Lock in electricity in a volatile market

By Nick Clark

Our government is budgeting to collect $9.6 billion in Carbon Tax from you over the next 5 years.

Here is where the money will go:

$3.4 billion gifted back to Albertans to help us adjust to the new carbon tax;
$3.4 billion invested into renewable energy initiatives to help diversify our energy industry;
$2.2 billion earmarked for green infrastructure projects such as transit; and
$0.6 billion invested in support of energy efficiency and conservation programs.

The NDP’s new Climate Change strategy will hit consumers on January 1st 2017 when you see the first of the taxes go into effect. Natural gas for home heating and the cost to fill up your car at the pump will be the first obvious hit. And, over the years ahead, you will see a movement under the Climate Change strategy to shift the supply of electricity produced from low-cost coal move towards the higher cost of renewables. Everyone has a different perspective of how much this is going to cost, but rest assured: The cost of living for all of us will go up.

Volatility in the market with respect to the pricing of electricity always has been impacted by the balance between supply and demand. Looking into the future, here is what we face:

New tax will cause the base cost of the commodity to increase;
A volatile wholesale market, if the stable base load of coal production plants close in favour of generation that is replaced with intermittent supply of renewables.

Volatility leads to higher consumer retailer prices and uncertainty. And, sadly, you may see some retailers gouging consumers. You are seeing this happen today, even before the government implements the new carbon tax. Many of Alberta’s utilities increased their regulated rates in July over June prices by 40%. This month, utility default rates went up from 3.5 cents to 4.9 cents in one month, even though the market price for electricity remains relatively flat.

Compare the numbers: the lowest floating rate in Alberta today is 2.3 cents per kWh which is being offered by one of Alberta’s independent competitive retailers. Even if you average the rate over the last 12 months, the average rate paid still was only 2.8 cent / kWh. You compare: This rate is substantially lower when compared to the price being paid by consumers who are stuck on the government regulated rate option.

There are lots of good, short-term and long-term prices available if you just shop around.

Here is one example of what we found: The highest rate we found in Alberta today is being charged to members of one of Alberta’s farming cooperative at 8.75 cents / kWh. The lowest floating rate being offered to consumers in a neighbouring community is as low as 2.3 cents k/Wh. Amazing difference. What does this mean in term of dollars? The poor farmer stuck on paying 8.75 cents and consuming say, 2,000 k/Wh per month, will pay about $125 more for the energy they consume this month alone. Who is to blame? The consumer who doesn’t bother to shop around and is stuck in the old paradigm of living with blinders on.

What can you do to protect yourself? Here’s two options:

1. Lock into a fixed energy rate and avoid the uncertainty of what is going to happen to the cost of electricity during the next few years.

Attractive guaranteed rates are available today at a fixed price to the end of 2018 and 2020. This is a safe bet. Consumers can take control and levelize the cost of energy they are using and possibly consider moving onto a budget plan that equalizes the payment of their energy bill month after month.

There is an old saying that is as true today as it always has been. When the market is low – buy and secure a guaranteed price for the long term. It’s exactly the same strategy you would use when locking into a mortgage for your home. Today, long-term contract prices never have been lower. As such, it is a good time to buy, lock in, and hunker down for the storm ahead.

Remember, even if you sign a long-term contract – the vast majority of independent Energy Marketers in Alberta do not have cancellation fees if you ever want to switch rates or plans.

2. Invest in the fundamentals of energy efficiency and conservation. This definitely is a step in the right direction. The Alberta government, as part of its Climate Change plan, established “Energy Efficiency Alberta”. This is a new public agency focused on:

Promoting efficiency and conservation programs;
Developing community solutions (including financial support for micro and small scale generation systems).

The new agency will try to resolve various barriers to adopting energy efficiency programs. They recognize that individuals, businesses and communities are sometimes more sensitive than government to the high upfront initial costs and long-term payback timelines when looking at cost savings potential. Providing subsidies is one way the government might be able to reduce the financial barrier.

Energy Efficiency Alberta is holding their first of many town hall meetings. Join in.

Our recommendations in a volatile electricity market

1. Lock into a fixed energy rate. This is a good long-term and tangible solution to the rough waters ahead. Guaranteed rates stretching out 3 to 5 years are available to consumers priced in the 5 to 6 cent range. By locking in today, you will bridge the uncertainty gap in the market and protect yourself from the full impact of the new carbon tax. Buy Smart. Shop around and you will find some good bargains. If you want help in finding a good rate – drop me an email to nick.clark@utilitynet. I am confident we can find you a lower rate then you are currently paying today.

2. Participate in the town hall meetings. This is a long-term educational exercise in gaining a better understanding of the benefits of energy efficiency, conservation programs and how supply side demand management strategies can help commercial customers lower their energy consumption. At the same time, the government will be creating new programs that will be based on subsidizing community investment projects as well as offering subsidies to home owners and the farming community who installed PV Solar systems.

This is, in part, where a portion of the $9.6 billion will be spent over the next 5 years. Participate and profit from what you can learn.