Jobs Lost, And Ontario's Cheap Electricity Exports

Ontario has been providing Quebec with cheap electricity following the loss of large industrial customers in Ontario to the cheaper electricity of Quebec.

“Here is the history: Last year, Xstrata closed their copper refinery in Timmins. They’re going to continue to take the ore out of the ground in Timmins, but now they’re going to ship it to Quebec to have it smelted there, and about 2,000 good jobs are going to follow. Why did they do that? Because they’re paying $70 million a year for electricity in Ontario and they can pay only $35 million in Quebec.

Four and a half years ago, what was then Inco closed their copper refinery in Sudbury. Today, they still take the ore out of the ground in Sudbury, but they ship it to Quebec to smelt it there at half the cost. That’s exactly what is happening with Cliffs Natural Resources. If they move to Manitoba or Quebec, they’ll pay half the cost of refining the metal.

There’s a real problem, a real issue, with hydro rates in Ontario.”

Howard Hampton, in the Ontario Legislature, February 22, 2011

$70 million dollars would buy about 1 TWh of electricity in Ontario, but outside of Ontario, in 2011, you'd need less than half that amount to purchase 1 TWh of electricity from Ontario. This is because of the Global Adjustment (GA) included in Ontario's Wholesale Market electricity charges. In 2010 the GA added $27.18 to each MW sold in Ontario (the average price for that was $37.85)¹. The numbers over the first 4 months of 2011 have put exports at less than half the price Ontario customers pay, as we have paid the $32.07 the HOEP market rate averaged, plus the $38.03 GA (for a total of $70.1/MWh), while exports would collect only the $32.07². In 2011, Ontario electricity is less than half the price outside of Ontario.

Months before Mr. Hampton spoke in the legislature of the Ontario jobs moving, from the Timmins area, to Quebec, where their electrical bills would be lowered significantly, a new intertie added the ability to move 1250MW between the jurisdictions. The movement was disproportionately to Quebec from Ontario in the latter part of 2010, and the annual figures ended up being approximately a net export from Ontario to Quebec of 1.5 TW.

We exported one-and-a-half times the amount of power that Xstrata  had used at the smelter in the Timmins area, but now are to use in Quebec, and we exported it at a price that provided Quebec with the cheap power Xstata left here to get.

1Figures are on page 25 of December's monthly report, graphs of import/export markets are on page 18 (Fig 20)

2 http://ieso.ca/imoweb/pubs/marketReports/monthly/2011apr.pdf

Wind Jerks

Are you familiar with the term “Jerk”?

I came across the word a number of times in a fantastic series of comments attached to a very interesting article, CO2 avoidance cost with wind energy in Australia and carbon price implications, so I looked it up on wikipedia:

“In physics, jerk, also known as jolt (especially in British English), surge and lurch, is the rate of change of acceleration; that is, the derivative of acceleration with respect to time, the second derivative of velocity, or the third derivative of position.”

Let's look at some jerks in Ontario's electricity system.

Here's a quick graph compiled using the IESO hourly data for price (HOEP), Net exports (from the intertie report), and wind generation. Wednesday night we had a spike in wind production around 10pm, which is just as demand is dying. It may have come a little later than expected, because the price had spiked earlier, or this could have to do with the data being hourly - and shorter time periods would provide a better picture. Regardless, what really sent the price tumbling was the second spike at 2 am Thursday morning.. I've included about a day's data before and after the spikes, and drops, and you can see the variability of the wind doesn't impact the pricing nearly as much as the jerk does:

This was a particularly bad day for Ontario's electricity consumers - those price drops are a call for other markets to feast on our bounty. And they did. In the 24 hours of Thursday, May 26^th, 2011, if we assume the hourly intertie totals were sold at the Hourly Ontario Energy Price (HOEP), Ontario paid others about $236,000 to take about 44,200MW of electricity. That amount of electricity costs Ontario's residents about $3.1 million dollars if consumed here.  The highest volume of exports is at the lowest price.

Late in April there was a similar situation as the wind suddenly dropped at about 10PM on a Thursday night - sending the price spiking to over $400/MWh only 5 hours before it would be $-106.10.

Surprisingly, when the price spikes because of a negative wind jerk, exports don't surge at all. In fact the negative pricing is the wee small hours of the 28^th may be due to the price spike cancelling out the normally planned exports only 4 hours earlier.

How the IESO is Managing Surplus Supply

The Independent Electricity System Operator (IESO) has been dealing with many hours where Ontario's baseload supply exceeds Ontario's demand - a situation now referred to as surplus baseload generation (SBG). In recent weeks, SBG is a condition that has existed up to 70% of all hours. Today, a media news release from the IESO included, "Exports have played a significant role in managing Surplus Baseload Generation (SBG) conditions in the past and the IESO will continue to utilize exports and other available options to address the SBG that is expected over the 18-month period," said Bruce Campbell, Vice President of Resource Integration.”

Exports have played a role. So has supply curtailment.


2009 introduced the SBG term, as the trend of lower demand increases which had turned to a gentle decline after demand peaked in 2005, was exacerbated by a deep recession. As 2009's annual reports were released, Ontario Power Generation noted water spills at its regulated hydroelectric generators, and attributed 0.6 TWh of lost production to SBG. 1 The private nuclear provider, Bruce Power, noted, in it's annual report, “hundreds of power manoeuvres in response to conditions of Surplus Baseload Generation when Ontario had more supply than demand. CAMECO's 2009 annual report quantified the amount of 'deemed' generation, at the 4 Bruce B units, at 1.2TWh. The discovery that we paid for at least 1.8TWh of electricity not to be produced in 2009 should be considered as the Ontario Power Authority prepares a second Integrated Power System Plan.

Baseload, in Ontario, refers to generation that will run if nothing halts it deliberately. That is most significantly nuclear, secondly hydro, thirdly it is a group of generators producing with natural gas under old contracts (Non-Utility Generators/ NUGs), other smaller suppliers (<10MW), and most recently, and increasingly, wind and solar supply. Supply can be baseload because of the technology, or the economics, or the contracts (and any combination of those).

Several weeks ago I started hoarding hourly generation output data from the IESO site. I thought I'd share a series of graphs that coincide with the IESO weekly reports. graphing production by groups of generators against consumption, import/export and pricing metrics. Reverse engineering from the data outputs, I think I can share some conclusions about the methods the IESO is using to control the market during SBG periods.

Starting on the week of March 30- April 5th, here's the weekly graph I've developed to illustrate the curtailment actions of the IESO. This is the control graph - it's the last week there wasn't curtailment. The yellow bars are measured on the right axis (in MW), while all the lines, for generator groups, are measured on the left axis. Bruce B (the light blue line) frequently utilizes steam bypass, which allows the nuclear reactor to continue operating while generating significantly less electricity (about 40% less, and there are 2 reactors that utilize this often, and another 2 less often). Base Gas is simply a group of producers that always seemed to be on, but discussions I’ve had confirm there are Non Utility Generators (NUGs) and the 1000MW total proves to be pretty accurate (if you follow through the series of graphs). The base hydro is again eyeballed, including, most significantly, OPG's regulated hydro assets. This line increases during the spring freshet - but the control graph is a week where the 2000-2500MW expectation is what we get.



The next week we see the preferred curtailment action for an overnight period of SBG. 3 consecutive nights Bruce B had generators produce less output for a small number of hours, and then return rapidly to full output as the morning brings suddenly increased demand. This is a logical choice for this situation, where it is known a quick ramping source is needed within the next few hours:



The next week brings an example of reducing what I’ve referred to as “base gas” – which are primarily, if not entirely, NUG contracts. These contracts are curtailed for longer periods of time, as with the weekend of April 16th and 17th (they return coincidentally with the morning surge in demand). The reasons for this are complicated. The NUG’s had contracts with Ontario Hydro. When Ontario Hydro was broken up, the contracts for the NUGs ended up with the new financing company, OEFC. So … for the system operator to curtail this production they must contact the OEFC to deal with the NUGs. These curtailments therefore occur when the SBG condition is fairly certain days in advance, large, and will remain for an extended period of time. Note Bruce B still has dips overnight (the chart starts Wednesday, and then also Thursday night/Friday morning – we also see one of the 4 units going offline for maintenance, as the weekend arrives), but the BaseGas reduction only occurs Friday night and then lasts through the weekend.



Easter weekend sees the same reduction in the group of natural gas producers (presumably NUGs):



The next weekend the gas is allowed to keep producing, while steam bypass periods increase. Exports jumped to over 1400MW each hour, and the price dropped to average only $20.60/MWh.



The next weekend they went back to shutting down many of the NUGs (BaseGas), and exports jumped again, but the price bounced back a little, to $25.08/MWh:



And the same again the next week:



I won’ have all the data for the graph until Friday (at the earliest), but the generation over the long weekend shows both nuclear and gas curtailed as deeply as at any time this year:



All of this impacts the Global Adjustment, which is the charge added to the bills of Ontario’s companies, and calculated into it’s residents’ bills, to recover all the generating costs (including the costs of not generating!). April set a record for the global adjustment( $43.89/MWh).
May will probably break that record.

1 Page 15 of the 2009 Annual Report

Aldyen Donnelly Article On Regressive, and Progressive, Taxation

Aldyen Donnelly: The indispensable report | Energy Probe
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"The data clearly shows that energy consumption taxes (carbon-weighted or otherwise) are highly regressive–though not as regressive as value added consumption taxes. Though still imperfect, vehicle taxes appear much more equitable. And vehicle taxes that are pro-rated to vehicle weight and emission ratings (as opposed to kilometers of use) are almost progressive–shifting some of that load that would otherwise build up on middle income families (as in the actual 2008/09 UK data) to the higher income families."

10 for 10: Ontario's Surplus Baseload Generation

The latest SBG report shows there are only 10 hours during the next 10 days when Ontario is capable of not producing too much supply for Ontario's market.

Over the first 130 days of the year, Ontario's net exports grew 50% from last year, while the market price (HOEP) dropped 8%.  The variance between the price Ontarians pay, and exports, is the global adjustment.

In 2011 this means export customers have paid approximately $143.8 million dollars less than Ontarians would have paid for the same amount of electricity (3,745,460MWh of net exports at $38.39/MWh).

"It's Not a Queston of Could, It's a Question of is that the best way to go"

I viewed Mr. Duguid's inteview, on The Agenda, shortly after reading, here, the Darlington new-build proposal's opponents continue to hammer that no reactor should be built because the government, and OPG, can't prove there aren't alternatives, and with some nonsensical moral tale about waste. I am constantly appalled by the negation of will implied in these arguments.

We do create electricity from nuclear reactors, it has served us well, we don't have a crystal ball on the future, but we do have an industry occupied by real engineers producing real electricity that powers real things when they need to be powered.  We can choose to build more nulear units. I usually disagree with Mr. Duguid's choices, but I'm glad he recognizes what choices are. His vocabulary in this interview was a welcome change from the dehumanizing language of the greenshirts that flooded the hearings regarding the new build at Darlington.

---

I will note some of the items, discussed in the interview, where I disagree with Mr. Duguid:

1. Killing the Samsung deal would not, of itself, kill the green energy sector. If is an unfortunate reality that paying the Korean Syndicate more, and giving them priority on the grid, has created a reality where that syndicate has hired others to buy out existing planned projects that don't have the adder of grid access guarantee. That isn't creating green jobs or green industries -- and buying friends shouldn't be applauded.
2. I don't believe the green energy companies put down roots anywhere - one of their attributes is the ability to quickly tear down shop and set it up at another jurisdiction offering higher incentives. Combined with the first point, it is highly unlikely engineers will be settling in Ontario due to the GEGEA - the less valuable jobs at the end of the screwdriver will also be temporary.
3. Real sources of reliable energy are made more expensive by trade barriers. Japan's position in the WTO case is the correct one - which they know from their own history with solar subsidies and the price being propped up by new subsidies in some distant foreign jurisdiction. Globally, tariffs reduce the introduction of technologies by artificially inflating the price. Trade makes things more affordable.  If the technology is not affordable, it isn't sustainable.

Anticipated Supply Problems in Washington State Arrive

BPA News - High river flows cause limits on thermal, wind generation

"High river flows generating a temporary oversupply of hydroelectricity caused the Bonneville Power Administration last night to partially and temporarily limit the output of non-hydroelectric energy, including fossil-fuel and other thermal generation and wind energy."

I wrote about this situation earlier, and sure enough, the greenshirt wind troughers aren't disappointing.  According to an article at powermag.com, AWEA is really distressed that existing policies to protect fish are taking precedence over maximizing the profits of their fake industry.

The American Wind Industry Association (AWEA) in a statement on Tuesday called the decision “wrongheaded” and said the interim policy could potentially cost wind companies “tens of millions of dollars and stifle new investment in the Pacific Northwest"

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Another wind industry article explains that being curtailed hurts wind producers far more because of how heavily they are subsidized.  I'm paraphrasing:

"However, curtailment impacts wind operators more than traditional power generators because a significant part of the income generated from a wind farm comes from tax and renewable-energy credits. These credits represent actual generation, so the less output from a wind farm, the fewer credits it accrues."

Ontario's Reduced Coal-Fired Generation Explained

The Ontario government recently announced, “Ontario's use of coal-fired power is down 90 per cent in the first three months of 2011, when compared to the same time frame in 2003."  This is good news, which is followed by some questionable claims regarding health impacts, and then the misleading statement that “Ontario is on the right track to building a clean, modern and reliable electricity system using renewable sources of power - like wind and solar.”   Wind and solar don't have much to do with the reduction of coal-fired generation.

In the first 3 months of 2003 Ontario generated 11.8TWh of power with coal¹, and for the same 1^st quarter period of 2011, it was roughly 10% of that (a little over 1TWh). OPG's reporting tells us coal dropped 2.8TWh between the 1^st quarter of 2003 and 2004, “primarily due to the addition of two lower marginal cost nuclear units by Bruce Power at the Bruce A nuclear station that displaced OPG’s higher marginal cost fossil-fueled generation.” I've estimated monthly generation, by source, back to 2004, and have IESO data that is precise on total demand, imports, and exports (and therefore overall production). Not only was the first 25% of the reduction due to nuclear, 2011's first quarter had further nuclear growth of about 3.5TWh over 2004 levels, bringing the total nuclear figure to 6.3TWh, or pretty close to 60% of the amount coal has been reduced.

Ontario consumption in the 1^st quarter of 2011 was 3.65TWh below 2003-04 levels. So demand reduction and nuclear could be said to account for 10TWh of the 10.8TWh reduction in coal-fired power (which would match my conclusions in reviewing US EIA data). In Ontario's case, that may be an oversimplification though, because 1^st quarter gas-fired generation has also grown since 2004, by about 3.5TWh ... so exports have also grown, by close to the increased gas and wind production.

Pie graphs for 2004 and 2011 might be more communicative:

Another method I've used to illustrate more recent changes is to graph the running 12-month total variance from total 2005 generation figures, and I've included demand reduction (aka NegaWatts). This method is based on OPA business planning that cites actual targets for demand reduction, and recognizes that demand peaked in 2005 not only in Ontario, but also the adjacent jurisdictions of Michigan and New York. I don't agree that reducing electricity demand is, of itself, desirable, but there is no denying the relationship between reduced demand and reduced production from coal until the most recent months, when coal production has simply been replaced with gas production.

I think this displays very clearly that the role of wind and solar in reducing coal is minimal. Many entries on this blog, including the first, lament the loss of any ability to match supply to demand during the period following 2005's peak; a period that has seen market prices dropping in, and around, Ontario. Since 2006 we have seen 10TWh of exports appear - exports sold at prices far below what Ontario's residents, and businesses, pay. Currently the OPA is once again in the process of developing/revising an Integrated Power System Plan (IPSP). Based on where we are, and where we've been, we are headed to more wasteful spending on generation we can't use, except to dump as subsidized exports in far dirtier markets.

1http://www.opg.com/investor/pdf/Q1_04FS.pdf

Price of Ontario's Electricity Policies Hits New High In April

The Global Adjustment rate for April is $43.89/MWh, which is the highest it has ever been. The reality of the mess we are in is being hidden by the mainstream press deflecting the blame from the government, such as Metro Martin's, “a small proportion of the recent hikes can be attributed to subsidies, for the simple reason that few renewable energy projects are up and running yet.” At The Globe and Mail, Adam Radwanski toned down the not-due-to government policy theme so trendy in the media hub of Toronto; “Mr. Hudak stands to capitalize on pocketbook angst over rising energy prices for which green projects have (to an exaggerated extent) been blamed.”

Exaggerated eh?

Eight years after the IESO began it's management of a market in supplying electricity, April's average HOEP price (weighted) of $29.71 is supplemented by an additional charge of $43.89 to cover the costs of our contracted supply commitments. The combined wholesale price, of $73.60, is up 7.5% from March's rate. Over time, the price has been increasing only because the government has been paying more for contracted supply - this graph shows the monthly HOEP in blue, and the the GA in red (notice during the hot summer of 2010 the final wholesale price irrationally dropped while the HOEP rationally escalated ):

I do not understand how an honest man could attribute that price increase to anything other than choosing to avoid markets that respond to lower consumption with lower prices via excessive contracting, both in price and volume, that rewards negotiating with government instead of producing efficient supply.

I've estimated the monthly generation totals, by energy source, using either IESO graphs or, more recently, IESO hourly data. Wind has now outpaced coal - so if we take the price increase and related it to the claims wind can replace coal, there's ample reason to attribute a portion of the price increase there. The wind output, for just April, was bought (assuming a price of $135/MWh) at about $45 million less than we paid for it. Similarly, we exported a little over 1 TWh, at the minimal HOEP prices without the global adjustment Ontarians pay - so there's another $45 million subsidy added on. That is not even a quarter of the total amount the global adjustment is calculated from.  For Ontarians to understand why prices are escalating, they need to start paying far more attention to the natural gas production.

Nuclear is cheaper than you pay (and the Ontario Energy Board won't allow it to receive more), and hydro is far less (under 4 cents/kWh - or $40/MWh). The wind supply is expensive, but the green bar, signifying primarily gas, is why the wholesale rate spikes when demand is low and hydro is plentiful.

There are two reasons for that. The first is the non-utility generator (NUG) contracts. These are primarily natural gas suppliers contracted by the now defunct Ontario Hydro. The Ontario Power Authority (OPA), in formulating an Integrated Power System Plan (IPSP), anticipated that as these contracts expired, the supply would become intermediate supply - meaning instead of having to take it all whenever it was provided, it could be matched to demand. Minister Duguid issued a directive, last October, indicating the OPA should try and extend the contracts, following lobbying from the larger NUG's.  Operationally, the NUG's add about 1000MW of baseload supply - in this case baseload due to the contracts, not the technology. Coupled with hydro and nuclear, that brings Ontario's baseload commitments to approximately 14000MW. Ontario's average hourly consumption in April was 14984MW - and hydro would have enough flexibility to almost meet that demand. The current IESO short-term forecast has baseload supply exceeding Ontario demand over 70% of the time.

So why do we run increasingly more gas production, much of which is for cheap exports?

That answer lies in the contracted gas supply since 2007. These 5 big CCGT plants have been cited as having net revenue requirements of $7900/MW month¹, and it has been implied we pay a fixed costs for their availability and then only the cost of the fuel when they actually run². This is why they run every time electricity is likely to stay above 3-3.5 cents/kWh for more than a couple of hours. While Ontario consumption is down near historic lows, Ontario production has had many hourly highs in the recent past, providing cheap exports to the US market. The dynamic is set by these sites - when they are not used they are paid for anyway and thus we see the relationship - as demand declines, price increases.

There are other contributors to that relationship. Bruce B was using steam bypass techniques not to produce electricity many nights in April - and the last 3 weekends it looks as though the IESO has managed to halt production at about half of the NUG's (for between 48 and 60 hours, as this a more complicated process involving the OEFC). These are instances where we likely pay suppliers not to produce - and then there are the instances where we pay suppliers to produce with gas while the turbines just spin at public hydro plants (April's hydro output seems very depressed considering a very healthy spring freshet).  Our supply policies do not synchronize with our demand management policies.

Perhaps the Globe's Radwanski meant that the government's gas policies are to blame - and not their green policies at all. The policies of the McGuinty government aren't that green - they demand gas be used even when it is unnecessary, they have made little, if any, progress on real transit and urban planning issues, and they have driven manufacturing away (almost always to higher polluting jurisdictions). Electricity was already a small portion of Ontario's emissions profile, and as commute times in the GTA have blossomed, the relevance of generation has shrunk even more.  The one environmental accomplishment the government could be credited with is replacing dirty US production with cheap Ontario exports. If reporters started with facts we'd have a much healthier discussion about how much energy we wish to give away to jurisdictions to save them running coal plants.

I think the figure is none.

1-Page 15 of this RPP document 

2-Page 35 of this transcript, lines 18-24

Ontario Pays Tribute to Our American Neighbours

A month ago I wrote on data from the U.S. Energy Information Administration (EIA), noting it indicated the largest wind production states were not reducing emissions as quickly as the other states.  One notable exception was New York state, which is amongst the best performing states in reducing CO2, SO2 and NOx emissions since 1990.  I’ve been meaning to revisit this once more by comparing the generation, and consumption, histories of New York state, and Ontario.  Premier McGuinty jogged my memory when I read an article stating Mcguinty had argued, “The province imported a net $400 million worth of electricity in 2003, while last year it made a net $300 million from its sale.” 

The only way Ontario could have made anything from the sale is if the product had zero value – because $300 million is about the total received over the course of the year from the net exports of 8.8 TWh (that’s about $34/MWh).   In 2010 Ontarians paid about $65/MWh for the electricity we used (the charge per/kWh is an increasingly small portion of our total bills).

It hadn’t occurred to me that there was an explanation for the Premier’s Goebbelsesque approach to dealing with questions on the cost of exports (I believe he even got it up to $1.3 billion over the past few years at one point).  Then I created some graphs – the data sets aren’t entirely comparable, but they give the trends adequately.

The Ontario data accounts for line loss in the demand figures, so this should be pretty accurate in showing the level of imports and exports (the difference between the bars and the lines).

The New York data, from the EIA’s dataset, is, as expected, somewhat the inverse of this (exporting in 1990 and importing by 2009) – I do not believe the U.S. data adjusts sales for line loss – the line for sales would be higher if the same data rules applied to the NY graph as the Ontario graph.

There are some interesting similarities in the two jurisdictions.  Both show strong increases in nuclear and gas generation, and both have similar levels of wind being introduced.  Demand peaked in both jurisdictions in 2005.  Production in New York peaked in 2005 too.

In Ontario, production kept increasing through 2008.   I’ll be reviewing, in a future post, the generation brought online since 2005 in Ontario.

It is almost inconceivable that government could not see our supply mix is resulting in excess production being dumped on export markets.  Primarily that involves either Quebec, New York (could be both – Quebec could buy cheap to keep the reservoirs full, and then sell to New England, or New York, at higher prices), or Michigan.  Michigan would be the hardest to stomach subsidizing production at $135/MWh to sell to at under $40 – because the strides Michigan has made towards cleaner energy at their own expense aren’t noticeable:

The peak is again in 2005 – but Michigan is the unique entity in this little group by virtue, or sin, of it’s relatively consistent reliance on coal.

The graphs terminate in 2009 because that was the end of the data set from the EIA.   Premier McGuinty referenced ‘last year’ making $300 million on the sale, but sale is the wrong word – because if we made $300 million we considered the cost of producing the exported power to be nothing.  Essentially, Premier McGuinty is considering 1 out of every 3 MW being produced at OPG’s Niagara Plant group as belonging to Ontarians – who pay for all production – and the other 2/3rds are our annual tribute to Michigan and New York state.