Information regarding upcoming changes to electricity costs for Ontario consumers, a brief review of the Global Adjustment, and how the Comprehensive Electricity Plan will affect your business.
In early November 2020, the Ontario government included a Comprehensive Electricity Plan in its 2021 budget to lower electricity costs for Ontario consumers. Electricity costs in Ontario have been comparatively high and regarded as a negative competitive factor for local industrial and commercial businesses. To help companies recover from the adverse impact of COVID, the Ontario government will lower the Global Adjustment (the major component of Ontario electricity supply costs) effective January 2021.
In 2005, the Ontario government established the Global Adjustment to cover the cost of providing adequate generating capacity and conservation programs for Ontario. Global Adjustment is set monthly by the Independent Electricity System Operator (IESO) in Ontario to reflect (1) the differences between the wholesale market prices for electricity and the rates for regulated and contracted electricity generation; (2) payments for building or refurbishing electricity infrastructure; and (3) the cost of delivering conservation programs. Industrial and commercial consumers paying electricity market or contract prices are subject to Global Adjustment. Energy invoices in Ontario include a separate line item for Global Adjustment.
Over the past two decades, electricity costs in Ontario increased significantly for industrial and commercial consumers. Data shows that since 2009 electricity costs increased by 37 percent for industrial consumers and 118 percent for commercial consumers. The Ontario government introduced the Green Energy Act in 2009 and signed thousands of high-priced 20-year contracts with renewable energy producers - wind, solar, and bioenergy. These high-priced contracts provided approximately 8 percent of Ontario's electricity supply but contributed to 18 percent of electricity system costs in 2019. These costs are included in the Global Adjustment calculation and distributed to individual consumers' energy bills.
Beginning 1 January 2021, approximately 85 percent of these high-cost wind, solar, and bioenergy contracts will be funded by the Ontario government rather than consumers. Mid-to-large industrial and commercial consumers are expected to see a cost reduction of about 14 and 16 percent, respectively, on their electricity bills. The estimated electricity cost, on average, will be around 8.05 cents per kWh for industrial consumers and 14.31 cents per kWh for commercial consumers. Industrial and commercial consumers in Ontario should review their invoices in early 2021 to ensure that they receive the benefits of Global Adjustment changes.
As the Ontario government implements its electricity cost relief initiatives to rebound from the COVID pandemic, commercial and industrial businesses should review their eligibility for available government programs. NUS Consulting Group's Canadian team is available to assist any businesses with questions about these programs or require assistance in assessing their suitability.