Module 4: Fuels system Cost Outlook

Overview

The following module summarizes the components of fuels energy system costs for Ontario consumers under the conditions of each of the demand outlooks. Note: Further information with respect to the demand outlooks can be found in Module 2 “Demand Outlook”.

For each Of the demand outlooks, the total cost of energy-related fuel use (excluding costs for electricity generation) and the average unit cost are summarized. Note: The cost of non-energy fuel use by the industrial system is not included.

The cost outlooks illustrated here are not forecasts, and do not address the future volatility of energy prices. They illustrate a range of possible outcomes based on the assumptions made within each outlook.

The cost outlooks have been developed by applying each demand outlook to a set of projected fuels prices. Fuel price projections were obtained, or adapted, from fuels price projections developed by other (principally public) agencies and represent “delivered” prices (i.e., the actual cost paid by the consumer).

This module provides additional detail that underlies the total system and average unit costs presented in the Fuels Technical Report and also outlines the underlying price assumptions and inputs that determine the system cost outlooks.

All currency values provided in this module are expressed as 2016 real Canadian dollars.

Fuels system cost outlook

Total system Costs

Average Unit Costs – Outlook B

Average Unit Costs – Outlook C

Average Unit Costs – Outlook D

Average Unit Costs – Outlook E

Average Unit Costs – Outlook F

Total system Costs by Fuel – Outlook B

Total system Costs by Fuel – Outlook C

Total system Costs by Fuel – Outlook D

Total system Costs by Fuel – Outlook E

Total system Costs by Fuel – Outlook F

Appendix

Fuel Price Sources

Fuel Price Development

All fuels converted to common units (2016 CAD$/GJ) using forecast exchange and inflation rates provided by IESO.

Natural Gas Prices

• Prices adapted from OPO pricing forecast (IESO) to vary by outlook.
• Price changes by outlook adjusted to consider consumption volumes and distribution cost impacts, as well as DSM incremental to that assumed for Outlook B.
• Total distribution costs in Ontario assumed to be fixed at $2 billion (2016 CAD$) per year (based on approved distribution revenue in EB-2015-0116 and EB-2015-0114)

Prices drawn from the EIA Annual Outlook are adapted to be representative of Ontario using a comparative scaling approach based on the available NEB (or IESO, in the case of natural gas) Ontario-specific data:

• Step 1: Determine ratio between NEB and EIA price projections for fuels that are available from both sources (e.g., Motor Gasoline)
• Step 2: Assign a “representative fuel” (from Step 1) to each fuel with an EIA price projection and no Ontario specific price.
• Step 3: Apply ratio from the Step 1 “representative fuel” to the Step 2 EIA price projection to scale prices to representative of Ontario.

EIA E85 price projection used as a proxy for ethanol (no ethanol-only projection).

Bio-based diesels price based on historical comparison of B99/100 prices with E85 prices, applied to EIA-derived ethanol projection.

Renewable natural gas assumed to be all derived from anaerobic digestion.

Source document for hydrogen price estimates cost-at-pump of less than $4 per gasoline gallon equivalent (gge). Price assumed to be $4/gge (2015 US$)

Wood price average of 6 types discussed in study. Assumed commercial and industrial price 80% and 60% (respectively) of residential price due to volume.

For some industrial fuels (e.g., petroleum coke, still gas, etc.) no third-party price projection was available. In these cases, one of the other price projections developed was assumed to be a reasonable proxy.

Additional Cost Inputs

Two additional cost inputs:

• Carbon costs from cap-and-trade: Time series of projected carbon costs assumed in OPO analysis (IESO).
• Incremental DSM costs for Outlook E and F. Developed based on the approved 2015 – 2020 DSM plans (EB-2015-0029 and EB-2015-0049)

Incremental (to Outlook B) natural gas DSM:

• Cost of incremental DSM was defined in terms of incremental DSM achieved in each outlook. For example, if total gas savings in Year 1 is 100, and total gas savings in Year 2 is 110, then DSM cost in Year 2 is 10 (110 – 100) times the DSM cost.
• Based on Enbridge and Union’s approved DSM budgets and targets for 2016 through 2020 the value of incremental achieved DSM in any given year is approximately $16.50/GJ.

Projected Delivered Prices (2016 CAD$/GJ) (Natural Gas)

Projected Prices (2016 CAD$/GJ) (Other Fuels)