Managing the Global Adjustment’s impact on manufacturing energy costs
Last week, I gave a webinar in partnership with Marzieh Baghi, Project Manager at Sofina Foods, and Michael Ouellette, Editor of CanadianManufacturing.com, in an effort to help manufactures understand the Global Adjustment (GA) and its impact on their energy costs. Thanks to recent changes introduced by the Ontario government, there are big opportunities for manufacturers to reduce this (large) component of their electricity costs.
Here are some highlights from the webinar and some strategies on how you can take advantage of the recent changes to the GA to reduce your company’s energy costs.
Understanding the Global Adjustment
The Global Adjustment (GA) is the charge on your electricity bill set by the Independent Electricity System Operator (ISEO) that accounts for the difference between the electricity market price and the rate paid to generators, as well as for conservation and demand management programs.
How does the GA work and where do those dollars go?
Using wind farms in Ontario as an example, in 2015 they collectively produced about 9 billion kWh of electricity at the contract price of roughly 11 c/kWh. But the 2015 market price was only 2.4 c/kWh. In order to pay those wind farms to generate at the cost of 11 cents, the Global Adjustment had to make up the 8.6 c/kWh difference*.
Since wind farms produced about 9 billion kWh in 2015 and the GA was 8.6 c/kWh, their portion of the 2015 GA was about $780 million. The entire province consumed about 140 billion kWhs in 2015. When you divide wind generation’s portion, $780 million, by 140 billion kWhs, you see that wind farms in Ontario cost us about half a cent per kWh. To put that into perspective, the entire GA for 2015 was about 7.9 c/kWh.
So where does the rest of the money go? The IESO produces a monthly market report to show what infrastructure the GA pays for.
The GA and how it applies to your business (Class A and Class B)
What’s the difference between a Class A and Class B customer? Class A pays the GA on a demand basis, measured as their demand during a very few specific hours in the year and Class B pays on a volumetric basis in c/kWh.
As of September 2016, Class A customers are those who have a peak demand of more than 1 MW per year. If you are a customer that has a peak demand greater than 1 MW, you may choose to opt-in to the Industrial Conservation Initiative and have your GA costs calculated according to your peak demand.
Class A customers that have opted to participate in the ICI pay the Global Adjustment (GA) fees according to a percentage of their contribution to the top five Ontario peak demand hours over a 12-month base period.
What is a Coincident Peak?
The Coincident Peak is your facility’s consumption during the time of the five peak demand hours in Ontario. Peak hours are the five highest demand hours of the year. These usually occur in the middle of summer when it’s sweltering hot and people and offices have their air conditioners pumping, and electricity consumption is through the roof. That’s when the Province will likely hit the highest peaks, and your electricity consumption at those specific hours determines your Peak Demand Factor percentage.
Class B customers pay the GA on a c/kWh basis. In 2015 it was 7.9 cents, so for every kWh that Class B customers consumed, they paid 7.9 cents. As a Class B customer the only way to reduce your GA costs is to reduce your kWh. It doesn’t matter when you reduce kWh, just that you reduce.
How manufacturers can benefit from being a Class A customer
With the entry barrier to Class A reduced to 1MW, more manufacturers are eligible to opt in and save on their electricity costs. How?
Analyze the seasonal timing of the 5CPs to proactively plan production.
By proactively planning production you can reduce your demand during those 5 coincident peaks. By analyzing the seasonal timing of the 5CPs for the past 5 years you can start to see trends. This year, three of the five peaks happened in the second week of August, so if you had planned an annual shutdown in the first two weeks of August, you would have saved greatly on your GA costs.
Forecast the 5CPs to reduce your demand during those 5CPs.
You can forecast the 5CPs by monitoring the market to try to reduce your demand during peak hours. IESO produces hourly and forecasts to help you identify those peaks. A rule of thumb we use is that you can save $50,000 on GA costs per 100 kWs of demand reduced over those 5CPs. So, if you reduce your demand by 500 kWs you would save $250,000 off your GA costs. The savings can really add up if you can identify the kW’s to reduce at your facility for those peak hours.*
Reduce your peak demand to further reduce your GA costs.
Marzieh gave a couple of really good examples of how manufacturers can reduce their peak demand resulting in a reduction in GA costs:
- Shifting schedules like cleaning times, production hours and altering the schedule for high energy equipment like compressors, battery chargers for forklifts, etc. to avoid those 5 CP’s
- Building up inventory during low consumption hours and shutting down during peak demand hours.
Monitoring and managing your peak demand can help you reduce your GA. Knowing when your peak happens is paramount to helping you manage it and ultimately lower your costs. The Bruce Power Saver can make this job much simpler, by automatically collecting your facility’s hourly consumption data and allowing you to determine when your peaks occur. Armed with the knowledge of when your peaks occur, gives you the ability to find the main drivers of your consumption and identify the opportunities you have to reduce your peak, reduce your GA costs and ultimately save some money.