Thursday, March 31, 2016

Ontario's Regulator exploring charges on behind-the-meter generation

Two of the best Ontario electricity commentators have written on an Ontario Energy Board (OEB) notice that it is is:
"initiating a policy review to address the question of how a commercial and industrial customer should be billed when they have a Load Displacement Generator (LDG) behind the meter."
It's an important, but obscure issue I feel best explained by looking at the situation in Germany - but let's start with Tom Adams' Selfie Power (With and Without Transmission Charges):
March 31 tweet on tour of, presumably, preferred consumer CHP site
The Ontario government has identified load-displacement generation as “conservation” and provided big businesses with massive incentives and even direct subsidies to expand investment in this type of behind-the-fence generation. A little brew-your-own power is looking like a lifeline for your business. Right?
Not so fast.
The Ontario government is instituting a rate change designed to punish those with behind-the-fence generators...
The rate change seeking to wipe out the incentive to invest in load-displacement generation but will only apply to non-preferred smaller customers.
Bruce Sharp's Linkedin post on the letter is Ontario CHP (Combined Heat and Power) at Risk ?
The primary purpose of the letter is to discuss the retail transmission treatment for CHP, with the possibility of aligning the treatment of LDC-served customers with transmission-connected customers or perhaps leaving LDC-served customers slightly worse off.
Much more ominous is the reference to the Global Adjustment (GA).
GA Class B customers with or contemplating CHP depend on avoiding this charge when they generate. Recently, the GA Class B charge has been near-stratospheric, clocking in at a simple average of $ 95/MWh for the period of Dec15 – Feb16. Meanwhile, the total net benefit of a base-loaded CHP (including the avoided GA Class B charge) ranges from approximately $ 70 - $ 85/MWh.

So, if all of a sudden the GA Class B is charged on a gross load (total load, i.e. net load + generated power) versus net load basis, CHP economics go poof. CHP as a Conservation and Demand Management (“CDM”) measure would be dead in the water
Most of the commodity charge for electricity in Ontario is now in the Global Adjustment charge.
Distribution charges for larger consumers are based on their consumption at monthly peak demand. In March the retail price of electricity will recover less than $100 million to pay contracted suppliers, and I suspect another $1.2 billion will be collected through a Global Adjustment surcharge. A similar mechanism in Germany is the EEG umlage, sometimes referred to as the renewables surcharge.[1]

When a consumer generators their own power, "behind the meter", they can avoid these surcharges.

The European Union has begun to view Germany's situation as a subsidy. From a February 2016 Reuter's article:
BERLIN, Feb 18 Germany has firmly rejected European Commission plans to make industrial firms generating their own power pay a surcharge funding renewable energy, according to an economy ministry paper seen by Reuters. 
In unusually dramatic language, the ministry said the plans could cost German industry 760 million euros ($845 million) per year, even if they were only implemented in part.

"Burdening self-sufficient power generation with the renewable energy levy would lead to massive inadvertent structural disruption and further de-industrialisation," the ministry said in the paper, which is due to be sent to Brussels in the next few days. 
The ministry argues the surcharge would burden the most efficient power plants and be counterproductive to climate policy since most industrial firms generate power with so-called "Combined Heat and Power" (CHP) plants and use both the electricity and heat in their factories.
Around a quarter of the total electricity consumed by German industry is produced in its own power stations, especially in the chemicals and steel industry.
I am not aware of an estimate of how much self-generation there is in Ontario, but doubt it is anywhere near as prominent as it is reported to be in Germany.

Ontario's global adjustment charge is now far greater than Germany's renewables surcharge, because all Ontario's supply is basically now guaranteed costs, plus a reasonable profit. This means the change in Ontario would be more impactful than the changes Germany's government is resisting.


1. Electricity Sector Lessons from Ontario and Germany

No comments:

Post a Comment