Windsor Policy & Solutions Forum

Energy Costs - How to Address Higher Power Costs

Bruce Sharp, P. Eng.Director, ElectricityAegent Energy Advisors Inc.bsharp@aegent.ca, 416.622.9449.112 May 15, 2014

Getting it all wrong Picture is not pretty Costs largely fixed Lowering = transferring

In a nutshell

1. Make electricity consumers – not taxpayers – pay for electricity

2. Make consumers pay the true cost of the electricity they use

3. Maintain culture of conservation4. Depoliticize electricity policy

Getting it all wrong

Commodity = spot price + Global Adjustment (“GA”)

2013:◦ Spot price (arithmetic average) = $ 24.98/MWh◦ GA, Class A (average) = $ 33.19/MWh◦ GA, Class B = $ 59.24/MWh

% of total costs:

Commodity, non-commodity costs

Total commodity cost = HOEP + GA Class B

Commodity forecast

(assumes zero load growth)

Capital-intensive Chunky Inertia Overbuild Bias

Costs largely fixed

Balloon effect Shift to taxpayers

◦Ontario Clean Energy Benefit◦Provincial portion of HST

Shift to other ratepayers◦Debt Retirement Charge◦Conservation◦Cost allocation

Lowering = transferring

See “costs largely fixed” If costs 95% fixed:

Conserve – or else

EEG is green-only version of Ontario Global Adjustment

2014: € 62.4/MWh Industrial policy decision Significant avoidance (90%) at

average load of ≳114 kW (also, electricity cost ≥ 14% of value added)

Intensity requirement can have unintended consequence

Cost allocation - Germany

GA avoidance Class A/B

◦Since January 1, 2011◦Demand-based allocation of GA costs◦5,000 kW threshold, moving down to 3,000 kW◦2013: Average 39% reduction in GA charge◦In theory, avoids investment◦Benefit can be derived by doing nothing◦Price signal ≳ 2 x generation alternative

Cost allocation - Ontario

Do:◦Conserve - and more than the other guy◦Ratepayer transfers: be transparent,

recognize their impact Don’t:

◦Transfer costs to taxpayers◦Have price signals inconsistent with

other options

“Dos” and Don’ts