|
Yesterday the government of Ontario released the details of their Fair Hydro Plan. The plan is intended to result in a 25% reduction on the average residential electricity customer’s bill and, barring any unforeseen delays, should be in place by the summer of 2017 (likely May). This 25% reduction will be coming from different areas:
|
|
Policy Rationale for the Plan
The policy rationale for the plan is that the electricity system in Ontario was facing a massive infrastructure deficit, inherited from successive governments of all political stripes, and needed to pay to address that deficit. Additionally, there were costs incurred during the coal phase-out process in order to clean the electricity supply and reduce Greenhouse Gas (GHG) emissions from the sector. All of these costs have ended up being front-end loaded with today’s ratepayers subsidizing both past and future ratepayers for infrastructure which needed to be built. Instead of front-end loading the payment of those costs, the government will be amortizing a portion of those costs over 30 years in order to reduce the installments being paid. Similar to refinancing a mortgage this will, however, result in more being paid in the long-run because of the costs of financing the debt. Government estimates put this additional cost at $25 billion over the 30 years.
And now to the components of the plan and potential impacts.
And now to the components of the plan and potential impacts.
Refinancing the Global Adjustment
The Plan: Beyond the already instituted 8% HST rebate, the Fair Hydro Plan will target an average reduction of 17% to residential electricity bills, in part, by reducing the amount of GA that is paid for by ratepayers by $2.5 billion each year for the first 10 years. Keep in mind that the full 17% reduction will not all come directly from refinancing the GA – some of the 17% reduction will come from other measures that will impact solar net metering to a lesser degree. These will be discussed below.
The full cost of GA would continue to be paid to generators (nuclear, natural gas, waterpower, wind, solar, bioenergy) and to fund conservation programs (which satisfies the government’s contractual obligations to these parties) but will be funded, in part, by debt rather than from ratepayers, at least for now. The annual $2.5 billion difference will be transferred to an account managed by Ontario Power Generation (OPG) where it will accumulate interest and be paid off over a longer period of time (30 years). This change will result in an immediate reduction on electricity bills by reducing the GA component of the cost of electricity. The government has also announced that they will be holding any increases to electricity rates to the rate of inflation over the next 4 years.
The Impact to Solar Net Metering: Refinancing the GA will directly reduce the per kWh charge that electricity customers pay, which will change the price that companies will need to offer a potential net metering customer. For example, if a customer was currently paying 15¢/kWh for grid electricity, a net metering company might need to offer a solar kWh for 13-14¢ in order for the customer to be interested. With the refinancing of the GA, the price per kWh of grid electricity will decrease and the net metering company would need, in turn, reduce the cost of a solar kWh in order to incent uptake. This will increase payback periods by widening the gap between the cost of a kWh from the grid and the required price per kWh that a net metering system would need in order to cover costs and still produce electricity cost savings for the customer.
We do not yet know the exact impacts to the per kWh price in Ontario and so cannot yet quantify the exact impact to net metering system economics. Once greater clarity on the impact to Time of Use (TOU) and Tiered Rates is available, CanSIA will share that information with Members. For the time being, below are some potential impacts in the form of changes to mock bills for standard service residential electricity customers.
The full cost of GA would continue to be paid to generators (nuclear, natural gas, waterpower, wind, solar, bioenergy) and to fund conservation programs (which satisfies the government’s contractual obligations to these parties) but will be funded, in part, by debt rather than from ratepayers, at least for now. The annual $2.5 billion difference will be transferred to an account managed by Ontario Power Generation (OPG) where it will accumulate interest and be paid off over a longer period of time (30 years). This change will result in an immediate reduction on electricity bills by reducing the GA component of the cost of electricity. The government has also announced that they will be holding any increases to electricity rates to the rate of inflation over the next 4 years.
The Impact to Solar Net Metering: Refinancing the GA will directly reduce the per kWh charge that electricity customers pay, which will change the price that companies will need to offer a potential net metering customer. For example, if a customer was currently paying 15¢/kWh for grid electricity, a net metering company might need to offer a solar kWh for 13-14¢ in order for the customer to be interested. With the refinancing of the GA, the price per kWh of grid electricity will decrease and the net metering company would need, in turn, reduce the cost of a solar kWh in order to incent uptake. This will increase payback periods by widening the gap between the cost of a kWh from the grid and the required price per kWh that a net metering system would need in order to cover costs and still produce electricity cost savings for the customer.
We do not yet know the exact impacts to the per kWh price in Ontario and so cannot yet quantify the exact impact to net metering system economics. Once greater clarity on the impact to Time of Use (TOU) and Tiered Rates is available, CanSIA will share that information with Members. For the time being, below are some potential impacts in the form of changes to mock bills for standard service residential electricity customers.
Before the Fair Hydro Plan
After the Fair Hydro Plan
Broadening the Rural or Remote Electricity Rate Protection (RRRP)
The Plan: The RRRP provides a rate subsidy to rural or remote residential customers who are faced with higher distribution costs compared to urban areas. The RRRP will be expanded to include about 800,000 R1 and R2 residential customers (up from the current 350,000) across the service territories of Hydro One, Northern Ontario Wires Inc., Lakeland Parry Sound, Chapleau PUC, Sioux Lookout Hydro, InnPower, Atikokan Hydro and Algoma Power. The costs of the RRRP is currently born by ratepayers through a portion of the Regulatory charge on the electricity bill, however, the cost will be moved to the tax base and thus come off the Regulatory charge.
The Impact to Solar Net Metering: This change is expected to have a relatively minor impact on solar net metering as the addition to the regulatory charge on current bills is small and the effect will only impact residential distribution charges. As described previously by CanSIA, the Ontario Energy Board (OEB) is going through the process of fixing residential distribution charges, thus solar net metering cannot affect these charges regardless.
The Impact to Solar Net Metering: This change is expected to have a relatively minor impact on solar net metering as the addition to the regulatory charge on current bills is small and the effect will only impact residential distribution charges. As described previously by CanSIA, the Ontario Energy Board (OEB) is going through the process of fixing residential distribution charges, thus solar net metering cannot affect these charges regardless.
Enhancing the Ontario Electricity Support Program, First Nations On-Reserve Delivery Credit, and Establishing a New Affordability Fund
The Plan: The Fair Hydro Plan will also make a number of changes to one existing program as well as create two new programs, all of which will be funded by the tax base rather than ratepayers. The Ontario Electricity Support Program (OESP) will increase its monthly credits by 50% to cover more low-income Ontarians. The First Nations On-Reserve Delivery Credit will eliminate the delivery charge for all on-reserve First Nations households and remove the monthly service charge for customers of licensed distributors which charge a bundled rate. Finally, a new Affordability Fund will be created which will assist low-income customers in accessing energy conservation programs to reduce their electricity consumption.
The Impact to Solar Net Metering: CanSIA expects the impact to solar net metering from these three measures to be relatively minor given that they generally target either portions of the bill that cannot be impacted by a net metering system, and because they target customer classes that would not likely pursue solar at this time.
The Impact to Solar Net Metering: CanSIA expects the impact to solar net metering from these three measures to be relatively minor given that they generally target either portions of the bill that cannot be impacted by a net metering system, and because they target customer classes that would not likely pursue solar at this time.
Conclusion
The Fair Hydro Plan is being implemented to provide, in total, a 25% reduction on the average residential electricity customer’s bill. These impacts, however, are largely focused on volumetric portions of the bill (commodity/electricity charge, HST, regulatory charge) and are thus going to impact the economics of solar net metering as this is the portion of the bill that can be reduced by a net metering system. Certainly the GA refinancing plan will have the largest impact, however, the cumulative impact of all changes are additive and will increase the overall impact. The impacts will be especially pronounced for residential customers, however, the commercial/industrial sector will not be as heavily impacted due to the relatively low costs per unit of electricity that come from the of GA for these customers. CanSIA will be working to better quantify the impacts to solar net metering in the coming weeks to better understand changes to TOU and Tiered Rates as well as to total changes to the volumetric portion of the electricity bill.
RSS Feed
