Electricity Rates Continue Increasing: What to Do

March 2013

• Increases in electricity rates through to 2016 and beyond are largely unavoidable and so conservation is the only antidote to mitigate total bill increases.
• Energy conservation can be seen as three related paths approached in the following order: no-cost operational improvements, low-cost building system optimization, and longer term capital retrofit projects.
• A robust business case analysis for capital projects is essential, and there are important factors other than just payback that should be considered in the analysis.

In April 2012, Aegent produced its second five-year Ontario electricity price increase forecast. For 2011-2016, the forecast price increase for small to medium commercial and industrial consumers was about $52/MWh or 5.2 cents/kWh. This amounts to an increase in the range of 50%. Ontario electricity consumers are in the midst of these increases with the 2012-2016 increase for the noted consumers forecast to be $42/MWh or 4.2 cents/kWh.

As well, beyond 2016 there is much uncertainty over additional increases arising from factors such as the completion of the renewable energy build-out, documented in the province’s Long Term Energy Plan, and the refurbishment of OPG nuclear plants.

The train has left the station on most of the elements of this increase and so the coming unit rate increases are largely unavoidable. To mitigate one’s total bill increases then, conservation is the only antidote.

Energy Conservation as Antidote to Rate Increases

When we think of conservation action or becoming more energy efficient with our building energy, we most often think of retrofits and capital projects such as lighting or boiler replacement. However, which conservation activities to pursue depend not only on your situation – what you’ve already done, what your building energy and water consumption data are telling you through benchmarking, and what your resourcing and financial situation is – but also on an underused but very common sense approach.

The approach to reducing electricity, natural gas and water waste begins with the simple and immediate actions which are often overlooked. Conservation activity can be seen as three related paths:

• Operational improvements through no-cost, immediate actions;
• Building system optimization through low-cost, short term measures; and
• Capital retrofit projects requiring longer term planning and financing.

The priority should be operational improvements. These are actions that are always required such as turning off equipment like lights and ventilation when they are not required, or changing temperature control set-points. The savings are immediate and significant depending on the equipment left on after-hours. These actions take little effort but require ongoing vigilance to ensure things are on only when occupants are present. The other benefit is staff and occupants can become engaged in the effort, particularly as feedback is provided on the extent of the resulting energy waste reductions.

Building system optimization looks at how well equipment and devices are running. This path requires documenting current conditions through more investigation into run times, schedules and if equipment, whether controls and sensors are operating optimally. This will uncover many problem areas including systems fighting each other like heating and cooling at the same time. Related energy-wasting passive problems like air leakage through penthouse elevator shafts would also be discovered on this path.

After the first two paths are implemented, the savings observed may affect the kinds of larger retrofit or redesign projects that need to be contemplated. Determination of these energy conservation measures requires a more thorough building assessment or audit, detailed analysis of energy consumption data and a robust business case to justify the capital investment. The experience and management systems developed through the previous paths of operational improvement and system optimization will help equip the organization to ensure the retrofit projects, once implemented, are kept operating optimally to keep the savings set out in the business case.

Business Case Considerations

The most widely, and often the only, economic metric used in a business case for energy efficiency projects is the simple payback. It’s easy to understand but ignores the full extent of the benefits of a measure. Using a life cycle cost approach better accounts for the whole costs and savings over the project life. Projects with higher initial costs but lower operating costs are better suited to use life cycle costing than lowest initial cost projects. When escalating energy rates are included, the business case is not only more compelling but will also produce a more realistic assessment of a project’s economics and benefits. Incentives available from utility companies should also form part of the business case to help reduce initial project costs.

Finally, in addition to incorporating energy and particularly the electricity rate increase into simple payback and life cycle cost analyses, it should be applied to the risk of doing nothing. A business case should clearly illustrate the “do nothing” scenario, with its increasing risk as rates increase, to best position the case for taking action now.

Aegent’s Forecast of Ontario Electricity Price Increase: An Update  Read more »