Tuesday, October 6, 2015

IESO reporting raising doubts about its ability to administer Global Adjustment charges

There are 5 hours every 12 months that determine the distribution of global adjustment charges in Ontario - charges of nearly $10 billion over the past 12 months. The 5 hours are particularly important for Ontario's largest consumers of electricity as cutting one megawatt of use during one of these hours has been estimated to save from $50,000 to $100,000 and more. In this post I'll explain why the hours for the adjustment period ending next April have likely already occurred, with some implications of peak hours for intelligent energy policy.
Background: "Stakeholders" destroying the viability of Ontario's electricity market
While the top 5 hours have already occurred the IESO is not communicating what they are. To understand why the IESO's communication of peak hours is inadequate, it's important to know the definitions of "Ontario Demand", "Allocated Quantity of Energy Withdrawn," and what I'll call "consumption."

  • The IESO's "Ontario Demand" is really demand from IESO transmission (Tx) connected suppliers, including imports. The figure does include generator consumption and transmission losses.
  • The supply withdrawn from that grid by local distribution companies (LDCs) and wholesale consumers, essentially comprises the "Allocated Quantity of Energy Withdrawn" (AQEW). The AQEW and "Ontario Demand" figures do not include generation from suppliers embedded in LDC grids (Dx): 
  • "Consumption" will be AQEW plus "the total volume of electricity, adjusted for losses as required by the Retail Settlement Code, that was supplied by embedded generators to licensed distributors." (Ontario Regulation 398/10)
High 5 hours are determined by AQEW, but the proportionate share of the global adjustment is determined by a Class A user's AQEW (their metered use) as a numerator with total provincial consumption as a denominator.

During an adjustment period the IESO lists only the 10 top daily "Ontario Demand" hours:

The fact that they show AQEW for those hours shouldn't be confused with showing the 10 highest daily AQEW peaks - because after the last adjustment period class A users were surprised to find 2 of the High 5 hours were never shown on IESO's "Top Ten" list as the year progressed.

The IESO's failure to correct showing the proper top hours (AQEW) could be due to disinterest or inability, I've asked, and been told, they do have AQEW for all hours of the year, but these are not disclosed and I am, frankly, doubtful the proper high 5 hours were used to calculate class A shares of the global adjustment for the current period.

I've added to the IESO's display of the adjustment period concluded April 30, 2015 to show the two eventual high 5 hours not shown in the list of the 10 top daily "Ontario Demand" hours.

I note 2 points:
  1. the adjustment period's highest "Ontario Demand" hour was not one of the "high 5" class A hours; 
  2. the lowest of the high 5 hours, by AQEW, had the highest consumption due to the higher embedded generation during that hour
The current adjustment period experienced 33 hours with "Ontario Demand" greater than the previous period's highest demand hour. These 33 hours occurred on only 8 days. The highest "Ontario Demand" hour on those days is not necessarily the top AQEW hour and, in many cases, is almost certainly not the highest consumption hour of the day.

The top hours class A consumers want to know are the top 5 daily AQEW peaks - because they could be utilized in budgeting expenses for next year.


I queried my dataset for the 33 hours this summer which exceeded last winter's peak demand hour - and I then pulled the top 33 demand hours from last winter for comparison.

Wind generation data for the 33 hours this summer reflect the weakness in IESO calculation of "Forecast Capability at Outlook Peak" - which others might call capacity credit. Of the 33 hours, 15 were below the posted 369 MW. That's not surprising because the IESO is really calculating an average output at the hour of peak demand during a period. Other jurisdictions have more rigorous requirements for establishing capacity credit.
This summer the peak hour had IESO connected wind reporting only 117 MW.

My estimates of hourly solar generation show it averaging 471 MW during the top 33 summer hours. During the top 33 winter hours the average, minimum and maximum solar output were identical: 0.

Because most solar generation in Ontario is embedded in LDC's (Dx), it acts to lower the IESO's "Ontario Demand" and AQEW - meaning not only was demand significantly higher in the summer than my selection criteria indicates, but that consumption would be found to be much higher in the peak solar output hours - where peak Ontario Demand used to occur. My estimated top 10 consumption hours of the past summer occur, on average, shortly after 3 pm: the IESO's top 10 shortly after 5 pm.

Notably the IESO's top 10 demand hours of the current adjustment period (from this summer) only include one hour that falls into regulated price plan "On-Peak" rate hours. That hour, on September 3rd, is the 7th highest demand shown, and 6th highest AQEW. While this hour may have the highest actual consumption of the 10 hours the IESO lists, it will not be in the High 5 set.

The highest hour I show for consumption is hour 13 of July 29th. By hour 17 solar output had likely dropped in half, making "Ontario Demand" higher than 4 hours earlier.

Class A lobbyists should not be ignoring the impact of embedded generation in lowering AQEW. As AQEW is pushed later in the day, the denominator in the calculation of a Class A consumer's share of the global adjustment is shrunk, which raises their costs. Many class A consumers are seeing increased global adjustment charges for the first time, and it's mostly due to the shrinking of the denominator. That's true this year largely because summer 2014 had low peaks, but it will be true next year because the AQEW peak and the consumption peak diverge further with every megawatt of added embedded capacity.

Particularly notable is that my estimated peak (hour 13 of July 29th) just preceded the IESO's implementation of their Peaksaver program - which almost certainly reduced the denominator for the Class A share of next year's generation, raising electricity costs for Ontario's largest industrial consumers.

Moving off the Class A impact of embedded generation, my comparison of the top 33 summer hours to the top 33 winter hours has a broader message that will not be intuitive to those observing electricity pricing without considering the broader energy pricing environment.
  • Summer's 33 peak hours average 22,049 of Ontario Demand at an average Hourly Ontario Energy Price of $57.86/megawatt-hour.
  • Winter's 33 peak hours averaged 21,005 of Ontario Demand (1,000 MW less) with an average Hourly Ontario Energy Price of $76.38/megawatt-hour (nearly $20 more)
  • Net exports during the winter hours averaged 2,401 megawatts, over 2,500 megawatts above the summer set's net import of 138 megawatts.
This is all reasonable. Ontario's system makes it a cheap jurisdiction for our neighbours to buy from, particularly when natural gas is setting electricity pricing.  Thus heavy exports during winter peaks.
Demand for gas is higher in the winter, making electricity pricier too. 

It's also relevant, to pricing and overall policy, that during winter's highest demand hours solar output is nil.

No comments:

Post a Comment