Record Low Hourly Ontario Energy Prices Causing Record Export Subsidies
by Scott Luft – Cold Air
The past 5 weeks comprise 5 of the 10 lowest weeks for the average Hourly Ontario Energy Price (HOEP) rates since the IESO data starts 10 years ago. I’ve noted the decline while updating my weekly shadow reports, and this post will put the trends within the context of broader markets, and longer trends (including those Parker Gallant and I wrote about, in the Financial Post, last July).
The price of electricity on wholesale markets is very low. While negative prices catch attention, there is only a very slight difference, in the cost to Ontario ratepayers, of -$1 and +$1. The last time I worked out an estimate, the average price paid to Ontario’s suppliers, due to contracts and regulated rates, was $68.23/MWh. With the HOEP averaging around $13.50 over the past 35 days, that means a big revenue shortfall.
The wholesale market price, or HOEP, in Ontario is artificially low because of the over-commitments to supply, but in most North American markets the price will be very low as natural gas fired generation generally sets the market price, and natural gas prices are at 10 year lows. Adjacent markets have been paying rates slightly above the HOEP rates, but not by much. The market structure in Ontario can be seen as containing a pot that pays all the suppliers once a month; revenue from the HOEP sales fills the pot, and if it isn’t full enough to pay the commitments, then the difference is gathered from Ontario ratepayers via the Global Adjustment mechanism (GA). March’s estimated $62.23/MWh was nearly 25% above the previous high of $50.62/MWh, and the estimate for April, $74.68, adds 20% to March’s high.