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Electricity in Canada - Where are Prices Going?

Ontario

Ontario's Hourly Spot Price - Driven by weather, economic activity and generation available.

Electricity is priced each hour in Ontario based on supply and demand. The hourly demand is based on business and home use, driven by economic activity and weather. Supply is based on available generation, imports and mechanical breakdowns in the system.

Factors affecting prices

  • Manufacturing plant electricity demand.
  • New generation required in Ontario will come from expensive sources. For example, the government is paying 13.5 cents/kWh for new wind power and 54 cents/kWh for some solar.
  • Ontario has closed the coal generation units.
  • Electricity use is expected to increase long term at 2-3% per year.
  • Central air conditioners continue to be installed in high numbers in Ontario.
  • Several refurbished nuclear generation units are coming back online.

The result is that base load generation, which is on 24/7, is increasing while peaking capability is decreasing. It is likely that this will cause off peak prices to be lower, but peak prices to be more volatile.

Overall electricity rates for residential and small business customers is forecasted to drop by about 15% over the next 18 months (when compared to the 12 month period prior to April 2017).

Global Adjustment. The GA is forecasted to drop about 3.3 c to 7.05 cents/kWh for the next year. About half of this drop is due to the governments recently implemented Fair Hydro Plan. The rest is due to higher forecasted wholesale electricity rates driven by higher natural gas rates and lower financing costs of the old hydro assets. In general higher HOEP prices result in lower a GA's'.

Hourly Ontario Energy Price or HOEP. In the April 2017 Ontario electricity outlook, the IESO Forecasts Wholesale Electricity Prices to be 2.281 c/kWh for the next year. This is an 18 percent increase over the 1.92 cent/kWh HOEP rate we have seen over the past 12 months.

When the GA and HOEP changes are combined the drop is forecasted to be about 1.8 cents/kWh or -16%. Two of the main issues that may cause prices to increase above these rates are:

  • Nuclear power reliability. Since 38% of Ontario power is supplied by nuclear plants if a nuclear plant goes off-line then the shortfall will need to be imported or produced by natural gas.
  • Natural gas prices. Since 28% of Ontario power is supplied by natural gas then a spike in gas will definintely affect power prices.

Alberta

Alberta government‚??s new carbon levy policy in 2017. There will be an increased tax on carbon emissions effective Jan 1/18 which is having an impact on the operating cost of Alberta‚??s coal fired units. There was an announcement in April 2017 that TransAlta will be retiring one coal unit and mothballing another effective Jan 1/18.

On the heels of this announcement, the forward fixed rates saw a bit of a jump for 2018 & 2019 period. We‚??re still forecasting low rates for the balance of this year, but there is some growing uncertainty surrounding the cost of electricity into 2018 and beyond.

Alberta's electricity sector will be under considerable pressure over the next 5-10 years due to