Batteries are benefiting from a bizarre market setup in Ontario that has politicians canceling energy-saving programs while at the same time pledging to cut bills.

The Canadian province is fighting to reduce the financial burden imposed by generous energy contracts and subsidy programs, which can represent up to 70 percent of electricity costs for commercial and industrial (C&I) customers unable to avoid system peaks.

A growing number of C&I businesses are turning to energy storage to escape the charges, which are lumped into what is called the Global Adjustment (GA) fee.

The GA, which was introduced in Ontario’s 2009 Green Energy Act, has turned the province into one of the most lucrative energy storage markets in North America.

Last August it became the site of the continent’s largest customer-sited battery, a 10-megawatt, 20-megawatt-hour C&I system that eclipsed most utility-scale projects.

That project, like a growing number of others across the province, came about because certain large energy users can avoid the GA fee if they dial down their electricity demand in the five hours of highest demand each year.

The companies must have a peak energy demand of more than 500 kilowatts and be part of a scheme called the Industrial Conservation Initiative. How they slash their demand during peak periods is up to them. Some have introduced curtailment strategies, while others have installed alternative generation sources, such as diesel generators.

But batteries are gaining in popularity because they can respond quickly and can also tap into additional value streams, such as demand-charge management and energy arbitrage opportunities.

The big prize is still GA, though. Avoiding the fee is a major selling point for battery project developers such as Enel X, Convergent and Stem, which are all active in the market. There is some doubt over how attractive GA will remain in the long term, however.

A perverse situation

For now, bodies such as the Ontario Independent Electricity System Operator (IESO), which has an Energy Storage Advisory Group, and Hydro One, Ontario’s state-backed electricity transmission and distribution utility, are looking at ways to make it easier for C&I firms to install batteries.

One major challenge is interconnection, because in Ontario energy storage is treated as a form of renewable generation rather than load displacement.

This means plants with over 1 megawatt of capacity, and as low as 500 kilowatts in some cases, must often be fitted with transfer trips so they can be taken offline remotely by the utility if needed. System operator experts are looking to simplify these requirements; for now it is unclear if new regulations might impose an extra burden on developers. 

In the meantime, the GA is under scrutiny.

The fee is added to the actual market value of electricity production and covers multiple costs, including renewable energy feed-in tariffs, curtailment, minimum revenue guarantees to plant developers, and efficiency programs targeting everything from heating to pool pumps.

Because most of these costs are fixed, Ontario suffers from a perverse situation in which energy-efficiency schemes increase electricity bills by adding to the GA.

The fee totaled CAD $11.2 billion (USD $8.3 billion) in 2018, or around 1 percent of Ontario’s gross domestic product.

The GA also means customers face high bills even though the hourly Ontario energy price is actually pretty low, since electricity in the province comes mostly from low-cost generation sources: 35 percent of Ontario’s generation mix is nuclear and another 23 percent is hydro.

On top of that, the GA isn’t applied to electricity exported out of the province, so Ontarians effectively pay a premium to export relatively cheap power to the U.S.

Ontario’s premier, Doug Ford, ran for office with a pledge to cut electricity bills when his Progressive Conservative Party won elections last June.  

Ford’s Minister of Energy, Mines, Northern Development and Indigenous Affairs, Greg Rickford, has since canceled hundreds of upcoming renewable energy contracts, axed electricity conservation programs and put forward changes to energy legislation.

Nevertheless, critics have said the measures will not solve what Rickford has dubbed the “Hydro mess.”

The developments have left observers unsure about where Ontario’s energy storage market is headed, although the hope is that batteries will continue to boom in the short term.

“Our work on the market at the moment is focused on ongoing efforts by the Ontario IESO and the Energy Storage Advisory Group to removing barriers of energy storage,” said Logan Goldie-Scot, head of energy storage at Bloomberg New Energy Finance.

“Throughout 2019, the working group will work on creating and implementing a plan to change the rules. Some of this may take some time, but we expect more clarity on storage rules in Ontario in 2019. This could help sustain an already attractive market.”