Why is the Cost of Electricity Increasing?

 

In the past few years, most of us have bought Energy Star appliances, replaced our old inefficient incandescent light bulbs with efficient compact fluorescent light bulbs and have generally tried to use less electricity. We have done these things to conserve energy, but have not seen our monthly electricity bills go down. In fact, most of us have seen our electricity bills go up.

The answer to this apparent mystery is that electricity prices have been going up faster than we have been able to cut our electricity usage. The graph shown below, provided by the Ontario Energy Board (OEB) shows that from May 2008 to May 2014 Mid Peak electricity prices have increased from 8 cents per kilowatt hour (kWh) to 11.2 cents per kWh.

Energy Savings

This represents a 40% increase over the 6 years or an average of 6.7% annually. No wonder the things we have done to reduce our electricity consumption have not resulted in savings on our monthly electricity bills.

There are a number of reasons for this steady increase in electricity prices. A few of these reasons are discussed below:

  • The cost of the electricity has increased, because we are now paying for increasing amounts of solar and wind power that costs three to five times as much to produce as conventional water, thermal and nuclear power,
  • The cost of electricity transmission and distribution has increased, because the provincial government has converted the municipally and provincially owned non-profit hydro utilities into for profit companies that are allowed to make a profit. This profit comes from the money we pay for electricity.
  • The price we pay for electricity is further inflated, because additional provincial bureaucracy has been created to regulate the electricity industry. These additional government employees are paid from the money we pay for electricity.

So, now we have an understanding of the reasons for high electricity prices. The next question is what are electricity prices going to do in the future? The answer to that question comes from the Ontario Power Authority (OPA), a provincial agency created in 2004.

The OPA is responsible for electricity supply planning and has developed a long term strategy for electricity generation and distribution in Ontario. The OPA has put their plan in a report called the Long Term Energy Plan. The Long Term Energy Plan (LTEP) takes all the factors mentioned above and forecasts the price for electricity in Ontario. The graph shown below is taken from the LTEP and the costs shown have been adjusted for 2% inflation. This graph shows that the monthly electricity costs for a typical residential customer will rise from $138 in 2013 to $178 in 2018.

Energy Cost and Savings

This represents a 29% increase over the next 5 years or an average of 5.8% annually, over and above inflation. So, now we understand why the price of electricity is increasing and how much we can expect the price of electricity to increase over the next 5 years.

If we are responsible for managing electricity costs for a condominium corporation, we can see that electricity costs will continue to increase faster than inflation. We can also see that electricity costs will continue to be a major factor in pushing up condominium owners’ monthly maintenance fees.

 

Glenn Allen PhD, P.Eng
Project Director,
Energy and Sustainability
Rikos Engineering Limited

 

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