Energy Market Update: July - September 2018
Energy Market Update: July - September 2018
Energy Market Update: July - September 2018

Ontario Electricity

In Ontario, the high temperatures experienced during the summer months were 2 °C higher than climate norms and these high temperatures drove a very active Industrial Conservation Initiative (ICI) curtailment season. In the month of July alone, participants dealt with 17 days that exceeded 20,000 MW of demand.

Demand remained high throughout August and into September with the number one peak occurring on September 5th. Overall, the summer months saw the top 5 peaks range from an adjusted Allocated Quantity of Energy Withdrawn (AQEW) of 21,379 MW up to 22,551 MW. As a result of the relatively high peaks through the summer months the risk of winter peaks is low.

Along with the ICI activity, high temperatures through the summer drove above-average HOEP rates. Both July and August exceeded a weighted average of $30 /MWH and September reached $29.9 /MWH. The combination of high demand and HOEP kept total collection high, resulting in suppressed global adjustments with an average GA 1st of $83.78 /MWH compared to $114.84 /MWH in 2017.

Looking ahead, low GA and HOEP rates through October resulted in a high GA 1st for November of $122.35 /MWH. The high GA costs are expected to continue into December with projections in the range of $110 /MWH for the month. While the HOEP costs through October were low (as is normal during shoulder months), these rates are expected to increase throughout November and December due to the colder weather and requirement for heating.

 

Quebec Electricity

The Quebec Winter Demand Response (DR) program will be getting underway soon. The 2018/2019 program has been limited to participants that were deemed eligible in the 2017/2018 program, and financial support may not exceed support received in 2017/2018. Those who are participating in the 2018/2019 program need to be ready to respond to calls by the end of November 2018. More information may be found here:
http://www.hydroquebec.com/business/offers-programs/demand-response.html

 A temporary halt on crypto currency mining connections remains in place with hearings on the matter still underway.

 

Alberta Electricity

Alberta Pool pricing continued to be highly volatile through Q3 with the average pool price up 220% versus 2017 for the same period. The pool price peaked over $800 /MWH for 15 hours in period in comparison to only 3 hours in 2017. Pool pricing eased somewhat for the month of September, dropping to an average of $36 /MWH. Unfortunately the relief has not continued. Prices rose again in October and are expected to be high through to December.

 

Natural Gas

The Ontario Energy Board approved an increase in natural gas prices for both Union Gas and Enbridge for Q4 2018. Effective in October, rates will increase to 10.4313 ¢ /m3 for Enbridge and 15.1421 ¢ /m3 for Union gas, an increase of 12.9% and 8.7% respectively.

Effective October 1st 2018, the 3.3 ¢ /m3 Cap and Trade charge will be removed. This move comes after the system was dismantled by the new governing party in Ontario. However, this reprieve is not expected to last as the new federal carbon taxing schedule comes into effect in 2019 and could see an increase in LNG costs of 51 ¢ /m3. Details on potential impact of the carbon pricing scheme are provided in the following section.

Manitoba Hydro has announced an increase in Natural gas rates, effective November 1st, 2018. As a result, the cost of primary gas in the province will increase from 8.02¢ /m3 to 8.32¢ /m3.

 

Price of Carbon Production

The federal government of Canada is set to impose a carbon tax scheme on all provinces and territories starting in 2019. The new scheme will set a minimum price of carbon at $20.00 /ton on any province or territory that isn’t already meeting this standard. In Alberta and British Columbia there is no expected impact to this tax as both provinces are already exceeding the minimum threshold. Quebec carbon pricing is well below the minimum threshold sitting at approximately $3.50 /ton. All other provinces will see a net new tax as a result of the pricing scheme. Details of the potential costs of this new tax on energy system is laid out in the following tables. Please note that the mechanism for how the carbon tax will be implemented in each province is not yet known. Individual provinces are likely to introduce legislation to mitigate the impact to certain sectors.

The carbon intensity of producing electricity varies significantly by province depending on the primary source of generation, as a result the carbon pricing scheme will impact each province differently. The carbon intensity of producing electricity and resultant costs are shown in the table below:

Impact of Carbon Pricing on Electrical Cost

Province

2019 Carbon Price

Carbon Intensity1

Potential Cost

Quebec2

$20.00 /ton CO₂

1.2 g CO₂/kWh

$0.024 /MWh

Manitoba

$20.00 /ton CO₂

3.4 g CO₂/kWh

$0.068 /MWh

British Columbia2

$40.00 /ton CO₂

12.9 g CO₂/kWh

$0.516 /MWh

Prince Edward Island

$20.00 /ton CO₂

20.0 g CO₂/kWh

$0.400 /MWh

Newfoundland and Labrador

$20.00 /ton CO₂

32.0 g CO₂/kWh

$0.640 /MWh

Ontario

$20.00 /ton CO₂

40.0 g CO₂/kWh

$0.800 /MWh

Yukon

$20.00 /ton CO₂

41.0 g CO₂/kWh

$0.820 /MWh

New Brunswick

$20.00 /ton CO₂

280.0 g CO₂/kWh

$5.600 /MWh

Northwest Territories

$20.00 /ton CO₂

390.0 g CO₂/kWh

$7.800 /MWh

Nova Scotia

$20.00 /ton CO₂

600.0 g CO₂/kWh

$12.000 /MWh

Saskatchewan

$20.00 /ton CO₂

660.0 g CO₂/kWh

$13.200 /MWh

Nunavut

$20.00 /ton CO₂

750.0 g CO₂/kWh

$15.000 /MWh

Alberta2,3

$30.00 /ton CO₂

790.0 g CO₂/kWh

$23.700 /MWh

  1. Source: https://www.neb-one.gc.ca/nrg/sttstc/lctrct/rprt/2017cndrnwblpwr/ghgmssn-eng.html
  2. Carbon pricing is already in place for Quebec, British Columbia, and Alberta. Listed costs are total potential and not incremental to existing
  3. Provincial legislation in Alberta mitigates any impact to electrical rates

Along with Electrical costs the carbon tax is likely to cause an increase in LNG costs across the country with expected costs to be as follows:

Impact of Carbon Pricing on LNG Cost

Area

2019 Carbon Price

Carbon Intensity1

Potential Cost3

Federal

$20.00 /ton CO₂

68.0 g CO₂/MJ

$0.51 /m³

Quebec2

$20.00 /ton CO₂

68.0 g CO₂/MJ

$0.51 /m³

British Columbia2

$40.00 /ton CO₂

68.0 g CO₂/MJ

$1.01 /m³

Alberta2

$30.00 /ton CO₂

68.0 g CO₂/MJ

$0.76 /m³

  1. Source: https://en.wikipedia.org/wiki/Emission_intensity
  2. Carbon pricing is already in place for Quebec, British Columbia, and Alberta. Listed costs are total potential and not incremental to existing
  3. Based on industry average conversion factors source: https://apps.neb-one.gc.ca/Conversion/conversion-tables.aspx?GoCTemplateCulture=en-CA
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