What Does an Entire Winter of Spring Skiing Have to Do with the Price of Energy?
Frequently Asked Questions About the Spring Energy Market, Following the Winter that Wasn’t
What comes after a winter that failed to materialize? Record low electricity prices. Over the last few weeks, my colleague Gabriel Villegas, a Portfolio Risk Management Analyst for Bruce Power Direct, and I have conducted a series of Market Insights webinars on the Ontario electricity market. What did we learn, and what are our customers most concerned about? Read on to find out more.
Q. Market Rates in Ontario have been surprisingly low so far this year. Can you put this into context?
A. November 2015 to March 2016 have been the lowest stretch of electricity prices since the market opened to competition in 2002. Price drivers in Ontario pushed rates to new lows. In fact, each month in the stretch set a new record price low. To put this in context, the Winter 2014 price averaged 7.92cents/kWh, while the Winter 2016 price averaged 1.20cents/kWh.
Q. What drives prices in Ontario?
A. There are a number of factors that drive electricity prices in the province. Prices are set on an hourly basis, based on supply and demand for electricity. This hourly price is paid by larger volume consumers.
Price drivers on the supply side begin with the sources of generation, and the availability of those generators to deliver power to the grid. We rely on nuclear and hydro electric as our primary generation sources, and renewable energy and natural gas as our peak-demand generation sources. The fuel prices for those sources of generation also comes into play, and imports have an impact on supply, as well.
On the demand side, exports, weather and extreme events, industrial demand, and conservation and efficiency have impacts on price. And straddling the line of both supply and demand are the effects of policy and regulation, as well as economic influencers — especially the foreign exchange rate.
All or some of these factors can come into the picture to affect the price of electricity.
Q. What drove low prices this past winter?
A. It was really a combination of things, but the main driver was the overall lack of winter weather. Winter just failed to materialize in Ontario. I, for one, had my parka packed away for much of the season! It was an extremely anomalous winter from a historical perspective. Locally, we had 14 days with winter temperatures above 10°C, as compared to a historical average of 3 days with winter temperatures above 10°C. The trend was seen across much of the northeast, compounding the effects.
Not only did the warm weather dampen demand for electricity, but demand for natural gas – a major heating fuel source, and a fuel source for electricity generation – was also impacted. Warm weather, low demand for electricity and natural gas, and cheap fuel prices all resulted in record low electricity prices in Ontario.
Q. What are the major price drivers you are monitoring which could impact energy prices through 2016?
A. Natural gas prices will continue to play a part in the Ontario electricity price story. Exports to Mexico and liquid natural gas exports overseas are expected to increase demand in the short-to-medium term.
Available generation is another key area to watch. Some large scheduled maintenance outages and refurbishments within Ontario’s nuclear fleet are coming up over the next 10 months, which will be taking available generation offline, affecting supply.
Ontario is also finalizing its cap and trade carbon policy over the coming months. While the impact of the final policy is still a question mark, any tax to carbon emissions will have a net effect on natural gas electricity generation; the most likely outcome being increased prices on the HOEP.
Finally, the Canadian dollar and the overall economic outlook are major price drivers, and a weaker Canadian dollar puts upward pressure on electricity prices.
So, what does an entire winter of spring skiing conditions have to do with the price of energy? Quite a lot. If you’re looking for a solution to help you better manage your energy consumption in an unpredictable market, the Bruce Power Saver energy management tool can help. You can find out more about the Bruce Power Saver on our website.
If you didn’t get a chance to see our Market Insights Spring 2016 webinar, it is now available for on-demand viewing. Click the button below to request access.