Motivation for Smart Motivation for Smart MetersMeters

Allen StanburyAllen Stanbury

Allen Stanbury & Associates Allen Stanbury & Associates Inc.Inc.

Why Smart Meters?Why Smart Meters?

The specter of insufficient supply The specter of insufficient supply loomslooms Prospect of rolling blackoutsProspect of rolling blackouts

Concern for clean airConcern for clean air Phase out coal fired generation by 2009Phase out coal fired generation by 2009

Risk of mounting public debtRisk of mounting public debt Due to direct subsidization of retail electricityDue to direct subsidization of retail electricity Retail price cap can be lower than average Retail price cap can be lower than average

market pricemarket price

Current Generation MixCurrent Generation Mix

Source: IESOSource: IESO

Installed Capacity 30,000 MW

Nuclear36.1%

Hydro25.8%

Oil/Gas16.5%

Coal21.4%

Misc0.2%

Capacity vs. EnergyCapacity vs. Energy

Installed Capacity 30,642 MW

Nuclear37.2%

Renewables25.6%

Oil/Gas16.2%

Coal21.0%

Source: IESOSource: IESO

Total Energy 155 TWh

Nuclear51.0%

Renewables23.2%

Oil/Gas7.1%

Coal18.7%

Tight Supply on HorizonTight Supply on Horizon

Confluence of growing demand and aging Confluence of growing demand and aging generationgeneration

Demand: Demand: Grows about 1.2% per yearGrows about 1.2% per year

Year Peak MW Season2005 26,160 Summer2004 24,979 Winter2003 24,753 Summer2002 25,414 Summer

Driven by temperatureDriven by temperature Each degree above 16Each degree above 16°°C adds 380 MWC adds 380 MW

Tight Supply on HorizonTight Supply on Horizon Aging generation:Aging generation:

Nuclear reactors reach end of design life in 7 Nuclear reactors reach end of design life in 7 to 10 yearsto 10 years

Average hydro facility is 60 years oldAverage hydro facility is 60 years old IESO forecasts half of installed capacity will IESO forecasts half of installed capacity will

exceed nominal service life by 2020exceed nominal service life by 2020 Provincial government predicts 24,000 MW of Provincial government predicts 24,000 MW of

new capacity required by 2025new capacity required by 2025 Includes planned phase out of 7500 MW of coal Includes planned phase out of 7500 MW of coal

fired generationfired generation

And these assets are stretched thinAnd these assets are stretched thin

Summer 2005Summer 2005

Provincial demand:Provincial demand: Exceeded 25,000 MW on 53 occasionsExceeded 25,000 MW on 53 occasions

IESO:IESO: Issued public appeals to reduce consumption 12 Issued public appeals to reduce consumption 12

different daysdifferent days Two 5% voltage reductions reduced demand byTwo 5% voltage reductions reduced demand by

500 MW500 MW 4,199 MW of emergency purchases in one month4,199 MW of emergency purchases in one month Price exceeded $150/MW (15Price exceeded $150/MW (15¢/kWh) in 252 hours¢/kWh) in 252 hours

Meeting the Supply ChallengeMeeting the Supply Challenge

Electricity Supply Act 2004Electricity Supply Act 2004 Created the Ontario Power AuthorityCreated the Ontario Power Authority

To establish long term contracts for new To establish long term contracts for new generationgeneration

Created a new conservation bureauCreated a new conservation bureau To reduce demand by 5%, energy by 10%To reduce demand by 5%, energy by 10%

Early TargetsEarly Targets 2235 MW of new gas fired generation2235 MW of new gas fired generation 395 MW of renewable power395 MW of renewable power 650 MW of demand response650 MW of demand response

Influences at the TimeInfluences at the Time

Blackout of August 14, 2003Blackout of August 14, 2003 Key base load (nuclear) generation took as Key base load (nuclear) generation took as

long as 6 days to return to servicelong as 6 days to return to service IESO implemented limited rolling black outs in IESO implemented limited rolling black outs in

limited areas limited areas IESO appeals to conserve resulted in 20% IESO appeals to conserve resulted in 20%

reduction in demand almost all of which came reduction in demand almost all of which came from C&I consumersfrom C&I consumers

Residential consumers failed to respond to Residential consumers failed to respond to repeated IESO appealsrepeated IESO appeals

Influences at the TimeInfluences at the Time

Mounting public debtMounting public debt Wholesale & retail markets open May 1, 2002Wholesale & retail markets open May 1, 2002 Retail rate is capped December 2002Retail rate is capped December 2002

Cap turned out to be less than the average Cap turned out to be less than the average wholesale pricewholesale price

Provincial government undertook to fund the Provincial government undertook to fund the differencedifference

Buy March of 2004 the debt amounted to Buy March of 2004 the debt amounted to $928 million$928 million About the same cost as installing smart meters in About the same cost as installing smart meters in

every homeevery home

Meeting the Supply/Clean Air Meeting the Supply/Clean Air ChallengeChallenge

Build more generationBuild more generation Encourage Encourage

Conservation in both energy and demandConservation in both energy and demand Clean renewable powerClean renewable power Local micro-generationLocal micro-generation

Design more effective rate structuresDesign more effective rate structures Provide better consumption Provide better consumption

information to consumersinformation to consumers What was the government to do?What was the government to do?

IESO 10 Year OutlookIESO 10 Year Outlook

Source: IESO 10-year Outlook HighlightsSource: IESO 10-year Outlook Highlights

OPA ViewOPA View

 

Source: Ontario Power Authority, Supply Mix Advice and RecommendationsSource: Ontario Power Authority, Supply Mix Advice and Recommendations

Smart MetersSmart Meters

GoalsGoals To provide feedback to consumersTo provide feedback to consumers

Give consumers information needed to they can be Give consumers information needed to they can be in control if they want to bein control if they want to be

Encourage a culture of conservationEncourage a culture of conservation To enable time & seasonal dependent ratesTo enable time & seasonal dependent rates

Shift load away from peak periodsShift load away from peak periods Enable critical peak pricingEnable critical peak pricing

Response to EISO appeals will be rewardedResponse to EISO appeals will be rewarded Provide a key element essential for a future Provide a key element essential for a future

residential demand/price response programresidential demand/price response program

Smart MeteringSmart Metering

Will it work?Will it work? Market clearing price is set by the last 200 MWMarket clearing price is set by the last 200 MW

200 MW of demand responsive load could significantly 200 MW of demand responsive load could significantly reduce price volatility in the wholesale marketreduce price volatility in the wholesale market

Strong response to critical calls could well reduce Strong response to critical calls could well reduce future generation capital costsfuture generation capital costs

Prices in the future will depend on natural gasPrices in the future will depend on natural gas Prices forecast to be volatile and highPrices forecast to be volatile and high

The residential market is a large portion of total The residential market is a large portion of total consumption and an untapped conservation resourceconsumption and an untapped conservation resource

What do you think?What do you think?