Summary: Proposed changes to Ontario’s Global Adjustment (GA) in the 2021 Budget will result in lower energy bills for large energy users. Any on-site energy systems used to manage peak demand will continue to provide savings on GA. Combined with other recent updates in Ontario, the net impact across all these changes will likely be a reduction in energy costs for most commercial and industrial energy users. Contact Enel X if you would like to discuss these changes or your overall energy strategy.
On November 5, the Government of Ontario released its 2020-2021 Budget. As part of the budget, the Government proposed policy measures to reduce electricity prices for industrial and commercial energy consumers, aiming to support industrial activities and job retention in the province.
Most notably, these measures include major changes to Global Adjustment (GA). The GA fund will be reduced by approximately $3-4 billion each year, from $14 billion, leading to lower GA charges on monthly energy bills. Once approved, these changes will take effect January 1, 2021.
The Basics of Global Adjustment
Global Adjustment is a monthly charge on Ontario electricity bills, and these costs have been increasing since 2010. For Class A customers—those with peak demand over 5 MW, and others in certain industries with peak demand above 1 MW or 500kW—GA charges are set based on a company’s electricity use during the grid’s five system-peaking hours between May and April of the previous year.
What’s Changed with Global Adjustment
GA has been growing for the past decade, and is often the largest line item on electricity bills. As a result, the new budget seeks to shift some of the burden from the Global Adjustment cost to the general tax base, leading to lower Global Adjustment costs for commercial and industrial customers.
Global Adjustment will remain a significant cost, but Class A demand charges are expected to decrease by approximately 20-30%. This will result in overall energy bill savings of ~15% for most customers.
Takeaways for Commercial and Industrial Companies
These changes are expected to provide net energy savings to companies amid the challenges created by COVID-19.
Many Ontario companies use assets like storage systems to manage their peak demand and minimize their GA charges. While GA charges are decreasing, this does not affect the importance of these assets—GA will still very likely remain the most expensive line item on any utility bill in North America, and the methodology behind the calculations hasn’t changed. These systems remain the best way to minimize such costs.
Other Recent Changes in Ontario
This most recent change to GA comes on the heels of several other noteworthy changes in Ontario this year, many in response to the COVID-19 pandemic. The IESO and Government of Ontario have also:
- April 2020: Deferred global adjustment costs during the peak of the pandemic shutdown and reallocated those costs to next year’s global adjustment
- July 2020: Adopted a one-year hiatus for the Industrial Conservation Initiative (ICI) peak mitigation program
- September 2020: Extended the life of the Pickering Nuclear Generating Station as a capacity market resource. As a result, there will be no winter demand response enrollments during the 2021/2022 delivery year, since the IESO is forecasting a surplus of capacity due to nuclear power generation
The net impact for most customers from these changes should be a reduction in net energy expenditures. Enel X will continue to evaluate the changes as more information becomes available and advocate for policy certainty to support investor confidence in the Province. Contact Enel X if you would like to discuss your energy strategy or learn more about how you may be affected by these changes.