ENERGY SUMMIT 2018 Balancing a Healthy Bottom Line through - - PowerPoint PPT Presentation

ENERGY SUMMIT 2018

Balancing a Healthy Bottom Line through Strategic Energy Management

05.30.2018

AGENDA

1. Who is ECNG Energy Group 2. Natural Gas Market 3. Cap & Trade 4. Ontario Power Market

WHO WE ARE

Canada’s largest and longest standing provider

• f energy management solutions for commercial,

industrial and institutional markets.

We are

With more than 30 years in the industry, our holistic approach to end-to-end energy management delivers the highest value to our clients every day.

ECNG ENERGY GROUP

 ECNG is not a vendor, Retailer or Energy marketer. ECNG is your

consultant for all energy matters

 ECNG Energy Group does not hold a financial interest in supply or

transmission functions, meaning we do not take title to any commodity

 ECNG works for EMC members, not for energy suppliers,

marketers or others

Financial Services Utility Bill Management Service Custom Reporting Strategic Energy Procurement GA Cost Reduction Audits & Assessments Grant & Rebate Programs Utility Intervention

SERVICES

Our unique combination

• f services ensures we

meet our clients’ every Energy Management need

GA Cost Reduction Grant & Rebate Programs Utility Intervention Custom Reporting Utility Bill Management Service Financial Services

SERVICES

ECNG helps your business make smart and timely buying decisions for electricity, natural gas and other energy inputs to manage price risks.

Audits & Assessments

Strategic Energy Procurement

• ECNG Reviews Client goals, risk

tolerance and time horizon

• ECNG Establishes appropriate

procurement strategy

• ECNG Executes on strategy

NATURAL GAS MARKETS

NATURAL GAS MARKETPLACE

 The current marketplace for end users who are looking for a

healthy bottom line:

• NYMEX gas prices are at steady levels while AECO commodity

prices are very low. Good hedging opportunities for end users

• High Dawn transportation prices in the near term (+ $1.60)
• Attractive Dawn transportation prices in the longer term (2021

$1.20, 2022 $1.10)

• Very expensive Empress transport pricing

PRICES – NYMEX

10

NYMEX prompt prices are the main North American proxy for prices. Huge price volatility until the shale gas era. In the last 7-8 years prices basically between $2-$6 but more frequently $2.50-$4.00. During high priced era (pre 2007) LNG imports were

• contemplated. Now with low

prices LNG exports are in their infancy.

$0 $2 $4 $6 $8 $10 $12 $14 $16 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 $CDN/GJ

NYMEX Price History

NYMEX Cold Weather & Pipeline constraints Hurricane Katrina & Rita Storage Surplus and Strong Production Commodity Speculation Global Recession & Commodity Crash Warm winter creates storage surplus Polar Vortex strains supply network Production drives supply glut Shale Gas Growth

PRICES – NYMEX vs. AECO

11

AECO is the hub where most Canadian companies fix their commodity exposure. This graph shows the price difference (basis) between NYMEX prices and AECO prices. AECO basis usually trends in the $0.50-$1.00 range. Different drivers impacting Alberta gas prices than NYMEX prices.

• $1.60
• $1.40
• $1.20
• $1.00
• $0.80
• $0.60
• $0.40
• $0.20

$0.00 4-Jan-16 4-Mar-16 4-May-16 4-Jul-16 4-Sep-16 4-Nov-16 4-Jan-17 4-Mar-17 4-May-17 4-Jul-17 4-Sep-17 4-Nov-17 4-Jan-18 4-Mar-18 4-May-18 $CDN/GJ

1 Year Term AECO Basis to NYMEX

AECO Basis (Nov19 to Oct20) AECO Basis (Nov20 to Oct21) AECO Basis (Nov21 to Oct22)

SUPPLY

12

50.70 52.36 55.41 57.42 59.07 63.17 65.66 66.31 70.92 74.14 72.36 73.56 78.86 30 35 40 45 50 55 60 65 70 75 80 85 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Bcf/day

U.S. Dry Gas Production (Bcf/day)

**Data Source: EIA

Gradual, steady growth for supply for 10 years. Production fell in 2016 and early 2017 due to low drilling for new supplies. Production has increased substantially in the last 9 months however just under half of that increase equates to the regaining losses from 2016.

DEMAND – POWER GENERATION

13

Power generation demand is growing. Power generation volumes fluctuate a large amount due to weather and medium term environmental changes. Power generation volumes are expected to grow.

Consumption - Power Generation (Bcf/day)

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 21.34 19.79 17.98 18.30 20.87 23.96 27.09 28.86 25.63 22.64 19.90 20.26 2015 23.04 23.24 22.88 22.29 23.84 29.75 33.90 33.18 30.08 25.71 24.66 24.97 2016 24.87 23.67 24.00 24.10 26.05 32.38 36.83 37.26 30.50 23.91 22.22 23.37 2017 20.90 19.87 23.36 20.87 22.87 28.55 34.97 34.41 28.96 25.29 22.29 24.23 2018 25.64 23.93 23.17 22.66

LIQUIFIED NATURAL GAS

14

Real North American LNG export capacity only started Q1 2016. Very significant export capacity expected to come

• nline in the next 2 years.

Facility utilization rate will depend on North American netback pricing. Significant risk potential in 2019 and 2020 when capacity reaches 9+ Bcf/day. 2016 2017 2018 2019 0.5 B/day 1.9 B/day ? ?

AECO PRICES

 Fairly low NYMEX prices and record AECO basis represents an

• pportunity for end users.

 AECO discount to NYMEX:

• Intra-Alberta pipeline maintenance to fix low pressure issues
• Uncertainty around BC LNG export capabilities
• Low gas pressure also limiting storage injections
• Natural gas is temporarily getting trapped in Alberta

ACHIEVING A HEALTHY BOTTOM LINE

 Strategic, opportunistic purchases for commodity and

transportation

 Consider purchasing separating - commodity and transportation  AECO

• Strong value in 2019 (Nov18 1 year) and 2020 (Nov18 1 year)

 DAWN

• Attractive pricing in 2021 (Nov20 1 year) and 2022
• ECNG purchases at opportune times for EMC

CAP & TRADE

CAP & TRADE

 Mandatory aka Large Final Emitters LFEs

• greater than 25,000 CO2 tonnes/year
• greater than 1,300 GJ/d (MDV, DCQ)

 Voluntary (must “opt-in” or else…)

• between 10,000 and 25,000 CO2 tonnes/year
• Between 550 and 1,300 GJ/d (MDV, DCQ)

 Low Emitters (no options)

• pay via distributor

NON-CAPPED PARTICIPANTS

 Consume < ~ 500 GJ/d or ~ 5 million m3/yr of natural gas  Must pay a carbon charge to the gas utilities Jan 1/18:  Utilities collect the carbon charge and buy carbon credits

 Auction price equivalent of $17.60 CAD/tonne

LDC Customer Related Charge Facility Related Charge Total ¢/m3 Enbridge 3.3181 0.0337 3.3518 Union Gas 3.3181 0.0240 3.3421

CAP & TRADE

AUCTION PROCEEDS – WHERE DO THEY GO

 $64 M to improve energy efficiency, reduce greenhouse gases

and redirect savings into patient care at 98 hospitals across the province

 Up to $657M for repairs and improvements to social housing

apartment buildings over five years, depending on carbon market proceeds

 Up to $377M to establish the Green Ontario Fund to help

homeowners and businesses save money and fight climate change through programs and rebates

AUCTION PROCEEDS – WHERE DO THEY GO

 $200 M for public school energy improvements  $100 M to help homeowners make home energy upgrades  up to $100 M to support municipalities in fighting climate

change through projects such as renewable energy and energy efficiency improvements

 nearly $100 M to help businesses adopt low-carbon technology  $92 M for social housing upgrades  $93 M for cycling upgrades

AUCTION PROCEEDS – WHERE DO THEY GO

 $25 M to establish the Low Carbon Innovation Fund to help

create and commercialize new low-carbon technologies

 $20 M to install a network of fast-charging electric vehicle

stations

 $8 M to launch a new pilot program to help fund the purchase of

electric school buses that will reduce greenhouse gas pollution while giving students a safe, clean transit option to school

CARBON PRICE FORECASTS

Based on Continuation of ON/QC/CA Joint Auctions

 Excess CA government allowances available through 2022  N.A Uncertainties going forward

• June ON Election – C&T continuation?
• ON Free Allowances post 2020 (First Compliance Period)
• Federal Election Fall 2019
• Federal Carbon Backstop continuation?
• Majority of US States slow to move on Carbon legislation

CARBON COST FORECASTS

ELECTRICITY MARKET

ELECTRICITY FUNDAMENTALS - SUPPLY

 Generation – Ontario has a mixture of generation types – gas fired

generation, solar, wind, hydroelectric and nuclear generation.

 Interties – Ontario is interconnected to neighbouring states and

provinces with interties on the transmission grid. This increases reliability of supply.

 Storage – Generally there is no “grid level” storage per se, but the

IESO is investigating new large scale storage technology. Phase I program procured 34 MW of energy storage / ancillary services. In Phase II another 16.75 MW for nine storage projects were done.

EXISTING ONTARIO GENERATION CAPACITY

Nuclear 35% Hydro 23% Gas / Oil 28% Wind 12% Biofuel 1% Solar 1%

Installed Generation in Ontario March 2018 Total Generation Capacity is 36,946 MW

Nuclear 13,009 Hydro 8,472 Gas / Oil 10,277 Wind 4,313 Biofuel 495 Solar 380 Total 36,946 Installed Generation

ELECTRICITY FUNDAMENTALS - DEMAND

 Industrial – Generally looking for abundant and cheap electricity in

large quantities. These consumers can be directly connected to the grid. Can be very price sensitive loads.

 Residential – These consumers are usually indifferent to price

(within reason) but reliability is a big concern.

 Institutional / Commercial – Very often these consumers will be

passing on the cost of power to captive clients, so price is a concern and hedging for more budget certainty is often done.

 Exports – Facilitated by interties with neighbouring jurisdictions.

ELECTRICITY FUNDAMENTALS - PRICING

 Regulated Price Plan – RPP is a default price for residential and

small business consumers. Pricing is set annually by the OEB and includes the Fair Hydro Plan discount (25%).

 Hourly Ontario Energy Price – Ontario’s market price index is

called HOEP – calculated every 5 minutes by the IESO and averaged to give the hourly price. HOEP has been relatively low, but there has been recent volatility (Jan and April 2018).

 Global Adjustment – GA is a mechanism to pay for renewable

energy or other generation capacity. Generators earn some money from HOEP but contracts above HOEP yield differences comes from the GA.

ONTARIO POWER PRICING – HOEP & GA

(10.00)

• 10.00

20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00 110.00 120.00 130.00 140.00 150.00 $ / MWh

HOEP And GA 2012 - 2018

GA Avg HOEP Sum of HOEP + GA

Steady inverse relationship between HOEP & GA Winter 2014 - Polar Vortex - GA went negative Low HOEP - surplus

• f supply

GLOBAL ADJUSTMENT

GLOBAL ADJUSTMENT

Fast Facts

 Started in January 2005  Total costs and the per MWh charge change every month  Every consumer in the province pays it including RPP consumers  Started as a credit, then a small charge  Now a very large charge

ORIGINAL UNIFORM GA CALCULATION

Global Adjustment = Total Provincial Monthly Obligations $ Total Provincial Monthly Consumption kWh

CLASS A vs. CLASS B

Class A

 Over 1 MW or 500 kW in

certain manufacturing and industrial sectors

 G.A. Based on PDF (Peak

Demand Factor) during May to April – 5CPs

 Client to pay July to June

Class B

 Small users  Typically 1st estimate  100% of consumption

CLASS A vs. CLASS B

$12 Billion Per Year

Class A Class B

For every peak hour that you hit/miss of the top five it was worth up to $100,000/ MW in the last Class A period. An opportunity to reduce your electrical costs more than any other program in the market today.

STRATEGY TO CAPITALIZE  Demand response  Change production schedules  Battery storage  Cogeneration  Gas fired generators  Recommissioning  Systems cycling  Incentives also available

CLASS A GA COSTS VERSUS CLASS B SINCE 2014

(100.00)

• 100.00

200.00 300.00 400.00 500.00 600.00 700.00 800.00 900.00 1,000.00 1,100.00 Total Monthly Costs (millions)

GA Costs Class A versus Class B 2014 - 2018

Class A Costs Class B Costs

PEAK DEMANDS DECREASING 2010 - 2017

20,000 20,500 21,000 21,500 22,000 22,500 23,000 23,500 24,000 24,500 25,000 25,500 26,000 26,500 27,000 Ontario Demand MW

Min and Max Class A Ontario Demand Peaks Per Base Year

Min Demand Max Demand

PEAK DEMAND DECREASING  Peak Demands are decreasing  Weather is still the determining factor  Winter peaks may occur after a mild summer  2017 Autumn days showing peaks  2017 Weekends showing peaks for the first time  Increase in Class A participants is affecting demand peaks  Peaks are flattening out overall

OUR GA ALERT SERVICE

GREEN Demand is low and no curtailment needs to be considered YELLOW Curtailment should be considered as demand may end up in the top 5 RED Curtailment is advised as total Ontario Demand will end up in the Top 5

OUR GA ALERT SERVICE

GREEN No action needs to be taken. The forecast peak demand is low and will not be in the top 5 for the year. YELLOW Curtailment is recommended as the forecasted peak demand may be in the Top 5 for the year. Customers with onsite generation could go to back-up generation early if desired. RED Will be issued when the forecasted peak demand is projected to be in the Top 5 for the year. These days will likely

• ccur during summer heat waves (June-September) and very cold

spells in the winter (December-March).

OUR GA ALERT SERVICE

Components of ECNG’s Daily GA Alert Service

 Peak Electricity Demand Monitoring – Daily Alerts

• Daily before 9:30 AM

 Visual Management Type Warnings for Alert Status

• Colour codes RED > > YELLOW > GREEN indicates peak

demand alerts for Class ‘A’ users, indicating likelihood of GA assessment

OUR GA ALERT SERVICE

Components of ECNG’s Daily GA Alert Service

 Interactive Electronic Communications

• Clients access our team of experts. Their questions are

answered directly – not just a broadcast

 Future Outlook

• Short report/commentary with insights regarding upcoming

events/days

 Metrics: Historical data provided for comparison

ACHIEVING A HEALTHY BOTTOM LINE

 MUST have a GA mitigation strategy!

• Know what game you are playing

 Pay attention to regulatory shifts  HOEP look for buying opportunities, forward prices have come in

line with current rates

 Remain flexible with an eye towards the future

Dave Duggan Paul Weingartner

Financial Services Invoice Verification & Processing Custom Reporting Strategic Energy Procurement GA Cost Reduction Audits & Assessments Grant & Rebate Programs Utility Intervention

OUR GA ALERT SERVICE

Extra slides if needed follow

CAP & TRADE – FORWARD PRICING CURVE