Ontario Energy Policy
Ontario needs a fundamental review of its current energy policy and long term energy plan. Ontario also needs to reform its retail electricity pricing policies to facilitate achieving its carbon emission reduction goals. Ontario continues to curtail (dump) significant amounts of surplus zero emission electricity. Ontario also exports significant amounts of surplus zero-emission electricity at wholesale prices that are much lower than Ontario consumers are required to pay at the retail level for that energy. Ontario's current energy policy is causing small industrial and large commercial consumer electricity rates to rise much faster than general inflation rates. That is placing Ontario businesses, who are trade exposed, at a competitive disadvantage.
Mandatory retail price policy changes will create winners and losers. Therefore, it is better to make the required retail electricity pricing policy changes on a voluntary basis. Consumers with the financial resources to install equipment to take advantage of the new retail electricity price policies will benefit from that investment with lower costs for "interruptible" electricity and lower consumption of fossil fuels. The new retail electricity price policies proposed below will facilitate transition to zero-emission vehicles and displacement of fossil fuels for heat energy by surplus zero-emission electricity.
Dependable (non-interruptible) electricity must be priced to recover both fixed costs for installed capacity (mainly invested capital and staffing costs) and variable costs for energy production (mainly fuel). However, non-dependable (interruptible) electricity is sold at its variable cost of energy production in the wholesale electricity market. Consequently if retail electricity prices were reformed to align much more closely to the true cost of providing electricity services, consumers could choose to buy either dependable or non-dependable electricity as their needs require.
A clean power system has three price comments:
(1) a cost that is fixed regardless of consumer's kW or kWh use. That cost is associated mainly with the consumer's distribution system connection size.
(2) a cost that is proportional to the consumer's peak power demand in kW. That cost is associated mainly with the installed generation and transmission capacity needed to deliver that consumer's peak power demand coincident with the power system's peak power demand.
(3) a cost that is proportional to the consumer's energy use in kWh. That cost is associated mainly for the fuel needed produce that consumer's electrical energy. In a clean power system that fuel cost is very low.
The installed peak capacity of a power system determines the maximum dependable electricity that can be supplied by the power system. The peak power demand in an electrical system establishes the amount of installed capacity the system needs. Consequently the cost of the installed generation and transmission capacity should be recovered from consumers that impose a power demand coincident with the system peak demand. That cost is best recovered by measuring a consumer's peak demand coincident with the system peak demand. Because the cost of installed capacity represents nearly 2/3 of the total cost of electricity services, the consumer should be discouraged from using electricity during the system peak demand period for non-essential electrical loads.
Interruptible electricity does not require additional installed peak capacity because the flow of interruptible electricity can be stopped when the installed system capacity is fully utilized to supply essential electrical loads. Consequently, interruptible electricity is priced in the wholesale market at its marginal production cost (effectively the fuel cost) which is a small fraction of the total cost of dependable electricity.
In a clean electric power system, interruptible electricity is available at prices cheaper than fossil fuels on an equivalent energy delivered basis. Interruptible electricity is typically available at less than 1 cent/kWh. In a low emission power system interruptible electricity is available most hours of the year at very low prices due to intermittent over-production of wind and solar facilities. Interruptible electricity is ideal for displacing fossil fuels and charging electric vehicles whenever surplus electricity is available in the wholesale market.
However, for consumers to use interruptible electricity economically for fossil fuel displacement, they need a retail price plan that allows them to purchase interruptible electricity at the wholesale market price without any additional retail markups for system fixed costs associated with installed generation, transmission and distribution capacity. Those consumers will then have a financial incentive to purchase dual fuel appliances such as water heaters, furnaces or boilers and the associated control equipment to can take advantage of interruptible clean electricity.
Paul N. Acchione, M. Eng., P. Eng., FCAE