Fight rising electricity costs by generating your own power

June 2014

• Considering where electricity rates are and the incentives available, consumers who are able to produce their own electricity may find it an effective way to reduce electricity costs.
• There is a complex matrix of self-generation project configurations, incentives, and operation strategy.
• Whether behind-the-meter or under a Combined Heat and Power (CHP) Standard Offer Program contract, Class A or Class B, power only or CHP, there is a configuration and strategy for each customer that will maximize their return on investment and minimize their energy costs.

With no end in sight to rising electricity rates in Ontario, consumers have two options to reduce their energy expenditure: reduce consumption or generate their own electricity. Leveraging conservation incentives, increasing efficiency, and modifying occupant behaviour are all effective at reducing consumption, but given the fixed-price nature of contracts driving Ontario’s electricity rates one must go above and beyond the pack in conservation results to mitigate cost increases. Considering where electricity rates are and the incentives available, consumers who are able to produce their own electricity may find it an effective way to reduce electricity costs.

There is a complex matrix of self-generation project configurations, incentives, and operation strategy. Behind-the-meter “power only” projects can provide lucrative returns and short pay back periods for consumers who are Class A with respect to Global Adjustment costs. Combined heat and power (CHP) projects reduce costs by using fuel more efficiently. The Ontario Power Authority (OPA) offers incentives for behind-the-meter projects and lucrative contracts for CHP projects exporting electricity to the grid. Depending on the application, operational characteristics, and needs of the organization implementing the CHP project, an analysis of the options available can be complex but rewarding.

Behind-the-meter

Building a load displacement CHP project behind-the-meter allows the customer to avoid the spot market energy charge (Hourly Ontario Energy Price or HOEP), the Global Adjustment (GA) and several smaller bill items.  Sometimes transmission and distribution charges can also be partially avoided, depending on the operating strategy and local distribution company.

The lowering of the GA Class A threshold effective July 2015 to 3 MW for greenhouses, manufacturers , mushroom producers, and data centres creates new opportunities to avoid a significant portion of the electricity bill by operating a behind-the-meter generator for only a handful of hours per year. With the growing value of the GA, avoiding charges by displacing grid withdrawals is becoming increasingly lucrative. Such projects do need to be carefully configured to reduce the risk of not being able to avoid the GA.

An efficient CHP project may be a better option for Class B consumers, or Class A consumers electing to be treated as Class B consumers. The CHP project may also provide additional benefits by producing heat, hot water, or pressurized air to industrial processes or carbon dioxide and heat to a greenhouse. Conversely, waste heat from industrial uses could be used to generate electricity and displace grid purchases.

The attractiveness of one option over the other depends on a number of factors, including GA treatment, load profile, and demand for by-products from the CHP process. Pay back periods can be reduced by leveraging the OPA’s Industrial Accelerator incentive, which is available for load displacement projects.

There are certain regulatory matters that need to be considered in order to determine if the project will be able to avoid the GA. There is also the risk of future changes to GA regulations. These are amongst the many scenarios that should be considered when building a financial model to assess which configuration will provide the most economic benefit.

CHPSOP 2.0

On March 31, 2014 the OPA received the most recent in a series of directives for contracting CHP projects, providing opportunities to the agricultural industry and district heating projects. The Minister of Energy has directed the OPA to implement the second CHP Standard Offer Program (CHPSOP 2.0), following the cancellation of the original CHPSOP. Behind-the-meter projects are not eligible for CHPSOP 2.0.

The first window of applications under CHPSOP 2.0 is projected to begin in November 2014, followed by a second window in 2015. The two tranche approach was applied during the first CHPSOP; however, the second tranche was ultimately cancelled as a result of the Minister of Energy’s attempt to defer some of the costs of new generation programs (to “bend the cost curve”).

Proponents considering an application under CHPSOP 2.0 may consider the chance that the second window may not happen, and take advantage of the first window, if possible.

In CHPSOP 2.0, applicants can bid a lower fixed capacity payment than the CHPSOP price, forcing applicants to determine the optimal price that maximizes chances of winning a contract and revenue from the project. Applicants will need to thoroughly understand how deemed dispatch contracts work in the context of a CHP project, and the corresponding implications on natural gas procurement.

Whether behind-the-meter or under a CHPSOP contract, Class A or Class B, power only or CHP, there is a configuration and strategy for each customer that will maximize their return on investment and minimize their energy costs. Looking at all of the available configurations, operating and dispatching strategies, and incentives up front reduces risk, energy costs, and pay-back periods.

Ontario Electricity: A Proposal to Expand Global Adjustment Class A Read more »

For more information on the benefits and issues around CHP, contact Mike Risavy at mrisavy@aegent.ca. Mike consults with clients on the business case and issues around load displacement generation, recently served on the OEB’s Load Displacement Generation Working Group and previously worked at the OPA on behind-the-meter generation projects.