The Global Cost of Power - From Ontario to Beyond

By Bri Conn

In Ontario, it can seem like newspapers are saturated with headlines that lament the high costs of electricity. Nowadays, electricity is something we can’t live without, so are we actually paying ridiculously high electricity rates, and if so, what goes into these prices?

Figure 1: Old Style Residential Electricity Meter from Hydro Quebec [1]. Original image can be found here.

The first thing to note is that electricity is typically billed in units of kilowatt hours (kWh). This is a compound unit of power, representing the electricity needed to power a 1 kilowatt device for a time period of 1 hour. For example, many TVs use approximately 100 W of power, so this TV would consume 1 kWh of electricity over 10 hours (100 W x 10 hours = 1000 Watt hours = 1 kilowatt hour) [2].

Electricity rates can also vary by user, with industrial rates being lower than residential rates. This article will focus on residential electricity rates, which is what turns up on your monthly utility bill. It is also important to note that many areas charge taxes and fees on top of these rates. These surplus charges vary widely, and the following analysis will follow just the rate at which consumers are billed for electricity in $CAD / kWh.

The Ontario Energy Board (OEB) sets the electricity rates and pricing model in the province of Ontario, as an independent regulator who strives to act in the best interests of the public. The OEB is independent of the provincial government, but does report to the Minister of Energy. If you are interested, you can learn more about the Ontario Energy Board here. Ontario currently uses a ‘Time of Use’ pricing model for electricity billing, which means the cost of 1 kWh of electricity varies depending on the time of day [2]. At ‘peak’ hours of the day, electricity is 21.7 cents per kWh, and at ‘off-peak’ times this drops to 10.5 cents per kWh. ‘Peak’ times are when electricity is in high demand, midday when people are blasting their air conditioning units at home, office buildings are being used, kids are in school, and factories are up and running. ‘Off-peak’ times are when there is relatively low demand for electricity - overnight, while most people are asleep. This pricing structure encourages residents to consciously do some power intensive activities (ex. running laundry machines and dishwashers) overnight, which in turn reduces the maximum instantaneous electricity demand for the province [2].

So, how does Ontario’s 10.5-21.7 cents per kWh compare nationwide?

While many provinces have adopted different pricing models for their electricity rates (such as a flat rate, or a tiered approach that charges heavy users at a higher rate), Figure 2 shows the average electricity price in each Canadian Province or Territory, as of 2020 [3]. The Ontario rate has been averaged out to 12.5 cents / kWh, and you can see that this is actually on the lower end of the spectrum of Canadian prices. Among the 10 Canadian provinces, the average price per kWh is 13.5 cents, and with the inclusion of the territories this figure jumps to 17.4 cents per kWh [3].

Figure 2 : 2020 Average Electricity Prices in Canadian Provinces and Territories, in cents / kWh [3]. Original image can be found here.

Numerous factors go into what that cost per kWh works out to. Each province has a different mix of electricity generation sources, access to natural resources, geographical impacts such as requiring thousands of kilometers of transmission lines in a large province, effects of population density and the distribution of people, or the threat of severe weather events knocking out transmission lines [4]. Beyond these physical engineering constraints, political decision making is a large part of what leads to the variation in electricity rates throughout Canada. Politicians make decisions to reduce the cost of electricity, as a way to entice voters, or add more taxes to utility bills as a way to raise capital to fund other government projects. Since electricity is something that all Canadians rely on and pay for through utility bills, the rate of electricity is a contentious issue, which directly impacts Canadians’ bank accounts.

Figure 3 : Relative Amounts of Electrical Energy Use by Canadian Province in 2017 [5]. Original image can be found here.

Another important piece of context is the relative amounts of electricity being used in each province. Figure 3 displays the percentage of Canada’s total electrical energy use by province, as of 2017 [5]. The rate at which each province uses electricity is a function of its population, wealth, and of how much power-heavy industrial activity occurs in each jurisdiction. 

How do Canadian electricity rates compare to the rest of the world?

So if we say that the average cost of electricity in Canada is around 13.5 cents per kWh, how does that measure up with other countries’ rates? Canada’s rates actually land lower than the midpoint for reported data, with other highly economically developed countries charging much more, as seen in Figure 4 [6]. Prior to the pandemic, the average electricity rate in the United States was 19 cents / kWh, and many European countries had much greater rates, as much as 50 cents / kWh in Germany.

Figure 4: Comparison of Global Electricity Rates in March, 2020 from Selected Countries [6]. Original image can be found here.

Canada is fortunate to have access to natural resources perfect for generating renewable electricity, which allows for such low residential electricity rates [4]. We are able to economically produce such a great amount of power, that we regularly export excess electricity to the United States, as well as other energy products abroad. 

So there you have it, Ontario’s electricity rates of approximately 12.5 cents per kWh are actually on the cheaper end of the spectrum, both across Canada and the world. Next time you get your utility bill and are about to complain about these electricity rates, thank yourself that you aren’t paying the rates of Saskatechwan, Australia, or Germany!

For more information, check out Natural Resources Canada’s webpage on Electricity Facts here.

To read more about factors that influence Canada’s electricity rates, check out the Canadian Electricity Association’s webpage here.

References

[1] Energyrates.ca, “How to Read an Old Style Electricity or Natural Gas Meter.” 

Energyrates.ca, n.d. [Online]. Available: 

https://energyrates.ca/how-to-read-an-old-style-electricity-or-natural-gas-meter/. [Accessed: 01-Jan-2021].

[2] Ontario Energy Board, “Electricity Rates.” Ontario Energy Board, 2020. [Online]. Available: https://www.oeb.ca/rates-and-your-bill/electricity-rates. [Accessed: 

28-Dec-2020].

[3] R. Urban, “Electricity Prices in Canada 2020.”, Energy Hub, 2020. [Online]. Available: 

https://www.energyhub.org/electricity-prices/. [Accessed: 28-Dec-2020].

[4] Canadian Electricity Association, “Electricity Rates.” Canadian Electricity Association, 

2020. [Online]. Available: https://electricity.ca/learn/future-of-electricity/electricity-rates/. 

[Accessed: 28-Dec-2020].

[5] Natural Resources Canada, “Electricity Facts.” Government of Canada, 2020. [Online].  Available: 

https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/electricity-facts/20068. [Accessed: 28-Dec-2020].

[6] GlobalPetrolPrices.com, “Electricity Rates.” Global Petrol Prices, 2020. [Online]. Available: 

https://www.globalpetrolprices.com/electricity_prices/#:~:text=The%20world%20average%20price%20is,1%2C000%2C000%20kWh%20consumption%20per%20year. [Accessed: 28-Dec-2020].