A Tale of Two Industries

Automotive news in Ontario continues a tired rhetoric on industry pressures due to electricity prices. Industry participants are griping over the energy cost per vehicle in Ontario compared to the leading US states. Like most hand-wringing exercises, this discontent has amounted to a considerable list of grievances and not a lot of innovative thinking.

The energy cost per vehicle is the function of the price of electricity and the efficiency of the plant. Increasing plant efficiency means lowering your consumption costs. This means bringing up the dreaded i-word with Ontario manufacturers: investing. Start with your least efficient motors and branch outwards.

Still worried about the price of electricity? Unlike regular consumers, industrial users pay for both demand and consumption. Demand reduction can have a significant impact on bills by changing the Global Adjustment class. It can be as simple as power factor correction. Again, the i-word would deter any manufacturer planning to leave the province anyway.

On the energy side, Combined Heat and Power achieves both objectives above of increasing plant efficiency and reducing overall demand. Simple. Straightforward.

THE EFFICIENT GRID OF THE FUTURE

On the consumption side, electricity costs for industrial users is already heavily discounted compared to what the average consumer pays. But the most savvy industrial user can take advantage of time-based arbitrage to buy power at night when the price is low, store it, and use it during the day when the price is high. Solar panels, active during the day time, also help with peak shaving.

As noted in one article, "while electricity rates in Ontario are not high enough for the company to consider moving production out of Canada, rising costs eat into profitability at plants that often have tight margins."

So we see the real culprits are short-term profit-focused thinking and an unwillingness to invest in the long term. For years, industrial users have had access to provincial energy efficiency programs, including dedicated Energy Managers, paid for out of general ratepayer funds. There have been ample opportunities to invest in the future.

The grid of the future will likely involve peer-to-peer energy transactions on an open market. Consumers and businesses that position themselves for adaptable consumption patterns will reap the most benefits. Those that sit idle and complain will be pruned.

FUTURE PREDICTIONS

How will an industry that is unable to manage the efficiency of established processes and plants, deliver renaissance of technological advancement for efficient electric vehicles it promises in the near future? Changes to critical thinking and management philosophies will be key.

Our prediction: nimble tech companies are poised to disrupt the industry and supplant the established players. Change will come one way or another.

Footnotes‍

This post was inspired by an Automotive News Canada article, which can be accessed here: https://canada.autonews.com/automakers/industry-feels-powerless-about-rising-ontario-power-rates