Rethinking Energy Conservation in Ontario – Results:Targets for Smart Meters and Time-of-Use Electricity Prices
| In November, 2010, the ECO released volume 2 of its Annual Report on the progress of activities in Ontario to reduce or make more efficient use of electricity, natural gas, propane, oil and transportation fuels. Click here for more information on this report, including videos and communications materials. | |||||
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To encourage electricity conservation and reduce peak demand for electricity, the government has established targets for
the implementation of smart meters and time-of-use (TOU) rates.
In 2004, the government announced a two-step target for installing smart meters. By the end of 2007, 800,000 smart meters were to be installed in homes and businesses; and, by the end of 2010 all existing conventional meters (some 4.5 million meters) are to be replaced by smart meters.
In mid-2009, another two-step target was announced to implement TOU pricing to achieve the conservation potential that smart meters enable. One million customers were to receive TOU pricing by summer 2010 and 3.6 million customers are to be paying for their electricity use based on TOU rates by June 2011.
There are essentially three actions that an LDC must take to transition from conventional meters and current Regulated Price Plan (RPP) billing practices to the new smart metering hardware and time-differentiated pricing. LDCs must: first, remove the old standard meters and install smart meters and supporting infrastructure; second, enrol and register the smart meters with the Meter Data Management and Repository (MDM/R); and third, activate TOU rates for customers according to a schedule set out by the OEB.
| Conventional Meter | Smart Meter | |
|---|---|---|
 |
| |
| Meter | Analog meters with a spinning dial. | Digital meters with a numerical display. |
| Measures | Measures the total amount of electricity consumed during the billing period (typically one or two months). | Measures the amount of electricity consumed hourly (with date and time stamp). |
| Readings | Manual meter reading (typically contracted through a service provider who physically visits the meter and records information). | Automated meter reading (meter will remotely send information electronically). |
| Data Management | Each electricity utility provider implements its own meter database. | Central management of meter data (IESO’s MDM/R) for all meters in the province, includes collecting and storing data, and processing it for TOU billing. |
| Pricing | A flat rate, set by the OEB, is charged for electricity use up to a certain threshold. A higher rate is charged for consumption above the threshold. The threshold is set lower in the summer and higher in winter. Rates are based on averaging out the more expensive (daytime) and cheaper (night-time) prices of electricity. | Smart meters measure consumption based on when electricity is used. The OEB sets prices
to reflect that the cost to provide electricity changes through the day (e.g., during on-peak periods when demand and production costs are highest, prices will be higher). |
Results
The fi rst smart meter installation target was successfully met. In December 2007, 1,034,833 smart meters had been installed against a target of 800,000. LDCs are on track to have all residential and small business meters replaced for the 2010 target. At the end of September 2010, over 4.3 million smart meters had been installed, almost 95 per cent of the 2010 target. The summer 2010 target for TOU implementation was reached in September 2010 with over 1.1 million customers being billed TOU rates. Currently, 11 utilities have implemented TOU rates. Of these, two have switched all of their eligible residential customers to TOU pricing.
In support of the government’s June 2011 target of 3.6 million customers on TOU pricing, the OEB has issued a determination under section 1.2.1 of the Standard Supply Service Code to mandate TOU pricing for all low-volume RPP customers. As a result, more than half of the LDCs must implement TOU rates by June 2011. This means some four million residential and small business customers will be charged TOU rates. And by March 2012, all LDCs will have switched to TOU rates. If the utilities are able to proceed as the OEB has scheduled, the province is well positioned to exceed the June 2011 target for TOU activation.
Issues and ECO Comment
Smart meters support a pricing policy mandated by the government. Ontario is making a transition to TOU electricity prices whereby on-peak, mid-peak and off -peak prices are set to reflect the fact that the cost to provide electricity changes throughout the day and week. Because TOU prices are dynamic and time-differentiated, their primary purpose is to encourage peak load shifting of electricity. The prices reflect the fact that, all else being equal, electricity costs more to supply as demand rises; the increase in demand typically follows a predictable pattern over the course of a weekday, and overall demand is comparatively lower on weekends and statutory holidays. Figure 1 shows the energy demand on a typical summer day compared to TOU prices. (Note the two scales on the graph. Demand is typically displayed in megawatts and residential electricity prices in cents per kilowatt-hour: 5 cents per kilowatt-hour is equivalent to 50 dollars per megawatt-hour.)
Figure 1: Load Curve and TOU Prices in Effect (August 16, 2009)
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Sources: Derived from Independent Electricity System Operator market data and OEB Time-of-Use Prices: Historical Snapshot
Introduction of TOU billing is at an early stage. It is still too soon to determine trends with respect to load shifting and bill impacts resulting from TOU prices. Newmarket-Tay Power Distribution has conducted the largest study to date on the effects of TOU rates. The study showed a demand response impact from TOU rates. On average, consumers shifted their electricity use from on-peak periods (decrease of 2.8 per cent) and mid-peak periods (decrease of 1.4 per cent) to off-peak weekend periods (increase of 2.2 per cent). The study also revealed there was not a significant reduction in overall electricity consumption.
To encourage conservation and reduce peak demand, it is critical that TOU prices are set to reward load shifting and penalize unnecessary on-peak use. In particular, the ECO questions whether the current price differential between on-peak and off - peak rates is appropriate and significant enough to incent behavioural change. Electricity prices can be modified, so there are opportunities to optimize prices and incent conservation, while ensuring that rates are still set at a level that recovers operating costs.
The OEB formally reviews electricity prices bi-annually, to determine if an adjustment is required. In October 2010, the OEB announced a change in TOU prices with a decrease in off -peak price and increase in mid-peak price. In addition, the OEB is undertaking a review of the methodology used to establish TOU prices (e.g., the allocation of peak generation costs to peak prices and other factors). The ECO will continue to monitor the progress of smart meters and developments in TOU pricing for future reports.
