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Electricity Price: Deciphering Your Electricity Bill in Ontario Part 2/4

This is the consumption portion of your bill where you are billed by kWh based on your meter reading, usually monthly.

This charge is further broken down into two price components:

  1. Electricity – also know as the spot price, the market clearing price (MCP), or the Hourly Ontario Energy Price (HOEP)
  2. Global Adjustment –  this used to the called the Provincial Benefit

Both of these prices are constantly changing but you are charged the weighted-average* over the month.

The Electricity Price is determined by the intersection of electricity demand and electricity supply. Both demand and supply are constantly and simultaneously varying.

 

Electricity Demand

Demand varies based on things like weather and economic activity. Things like air conditioning and heating increase electricity demand. In exceptional circumstances even a hockey game can influence demand.

The below graphs shows electricity demand on a typical Sunday (shown in grey) and compares it to the Sunday when Canada beat the U.S. in the ice hockey 2010 Olympic finals (shown in yellow). Demand during the game was overall lower than a typical Sunday, as many people were gathered together in one room to watch the game.  Spikes are noted during intermissions where people left where they were gathered to cook food, turn on lights, or use the bathroom – all things which increase demand.

OntarioElectricityDemand_Samira-1024x866.jpg

 

Electricity Supply

Electricity supply comes from different fuel types, like wind, solar, hydro (waterpower), natural gas and nuclear. These fuels types have different supply characteristics, all of which are needed to meet Ontario demand:

  • Baseload supply includes sources like nuclear and hydro. They are low-cost, reliable and supply electricity 24-7.
  • Intermittent supply includes sources like wind and solar. They provide electricity when the wind is blowing and the sun is shining.
  • Peaking supply sources like gas and peaking hydro are used when demand is at its highest – they are flexible but costly.

OntarioSupplyMixCharacteristics_samira-1024x866.jpg

Different fuel types also have different trade-offs when looking at costs, environmental aspects and reliability. There is a need for different types of supply but it is important to recognize that amongst these sources, there are drawbacks and benefits. The Ontario government looks at these trade-offs to help them develop energy policy in the province.

Electricity Price

The price for electricity in Ontario is set every 5 minutes based on the intersection of supply and demand. This is called the market clearing price (MCP). It is set in the following way:

  • Electricity supply is offered into the market at its operating cost. Offers of supply are stacked up from least costly to most expensive to meet demand. Where they intersect is sets the market clearing price (MCP)
  • In each hour there are 12 MCP’s, the hourly average of the MCP is called the Hourly Ontario Energy Price (HOEP).

weighted average hoep

On your electricity bill you are seeing a volume-weighted average* HOEP, when in reality price is fluctuating on a 5 minute basis. Many large industrial users who have visibility of upcoming estimated hourly prices adjust their consumption in light of changing hourly prices to reduce costs.

*Weighted average example:  

weighted average example

The average HOEP for 2013 was 2.5 cents/kWh, and although you don’t see it reflected in your bill, this 2.5 cents average is based on a lot of volatility over the year:

5min_intervals

Price volatility was recently evident in the January 2014 polar vortex which caused major price spikes.

polar vortex ontario

So, to recap, the electricity price is derived from the intersection of supply and demand.  Supply of electricity comes from different sources which have their own characteristics and trade-offs between costs, environmental friendliness, and reliability. Demand changes based on weather and economic activity. Although it changes on a 5-min basis, the electricity price you see on your bill is the hourly weighted average over the month.

 

WHAT YOU CAN DO TO DECREASE YOUR ELECTRICITY COST:

The Electricity component of your bill is charged on a weighted consumption (kWh) basis, so the less you consume the lower the portion of your bill will be. However we now know that it also matters when you consume, so best thing to do is avoid consuming in times when the price of electricity is high. This typically happens in the “peak” hours of the day from 7am to 7pm. You can also sign contracts with an electricity retailer like Bruce Power Direct for a set price of electricity over a longer period of time (e.g., 1 year).

Don’t miss the first post in Samira’s series on electricity pricing in Ontario.

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Download our Guide to Electricity Pricing in Ontario to better understand and decipher the components of your electricity bill.

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