Ontario’s Environmental Commissioner says the province’s energy regulator is putting up barriers to increased energy conservation. This is just one of the conclusions from his Annual Energy Conservation Progress Report – 2010 (Volume One), Managing a Complex Energy System.
“The Ontario Energy Board (OEB) plays a valuable role in protecting consumer interests, but this traditional regulatory function is in conflict with its expanded powers over conservation,” says Commissioner Gord Miller. He points to recent decisions by the OEB that have forced both electricity and natural gas distributors to restrict the conservation programs they offer to consumers.
One of the OEB’s key objectives is to promote energy conservation, but the Board recently told Union Gas and Enbridge Gas Distribution to curtail proposed increases in their conservation budgets and instead, freeze them at existing levels for the next three years. “The ‘low-hanging fruit’ in conservation has already been harvested,” says Miller, “but the Board won’t approve the investments that are necessary to accomplish further energy savings. The Board is ignoring the benefits that will come with reduced infrastructure costs and lower greenhouse gas emissions.”
The progress report also says the OEB has established rules that could hinder the Conservation and Demand Management (CDM) programs offered by the province’s electricity utilities. “The Ontario Power Authority has designed province-wide conservation programs, yet it’s the electric utilities who will carry them out. The Ontario Energy Board has given utilities all of the responsibility but none of the freedom to modify or improve programs if necessary.”
Conservation is only one of the areas where the OEB has been asked to take on an expanded policy-making role. The government has also told the OEB to facilitate the adoption of the smart grid – a modernized electricity system that uses information technology to operate more efficiently. Miller believes that “one entity has to be given the responsibility for establishing the vision of an integrated electricity system, and providing the leadership for modernizing our electricity grid.” However, the Commissioner questions whether the OEB would be the appropriate choice to achieve this innovative objective, given its conflicted responsibilities.
The Commissioner also says the Ontario Clean Energy Benefit (OCEB) is a perverse incentive that could endanger the energy conservation savings the government is hoping to achieve. “The 10 per cent rebate on electricity bills is an artificial subsidy on the price of electricity so it encourages consumers to use more,” says Miller. A study by energy analysts estimated that the OCEB could wipe out a third of the planned conservation savings over the next four years.
Miller praises the government for introducing time-of-use pricing that encourages households and businesses to shift their consumption away from periods of high demand, but noted that price subsidies undercut this development. Prices will necessarily rise because of a backlog of transmission investments and new generation projects. “Unfortunately, the government hasn’t addressed the issue of rising prices in a way that prioritizes conservation,” says Miller. “Instead it has continued the failed policy approach of the past where the government’s only answer to higher electricity prices is to artificially lower electricity prices.”
If the government feels the need to help consumers with the higher energy costs it could make the benefit a fixed amount, instead of tying it to consumption levels. “That way,” says Miller, “the Clean Energy Benefit would be less of a disincentive to electricity conservation.”
Miller is also concerned about delays in rolling out Ontario’s important Conservation and Demand Management (CDM) programs. Between now and 2014, electric utilities, supported by the Ontario Power Authority, are supposed to reduce overall electricity use, as well as peak demand. “Province-wide conservation programs were all supposed to begin in January 2011,” says the Commissioner, “but the delays mean we will miss opportunities this year.”
The Environmental Commissioner is also questioning a recent decision by the Ontario Energy Board to freeze conservation budgets for Union Gas and Enbridge Gas Distribution, particularly at a time when the government has cancelled its own conservation programs for gas consumers. “The Board has too narrow a view about the benefits that will come with increased conservation. It is ignoring the avoided infrastructure costs and reduced greenhouse gas emissions that will come with reductions in consumption of natural gas.”
Under the Environmental Bill of Rights, 1993, the Environmental Commissioner of Ontario (ECO) reports annually to the Legislative Assembly of Ontario on the province’s progress in energy conservation. Managing a Complex Energy System, the first volume of the 2010 energy conservation report, reviews policy developments that occurred over the year, highlights concerns with the current policy agenda and outlines recommendations to further conservation in Ontario.
The Long-Term Energy Plan
In 2010, the government restarted the development of the Integrated Power System Plan by issuing the Long-Term Energy Plan (LTEP) and a Supply Mix Directive. The ECO is pleased the government acted on a previous recommendation to establish electricity consumption targets in addition to peak demand reduction targets. This will reduce the need for new generating stations, transmission and distribution lines, and better reflects the design of many of the conservation programs available. However, the ECO feels the LTEP did not adequately explain the difficult trade-offs necessary when choosing among types of generation. Furthermore, the LTEP is an energy plan in name but is an electricity plan in reality. Ontario needs an energy plan and a multi-fuel conservation strategy that addresses all energy sources.
Several changes in fiscal policy have affected the cost of electricity, including the 13% Harmonized Sales Tax (HST). As a result, electricity is now treated like other goods and services, sending a more accurate price signal about its cost. However, with the Ontario Clean Energy Benefit the government has essentially reversed the impact of the HST and restored an artificial price subsidy on electricity, creating a perverse incentive that undermines conservation. Changes were also made to the Global Adjustment to charge very high prices during a few hours of very high demand for large electricity consumers (more than 5 MW). This change is essentially a form of critical peak pricing. In general, the ECO supports this incentive to reduce peak demand and urges the government to expand critical peak pricing to smaller consumers and adjust some inequities in the allocation of costs in the Global Adjustment.
A New Conservation Framework
A new Conservation and Demand Management (CDM) framework for electric utilities has been implemented for 2011 to 2014. For the first time utilities have been mandated to meet conservation targets based on a provincial target of 1,330 MW and 6,000 GWh. The Ontario Energy Board (OEB) developed a CDM Code to govern the utilities’ CDM activities. The ECO is concerned that the current CDM framework may discourage co-operation with other utilities or organizations and is unnecessarily restricting the role of utilities and their ability for innovation. The current CDM framework is set to expire on December 31, 2014. To ensure momentum is sustained a review and preparation for the next CDM framework should be completed before this end date.
Conservation Budget Freeze
On March 29, 2011, the OEB announced that the conservation budgets for Ontario’s natur
al gas utilities would be limited to their existing levels for the next three years. This was a surprising decision as both utilities and Board staff supported an increase in conservation spending. In addition, the Minister of Energy had also urged the OEB to consider expanding natural gas conservation efforts. The decisions of both the government and the OEB to restrict conservation spending will stall needed growth in conservation programs.
Smart grid is the term used to describe the next generation of the electricity delivery system. Fundamental to this initiative is a two-way communication network that will allow consumers to more effectively manage their electricity use and also increase the opportunities for demand response and distributed renewable energy generation. If the smart grid is to succeed, the ECO believes that one organization with a perspective of the electricity system as a whole should guide all organizations with grid-related responsibilities to the common goal of modernizing the smart grid. The ECO also feels incentives should be provided to undertake infrastructure investments that reduce distribution line loss to overcome the higher cost of efficient infrastructure and ensure that appropriate long-term system planning occurs.
Barriers to Alternative Energy
Solar thermal systems, which use solar energy directly rather than convert it into electricity, are generally more energy efficient and deliver greater energy and cost savings than solar photovoltaic (PV)systems. The provincial government’s cancellation of incentives to install solar thermal systems for homeowners, combined with the OPA’s enticing microFIT program, has created a perverse incentive for homeowners to install solar PV systems over solar thermal. The ECO believes both types of technologies have value and both should be encouraged.
The report makes the following recommendations:
1. The ECO recommends that the Ministry of Energy clarify how the peak demand and consumption targets contained in the Long Term Energy Plan and Conservation and Demand Management Directive are measured.
2. The ECO recommends that the Ministry of Energy build upon the work completed in the Long-Term Energy Plan and produce a comprehensive multi-fuel energy plan.
3. The ECO recommends that the Ministries of Energy, Revenue, and Finance improve the design of the Ontario Clean Energy Benefit so that any transitional assistance on electricity bills oes not act as a disincentive to conservation.
4. The ECO recommends that the Ministry of Energy initiate the next Conservation and Demand Management framework, which would include guaranteed funding, by January 1, 2014.
5. The ECO recommends that the Ministry of Energy clarify the appropriate roles of the government and gas utilities in funding natural gas conservation, with the goal of increasing overall funding.
6. The ECO recommends that the Ontario Energy Board encourage and facilitate smart grid investments that reduce line losses, putting these investments on an equal footing with conservation investments.
7. The ECO recommends that the Ministry of Energy adjust the relative financial incentives available for solar thermal and solar photovoltaic in residential buildings to appropriately reflect the economic and environmental benefits of each technology.