Many larger commercial electricity customers in Ontario are awaiting their first peak demand report cards, due to be delivered by May 31. Instead of a grade point average, though, they’ll receive a mathematical factor to calculate their share of the bucket of costs known as the global adjustment (GA) for the 12 months beginning July 1.
The Building Owners and Managers Association (BOMA) of Greater Toronto’s annual global adjustment workshop, last week, came at the end of a rookie season for many designated Class A customers participating in Ontario’s Industrial Conservation Initiative (ICI). Eligibility for the potential cost-saving program was broadened for 2017-18 to include commercial customers with a monthly peak demand of at least 1 megawatt (MW). Previously, the vast majority of commercial customers — with the exception of very large accounts with monthly peak demand of at least 5 MW or data centres with peak demand of at least 3 MW — had been lumped into Class B, which pays the global adjustment on a straightforward per kilowatt-hour basis after the Class A allocation has been subtracted from the pot.
Class A customers’ monthly share is calculated with a consistent factor derived from their peak energy demand during the five hours in the 12-month period from May 1 to April 30 when the highest total system demand is recorded. Imminent report cards will affirm the newbies’ skill, or luck, in foreseeing and responding to those five hours in 2017-18. They’ll then have until June 15 to formally opt in for 2018-19.
“The decision to be Class A or Class B could cost you, or save you, tens and tens of thousands of dollars,” Bala Gnanam, BOMA Toronto’s vice president, energy, environment and strategic partnerships, told the gathering.
“We are seeing a tendency that Class A is achieving better savings than Class B, but it’s not universal,” cautioned Scott Rouse, managing partner with the consulting firm, [email protected], one of the slate of speakers outlining possible strategies for mitigating costs that are expected to be significant well into the future.
Last year, the global adjustment amounted to about $12 billion to cover energy supply contracts and a multitude of capital and carrying costs for generation and transmission assets. It now accounts for 80 to 90 per cent of the commodity price of electricity, while the more modest component, known as the hourly Ontario energy price (HOEP), varies with the price of fuel.
“The only fuel cost in the Ontario system is for natural gas. Our view is the HOEP is going to be lower and lower,” observed Adam White, chief executive officer of the energy consulting firm, Powerconsumer Inc. “Most of what we pay are out-of-market contract costs for regulated supply and assets. About $2 billion goes to solar, wind and conservation and the rest goes for nuclear and natural gas. All the natural gas (generating capacity) built and not used (most of the time), we’re paying for.”
Class A status is no guarantee of savings. An upward blip in consumption could backfire, particularly since building energy loads already tend to align with system-wide demand. Rouse cited an example of building operators unwittingly conducting power-intensive maintenance at the wrong time — a misstep that locked in a full year of higher costs — as a reminder of the importance of informing and preparing all key players in advance of likely peaks.
Outreach to tenants should also be central to the strategy since lease restrictions and/or concerns about comfort and the building’s reputation can limit the scope for shedding load. Sophisticated modelling may now help forecast more precisely, but, as the peaks typically occur a few days into prolonged summer heat waves, this knowledge doesn’t necessarily make it easier to appease weary building occupants.
“Commercial buildings aren’t in the business of managing the GA,” Rouse acknowledged. “Industrial has a lot more advantage in being able to control their loads.”
“Our number one priority is really tenant comfort,” agreed Phillip Raffi, national manager, energy and sustainability, with Colliers International, as he sketched out the rationale for investing in energy storage to unobtrusively reduce load. “I also didn’t want building operators having to run around doing 20 different things at the same time.”
The system was seen as a good fit for a west end Toronto complex that has peak demand of 1.4 MW, and is in keeping with energy management efforts and priorities across Colliers’ portfolio. “Any type of energy-saving opportunity we could undertake, we have done,” Raffi reported.
The technology provider, Matthew Sachs, chief operating officer with Peak Power, sees software-based prognostics as central to the system’s effectiveness in forecasting and controlling the charging and discharging of batteries. “At the moment of peak demand, some of the energy is coming from the grid and some of the energy is coming from the battery,” he said.
He argued that other sections of the hydro bill also underpin the business case for the investment. Delivery charges are prorated to customers’ 15 minutes of peak monthly demand meaning that, combined with the five peaks, eight hours of the year exert direct influence on up to 70 per cent of Class A customers’ electricity bills. Nor does he see a threat in the possibility that a new provincial government could dismantle the current system.
“Peak demand is a problem and there always has to be some market solution to reduce the problem,” Sachs hypothesized.
Diminished saving prospects
As relative latecomers to Class A, commercial customers likely face diminished prospects for savings compared to those that the small group of early enrollees enjoyed. The ICI originally served something of a dual function to reduce stress on the electricity system and to bolster some key sectors struggling with economic downturn and competition based in jurisdictions with cheaper production costs. White credits the program for both staving off blackouts and saving Ontario’s pulp and paper industry.
“We needed to give rate relief to manufacturers, and it has worked very well,” he submitted. “Power peaks are lower than they used to be.”
Today, with participation now open to thousands — commercial customers with peak demand of at least 1 MW and manufacturers with peak demand of at least 500 kilowatts — the dynamics have changed. Concerted efforts to “chase the peaks” can trigger enough load reduction to alter their intensity and timing. Rouse noted, for example, that last year’s summer peaks all occurred between 4 and 5 p.m., a couple hours later than traditional expectations.
“The number of Class A participants is impacting the peak,” concurred Robert Edwards, business manager, private sector, with Ontario’s Independent Electricity System Operator.
Total system demand is the divisor for determining potential savings, and it is has been dropping. Last year’s peak hour of demand — 21,786 MW between 4 and 5 p.m. on September 25 — wouldn’t have cracked the top 10 five years earlier. And this trend may present a happier scenario for Class B customers.
“The more the Ontario peak goes down, all things being equal, the higher the peak demand factor will be,” White explained. “One MW divided by 27,000 versus 1 MW divided by 21,000 gives different results. It’s not all moving to Class B. It’s an arbitrage. As it gets squeezed out, nobody is saving.”
Ultimately, the current best advice for Class B customers remains a sound message to all. Conservation should be the starting point of every strategy.
“There is still a lot of opportunity for Class B,” Rouse asserted. “You don’t have to worry about chasing peaks. You can get your base load down.”
Barbara Carss is editor-in-chief of Canadian Property Management.