New Report Studies the Impact of Electricity Pricing on the Auto Industry

  • February 13, 2017

Report Describes Effect of Electricity Pricing on Competitiveness of Ontario’s Automotive Manufacturing Industry

HAMILTON, ONTARIO (February 13, 2016)

According to a report by the Automotive Policy Research Centre (APRC) the cost of electricity in Ontario is the highest among the top auto producing jurisdictions in Canada or the US. However, the report also finds that the gap between Ontario and US auto producing states is not sufficient to be a significant impediment to the competitiveness of Ontario’s automotive assembly industry. The report also describes how Ontario’s Industrial Conservation Initiative (ICI) program has the unintended effect of stoking anxiety about electricity among the province’s businesses.

The full report, Electricity Pricing in Ontario and its Effect on Competitiveness: An Automotive Manufacturing Case Study, is now available here.

According to the study’s authors, Greig Mordue and Kelly White, the average electricity cost per vehicle in an Ontario assembly plant in 2015 was about US $54. By comparison, Michigan was the second most expensive at about US $47.60 per vehicle. Kentucky was the lowest cost location. There, the per vehicle cost of electricity cost was approximately $36.

In the context of $30,000 vehicle, Mordue and White describe the gap of US $6 - $18 as insignificant. They acknowledge, however, that final assembly operations represent only about 10 percent of the value of a vehicle. Therefore, it is within the context of $3,000 of local costs that the cost gap must be considered.

Rather than being an issue of competitiveness between jurisdictions, Mordue and White suggest that concerns around the cost of electricity are generated by trends exclusive to Ontario, not the least of which is the rapid escalation of costs in the province. Expressed in Canadian currency, rates have more than doubled in Ontario over the past decade. By comparison, US rates have been at or near the rate of inflation over the same period.

The APRC report also points to the province’s Industrial Conservation Initiative (ICI) as a major contributor to elevated anxiety surrounding electricity rates. The ICI allows large users to reduce their electricity costs if they are able to curtail electricity use during the province’s five peak use hours over an entire year. However, Mordue and White explain that to successfully match most of the five peak periods, large users typically curtail production at least 15 times each year. They describe a process where executives “meet for the sole purpose of assessing a single commodity and then make decisions that run counter to their core mandate, making things.” According to them, “the process has the effect of reinforcing a perception that Ontario provides an uncompetitive environment in so far as its electricity pricing system is concerned.” Because eligibility for participation in the ICI program has dropped from five MW to one, as many as 1000 companies are now engaged in the 15 times per year decision making cycle. Moreover, the fact that more companies are involved, means the challenge for individual companies of accurately predicting peak use periods is growing.

About the Automotive Policy Research Centre

The Automotive Policy Research Centre (APRC) is a policy research partnership that focuses on maintaining a competitive and sustainable Canadian automotive industry in an increasingly challenging global marketplace. The APRC brings together social scientists, engineers, and senior representatives from industry and labour. Learn more about the APRC at http://aprc.mcmaster.ca/

For media inquiries, please contact

Brendan Sweeney, PhD

Project Manager
Automotive Policy Research Centre (APRC)
905-525-9140 ext. 20993
bsween@mcmaster.ca