Reductions are coming to the Global Adjustment costs being paid by Ontario’s medium, and large commercial and industrial businesses. The recent Ontario Budget tabled by Finance Minister Rod Phillips announced that certain costs for long-term renewable energy contracts will be removed from the Global Adjustment Program and instead be funded by the provincial government.
Minister Phillips anticipates that removing these costs from electricity bills will help medium businesses save about 14%. Larger commercial and industrial businesses were told to expect an average reduction of 16%.
Starting on January 1, 2021, the government will suspend 85% of the costs associated with long-term wind, solar, and biomass contracts. The initiative is expected to cost the Ontario government $1.3 billion over the next three years. The fiscal impact on the provincial books is expected to decline in subsequent years as the majority of these long-term renewable contracts start to expire in the early 2030s.
Global Adjustment (GA) is calculated as a total dollar amount based on the difference between market revenues and costs to provide a number of infrastructure and generation components:
Under the Green Energy Act, Ontario signed 20-year contracts with renewable energy producers for wind, solar and bioenergy power generation. Approximately 18% per cent of electricity system costs in 2019 came from those contracts which provide about 8% of Ontario’s electricity generation supply (Ontario’s Action Plan: 2020 Ontario Budget, Page 92).
According to the budget, electricity prices for industrial customers increased by 37% from 2008 to 2019 and by 118% for commercial customers. For comparison, the CPI price inflation was 21.4% over the same period.
The Ontario government hopes to use lower electricity costs to attract more investments in the commercial and industrial sectors. Increasing the numbers of businesses that locate or grow in Ontario would potentially increase demand for power. In turn, that growth would spread fixed system costs over a larger base of users thus further reducing average prices for commercial and industrial customers.
Reduced Global Adjustment costs are expected to help Ontario’s energy intensive industrial sectors more than they will help the commercial sector. Auto manufacturing and chemical sectors generally pay higher electricity bills than other large energy consumers. The nature of their operations prevents them from taking full advantage of the Industrial Conservation Initiative (ICI). The Budget suggests the changes will provide these two sectors a greater percentage reduction on their bills than the steel and pulp and paper sectors who have been better able to benefit under the ICI.
What Was Not Included
The budget did not mention how much of the increased Global Adjustment costs are due to electricity infrastructure upgrades and nuclear refurbishment. Nor did it mention any changes to the current ICI program.
The budget only referenced renewable energy in the context of rolling back contracts agreed by a previous government. No new initiatives were announced for energy efficiency and energy conservation.
Reducing Global Adjustment costs will certainly help commercial and industrial customers to reduce their electricity costs. However, many industrial and manufacturing businesses are using new clean technologies for on-site power generation to control operating costs. Had the budget promoted investments in energy efficiency and energy conservation programs, it would have provided additional options, not only for Ontario businesses to reduce operating costs, but to reduce carbon emissions as well.