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Energy Matters: March 2022

Energy Matters: March 2022

As we head into spring, many of us have global events on our minds such as Russia’s war on Ukraine, energy shortages, the ongoing pandemic, and the increased frequency of extreme weather events. In this issue, we look at how these factors are impacting natural gas pricing and the gas market outlook, explore how municipalities are addressing climate change and the role of housing providers in their municipal climate action plans, and more!

We hope you enjoy this issue.

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graph showing volatility of the gas market from 2017 to 20022

Natural Gas Prices See Global Impacts

Russia’s invasion of Ukraine is the latest and most significant in a series of factors that have made natural gas a top news story recently. For years natural gas was generally cheaper than electricity. That changed in 2022, and in fact prices have been volatile and rising over the past two years. Some of the factors that have contributed to this change include:

The Pandemic

In October 2021, the North American natural gas market to hit a record five-year high due in large part to the pandemic and all the uncertainty it created. Economies around the world hit pause, restarted, and slowed again as governments tried to curb the spread of Covid-19.

The Polar Vortex

In February 2021, the Polar vortex caused both a rise in demand for natural gas and a decrease in production. Instead of responding by increasing production to meet growing demand, natural gas producers chose to keep production levels flat to pay down debt and strengthen dividend payouts to shareholders. This meant less gas was held in storage going into the fall of 2021, which created uncertainty in supply for the coming winter and put upward pressure on gas pricing.

Forecasted North American Liquified Natural Gas Exports – Source: MacQuarie

European Energy Shortages

Going into winter of 2021/2022, Europe faced a significant energy shortage. Even in the best of times, Europe must import natural gas from various countries. The region’s biggest source of natural gas is the United States, but the U.S. was not able to keep up with demand, which further contributed to volatility to gas pricing across North America. 

Russia’s War on Ukraine

Russia supplies approximately 40% of Europe’s total natural gas needs via the Nord Stream pipeline from Russia to Germany. A sister pipeline called Nord Stream 2 was completed last year and was intended to increase gas supply at a cheaper cost to Europe. However, as part of the sanctions against Russia, Germany has paused the approval process putting the project in doubt and adding to the market uncertainty.

Market Outlook

HSC’s energy advisor, ECNG Energy, believes a new floor on natural gas pricing has likely been established. Looking ahead, increased liquified natural gas exports and projected lower-than-average storage levels could drive pricing up unless production increases significantly going into spring and summer. The extreme volatility we have seen in the North American natural gas market over the past year is expected to continue, with higher prices projected for the short, medium, and long term.

The average Ontario gas customer on a standard utility rate will not experience the full impact of these increases for several months. This is because Ontario gas utilities must get Ontario Energy Board approval each quarter to increase their rates, which creates a lag of approximately six months between the market and utility rates. Gas customers on fixed rates through HSC’s Natural Gas Purchasing Program are protected from the current volatility.

At HSC, our Energy Services team is continuing to monitor the gas market and working with our advisors in an effort to secure the lowest possible rate options for our 2023 renewal. If your gas option is up for renewal in 2023, please watch your inbox as we plan to reach out earlier than usual this year. Stay tuned.

What do Municipal Climate Commitments Mean for Your Portfolio?

Front cover of City of Burlington's Climate Action Plan - image of a waterfront
City of Burlington’s Climate Action Plan

Reducing dependence on fossil fuels is top of mind as we see gas and natural gas prices rise amid war, the pandemic, and energy shortages. The reduction of greenhouse gas (GHG) emissions is also central to addressing climate change, which is why Ontario municipalities are committing to cut GHG emissions through their climate action plans. If you are a housing provider, you are no doubt focused on cutting your energy costs while also trying to understand how those municipal commitments could impact you.

What are municipalities committing to?

Municipalities are at the front lines when it comes to experiencing climate impacts such as extreme weather and floods. That’s why many of them are taking action to build long-term resilience at the local level.

For example, in 2020, the City of Burlington committed to become a net carbon neutral community by 2050, while last January, the City of Ottawa released its action plan for reducing its emissions to zero by 2040 for the City and by 2050 for broader community. Last December, the City of Toronto adopted a strategy to reduce community-wide emissions to net zero by 2040, a target that is one of the most ambitious in North America.

Others, such as Hamilton, Kingston, London, and Thunder Bay, are also developing climate plans to support their net-zero and carbon neutral targets, while areas such as Mississauga and Brampton are planning how they will meet targets of 80% emissions reductions by 2050.

What do such commitments mean for your housing portfolio as a provider?

Source: Ottawa Community Housing Corporation

Simply put, if you’re a municipal housing operator, your municipality’s commitment is your commitment. For instance, Ottawa Community Housing Corporation (OCHC) is currently mapping out how to action the City of Ottawa’s corporate commitment of zero emissions by 2040. A key piece will be to move off natural gas entirely, which will involve electrification for much of OCHC’s portfolio.

OCHC sees this as an opportunity to address its multi-million dollar capital repair requirements while hitting climate goals, and, as an added benefit, improving the affordability of its assets. As a starting point to achieving zero emissions by 2040, OCHC plans to scale up its recently completed Prefabricated Exterior Energy Retrofit pilot project and adapt it to mid- and low-rise properties. It is also undertaking deep-energy retrofits on select apartment towers and pursuing a Passive House approach on new builds.

You may be wondering how specifically do municipal climate commitments impact you if you are a non-profit and co-operative housing provider. This depends on the municipality, but generally, you may see programs, policies, or strategies to help facilitate building improvements either voluntarily or mandated. For example, Toronto’s Net Zero Existing Buildings Strategy focuses on significantly reducing the use of fossil fuels in all existing residential, commercial and institutional buildings within the next thirty years. Initially, the City will implement voluntary performance measures and targets but it intends to move to mandatory requirements in 2025.

Support for multi-unit residential retrofits are taking the form of marketing, education, and in some cases, financial mechanisms. For the latter, provincial and federal dollars are important for offsetting gaps in the ability of municipalities to provide financial support in this area.

What if your area is not covered by a municipal action plan? The short answer is that provincial and federal commitments will still apply. Those targets will not be achieved without addressing building-related emissions, which means providing tools, information, and, ideally, funding to motivate building operators like you to undertake improvements. Also important to consider, utility prices are not likely to decrease any time soon, so taking steps to reduce your consumption through conservation and efficiency projects will pay off regardless of emissions reduction targets.

Is electrification the answer?

While Ontario has largely phased out fossil fuels from our electricity grid thanks to the closure of our coal plants, we still use natural gas to generate about 7% of our electricity supply. Gas plants are largely used to ensure the grid can meet peak demand in the hot summer months when air conditioning use is high. This also means that an all-electric building has emissions associated with its operations since natural gas is part of the overall electricity supply mix.

In the future, natural gas may be eliminated from our electricity supply mix. Last October, the Minister of Energy requested the Independent Electricity System Operator (IESO) to develop a pathway to decarbonize the electricity system by 2050. A decarbonized grid would be needed for municipalities – and housing providers – to achieve zero emissions targets.

If you are planning to switch from natural gas-fired equipment to electric equipment in your building, engaging with your local electricity utility in long-term planning is a key step in this process.  In some areas, the local electricity infrastructure can not currently support projects that will significantly add to the electricity demand, so a good first step is to touch base with your electricity utility with details of your proposed project.

It is also important to keep in mind that changing your fuel supply alone is just one piece of the puzzle. Your building’s systems do not operate in isolation from each other, so it is important to look at your overall need for energy from a whole-building perspective. For example, making your building more air-tight through better insulation, windows, and doors is key to reducing your overall space heating and cooling demand, and installing water conservation measures can help curb water use. Many forward-thinking housing providers are looking at strategies such as Passive House and Net-Zero to cut their overall energy demand, increase tenant comfort, and improve affordability. And finally, tenant and staff engagement also play a role in conserving energy. Ultimately, as a housing provider, it is in your best interest to learn about your municipality’s commitments around GHG emission reductions and better understand the potential impacts.  This will give you a chance to be proactive with projects, take advantage of financial incentives and make decisions that are aligned with your municipality’s plans.

Did You Miss our Deep-energy Retrofits Webinar?

Welcome to Deep-energy Retrofits in Small and Large Buildings

In February, our Deep-energy Retrofits in Small and Large Buildings webinar was a big hit, thanks to the amazing work of our speakers.

Sean Botham from CityHousing Hamilton (CHH) shared the story of CHH’s Passive House “EnerPHit” retrofit of its Ken Sobel Tower, an 18-storey, 146-unit building in downtown Hamilton. Daniel Dicaire of Ottawa Community Housing Corporation (OCH) provided a small building perspective by telling us about OCH’s prefabricated exterior energy retrofit to four townhome units, a pilot project now being expanded across multiple complexes in OCH’s portfolio.

Watch the webinar and view the slides here!

UMP Reports – View your 2021 Utility Performance

Sample UMP Chart

It’s that time again! We’ve added your utility data into UMP up to the end of 2021.

Log-in to UMP to view your latest UMP dashboards and Gas, Electricity, and Water reports. Plus, we’ve updated the Annual Summary Report so you can view your overall performance for 2021.

If you’re not sure how to interpret your data, contact HSC Energy Services – we’d be happy to help!

If you have questions on your UMP results, Contact us!

Other Topics? If you’d like to suggest a topic or want a one-on-one review with HSC staff, please contact us!

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