On May 1, 2002, significant changes were implemented for the electricity industry in Ontario. It was on this date that Ontario followed Alberta and other North American jurisdictions with the introduction of competition in the electricity industry. The new elements of the sector range from the introduction of retail competition to competition within the generation industry. While the changes in the electricity industry may seem remote for those in the waste business, there are actually several opportunities for various aspects of the industry.
Changes for consumers
Ontario consumers now are faced (or provided) with many decisions regarding how they will consume electricity. While electricity will continue to be delivered by local distribution companies, which are primarily the municipal utilities that collect energy bills from consumers, consumers will now have the ability to purchase the actual electricity from any number of licensed retailers.
Through an extensive government-funded advertising campaign it is generally understood that residential and small business consumers will be able to achieve some certainty of pricing by signing longer-term contracts. That said, less public attention is paid to commercial consumers who may have more to gain in a competitive electricity market than others. Historically, large consumers of electricity have been able to negotiate favourable electricity rates with Ontario Hydro. While it remains to be seen what prices the marketplace will bear, the consumption of large volumes of electricity should provide significant negotiating power to some organizations.
While waste industry participants are not traditionally large consumers of electricity, larger organizations will be able to aggregate electrical “load” from various sources across the province onto one bill, and potentially achieve savings based on economies of scale. Others who have holdings that are not involved in the waste industry directly may be able to aggregate unrelated electricity loads under one bill by negotiating with a number of licensed electricity retailers.
As with residential electricity contracts, the primary issue will be whether the price is right. In an immature marketplace such as in the new competitive electricity market in Ontario, it is difficult to know whether prices will rise or fall. As such, it will be difficult to assess whether or not long-term energy contracts make business sense until the market matures and it becomes clearer how the market will react in certain circumstances.
Perhaps of more specific interest to the waste management industry is the potential to participate in the electricity marketplace. The most notable current opportunity for additional revenue is through the generation of electricity through landfill gas combustion.
Landfill gas has been a source of electricity in Ontario and elsewhere for some time. The Keele Valley landfill north of Toronto generates 35 megawatts (MW) of electricity per year through the burning of landfill gas (largely methane). There are many other smaller examples of landfill gas generation in Ontario and elsewhere, including: Brock West (25 MW) and Breare Road (5 MW) in Ontario and the Clover Bar Generating Station in Alberta (which uses landfill gas to augment the generation capacity of the facility). While these waste-driven generation facilities are extremely small relative to other more traditional sources of electricity, they do generate revenue for their operators that would otherwise be lost directly to the atmosphere or through flaring.
Other advantages include reductions of emissions of methane (a harmful greenhouse gas) and the significant reduction in the escape of odour from the landfill. Such reductions could represent valuable emission-reduction credits to municipalities. For these reasons, landfill gas as a source of electricity is seen as a good news story for the waste industry.
Some other implications of the competitive electricity marketplace on the waste industry are seen as more long term in nature. Critics of incineration say that the technology does not currently exist to generate electricity from the combustion of waste in an environmentally acceptable manner. However, several studies have been undertaken (and technologies patented and tested) to do so.
It is thought that the generation of electricity at extremely high temperatures in specially designed incinerators that use waste as fuel may provide environmentally friendly energy in the future. This and other proposed technologies, while somewhat more speculative in nature, may well have a significant impact on the waste management industry, both as it pertains to hazardous and non-hazardous wastes.
The introduction of competition in the electricity market allows technologies such as these to be tested and brought to market in the context of an active marketplace. Unlike in the Ontario Hydro monopoly of the past, the electricity traded in markets such as those in Ontario and Alberta will result in prices determined by the marketplace.
As in any newly-formed sector of the market, only time will tell exactly how businesses will benefit or be affected by the competitive electricity markets in Alberta, Ontario and elsewhere.
Written by Adam Chamberlain, LL.B. of Power Budd, the Canadian affiliate of Cameron McKenna, an international law and consulting firm. Mr. Chamberlain is based in Toronto, Ontario.