions experienced in the system. Data for 1990 came from the Ministry of Environment and Climate Change report titled Ontario s Climate Change Update If we stay below the 5 Mtonne line we will continue to achieve the 80% carbon reduction goal. This rise is due to the retirement of Pickering Nuclear. Gas-fired generation will be used for base load.

6 6 So What is the Problem? Ontario supply and demand do not align with each other. Some low emission energy is exported at low prices or curtailed. Ontario residents/businesses cannot access this low emission energy at low market prices with the current price plans. Curtailment is likely to increase in future years because of: Transmission limitations. More intermittent renewables. Weak demand growth. High electrical storage costs.

7 7 So What is the Problem? Curtailment of clean energy occurs when availability of clean generation exceeds Total Demand line (RED line). Export of clean energy occurs when availability of clean generation exceeds Ontario Demand line (Green Line). Note: Wind and solar have priority access to the load so hydraulic and nuclear are curtailed first.

8 8 What Can We Do About It? Let s turn a problem into an opportunity! Excess low emission energy is an opportunity to: Reduce electricity costs for businesses/residents in Ontario. Reduce emissions in other sectors by making low cost low emission electricity available to displace fossil fuels. Provide businesses with an opportunity to earn emission credits and sell them in the new cap-and-trade program to further reduce their production costs.

9 9 What Does a Smart Pricing Plan Need to Do? The new smart pricing plan needs to: Incentivize the use of clean, low cost base-load hydroelectric and nuclear energy 24 hours a day. Incentivize the use of clean, intermittent renewable energy when nature provides it, regardless of time of day. Incentivize the transition from fossil fuels in other sectors to clean electricity so we can reduce our carbon emissions in those sectors (transportation, industrial, buildings, agriculture/waste). It is much easier to reduce emissions in the electrical sector because it has access to clean modestly priced hydroelectric and nuclear technologies.

10 10 OSPE s Smart Electricity Price Plan

11 11 OSPE s Voluntary Smart Grid Price Plan Smart Grid Voluntary Price Plan (energy component only) 5.0 cents/kwh for Base Load Energy 15.0 cents/kwh for Peak Band 1 Energy (<2x Base) 30.0 cents/kwh for Peak Band 2 (>2x Base) Note: A detailed analysis of load profiles for the entire customer class is required before the quantity thresholds and price levels are selected for the new voluntary plan. The example values above were chosen for a single residential customer load profile so that the total annual bill would be the same if the customer made no changes to their load profile. Price points for Base, Band 1 and Band 2 can be adjusted periodically for cost inflation. Structural changes to the plan cannot be made during the contract period of 10 years. This price is a discount to the actual cost of base load production of 6.1 cents/kwh in 2015 to incentivize the purchase of load shifting equipment. These 2 prices are the flip side of the base load price discount. If the consumer does not reduce their peak load these prices will recover the discount.

12 12 OSPE s Voluntary Smart Grid Price Plan Includes provisions in the smart controller to use energy on demand from the IESO when low emission energy is being curtailed or exported. 3.0 cents/kwh for using exported low emission energy on IESO demand 1.0 cents/kwh for using curtailed low emission energy on IESO demand Note: Using surplus low emission energy in Ontario has 2 advantages. It reduces our carbon emissions by using low emission energy when it is available instead of high emission energy at a later time in the day. It also helps our export exposed sectors get access to low cost energy that is currently being exported to their competitors at low prices. In addition we reduce the need for very expensive long term storage capacity to integrate renewable energy sources. Price points for curtailed and exported energy can be adjusted periodically to reflect wholesale market conditions. All other surcharges (global adjustment, delivery, demand and regulatory) for use of this surplus electricity also need to be waived. This price is low enough to compete with and displace natural gas for thermal and electrical energy at a customer s site and still provides a positive financial return to the grid. This price is much cheaper than natural gas at a customer s site and still provides a positive financial return to the grid.

13 13 OSPE s Smart Electricity Price Plan Consumer modifies their demand profile. The rates apply for all 7 days of the week. Price Impact of Voluntary Price Plan 600 kwh per month no change in load profile. $56 /month if no load flattening occurs no new technology added Same cost as present TOU rate plan over 1 yr. Price Impact of Voluntary Price Plan with Flat Load Profile 600 kwh per month load flattened using new technology. $30 /month if load is completely flat over 24 hrs because all consumption is at the base load rate of 5 cents/kwh. Approx. 46 % savings on the energy component. Base load consumption allowance is calculated during the power system low demand hours. The more the consumer uses at night the more they get at the base load rate during the day. Substantial savings on the energy portion of the bill can be achieved. The load management process should be automatic and performed by smart controllers.

14 14 OSPE s Smart Electricity Price Plan This smart electricity plan is not for everyone. It is designed to attract a sufficient number of early technology adopters who want to invest capital to both help the planet and reduce their electricity bills. Encourages use of clean base load energy 24 hours a day with a discount on the actual cost of base-load production. Discourages consumption of fossil fuelled electricity with high rates. Encourages fuel substitution away from fossil fuels in other sectors by making available surplus clean electricity at low wholesale market prices. Encourages commercialization of thermal and electrical storage where it makes economic sense (typically shorter duration storage projects).

15 15 OSPE s Smart Electricity Price Plan How effective is the smart pricing plan for carbon reduction when we displace natural gas with nuclear/renewables? CO 2 Reduction Strategy Shift grid demand (more base & renewables) Use electrical grid instead of local natural gas-fired generation Use grid electricity instead of local natural gas fuel for thermal energy needs Grams CO 2 per kwh Displacing oil based fuels will improve carbon reduction by a further 50 to 100% compared to the values listed above.

16 16 Why Should the Smart Pricing Plan be Voluntary? Mandatory plans typically produce winners and losers and that creates consumer discontent and political backlash. OSPE s discussion with politicians suggests there is little political support to make a major mandatory change to price plans. A voluntary plan reduces political and public resistance provided the plan does not impose higher costs on non-subscribers. The voluntary plan needs to be paired with appropriate consumer protection to stop companies from over-promising results with their load shifting products. Consumers who do not benefit sufficiently do not join the plan. They will benefit from lower future costs due to improved power system operation. The voluntary price plan cannot be cancelled by the utility until the consumer s investment has been fully recovered (10 year period suggested).

17 17 Summary Current electricity price plans: Do not incentivize the correct electrical consumption patterns that match available clean generation supply. Result in increased curtailment and exports (at low prices) of clean energy. A voluntary plan is a practical way to get public and political support to adopt smart pricing plans. We need a smart electricity pricing plan that will encourage the commercialization of new smart grid technologies that are being developed in our R&D labs Ontario badly needs more high value jobs (university, college and manufacturing jobs). Ontario businesses need access to low cost surplus energy that is currently being curtailed or exported at low prices. Ontario s new cap-and-trade system will open up opportunities for companies to sell carbon credits if they displace fossil fuels with clean electricity.

18 18 Supplementary Slides for Use During the Q/A Session

19 19 Why Aren t the Current Price Plans Working? Ontario s retail price plans have two fundamental design limitations: They don t differentiate between base load energy demand and incremental peak load energy demand (demand above the base load). They don t have a mechanism to provide low cost energy to consumers when that energy is being curtailed or exported at low prices. The situation is made worse by a fundamental design limitation in Ontario s wholesale electricity market: The wholesale market design we use cannot function effectively if there is too much non-dispatchable or self-dispatching generation. Ontario has lots of both so the Ontario market was modified by adding a global adjustment mechanism and placing floors on market bid prices. The global adjustment mechanism now weakens the wholesale market price signals and makes the current retail price plans less effective than originally envisioned.

20 Curtailment Levels Estimated as: Nuclear curtailment from IESO Capability minus Output with a 70 MW threshold per station to account for minor technical de-ratings. Wind curtailment is Forecast minus Output if Forecast > Output. Note: 5.3 TWh of low emission electricity was curtailed in That is enough electricity to power 530,000 homes for a year. Hydroelectric curtailment annual total as reported by OPG but in the absence of hourly data is assumed to align hourly with nuclear curtailment (this is not strictly a correct assumption).

21 21 Current Price Plans Ontario s TOU Rate Plan for Residential and Small Business The residential and small commercial (< 50kW) TOU rate plan (May 1, 2015) is: Off-peak energy is priced at 8.0 cents/kwh Mid-Peak energy is priced at 12.2 cents/kwh On-peak energy is priced at 16.1 cents/kwh

22 22 Current Price Plans Consumer modifies their demand profile. Weekend and holiday rates are offpeak. Price Impact of TOU Price Plan 600 kwh per month variable load. $63 /month for energy if no load flattening occurs no new technology added. The TOU price plan charges on-peak and midpeak rates to a consumer that only uses base load energy. That s more than double the actual cost of base-load production. Price Impact of TOU Price Plan with Flat Load Profile 600 kwh per month load flattened using technology. $61 /month if load is completely flat over 24 hrs. Only a 3% savings on the energy component. The TOU price plan does not generate enough savings to purchase the technology to accomplish the load shift.

23 23 Current Price Plans Ontario s Medium and Large Business Rate Plans Class A Business Customers >5MW or >3MW in specific sectors: Wholesale market price (3.6 cents/kwh in 2014), PLUS Global Adjustment (5.6 cents/kwh in 2014 unweighted), MINUS Credit for Global Adjustment proportional to demand reduction on 5 hottest days. MoE 2013 LTEP estimated the credit would be about 3 cents/kwh in average nighttime versus afternoon price spread was about 1.7 cents/kwh (not enough to incentivize purchase of load shifting equipment) Class B Business Customers 50 kw to 5MW or 50kW to 3MW in specific sectors: Wholesale market price (3.6 cents/kwh in 2014), PLUS Global Adjustment (5.6 cents/kwh in 2014 unweighted), 2014 average nighttime versus afternoon price spread was about 1.7 cents/kwh

24 24 Ontario s Actual Cost of Generation May Estimate from OEB Price Plan Analysis Report The projected cost of each technology are: 5.6 cents/kwh for hydroelectric 6.6 cents/kwh for nuclear Base load energy can be produced by these technologies at 6.1 cents/kwh if they are not curtailed cents/kwh for wind 47.3 cents/kwh for solar 21.1 cents/kwh for bioenergy 12.7 cents/kwh for natural gas Intermittent renewable energy needs to be used when produced until storage technology becomes much cheaper. Bio-energy is generally tied to on-site thermal needs and is not dispatchable Natural gas is dispatchable and is required for reserve and contingencies. Cost appears high because it is curtailed extensively.

25 25 Typical Ontario Daily Load Demand over One Year CF = Capacity Factor for the Load Demand Load analysis was done in 2011 but the results are typical for most years since was unusual because it was a cool summer and the annual peak demand occurred in the winter. CF = 0.2% CF = 1.6% CF = 13.0% CF = 44.2% CF = 78.0% CF = 96.8% CF = 100% Highest daily demand or Peak Load Lowest daily demand or Base Load

26 26 Single Day Load Demand Load shifting reduces installed capacity requirements and allows clean, low cost. base-load generation to be used to meet demand that operates 24 hrs/day. It also can move load to any other time of day when intermittent renewable energy is available so we don t curtail that energy.

27 27 Curtailment s Impact on the Cost to Make Electricity Abbreviations: LCOE = the levelized cost of electricity = total lifetime costs divided by energy produced. DF = discount factor CCGT = Combined Cycle Gas Turbine M.BTU = Million British Thermal Units CF = Capacity Factor Note: Data is for existing plants. Wind and solar are shown using Ontario FIT 2013 rates Intermittent renewables have steep cost lines because they have low design capacity factors. If you don t use the energy you lose it and the cost per delivered kwh rises rapidly. Natural gas cost lines (blue) are flat because most of their cost is fuel and you don t burn gas when the plant output is curtailed (reduced).

28 28 Solar Production Profile Solar Generation Low Demand Week Solar Generation High Demand Week Solar requires storage or flexible demand to avoid curtailment of clean base load facilities. Reducing clean base load capacity to make room for additional solar will increase CO 2 emissions due to the gas-fired backup.

29 29 Wind Production Profile Wind Generation Low Demand Week Wind Generation High Demand Week Wind requires storage or flexible demand to avoid curtailment of clean base load facilities. Reducing clean base load capacity to make room for additional wind will increase CO 2 emissions due to the gas-fired backup.

30 30 Example of Load Shift Using Thermal Storage Air conditioning load shifted from daytime to nighttime by precooling home 3 degrees F. Note: Actual data using a Peak Saver thermostat no optimization

31 31 Example of Load Shift Using Thermal Storage Note: Optimized load shift requires a smart thermostat/load controller.

32 32 Example of Load Shift Using Thermal Storage Impact of air conditioning load shift per home: Average load reduction from noon to 10 PM: Carbon dioxide emission reduction: 0.49 kw 2.0 kg/day Existing TOU Plan: Cost savings : 13 cents/day Savings on energy portion: 6% Voluntary Smart Price Plan: Energy Cost savings: 130 cents/day Savings on energy portion: 56%

33 33 Questions? NOTES: OSPE policy seminars can be downloaded at: If you are an engineering student OSPE membership is free. If you are a engineering graduate and would you like to support OSPE s advocacy efforts, become a member of OSPE at:

34 Yonge Street, Suite 502, Toronto ON M2N 6K1 Tel: Toll Free: