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The End (Of Coal) is Near

As noted in several of our blog posts over the past few months, coal has been completely phased out as a source of energy in Ontario. In fact, according to the Clean Air Alliance, our last coal plant was shut down on April 8, 2014.

Ontario is not alone in our pursuit for cleaner air.  Our neighbours to the south have been progressing their own initiatives to eliminate coal fired electricity generation.  In fact, experts predict the US will retire 4x more coal in the next 2 years than Ontario has.  The US is eliminating coal through the implementation of the Cross State Air Pollution Rule.  In the next couple of paragraphs I describe CSAPR and explain the impacts on the Ontario electricity price.

What is the Cross State Air Pollution Rule?

The Cross-State Air Pollution Rule (CSAPR), was finalized on July 6th 2011 by the US Environmental Protection Agency (EPA), and requires a total of 28 states to reduce annual SO2 emissions, annual NOX emissions and/or ozone season NOX emissions.

What does that mean? It means coal fired electricity generation is going to become much more expensive.  So expensive that it is going to become un-economical to run these plants and many of them are going to be retired.  As it stands, coal remains North America’s cheapest flexible form of power generation; however, that is only true when you don’t consider the downstream effects of coal. A prime example of these effects, or externalities, is the health implications of coal.   With the introduction of the CSAPP the US Government is finally taking an approach that will help to incorporate the cost of externalities and provide cleaner air. The chart below, developed by the EPA, illustrates the health benefits of the CSAPR.

Estimated Annual Number of Adverse Health Effects Avoided Due to Implementing the CSAPR*

Health Effect

Number of Cases Avoided

Premature mortality

13,000 to 34,000

Non-fatal heart attacks

15,000

Hospital and emergency department visits

19,000

Accute bronchitis

19,000

Upper and lower respiratory symptoms

420,000

Aggravated asthma

400,000

Days when people miss work or school

1.8 million

*Impacts avoided due to improvements in PM2.5 and ozone air quality in 2014

What does all of this mean to you?

When the CSAPR rule was upheld by the Supreme Court last month, natural gas prices jumped instantly. As the US moves away from coal as the predominant fuel for electricity generation the demand for natural gas will increase dramatically.  This transition will take place in the next 18 – 24 months and will have an immediate increase in the cost of electricity.  Not only will it increase the cost of electricity it will also have an impact on gas demand and the cost of gas.  As we experienced in Ontario during the winter of 2014, despite the industry claims of the shale gas revolution it doesn’t necessarily mean cheap gas for customers.

What will happen to electricity price in Ontario?

Ontario’s electricity fundamentals of supply and demand don’t exist in a vacuum. We import and export to and from our neighbours all the time. If power is cheap and abundant in Ontario, we will export to the US, and when power is cheaper in the US we will import it to Ontario. Since the start of 2014 when we phased out the majority of our coal generation, Ontario has seen significantly less exports to the US, and significantly more imports (caused by high Ontario prices). We might see a reversal in 2015, when our US neighbours shut down 12 gigawatts of coal plants, which is equivalent in power to approximately 75% of Ontario’s total average demand. This will have a very real impact on power prices. There are natural gas plants coming online to compensate for the coal closures; however, that just creates more demand for natural gas, causing electricity price to rise further. I am expecting our neighbouring markets to see a steady increase in prices over the coming 6 – 18 months, and this will cause an increase in electricity price in Ontario, as we are interconnected.

Bottom Line:

What happens in the US energy market has an impact on Ontario’s electricity market. The Obama administration is serious about energy policy, and the Supreme Court has upheld the controversial EPA rule – they are following our  lead and removing cheap and dirty coal.  This will increase electricity prices in the US which will, in turn increase electricity prices in Ontario. 

This is not the end of the war on dirty energy; in fact, it is quite the opposite. Although the rule is beneficial for global health and the environment, it may put some extra pressure on your pocketbook. To see how you can avoid cost increases in your power price, contact me today.

 

 

 

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