Trends to watch in the Ontario Electricity Market
The last four months have been some of the most volatile in the history of the Ontario electricity market. With price spikes and uncertainty causing havoc in the market, rate payers are looking to understand how prices will be impacted over the next 24 months. The most common question I receive from my clients is, “can you help me understand where electricity prices in Ontario are going over the next 36 months?”
At Bruce Power we monitor a number of fundamental factors to predict where prices will be, but it is not a perfect science. If I only had that crystal ball! While we of course can’t predict the unpredictable, there are a number of price drivers of note, which will be impacting the HOEP over the coming months. Here are some of the things we are watching.
1. Natural Gas Storage Recovery
High demand for natural gas in the winter of 2014 depleted North American natural gas in storage to the lowest levels in more than a decade. The Energy Information Administration’s (EIA) gas storage numbers reported United States working gas in storage ended the winter at 822bcf for the week ending 27 March, the last withdrawal week of the year. Canadian working gas in storage ended the winter at just 5% of total capacity according to published reports by Enbridge and Union gas.
Complete recovery of working gas in storage for winter 2015 will require record production levels through the injection season, however there is potential for gas storage levels to trend well below the 5 year average if milestone injections are not achieved. Natural gas price risk is expected to remain high through the summer of 2014 and into the winter of 2015, and storage recovery is a story we will be watching closely throughout the summer months.
2. Scheduled Generator Outages in 2015
Heading into Q2 2015, scheduled generator outages will be reducing the available generation in Ontario and tightening the available base-load generation for Q2.
According to the IESO’s 18-month Outlook published in February of 2014, “planned generator outages in the second quarter of 2015 are currently impacting the supply outlook for that period.”
Approximately 3,000 MW of supply will be taken offline in Ontario for scheduled maintenance, with strong potential for supply shortage and upward price risk heading into the high-demand summer peak.
3. US Coal Retirements in 2015
Ontario was just the beginning of the coal generator retirement trend hitting North America. By the end of 2014, Ontario will have retired all of its coal fired generators – a significant win for the health of Ontarians. However, an even bigger wave of retirements is expected across the US Northeast beginning in 2015.
Over 12GW of retirements are scheduled in the US Northeast in 2015 alone – that’s more than four times the generation that was retired in Ontario. An additional 8GW of retirements are currently scheduled through 2018, with the potential for more announcements coming on the heels of the recent Cross State Air Pollution Rule legislation being upheld.
These significant volumes of coal retirements will increase demand for natural gas fired generation across the Northeast, placing further pressure on natural gas prices and increasing natural-gas directed price risk on electricity prices.
4. Beyond 2015: Ontario Nuclear Refurbishments
Ontario’s nuclear fleet provides a solid foundation of reliable, safe and inexpensive base-load generation for homes and businesses across the province. However this fleet is ageing, and must undergo necessary refurbishments in order to continue to supply generation for the future of Ontario. For more information refer to Ontario`s Long Term Energy Plan.
Ontario’s nuclear fleet begins its refurbishment schedule in Q3 2016, taking ~1700MW of base-load generation offline. With less nuclear supply, there will be heavier dependence on other forms of generation to meet demand, particularly in peak months during the winter and summer.
While we can’t predict the unpredictable, some trends remain clear. Ontario winters will be cold, summers will be hot and electricity demand high during the peak seasons. In addition, other risk factors place your electricity budgets at risk – these price drivers have the potential to drive the electricity prices in Ontario into volatile territory. There have been a lot of changes in the Ontario Electricity Market over the last 12 months, but consumers have a choice.
Get in touch today to discuss how Bruce Power Direct’s customers have been working with us to help them manage their electricity price risk and take the volatility out of their electricity bills.