Burlington, ON, Canada, November 25, 2007 --(PR.com
)-- On September 17th, the Fraser Institute’s Centre for Energy Studies released a technical paper on the electrical landscape of Ontario and the impact that rebates have on industrial demand responsiveness. The report, “Ontario Industrial Electricity Demand Responsiveness to Price”, revealed that the current rebate system is hindering the effectiveness of conservation initiatives in the industrial sector. One can hypothesize that as an extension of this conclusion, residential responsiveness is also being limited by those same rebates and regulations.
The study examined the following industrial groups: iron and steel; pulp, paper and board mills; metal ore mining; motor vehicle manufacturing; and petroleum products manufacturing. These groups make up over 80% of Ontario’s industrial load. Analysis revealed that there is “no evidence that the responsiveness of Ontario industrial demand to the price of electricity during time periods when demand is the strongest has strengthened since [the] market open[ed]”1.
As of the end of 2006, the maximum response under the OPA’s Demand Response Program (DRP) in a given hour was recorded on the 15th hour on Tuesday, July 1, 2006. A total of 182 MW was curtailed, which is less than 1% of peak load. This is significantly less than the “demand response resource potential of 3 to 7% of peak load found in most North American Electric Reliability Council regions” 2
360 Energy sat down with Senior Fraser Institute Economist and co-author of the report, Gerry Angevine, to discuss Ontario’s current electricity situation. Aside from working for the Institute, Angevine was President of the Canadian Energy Research Institute from 1979 to 1999. He was also President of AECL, an energy economics consulting firm.
During their interview, Angevine pointed out that “as long as customers are sheltered by rebates, they are not likely to be as sensitized to price spikes because they know they are going to be compensated and protected”. He recommends that the provincial government review its existing rebate and subsidy programs with the goal of eliminating them if they are truly serious about improving the efficiency of the wholesale market and the effectiveness of conservation initiatives. Although his study focused on key segments of the industrial sector, Angevine agreed that the less-than-stellar conservation efforts seen on the residential side are a result of the same rebate and subsidy problems. He commented on the installation of residential smart meters, saying that “once they really get those smart meters in place and people get up the curve in terms of knowing how to save, it would be nice to think that the government will move off of regulated pricing and let the market work”.
As many economists will tell you, often times, the best option is to let the market work freely and let supply and demand drive market prices. Of course, is option is not popular with politicians or the general public who see deregulation as an onslaught of higher electricity prices.
It is true that during a brief stint of deregulation in Ontario from May to November of 2002, market prices soared. There are also problems with skyrocketing electricity prices in areas of the US where deregulation has recently been implemented. The EIA recently reported that electricity prices in regions of the US where price caps were removed, jumped up over 9% in 2006, the largest increase since 1981. More often than not, there is a period of adjustment where market signals are inefficient and market participants must be patient while the supply and demand signals adjust. The EIA points out that during this time of transition, increases in the costs of generation that were not completely reflected in previously capped prices are passed through to consumers4. Though painful at first, paying the “true” cost of electricity is believed to be an effective method for improving conservation efforts because consumers receive true, undistorted price signals which directly influence their behavior and consumption. To listen to Gerry Angevine’s interview on a podcast please visit www.360energy.net.
1,2 Angevine, Gerry and Dara Hrytzak-Lieffers. “Ontario Industrial Electricity Demand Responsiveness to Price”. The Fraser Institute. September 2007.
3,4 Energy Information Administration. “Electricity Prices in 2006 Showed Largest Increase Since 1981”. EIA Reports. October 22, 2007.