[Updated - July 2] On June 26, the ICI changed significantly. Let our Founder, Tomas, lay out the various implications. Find out how exactly this impacts you.
EnPowered simplifies energy management. This article is a part of our 'Industry Updates' series. We discuss the happenings of energy markets across North America and provide our take on what this means for your business.
HIATUS - FOR SOME, MAYBE - BUT NOT FOR ALL
Given recent announcements, such as deferring Global Adjustment, it is clear the Ontario Government is trying its best to alleviate financial strain for Ontario’s businesses and support economic recovery. With that focus, previous promises of lower electricity rates, and strong lobbying efforts from select large energy users, it’s not surprising that the Ministry of Energy, Northern Development, and Mining announced changes to the Industrial Conservation Initiative - specifically making a distinction between how Global Adjustment (GA) would be charged for Current and New ICI participants.
What caught many off guard was the timing of the announcement - the market has already responded 7 times to potential peaks and it’s two weeks after the ICI enrolment deadline. Businesses have already curtailed several times in response to high usage, and many others have made significant investments already.
WHAT DOES THIS MEAN FOR YOU?
RETURNING AND NEW ICI CLASS A PARTICIPANTS
If you were an ICI participant last year (2019/2020), are returning this year (2020/2021), or are a New ICI participant as of June 15, the good news is that you don’t need to respond to Peaks this season. Your GA is frozen based upon last year’s Peak Demand Factor (PDF). Unfortunately, this also means that you are unable to improve your PDF to capture more savings. If you have invested in hardware, energy storage, or other mitigation techniques you may be understandably frustrated. Businesses made sound investment decisions based on the market rules, but a last minute rule change has negatively impacted those investments. Businesses are still implementing GA mitigation solutions, such as SunGrid who continues to install storage solutions today. The market, however, needs to have trust in a stable regulatory climate. Read on for more information about hardware impacts.
RETURNING ICI CLASS A PARTICIPANTS, CURRENTLY CLASS B
If you were an ICI participant last year (2019/2020) and did not re-enrol this year (2020/2021), you are currently being billed as Class B. What was initially unclear, is what will happen next year (2021/2022) if you re-enrol as Class A.
We’ve recently had an update from the IESO. Previously Class A companies, who are currently Class B will be charged in 2021/2022 based upon their 2020/2021 PDF. The IESO states: 'According to the Ministry’s announcement only existing Class A customers (starting July 1st) will maintain their peak demand factor from the 2019-20 base period to determine their global adjustment charges in 2021-22.'
Based upon this clarification, any Class B companies who plan to opt in next year should aim to respond to Peaks this year. The PDF each establishes this year will be used for 2021/2022 billing, regardless of previously being Class A in 2019/2020.
PROSPECTIVE ICI CLASS A PARTICIPANTS
If you were not an ICI participant last year (2019/2020) but are planning to enrol as an ICI participant next year (2021/2022), you should respond to Peaks this season. You should aim to establish a low PDF this year (2020/2021) to capture GA savings the following adjustment period when you opt-in to Class A (2021/2022). Lucky for you, this will be relatively easy to achieve this year as the Grid’s usage will be much higher than normal (read on to find out why).
WHAT DOES THIS MEAN FOR THE GRID?
We’re going to see usage we haven’t seen in decades. Our AI and Model Lead, Paolo Mojica, puts it best, ‘This is pretty intuitive - the provincial load will simply be significantly higher’.
The ICI, and other capacity programs, are used to lower peak usage. Normally, in Ontario, there are roughly 2,500 MW of load responding during a potential Peak Day (about 10% of the grid). This current announcement means many participants no longer need to respond, leaving a smaller ~200 MW load of response across a handful of New and Prospective ICI Participants. While I agree with the Ministry and System Operator that there most likely will not be any blackouts this year, I wouldn’t be surprised if there are more localized brownouts. Our provincial transformers and equipment have not seen this level of usage in many years.
Simply take a look at the impact of COVID-19. Our models and analysis illustrated that usage was trending ~1.5GW lower on when compared to similar spring days last year. However, on hot days like the ones projected for July, usage this year is very similar - if not higher - than last year. Our regulators have been acting upon the premise that load is lower due to COVID-19 which has been proven not to be the case during Peak days - the only days that really matter when considering the ICI Program.
Suffice to say, provincial Peaks could be well above the 24,700 MW from the IESO assessment. Leonard Kula, COO and VP of Planning, Acquisitions, and Operations at the IESO, indicates they are aware of this as he states they plan to ‘coordinate and optimize outage plans for the summer’. And should usage exceed the provincial grid capacity? Kula states that the IESO ‘...would rely on other tools such as economic imports and/or outage deferrals...to help manage periods of high demand’.
DOES THIS HELP WITH ECONOMIC RECOVERY?
For returning ICI participants who performed well last year, yes. These businesses are happy that they no longer have to respond to Peaks and can instead focus on production. For New and Prospective ICI participants who will be responding this year, they still need to actively manage the ICI program while trying to return to pre-COVID-19 operational levels.
Most damaging, however, is that the announcement also impacts an important and growing sector of the economy. Stefan Goertz, Managing Partner of SunGrid, sheds light on this. He states ‘Global Adjustment is not just an energy billing mechanism - it is an industry with many people, employees, and energy assets deployed. For Energy Storage in particular it seems there are now millions of dollars of assets with major capability sitting idle. As a province, we need to review how best to utilize clean energy assets the market expertise developed,’
FOR THOSE RESPONDING TO PEAKS THIS YEAR, WILL IT BE HARD?
New and Prospective ICI participants are living in the ‘Wild West’ for Peaks this year. Support in navigating the coming months will be useful, particularly in limiting the number of responses. Thankfully, in a world of cost recovery, there are free options available.
For software like our Peak Predictions, it is key for us to monitor this week, enabling our models and AI to observe how the market behaves. After that, we’ll need to do some analysis on how absolute magnitude of load is different, as well as if there are any changes to how the shape of load development throughout the day changes.