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By C. Rhodes, P.Eng., Ph.D.

Electricity services for load customers are of two types, Dependable Electricity Service (DES) and Interruptible Electricity Service (IES). This web page identifies the differences between DES and IES and the practical methodology for implementation of an IES together with a DES.

In an electricity service, in order to realize voltage control, total connected electricity generation and load are continuously adjusted to match each other. Generators and loads that are turned on or off in response to instructions issued by the Independent Electricity System Operator (IESO) to achieve this generation to load matching are known as dispatched resources.

a) All clean (non-fossil) electrical generation has a high fixed cost related to equipment financing and a low operating cost per kWh generated;
b) A DES must have sufficient generation and transmission capacity to meet the total DES customer annual peak kW demand Plus 15% reserve;
c) The fraction of the year when DES customer demand is at its maximum value is very small, typically 50 hours;
d) The electricity rate per kWh must be sufficient to finance ongoing concerns;
e) Once the generation and transmission equipment capacity is sufficient to meet the DES customer annual peak kW demand the marginal cost of providing IES with the surplus non-fossil capacity that is available for most of the year is very low;
f) In Ontario the available clean IES energy is currently about 17% of the annual DES energy supplied. This fraction will increase to as much as 50% when existing natural gas fired peaking and reserve generation are replaced by clean generation.

In 2017 almost all of the Ontario electricity grid load was met by a Dependable Electricity Service (DES). DES reliably provides as much power as a load customer reasonably needs instantly upon customer demand. Embedded in the DES electricity rate are all the costs of reserve generation, redundant transmission, distribution, voltage control, regulation and administration necessary to keep the DES highly reliable.

The monetary value of electricity supplied via DES lies primarily in reliable supply of electrical power on demand. When a DES customer in Ontario turns on an electricity load there is about a 99.7% probability that sufficient power will be instantly available at the appropriate voltage to operate the load at the customer chosen power level.

DES loads are entirely controlled by customers. DES loads are not controlled by the Independent Electricity System Operator (IESO) and hence from the perspective of the IESO DES loads are uncontrolled. The IESO must always have sufficient reserve and dispatchable generation, transmission and dispatch controlled load instantly available to meet the requirements of the total DES load. The DES load varies depending on the time of day, day of week, season, weather, etc. The introduction of rapidly varying unconstrained wind and solar generation has increased the IESO's challenges in ongoing matching of dispatchable generation to net load.

As fossil electricity generation is replaced by clean electricity generation the fixed costs of clean electricity generation and delivery completely dominate the variable cost of fuel. The non-fossil generation, transmission and distribution costs are almost entirely capacity costs that are independent of the actual number of kWh consumed. Hence the cost of operating a clean electricity supply system is approximately proportional to that system's KVA supply capacity. Thus, a DES customer's fair share of the total electricity system cost is approximately proportional to that customer's peak kVA requirement during a billing period. The price per peak kVA is set by the DES gross revenue requirement.

Note that due to load diversity customer load peaks are not simultaneous and hence the total number of billed peak kVAs registered on customer electricity meters exceeds the system peak kVA. This issue is compensated for by introduction of a diversity factor which is less than unity and is defined by:

(Diversity factor)
= (Grid monthly DES peak kVA) / (Sum of all DES customer billed peak kVAs)

Thus implementation of this billing system requires collection of data from a sufficiently large number of customers with smart electricity meters to allow a reasonably accurate calculation of the diversity factor.

(Consumer Bill)
= {[(Consumer Peak kVA) X (Diversity factor) X (Gross revenue requirement for billing period)] / [Grid peak kVA]}
+ {(Charge / kWhe) X (Number of kWhe consumed in billing period)}

(Charge / kWhe) ~ $0.02 / kWhe

{[(Diversity factor) X (Gross grid revenue requirement / billing period)] /[Grid peak kVA]}
= {$30.00 / (peak kVA - month)}

In cases where the available interval electricity meters are not capable of measuring peak kVA the next best parameter for fair allocation of DES electricity system costs is the peak kW demand during the billing period.

The only issues open to discussion with respect to the DES rate are the 90% step response time (~ 2 hours) of the peak kVA or peak kW measurement and the length of each billing period (~ 1 month).

The advantage of a 2 hour 90% step response for peak kVA or peak kW computation is that this choice captures significant daily load variations with existing smart interval electricity meters while eliminating over billing due to brief load transients. During an average year the cost of electricity generation is very high for about 50 hours per year or for about 4.2 hours per month. Hence, the probable contribution of a particular customer's load to the grid peak load in any one month billing period can be obtained by finding the peak value of the customer's kW or kVA demand during a sliding 2 hour interval.

Historically the electricity billing period in Ontario was one month. Based on practical field experience in major buildings with load control systems this author favors a one week billing period because it provides more incentive for load customer response than does a one month billing period. For administrative convenience four or five successive one week bills could be combined into a single monthly invoice.

One of the benefits of a peak kVA based DES rate is that a DES customer cannot obtain low cost electrical energy at times of energy supply deficiency unless that customer also purchases a corresponding amount of higher cost electricity. Hence, there is no transfer of costs between customer classes.

In order to prevent customers gaming the rate structure or otherwise tampering with the metering arrangement the price of a marginal DES kWhe is set equal to the price of a marginal Interruptible Electricity Service (IES) kWhe. In order to displace fossil fuels the price of an IES kWhe must be substantially less than the price of a marginal fossil fuel supplied kWht.

Under a peak kVA based DES electricity rate a load customer with a time varying power requirement is financially incented to install sufficient energy storage to convert his time varying load into a nearly constant load.

A further advantage of a peak kVA based DES electricity rate is that electrical energy that is not actually consumed by DES consumers can be profitably sold at a discount to Interruptible Electricity Service (IES) consumers.

The Ontario 2017 DES electricity rates did not reflect actual electricity system marginal costs and provided no financial incentive to consumers for energy storage, demand management or power factor correction which would contribute to overall network performance improvement.

In 2017 for small (< 50 kW) consumers in Ontario the DES rate had no kW or kVA demand component at all. The only incentive for improved consumer behavior was a small time-of-use (TOU) rate change in the cost per kWh. This TOU rate change did not reflect actual network costs.

In 2017 for large (> 50 kW) commercial consumers in Ontario the DES rate had two main cost components, an energy cost component and a monthly peak demand cost component. The energy cost component was proportional to the net energy absorbed by the customer from the grid during the billing period. The peak demand cost component was proportional to the customer's peak rate of energy usage during the billing period. This split billing arrangement has been in place in Ontario for more than 50 years. However, largely due to government legislative misallocation of the global adjustment, the energy charge per kWh is far too large and the demand charge per kW or per kVA is far too small.

DES reliability comes at a significant price. Due to varying renewable generation, ongoing system load variations and requirements for reserve capacity the total connected generation capacity is more than twice the average DES load. Much of the time there is surplus clean generation. In Ontario short term peak generation requirements are presently met using natural gas fuelled generation. However, there is an increasing amount of clean electricity generation capacity that is intermittently available but is unused. At present this surplus clean generation capacity is either constrained (completely wasted) or is exported at a very low price (~ $0.016 / kWh). This low cost clean energy could potentially be sold at a higher price in Ontario via an Interruptible Electricity Service (IES) rate. The potential applications of IES energy are charging energy storage, fossil fuel displacement and electro-chemical processing including production of electrolytic hydrogen. This IES rate, if offered, would reduce consumption of fossil fuels and would enable primary chemical and ore processing in Ontario that would otherwise be financially uncompetitive.

An Interruptible Electricity Service (IES) is an inexpensive but unreliable electricity service which is randomly available to load customers about half the time. An IES provides surplus energy when it is available at a low cost per kWh but does not provide power on demand.

The purpose of an Interruptible Electricity Service (IES) is to realize tangible benefits from surplus non-fossil electricity generation capacity that is otherwise constrained off or is exported at an extremely low price.

From a climate change perspective an IES rate would enable sale of otherwise wasted non-fossil electricity generation capacity for displacement of fossil fuel consumption. The IES energy price is effectively set by the marginal cost of the fossil fuel being displaced. In a practical electricity system the IES energy price equals the UES marginal energy price. Then the DES price per kVA is set by the electricity system gross revenue requirement.

In 2017 there was no Interruptible Electricity Service in Ontario. This was a major missed opportunity for mitigating blended electricity rates, for reducing fossil CO2 emissions, for incenting customer owned behind-the-meter energy storage, for incenting electro-chemical processing and for grid power balancing via real time control of the IES load by the IESO and LDCs.

An IES provides unreliable but economical electrical energy from the moment by moment difference between the total available clean generation capacity connected to the Ontario grid and the total DES load. In essence, interruptible electricity comes from clean electricity generation capacity that is otherwise constrained or exported at a low price.

In order to provide DES customers with a high degree of reliability electricity systems operate with at least a 15% generation surplus at times of peak load. Then if a major generator such as a nuclear reactor trips off there is sufficient reserve generation capacity immediately available to meet the DES load. This reserve generation capacity, if non-fossil, can also serve the IES load.

However, IES electricity can be provided to load customers only to the extent that at each instant in time there is non-fossil generation that is surplus to the moment by moment DES power requirements.

In the province of Ontario there are presently many periods when fossil generation does not operate and low price non-fossil power exports and constraints on non-fossil generation capacity are used to match total generation to the DES load. The contemplated IES changes would provide the IESO revenue producing dispatchable load. The concept is to sell surplus Ontario generated clean electricity at a discount to parties in Ontario that can effectively use it when it is available.

IES loads should not be energized while fossil fueled generation is dispatched "on". However, for a large fraction of a year fossil fueled generation is "off" and non-fossil generation is either constrained to varying degrees or is exported at a very low price.

Approximately 17% of the existing non-fossil electricity generation capacity in Ontario is presently being discarded for lack of an IES rate offering that enables sale of IES energy in Ontario without impacting the DES. The loss of revenue to the Ontario electricity system arising from lack of an IES rate is currently over $200 million per year. The extra expenditure by Ontario consumers on fossil fuels due to lack of an IES rate is another $1 billion per year. There is a further cost of more than $1 billion per year due to generation constraint under take-or-pay contracts.

Financially enabling behind the meter energy storage at generators and load customers would lead to further electricity system cost reductions via load factor improvement.

The Local Distribution Companies (LDCs) will directly control, via the Internet, the enable/disable control function of all IES loads. The plan is for the IESO to use IES loads within LDCs in place of dispatched generation to match total grid connected non-fossil generation to total grid connected load.

In the event of a sudden unanticipated generation failure such as a nuclear generator trip the IESO can immediately dump some or all of the IES load to maintain grid voltage. At low DES load times reducing the IES load can take the place of turning on fossil fueled reserve generation.

The appeal of IES electricity to end users is its very low cost per kWh. However, due to its interruptible nature IES electricity can only be effectively used by customers that own energy storage, use electrolytic chemical processing or have hybrid electricity-fossil fuel heating/cooling systems. In this respect a major long term opportunity is for electrolytic hydrogen production as a feedstock for production of: compressed and liquified hydrogen fuel, ammonia, methanol, synthetic gasoline and synthetic fuel oil. In these applications the cost of electricity per delivered kWh is paramount and the intermittent availability of IES power is tolerable.

The contemplated IES rate could potentially be offered at any location in Ontario where there is both grid supplied electricity and a high speed internet service to allow ongoing communication with the local LDC.

The past policy of pricing electricity to small consumers in proportion to kWh consumption provided the liquid fossil fuel industry in Ontario with windfall sales and profits. This pricing policy artificially kept the marginal cost of all clean electricity above the cost of fossil fuels. In a clean electricity system this pricing policy produces large profits for liquid fossil fuel suppliers and excess CO2 emissions because it prevents rural consumers accessing low marginal cost non-fossil electricity when it is available. For a rural home owner the cost of fossil heating fuel is typically $0.12 / kWht whereas for the last decade the Ontario government exported surplus non-fossil electricity at about $0.02 / kWhe without allowing Ontario residents access to this inexpensive surplus electricity for displacement of fossil fuels. This policy was in part due to governmental incompetence and in part due to liquid fossil fuel companies financially lobbying the government for maintenance of the status quo, even though that electricity pricing policy made no sense either from a consumer benefit or a CO2 emissions perspective. The result of this faulty electricity pricing policy was an over $2 billion / year scam on Ontario electricity ratepayers. This scam was a major factor contributing to the defeat of the Ontario Liberal government on June 7, 2018.

There will be further opposition to an Interruptible Electricity Service (IES) from the natural gas industry. The natural gas industry will argue before the Ontario Energy Board (OEB) that implementation of an IES market will cause the average delivered price per GJ of natural gas for small consumers to increase.

The cost of natural gas to a consumer has two main components, a commodity charge and a delivery charge. The delivery charge is a fraction of the entire natural gas network operating cost that is allocated to small consumers in proportion to each consumer's GJ of natural gas consumed. Implementation of IES electricity rates will reduce the network wide number of GJ consumed without reducing the natural gas distribution network operating cost. Hence the delivery cost per GJ of natural gas to small consumers will increase.

There is no magic solution to this natural gas delivery cost issue. Amortization of the natural gas piping network and its maintenance costs per GJ are costs that must be borne by natural gas utility investors. The problem of increasing atmospheric CO2 concentration due to combustion of fossil fuels has been well known since 1970. Natural gas utility investors will just have to accept that, unless the natural gas distribution piping system is repurposed for distribution of hydrogen, the residual value of the natural gas distribution piping system will decline over the coming years. This issue has potential long term implications for insurance companies and pension funds that invest in natural gas infrastructure.

This web page last updated October 22, 2021.

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