Energy Storage/Solar/Onsite Generation and End User Classification

I realize that many people  are confused with respect to the specific pricing mechanisms which effect both Class “A” and Class “B” end hydro users. While both pay a “Global Adjustment” charge (hereinto referred to as GA costs), the composition of each is completely different and so are the solutions to reduce these charges. I have tried to explain these differences throughout this website.

As I have pointed out on the main text on the home page of this website the total price of hydro in Ontario is determined as per the analysis below

Total Price of Hydro in Ontario

HOEP + GA (Class “B”) + Distribution+ Connection/Transmission Charges Demand Charges +HST
HOEP + GA (Class “A” )+ Distribution+ Connection/Transmission Charges Demand Charges +HST

Global Adjustment

The recent changes to the expanded Industrial Conservative Initiative (ICI) is simply a transfer of GA costs from Class “A” to Class “B” customers. It’s no secret that Class “B” customers pay more than their proportionate share of total hydro demand and GA costs. That’s just the way it is. Moreover, with the introduction of the Ontario Fair Hydro Plan, the Province cut residential hydro rates by 25% by essentially amortization the GA over a longer period. This increased cost will again be disproportionally be paid by Class “B” customers. The simple fact is that in Ontario, there are about 300 Class “A” customers and many of them threatened to leave the Province if their hydro rates keep increasing.  Given this and the reduction to residential customers, there are only Class “B’ customers left to pay the bills. Moreover, under NAFTA, the Province can’t even offer to take this charge as part of a budget because any reduction would be considered a subsidy. (Look at the current problem Bombardier is having and WTO case that went against the Province of Ontario).

Note:  There is a current court case which may slightly force changes to the GA pricing pool. National Steel Car Ltd v IESO et al. In it the plaintiff has/will argue that the Global Adjustment fee is an unconstitutional tax and not a valid regulatory charge. They have a strong case as in Westbank First Nations V British Columbia Hydro and Power Authority [1999] 3 S.C. R. 134 the court found that the revenue created by a regulatory scheme had to be connected to its costs.

The point that the above case and others have clearly show and has been acknowledged by the Courts that Class “B” users are in effect subsidizing Class “A’ users and the various renewable initiatives offered by the Province. I expect this case to be finally resolved by the Supreme Court of Canada. In the end I believe that Class “B” users will get some relief. I further believe that he Province (after the election) will re-raise the price of hydro for residential customers to make up the shortfall and they will hold the line on Class “A” GA costs.

Some pricing mechanisms as you are aware apply to both Class “A “and Class “B” users. The calculation of the actual commodity (or energy price) is just the sum of the Ontario Hourly Energy price (or HOEP). While the hourly price can vary from a negative amount to as high as 50 cents per Kwh the average for the entire month is generally in the 1.2 to 2.5 cents per Kwh range.

The GA is generally between 10 to 12 cents per Kwh for Class “B” users based on total Kwh and Class “A” pay their proportionate share of the Class “A” pool based on their peak load factor through the Five Coincident Peak (5CP) program. The bad thing above the 5CP program is that over the past few years all the peaks have occurred during a short time span in the summer months and once you have you peak load factor- that’s it. These pricing mechanism have implications for the various potential solution(s) to be used to lower hydro costs.

You should also note the transmission/network connection demand charges vary widely from LDC to LDC are based on the highest peak demand in any fifteen (15) minute  period. Moreover, even the transformer credit(s) vary widely from LDC to LDC so you really have to be careful.

Solutions

Energy Storage

Class “A”

For Class “A” users as explained the GA costs are based on their proportionate share of total hydro used system wide during the five (5) coincident peak pricing program (5CP). Under the program the base period is May of the current year to April 30 of the next year. During these periods, the OPA takes into account the five hours of the highest demand for hydro in the Province. Each Class “A” users is charged for their proportionate share of the total hydro consumed and thus their proportionate share of the GA costs during the recording period. Now, of course each Class “A” users is trying to figure out when these peak hours will occur and will even curtail production during what they expect to be the peak hours. However, it is being increasing difficult to predict when these peak hour(s) will occur due mainly to weather and other factors. The point is if you cannot predict what the peak hour(s) you may end up curtailing production and still getting hit on the GA charges. Thus, having a sufficient energy storage management system on a standalone basis and on site generation is essential. Every one (1) megawatt of reduction at the 5CP program through on site generation or energy storage is worth $500,000 in annual GA costs.

Moreover transmission charges are also in part based on volume so an energy management storage system can save you money on the HOEP, the Global Adjustment and distribution charges (based on volume) which I will explain in more detail later on.

With respect to an Energy Management Storage System (EMSS) it really depends. The 5CP program is essentially a capacity allocation price auction as users pay their proportionate share of total hydro demand over a fixed period. It is unique to Ontario in that in other jurisdictions you usually pay what you are consuming. An EMSS can potentially save you a lot on GA charges and transmission/network connection charges without having to cut back production in order lower your peak load factor. In fact, you could even make money in a demand response program by using batteries to reduce your grid demand. You could also use a generator (for recharging) for maximum flexibility while providing for an uninterruptable power source.  Again, you would, have to look at the fifteen (15) minute demand interval readings. I calculate the value of a one (1) megawatt reduction in the GA as worth $500,000 in GA costs. I wish I could be more specific but you really have to customize a solution for each different client. By using a EMSS you are laying the centerpiece of what you could eventually create a micro grid in order to better control/manage all energy costs in the future.

Solar

Under the FIT program it didn’t matter if you were a Class “A” or “B” user as all hydro produced was exported back to the grid. Under the Net Metering program it matters. For Class “B” end users the more total Kwh you produce the lower your GA costs . You can also save on the HOEP etc ,but the offset of GA costs is clearly the most important. Since the GA is based on total Kwh any reduction on total kwh offset by solar is a bonus up of course to the upper limit of total hydro usage. Thus, you can oversize a solar system and send power back to the grid (subject to available transmission) but you will only get credit for what you produce to what you offset to your consumption. The point is you should grab the available capacity when you can whether in a standalone system of with a micro grid if that is feasible. It’s also the easiest to manage and cheaper to design/install as you don’t have to worry when the hydro is produced.

For a Class “A ” end users solar may be appropriate in an overall micro grid layout, but not part of a Net Metering project. Any Kwh hours produced would offset the HOEP, and perhaps transmission/network charges (if they occur during time the sun is out) etc and a negligible effect on GA costs. (The Province is developing guidelines for Virtual Net Metering (VMN) which would allow production in one plant or  facility to count against another facilities operations’ but that is only in the draft discussion stage).

It is important to note that under the FIT program all carbon credits earned through the reduction of greenhouses gases were owned by the Province. They were owned by the Province because the Province was paying for the production sent back to the grid. Under the Net Metering program since you can ‘t sell back more than you produce/consume the owner of the system has reduced greenhouse gases emissions. As of now, there is no way to monetize carbon credits in Ontario.