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Ontario businesses seek insight on summer and fall energy markets

It has been an interesting couple of weeks in the office. We’ve received calls from many of Ontario’s largest electricity consumers, looking for information about what’s going to happen for the rest of the year. As Ontario’s largest energy market player, we’re used to getting questions like this—we field them all the time. What makes the past two weeks different is that it’s all the largest consumers calling and asking the same questions within days of each other.

What’s all the commotion about?

They are all concerned about the same things: the prospect of a return to more normal summers (read: hot) and a huge, planned generator outage in the fall.

Since we’re in the business of providing our clients with market insights and guidance on the fundamental drivers that will impact their business, here are some of the basic facts about what’s expected to happen in the energy market over the summer and the rest of 2015.

1. Hooray—it looks like we might have a summer in 2015!

From an energy perspective, the one drawback with a hot and humid summer is the impact on electricity consumption, specifically air conditioning, which is one of the highest intensity users of energy. As the summer gets hotter, the demand for electricity rises faster than the temperature.

The experts at the Independent Electricity System Operator (IESO), who are responsible for forecasting energy demand for the province, are calling for a peak electricity demand of 22,991 MW. And if that happens, it will be the highest demand since August 2012—the last time we really had a nice, cottage-worthy summer.

And if we get lucky (or unlucky depending upon how you feel about heat) and we get one of those classic southern Ontario heat waves, the peak demand could reach a high not seen since July of 2011.

And either of those events will have an impact on electricity prices! Especially compared to 2014 when we didn’t have a summer at all.

Ontario energy prices
July 2011 2.9 c\kWh
August 2012 3.7 c\kWh
Summer 2014 2.3 c\kWh

2. Fall supply takes a hit

The fall gets really interesting (for an energy geek). Ontario Power Generation is taking a planned outage of its entire Darlington Nuclear Generation station for more than 60 straight days from mid-September to early November. Just as the demand for electricity is starting to fall after the summer, we’re removing a huge chunk of supply. How big of a chunk?

In those 60 days of outage Darlington would normally produce about 5 million kWh of energy. That’s a whopping 25% of the total consumption for the entire Province.

These are two of the reasons our phones have been ringing and what’s gotten the largest electricity customers interested in the market. (Other than enjoying the conversation with the friendly staff at Bruce Power Direct, of course.)

As summer turns to fall, the energy market turns from high demand to low supply. And with both comes higher prices for electricity.

Have a look through our detailed rationale below, and if you’re looking for more detailed explanation, we’re always available to discuss your specific situation.

Supporting rationale:

  • According to IESO’s most recent 18 Month Outlook, Ontario Power Generation (OPG) is conducting an extended planned outage of all four units at its Darlington Nuclear Generation facility.
  • This will remove ~3,600 MW from the province’s electricity supply for the period of September 18, 2015 to November 8, 2015. A total outage duration of more than 60 days
  • This outage will reduce the electricity supply to the province by a total of 5 million MWh or 25% of the total provincial electricity consumption for the period of 20 million MWh.
  • This outage coincides with the period of lowest supply from Ontario’s hydro electric generators (spring is the period of highest supply).
  • In the same 18-month report, the IESO anticipates the summer peak demand for electricity in the province to reach 22,991 MW with a forecast uncertainty of more than 1,000 MW.
  • If the normal weather demand forecast is realized, this will be the highest summer demand for the province since August 2012.
    • August 2012 electricity price was $29.30\MWh
  • If the extreme weather forecast is realized, this will be the highest summer demand for the province since July 2011.
    • July 2011’s electricity price was $37.10\MWh