Companies that buy new equipment to avoid Global Adjustment charges face risk of having stranded assets.
Business case for investments in GA avoidance equipment – generators and batteries – relies on current GA model, which resulted from a political decision.
GA regime is based on politics, which are reliably unreliable
As we all know, political decisions tend to change, programs and even contracts can be cancelled. If tomorrow Ontario government changes GA model for Class A companies in a way that reducing demand during 5 provincial peak hours no longer makes electricity dirt cheap, then business case for owning GA busting equipment is gone. Equipment will have to be sold, likely at pennies on a dollar invested.
How did Ontario get to current Global Adjustment model?
Black Tuesday has demonstrated that Ontario was short of generation capacity. Ontario could not build it overnight and did not even have billions available to build it quickly. The only solution left to government was to buy capacity back from big consumers, hence, ICI was born. Year after year, decision after decision, we now have thousands of companies avoiding peaks and enjoying massive energy cost savings.
Will current Global Adjustment model last?
GA model provided a short-term solution and a long-term problem. When Class A customers do not pay for distribution and generation of electricity – Class B and residential customers must pick up the bill.
If this does not sound like a concern for your company, consider this: shifting cost of supporting Ontario grid to SMEs and consumers is one story, shifting cost to voters is a different one. To calm down bulging anger from residential consumers Ontario Gov’t came up with a rate discount, which has simply shifted the $6bln burden from ratepayers to taxpayers.
Although I do not have a crystal ball to forecast results of upcoming elections, common sense tells me that there are much more voters in Ontario than there are Class A companies.
And here we come back to where we started: GA model is a political decision. Politics change and … see more above.
How can you mitigate risks of a possible GA model change?
Golden rule of risk management states that if you can’t effectively manage risk – outsource this risk to somebody who can.
In case of GA avoidance this rule translates into: If you choose to chase GA, then do not buy GA busting equipment, buy GA busting service on shared savings basis.
Nothing comes free, your savings will be lower, but you will not own the risks that you can’t manage. Unless you have a crystal ball or can manage Ontario politics, it’s a fair deal if you ask me.