Ontario's Electricity System Plan: Designed Uncompetitiveness

In a recent Google search I accidentally stumbled upon the original news release from the ministry on signing the Greenfield South project, which is the now famous Mississauaga project to be relocated hundreds of kilometers from Mississauga, in the Sarnia-Lambton area.  The 2005 release, combined with information provided in a presentation by the Ontario Power Authority's Amir Shalaby last year, can be used to communicate why Ontario's planned supply mix cannot produce electricity at costs competitive with most other jurisdictions.

Here's how the 2005 press release described the capacity payment mechanism of Ontario's natural gas contracts:

The contract winners are assured that they will have sufficient ongoing revenue to meet their fixed project costs, such as capital and financing, if they operate efficiently according to the pre-agreed standards. When market revenues exceed these fixed-cost requirements, the contracts stipulate that 95 per cent of the surplus will flow back to ratepayers. The proponents that submitted proposals under this RFP each bid a "Net Revenue Requirement" (NRR), which includes all fixed project costs. The weighted average NRR that was bid by the six selected proponents is about $7,900 per megawatt-month. This is the average amount required on a per-megawatt basis to cover the monthly fixed costs of these projects.

...

The actual cost of power from the five generation facilities will vary with the price of natural gas, which fluctuates from season to season and year to year. However, using historical market data from the last two years as an example, the average price of power from the five generation projects would have been less than 7.8 cents per kilowatt-hour.

This provides much of the information to needed to calculate the levelized unit energy cost (LUEC): 

(capacity * capacity factor * hours * Heat Rate * Gas Cost/MMBtu) + NRR / (capacity * capacity factor * hours)

Bringing the figures up-to-date, the last average NRR provided for natural gas generators was $13,187/MWmonth, but gas prices have fallen considerably: at $5/MMBtu (higher than it's been for some time now), and the 45% capacity factor noted in 2005's price release, the LUEC today would be roughly the same as the 7.8 cents/kWh projected in 2005.

Slide 8 of  Amir Shalaby APPrO 2012 Conference Presentation

But that is not the situation as the capacity factor is far below 45% in Ontario.

Ontario has approximately 10,000MW of natural gas-fired generating capacity (10GW), and in 2012 it produced approximately 22.2 TWh of electricity with that: which is a capacity factor of 25%.
That pushes the LUEC up to ~$110/MWh (11 cents/MWh).

By 2015, one OPA projection has the output falling to 9TWh, coinciding with a capacity factor down near 10%, which will push the LUEC to ~$218/MWh even if gas remains in the $5/MMBtu range.

South of the border, the United States has experienced declining emissions and stable pricing as it's electricity sector swung to increased gas-fired generation, likely driving up capacity factors.

Ontario is expected to see a decline in the utilization of natural gas facilities because its expected to continue adding wind and solar capacity.  These have often been presented (here and elsewhere) as requiring back-up from natural gas, but really it's better to think of them as lacking capacity value (an expectation of production when demanded).  The NRR reflects natural gas' capacity value.

If renewables can't replace the generating capacity to produce with fossil fuels, the value in the production is only the value of the fuel displaced.

In Ontario, renewable generation already probably displaces hydro (domestic and imported from Quebec), causes nuclear units to be curtailed, and is dumped on US markets at rates often far below even the fuel costs of generation with natural gas.

But let's assume it doesn't - let's assume every MWh generated displaces a MWh generated with natural gas.  We know industrial wind turbines coming online have feed-in tariff contracts pricing their output at $135/MWh, and my estimated average for the solar contracts is $500/MWh.  Considering these variable renewable energy sources displace only the $35-$40 fuel component of natural gas generation, that's pricey.

But what about carbon?

The administration of U.S. President Barack Obama recently upped "the so-called social cost of carbon, to $38 a metric ton in 2015 from $23.80" - and the Environmental Commissioner of Ontario (ECO) recently advocated for the use of a "shadow carbon cost" in our government.

Assuming emissions of 400kg/MWh from generation with natural gas, the cost of carbon would need to be 7-27 times higher than the new higher U.S. estimate to make renewables an intelligent addition to Ontario's energy mix (math is not the ECO's strong suit)

The Ontario government just announced a healthy curtailment of an agreement with the Korean Consortium - aka Samsung.  The revised agreement sets a floor price for future solar projects by the consortium of 295/MWh (29.5 cents/kWh).  The social cost of carbon to justify that price is over $600 per ton.

With neighbours costing carbon at $38/ton, even the improved contract terms demonstrate Ontario's government is designing an electricity sector to be uncompetitive.

Related original content articles:

Ontario's Billion dollar subsidies of Gas-fired Electricity Generation ("subsidy" is a poor word choice)

Determinants of electricity pricing in Ontario: Beyond the Global Adjustment

Ontario's Class A Con: A problem of Machiavellian Governance

The government of Premier Wynne has recently backtracked on the McGuinty government's big green deal, launched a consultation on "siting large energy infrastructure" and is preparing to invite input on the next long-term energy plan.
The Ontario Energy Board (OEB MSP) recently released the latest report from it's Market Surveillance Panel, and that provides some fresh data, and analysis, through which I can review how the appearance of 'consultation' was manipulated in the past to the detriment of the average Ontario electricity consumer.

The Class A Global Adjustment

In 2009 Ontario's economy, particularly its manufacturing sector, was indisputably in trouble.  While the government prayed to the wrong deities, and had their prayers answered with the the Green Energy and Green Economy Act, Ontario's largest users of electricity sought to avoid the coming cost increases, and many of the charges they already incurred, by lobbying privately with government insiders.
The rumour was that it was the provincial Environment Minister who took up the cause and rammed through a change to the global adjustment mechanism that rewarded large users of electricity, now known as "Class A" customers, for being large users of electricity.

The changes occurred out of the light of disclosure and under the green cloak of the environmental registry.

This is not meant to slight the accomplishment of the Class A mechanism in reducing costs for Ontario's largest consumers of electricity.  Piecing together bits of information from the OEB MSP reports U.S. EIA and Ontario's IESO, it seems the program was very successful at transferring costs from Class A to other consumers.

Unfortunately, the accomplishment came at a rather steep cost if one is to place the level of faith in "conversation" espoused by Premier Wynne.

Conversation itself.

The "purpose" of the introduction of the Class A category was communicated [2] as:

• "[providing] large consumers with a strong incentive to reduce consumption at critical times ...By reducing peak demand, the proposal is expected to avoid costly investments in new peaking generation resources and imports ..."
• "Concerns have also been raised that large volume consumers, who are not the primary drivers of costs to meet peak demand, are paying more than their fair share of costs." 
• "provides large consumers with an incentive to reduce consumption during peak periods when the system is under greatest duress, reducing the need for additional, expensive peaking resources." 

The comments submitted to the registry have not been released [1], so we can't know what was knowable with foresight, but in hindsight these 3 things are nonsensical within the context of Ontario's electricity sector.

The recent OEB MSP report shows that, for May-October 2012, grid connected Class A customers averaged an "effective price" of $46/MWh.  The legacy hydroelectric assets of the public generator, built on the public dime inspired by slogans "power at cost" and "the gifts of nature belong to the public", are the only assets that produce electricity at a regulated price of under $46/MWh.

The gifts of nature belong to Class A customers?

The argument made at the creation of the Class A pricing was that because large users consumed a lower percentage of total consumption during system demand peaks, they were overcharged because the total system cost was, in a theory, set by the need to supply peak demand.
This is also the justification for continued spending on demand reduction programs.

It's simply not reflective of what is driving costs in Ontario, particularly since 2009 and the Green Energy Act.  A review of what is changing in Ontario, and other jurisdictions pursuing variable Renewable Energy Sources (vRES), will demonstrate the reality contradicts the assumptions inherent in a Class A mechanism; peak demand does not set peak pricing, and spending on generation is not being driven by the ability to meet peak demand.

The changing supply picture in Ontario

Since the end of 2009 new or refurbished gas, nuclear, hydro and other traditional generating capacity has essentially equalled retired coal capacity.  Operationally, the ability to meet peak demand hasn't changed much, but the flexibility of the system has been reduced.

Figure 2-3 from the Market Surveillance Panel Report

Overall, generation has increased due the addition of wind and solar (vRES), technologies which are procured under, essentially, 'must take' contracts.  The OEB MSP report noted the impact of self-scheduling supply, which is increasing precisely due to the additions of vRES - but the MSP doesn't properly assess the impact of the new suppliers.

I've transposed the OEB graph to provide a view of the data I think is more meaningful as it displays the constant growth in "self-scheduling and intermittent" generation, as well as the fact the least productive period for the category is the peak-hourly demand season of summer.

There are some important things to know about the impact of this chart on the overall system.

The first is that much of this production does not report as either supply or demand in Ontario.  The IESO reports demand as the total supply on their grid, but all of Ontario's solar, and a good chunk of wind generation, is "embedded" within distribution company areas; that generation would only show, in IESO reporting, as a decrease in demand. [3]

Contrary to the theory used in justifying the Class A mechanism, vRES additions have not been particularly impactful during the peak demand summer season, but in 2012 there was an improvement due to additions becoming much more heavily weighted to solar.

Comparing average weekday metrics for July in 2012 and July 2010 is instructive.  According to the OPA, vRES supply essentially doubled over the period; solar from 52 to 564MW and wind from 1237 to 2015MW.  I've included my estimates of the embedded vRES production on the chart of the differences from July 2010 (the summer before Class A), and 2012's July.

It appears what the IESO data shows as decreased daytime demand is increased solar generation, with an actual spike in demand coming in the evening.  Ontario  forced 'smart' meters on all residential customers and sets lower "off-peak" rates to begin at 7pm, so perhaps the demand change spike, as solar ceases its daily production, is designed into the system through setting time-of-use hours.

Regardless, we should expect the darkness to increasingly bring the day's highest prices as falling vRES is accompanied by continued high, and perhaps rising, hourly demand.

Price is not determined by demand alone, as Class A attempts to indicate, but by the relationship of supply and demand.  I recently noted the value of vRES supply falls rapidly as generation increases, and the rapid change is summer afternoon pricing may be partially due to increased solar generation [4]

Class A is not based on 5 hours where curtailment is most likely to be needed, and it also is not necessarily set by 5 highest daily demands.

Setting the High 5 - Ignoring Variable Renewable Energy Sources

The law defines "peak hours as:

1. The one-hour period in the base period in which market participants withdrew the greatest total net volume of electricity from the IESO-controlled grid.
2. The one-hour period in the same base period in which market participants withdrew the greatest total net volume of electricity from the IESO-controlled grid if the base period excluded the day in which the one-hour period referred to in paragraph 1 occurred....

And so on, until the 5 hours of highest daily "withdrawal of net volume of electricity from the IESO-controlled grid" are established.

The IESO has no way of knowing those 5 hours

Because the IESO does not know embedded generators' hourly productions, it can't actually know how much electricity is on the IESO controlled grid; every house has a smart meter - the IESO runs the data repository for all that data - and yet the far smaller group of embedded suppliers is not tracked by the IESO.

This is the process for determining the share of the global adjustment to be paid by a Class A customer.

IESO calcs: Same hours, different Totals

• The IESO calculates a "net volume of electricity withdrawn" separately from what it reports as "Ontario Demand" [5] - and 20 days after the "trade date (Demand peaks page)
• For the high five hours the IESO contacts local distribution companies to collect embedded generation figures.
• The total of the generation on the IESO grid and embedded generation becomes the denominator in the equation determining a Class A customer's share of consumption.

The High 5 determining the Class A global adjustment rates for the current period aren't the high 5 in terms of demand.  In a previous post I had embedded this spreadsheet, which shows the 6th highest hour on the IESO grid was windy - whereas hour 5 was not.  The embedded generation at hour 16 of June 21st  would drive the total generation, and thus the total demand, above the not windy hour 16 of July 6 (2012).

I sorted that spreadsheet to demonstrate wind generation acts, in a market, as negative demand - making the idea of setting the high 5 inclusive of more vRES particularly ridiculous - but that's the plan.

The IESO presents only the high 5 for the same period. Notice the IESO presentation is sorted by "Net Ontario Load (MW)" - which is the same figure presented as AQEW previously.  If the sort order was based on the "Total (MW)" column the order would change significantly - and if "Embedded Generation (MW)" was ascertained for more than 5 hours, the list of the top 5 would be different altogether.

Conclusions

In this post I intended to demonstrate the technical inability of Ontario's system operator to determine what the "high five hours" are.  The point is currently somewhat moot, as the OEB MSP report noted that Class A market participants don't know what the 5 hours are going to be anyway - so they adjust consumption in any hour that looks like it might be a "high 5 " hour.
This strikes me as being besides the point, which is that we are encouraging curtailment, which may include running dirty back-up generators, during periods of plentiful supply.

Demand curtailment will almost certainly shift to being required in the early evening hours, particularly in the winter, and the relatively new High 5 tool will quickly become outdated.  If Ontario adds anywhere near the planned renewable capacity it has already contracted, the need to curtail supply will be increasingly driven by the weather, and not by demand levels.

As the new Wynne government announce more consultations, its important to note the lack of disclosure of the inputs of not only the Class A mechanism on the environmental registry, but the use of the same mechanism inviting comments, still hidden, on the supply mix directive of the previous supply mix directive.

The McGuinty government had a history of faking consultation to provide an appearance of diligence while implementing lousy energy policy.
Ontarians have no reason to believe the Wynne government is launching consultations out of a new willingness to carry out 'discussions.'

If the Premier wishes to be believed, she has some records to release on previous discussions; specifically comments submitted to the Environmental Registry on the draft supply mix and the Class A global adjustment and, perhaps most importantly, the draft Integrated Power Supply Plan submitted by the OPA to the Ministry of Energy in 2011.

Endnotes:

[1] ...nor have the comments submitted to the registry entry for the supply mix directive included in 2011's LTEP.
[2] ... in the August 2010 posting to the Environmental Registry.
The need
[3] In "The Cost of a sunny week in Ontario" I performed a similar analysis for a week in May
[4] The price of natural gas - which should set the market price - was much lower in 2012, so this should be the main driver of the price change, but ... the pattern looks similar thus far in 2013 despite natural gas pricing strengthening.
[5] Excluded from the calculation of "net volume of electricity withdrawn" are:

(a) Ontario Power Generation Inc. in respect of the net volume withdrawn from the IESO-controlled grid at the Sir Adam Beck Pump Generating Station;
(b) Fort Frances Power Corporation in respect of the net volume withdrawn by it during the month from the IESO-controlled grid under its physical bilateral contract with Abitibi-Consolidated Hydro Limited Partnership; or
(c) a market participant in respect of the net volume withdrawn from the IESO-controlled grid in the course of providing ancillary services in accordance with the market rules.

May's Record electricity price only a hint of pain to come

When the IESO posts the monthly report for May 2013, it should show a record high commodity price of $92.97/MWh - comprised of an HOEP of $25.38/MWh and a Class B global adjustment charge of $67.59/MWh (also a record).

This is just a hint of the enormous increases Ontarians will be seeing though 2016.  Communicating those increases is something a number of people, including myself, have been attempting for some time; hopefully some of the graphics I've built will bring some urgency to the reader about what is occurring in Ontario; not simply in terms of energy pricing, but in the declining quality of public institutions, the data they provide, and the mainstream media dominated by forces disinterested in looking for the implications of the breakdowns in public governance demonstrated by events such as the gas plant scandals.


I've previously noted May's price would be an enormous increase from December 2012's price - it ended up over 40% in the 5 months.    That played a bit of a game in that December's price was inexplicably low - I compared to it mainly to demonstrate the pricing of electricity is lacking coherent disclosure on the breakdown of the global adjustment; increasingly the global adjustment appears determined entirely by whimsy.   Residential consumers may not care as they have regulated price plan (RPP) rates set every 6 months, but they should as those rates will eventually recoup the same amount as the class B global adjustment.  For instance, RPP rates did not increase for the winter of 2012-2013, because the RPP rates had recovered far more than necessary in the summer of 2012 (compared to the wholesale commodity price comprised of hourly Ontario energy pricing (HOEP) and the global adjustment (GA).  May is the first month of summer 2013 and RPP customers may find themselves with a steep increase this fall if May's $92.97 wholesale rate is indicative (the RPP averages ~$83.95).

Some of the changes in Ontario's electricity sector are impacting the accuracy of estimating methods I programmed into my shadow reports, but my monthly shadow report contain some indicators of why prices are rising.

This graph has two lines: one is derived from taking the total market value (the total market demand multiplied by the market rate, added to the total global adjustment data).  That's the average cost of purchase power (and demand response).  At the start of 2009 that average price in the total market (the value from above divided by the total market) was essentially equal to the wholesale rate (HOEP + Global adjustment rate).  But the global adjustment rate can't be applied to the entire market, which includes exports.  As the HOEP dropped with demand during the recession, the full cost of generation wasn't reflected in the market rate - driving the wholesale rate ("Class B price" in the graph) above the average cost of supply.  In 2011 another class of customer was introduced, I'll state in order to reduce prices for that class (A).  The orange area of the graph (measured on the right axis) shows how the rate for class B customers has increased due to selling exports below the average cost of power, and designing a chance for the largest, class A, customers, to avoid paying a full share of the difference.

In May the average cost of power (including customer demand programs and some other fees) was ~$78.20/MWh; that means the wholesale rate was inflated by ~$14.77 because export customers, and Class A customers, paid less than $78.20.  The graph shows the spikes in this added amount accompany spike in the Class B rate.

The topics of the Class A category, and subsidizing exports, I'll leave - there are lots of references on this blog and elsewhere.  I will note the nominally Independent Electricity System Operator (IESO) is currently talking to insiders (aka stakeholders) to shift more charges onto consumers who aren't stakeholders.

I decided May 2013 provided an opportunity to compare market behaviour with a previous May, as 2011's May had almost identical total Ontario demand as did May 2013.  Even this statement needs a big asterisk as the IESO doesn't actually report demand, but reports demand as the sum of supply on the IESO-controlled grid.  To simplify, I looked only at the hourly averages for weekdays (Mon-Fri)

This graph could be interpreted to show some consequences of government programming: most of the on-peak and mid-peak hours are down and the biggest increase in demand is in the evening (off-peak pricing starting, for RPP customers, at 7pm) - but that would mostly be nonsense, because of the changes in what I'll call "supply" - meaning all the power generated under contract which we pay for, instead of only what's on the IESO grid.

Estimating the remainder of supply required quite a lot of work, but it's important as the supply that isn't on the IESO grid is the supply that's been growing since 2011; it is all of the solar generation currently operating, and, I've estimated, about another 20% of wind production beyond what the IESO reports.  Suspecting solar being an extremely relevant factor in May's huge rate increase, I went and updated my estimates of monthly solar and wind capacity (estimating hourly solar production rather feebly off a typical annual output profile I found on the web years ago now) - Ontario demand was also adjusted because, in reality, not showing the generation is leading to the IESO under reporting demand.

Graphing the changes off the updated estimates yields a chart that looks similar, but notice the right axis changes - 2013's May actually had greater demand than 2011's) throughout most of the day (and the highest demand increase in demand is now during the RPP's on-peak, more expensive, hours)

The price changes are extremely important economic indicators.
As I am from Ontario, I will have to ignore them.

kidding ... a little.

With nuclear, regulated hydro, contracted non-utility generators, wind and solar generators all essentially guaranteed pricing, pricing should theoretically be set by some hydro generators, and most gas and coal generators.  I would theorize the largest price drop is in the afternoon for exactly the reasons I attempted to cover in The diminishing value, and increasing costs, of wind and solar generation in Ontario; solar is productive in few hours and immediately starts to devalue supply for those hours as its capacity increases.  Similarly, the price spike as the sun sets is not surprising.

Here's how I estimated the average weekday's supply change looked (from May 2011 to May 2013):

The increase in price-takers and decrease in price-setters (gas and hydro) explains the price weakness.  For those capable of being explained to, there's a message in the coal growth too.

The decline in gas is important - and related directly to the gas plant debacles. Natural gas generators in Ontario generally receive a capacity payment in the form of a net revenue requirement (NRR) guarantee.  The payment was necessary to lure generators to replace the public coal-fired generation (which proved more flexible than the replacement natural gas, but ...).  With Ontarians on the hook for the capital cost and operating expenses of the plants regardless of their utilization, the incremental cost of generation in Ontario is frequently the cost of the fuel to generate the electricity (a convenient estimate would be 3 - 4 cents/kWh, or $35-$40/MWh).

The figure that mainstream media now treats as meaningful on the cost of cancelling gas plants are based on:

• the Auditor General on Mississauga relocation - $351M in costs less $20M from reduced NRR, and less $56M for deferring the plant because it wasn't needed in the near future = $275M
• OPA/NERA consulting on Oakville relocation - $879M in extra costs less $195 million from reduced NRR, and $374M as the plant wasn't needed in the near future = $310M

So when somebody says the cost of the Liberal party moving the plants was $595 million they should be aware that accepts $430 million will be saved by not building generation while we have a surplus of capacity given continued moribund demand.

And yet ...we are about to build a lot of new generation that will, at best, displace natural gas generation with a value of $35-$40 in Ontario.  Wind and solar in Ontario can't be relied upon to meet the high demand of a frigid winter night nor the higher demand of a hot and humid summer night (solar may be very helpful to meet the absolute peak of a summer afternoon, but that demand is not much higher than the 8-9 pm demand later in the day).

Estimating solar capacity and productivity, I'm fairly certain the hidden renewable generation in May cost ratepayers more than the ~662,884MWh the IESO does show wind generators on it's grid producing.  While wind capacity growth slowed, particularly in 2012, solar seems to have been expanding quite rapidly - with the cost to consumers remaining invisible in all government reporting.

The orange line in the graph is the IESO reported wind generation valued at $135/MWh; the red line includes estimates of another 20% of 'embedded' wind generator and all solar (currently none is reported so it must be embedded).

While following the data available from the IESO would lead a person to estimate the current annual cost of renewables is ~$600 million, it's much more likely to be above ~$1.2 billion.

3 years from now, if all goes according to plan, as per the Ontario Power Authority and IESO, that figure will have grown to ~$4.3 billion, for which we will receive ~24.18TWh of blessed electricity.

It's likely that much of that 24.18TWh will cause water to be spilled at the public hydroelectric facilities, much of it will idle nuclear generators for increasingly long periods, much will lead to steam being diverted away from generating turbines, and much of it will be dumped in export markets at costs below the $25/MWh it's managed recently.  Some might be curtailed when the other options are exhausted.

But some of it may displace gas-fired generation in Ontario.

Remembering we really only avoid paying the incremental fuel cost for natural-gas fired generation, a best case scenario, where all renewable generation replaces natural gas, sees Ontarians spending an additional $2.1 billion a year within the next 36 months.

May's record pricing provides no reason to be optimistic that we'll experience a best case scenarios.

The Final Day of Dalton McGuinty, MPP

The end of this session marks an opportune time for me to bring to a close my service to the people of Ottawa South as their member of provincial parliament.
...
I leave politics with my idealism intact and a deep sense of gratitude for the opportunity to have served in public life

-Dalton McGuinty Statement of Resignation

"Idealism?" wrote Martin Regg Cohn, provincial politics writer for the Toronto Star.

"This is the point at which we could be saying generous things about Dalton McGuinty" began the column from the Globe and Mail's Ontario politics columnist Adam Radwanski.

Well maybe ... if it's warranted by his performance measured against his promised performance.

Dalton McGuinty came to power in 2003.  He'd lost his first election leading the Liberal party (as most first-time leaders do) to an incumbent Premier, but in 2003 Mike Harris had retired and Ernie Eves had been hurt by, amongst other issues, electricity costs.   

"Government that works for you; The Ontario Liberal Plan for a more democratic Ontario" was the campaign platform in 2003.  It began:

During the provincial election of 1971, when I was a teenager, over 73% of eligible voters went to the polls.

Voter turnout hit historic in 2007, and 2011
Lessons From Ontario's Record Low Election Turnout

By the 1999 election, the turnout among eligible voters was little over 50%.
When barely half our population takes the time to exercise their most basic democratic right, when turnout among young people and new Canadians hardly hits one-third, real change is needed.
People have lost faith in their politicians and their institutions of government.
Disturbing as it is, it is not hard to understand why.
For decades we have watched our democratic institutions erode. And for the last eight years we have seen these trends accelerate dramatically under the Harris-Eves government.

The 2013 revision would read "under the McGuinty-Wynne government." Voter turnout has declined rapidly in Ontario since Bob Rae's unlikely victory in 1991, including a drop of 10% since the election of 1999. Shortly after McGuinty's 3rd successive electoral victory as leader, I noted McGuinty had won despite achieving "the lowest share of electors who chose the Liberal party since WW II."

Data from TD Economics
"Government Budget Balances and Net Debt"

The same document noted:

"The Harris-Eves government added $21 billion to the debt and was the second last government in Canada to balance their budget. We will comply with the Taxpayer Protection Act and balanced budget legislation, not bend the law at whim."

There were years, early on, when the McGuinty government showed a budget surplus, but there were no years where a reduction in total net debt was accomplished.

The columns written by Mr. Regg Cohn and Mr. Radwanski are full of misplaced praise, despite their feigned criticism.

From Radwanski:

...he oversaw improvements to the education system, began the arduous task of making health-care spending sustainable, made long overdue investments in crumbling infrastructure and boldly undertook tax reforms that he thought would improve competitiveness.
...some of his missteps ...were born of good intentions
...seemed to be someone genuinely motivated by a commitment to public service

From Regg Cohn:

Stacked up against his environmental and educational legacies, his liabilities will fade one day. 

...in the rush to judgment, he is a much condemned man.
The only consolation is that history will probably be kinder to him ... He reduced class sizes and expanded university enrollment; balanced the budget and then primed the pump for the 2008 economic crisis; weaned us off coal-fired power plants and preserved the greenbelt.

I'm not at all certain the 81% of Ontarians that could have voted for Mr. McGuinty's party in 2011, but didn't, would agree with much of these assessments.
He spent a lot of borrowed money and a lot of it went to education - but more bums in more chairs doesn't necessarily equate to a better education; just more credentialed bums.

The tax changes, which included harmonizing with provincial sales tax with the federal goods and services tax, did promise to increase competitiveness - but the Globe and Mail's political staff didn't seem to notice as those changes were diminished in negotiations with the NDP once the Liberals were reduced to a strong minority government.

The gas plant debacle is, no doubt, about different things to different people.  To some, it's about losses of over $500 million - but if people understand the accounting reducing the cost to that level, they understand unnecessary non-cancelled power plants will cost several billions before either the Mississauga gas plant is built (100's of kilometers away in Lambton), or the Oakville generation station is built (100's of kilometers away in Bath).

If people understand the deleted documents, they understand public servants have not deleted documents, but the political staff has brashly done so.

Martin Regg Cohn writes that "McGuinty's victories were partly dumb luck."
In his statement of resignation, Dalton McGuinty thanked his "Queen's Park family" including the Queen's Park Press Gallery.

It was probably some of both dumb luck and his "Queen's Park" family that kept him in power for so long.

On the day he resigned his seat, the most appropriate commentary on the accomplishments of Premier McGuinty probably came not from natural gas generation stations, but from the coal-fired plants his 2003 election platform promised to close by 2007.
Other parties promised 2015, but righteous Dalton felt 2007 was doable.

It wasn't

Coal generators had their most productive day in months as McGuinty resigned - with his idealism intact.

The diminishing value, and increasing costs, of wind and solar generation in Ontario

This post is a follow-up to my previous post.

I've formatted some data to emphasize the full impact of the now defunct FIT program will not be felt for several years - and the price impacts, should the contracted projects be constructed, are likely to be increasingly more severe throughout that period.

"Value of wind production continues to drop"

The more wind, and the more solar, capacity that is added to the electricity system, the more expensive the entire system will become, unless the price of wind and solar is declining quickly enough to offset the diminishing value of a unit of output as capacity increases.

The Market Value of Variable Renewables, by Lion Hirth, writing for Vattenfall [1], inspired me to look at the data in Ontario with the idea of demonstrating that as wind output increased, the relative value of a unit of wind decreased.
And it did

The situation in Ontario is different from those in Europe documented by Hirth, because when Ontario introduced feed-in tariffs, the prices were raised for wind and solar generators (above the programs replaced by the feed-in tariff).  At the end of 2012 the Ontario Power Authority reported only 258 MW of the ~4000 MW of capacity contracted at the higher FIT rate of $135/MWh [2].  

Clearly the unit cost of wind will continue to increase towards $128/MWh should the remainder of the FIT contracted capacity become operational.  This would constitue a tripling of wind capacity (to ~5800MW); as the value of a unit of wind production fell to only 85% of the overall average for the first 3rd, the most basic model would put the value of a unit of wind declining to ~66% of the average unit value for all generation.

The data for solar is insufficient to provide the analysis I've shown for wind here, but theoretically, the drop-off in value of solar generation should be much more rapid as elsewhere solar gets a higher percentage of its output from far fewer hours.

The behaviour of variabile renewable energy sources (vRES) in Ontario is not entirely unique among generation sources.  I've prepared a spreadsheet for the last 12 full months (June 2012 through May 2013), with tabs for wind, nuclear, hydro, and 'fossil fuels' (coal, natural gas, oil).  Some comments:

• As wind generation increases as a share of generation, the value drops (indicated as percentage of the average HOEP for the 12-month period), exports rise (as generation is dumped);
• As nuclear generation increases as a share of generation, the value drops (less steeply than for wind), and exports rise (less steeply than for wind);
• As hydro generation increases as a share of generation, the value rises too;
• As natural gas/coal generation increases as a share of generation, the value rises too, coinciding with higher deamand and lower exports.

Endnotes

The embedded spreadhsheet is here

The spreadsheet with the second chart - much messier - is here

[1]  From The Market Value of Variable Renewables, by Lion Hirth:

SummaryThe income that wind and solar power receive on the market is affected by the variability of their output. At times of high availability of the primary energy source, they supply electricity at zero marginal costs, shift the supply curve (merit-order curve) to the right and thereby reduce the equilibrium price of electricity during that hour. The size of this merit order effect depends on the amount of installed renewable capacity, the slope of the merit order curve, and the intertemporal flexibility of the electricity system. Thus the price of wind power falls with higher penetration rates, even if the average electricity price remains constant. This work quantifies the effect of variability on the market value of renewables using a calibrated model of the European electricity market. The relative price of German wind power (value factor) is estimated to fall from 110% of the average electricity price to 50% as generation increases from zero to 30% of total consumption. For solar power, the drop is even sharper. Hence competitiveness for large-scale renewables deployment will be more difficult to accomplish than often believed.

[2]  After tracking down the program each locaiton was contracted under, I estimated the 2012 value of those contracts at $110/MWh (rough - based largely on figure 3 from the L.C. Stokes paper (displayed in my previous post): since the beginning of 2013, another 198MWh of FIT capacity are now reporting in the IESO data.

Wind Feed-in Tariffs in Ontario: An Info-Obit

Ontario's Ministry of Energy recently announced that, " the province will develop a competitive procurement process for renewable projects over 500 kilowatts (kW). The new process will replace the existing large project stream of the Feed-In Tariff (FIT) program."

I believe the announcement does end a FIT policy I've written extensively on, particularly in a pair of posts in November 2011 (here and here), and recently in a post concluding, of the FIT program.

It is a failure; a high cost, low value, artificial creature that deserves to be killed.

I say to the government, "well done"
but ...
The scenario that lead to the FIT policy, where professional planning was replaced with amatuerish whimsy, should not be allowed to repeat itself.
There is reason to believe that is exaclty what is happening.


It is possible to recreate the errors of the feed-in tariff program without the feed-in tariff, and the announcement was made, by the Minister of Energy, at the solar trade association CanSIA conference where the policy change was presented as a "move to establish a predictable and stable market for the solar energy industry in Ontario."    That raises concerns that the government is moving from wind to solar not due to any characteristics making solar better suited to integrate into, or replace, Ontario's generation mix, but for strictly political reasons.
The same press release announcing the end of FIT for larger projects notes the province will be "making 900 megawatts (MW) of new capacity available, between now and 2018, for the Small FIT and microFIT programs."
There is no evidence that small FIT is superior to the large FIT.

There are a number of reasons wind turbines have attracted opposition, but key ones featuring on this blog are economic, and the feasibility of that variable renewable energy source (vRES) considering it's production profile in relation to Ontario's energy demand profile. One reason wind's shortcomings have been exposed is the public availability on hourly production data from wind turbines (along with hourly data for price, demand and trade levels).

It is not clear solar is better suited to Ontario than wind; one large reason it is not clear is the lack of production data for solar capacity in the province.
There is a lack of evidence to support, or condemn, the solar feed-in tariff results.

___

As we bury the Feed-in tariff mechanism for factory scale industrial wind turbines, it's important to review how the FIT came to exist in Ontario, with a focus on the role of public availablity of data, and reporting, in the history of Ontario's electricity policy.  Recent news indicates the wanton destruction of public records at the highest level of the government (the Premier's office, as well as the Ministry of Energy).  The news isn't surprising, as the journey away from transparency, to secrecy, is chronicled in the history of Ontario's feed-in tariff policy.

Public Planning Before the Feed-In Tariff

The first industrial wind projects were contracted, through a request for proposal (RFP) process, in 2004/05; the RFP process would be replaced by Renewable Energy Standard (RES II and III) contracts in the period leading up to the introduction of the FIT model in 2009.
The Ontario Power Authority was established to provide long-term planning, and those plans were to be established based on supply mix parameters dictated to the OPA from the ministry of energy.  The first supply mix directive, issued in June 2006, called for "increasing the installed capacity of new renewable energy sources by 2,700MW from the 2003 base." [1], [2]

In 2008 the integrated Power System Plan (IPSP) process was essentially sabotaged by New Energy Minister George Smitherman in a directive interfering with the initial supply mix delivered less than 3 weeks after this Integrated Power System Plan was printed.

Smithman's directive lacked any figures, or other content making it sensible:

... I require that the OPA revisit its IPSP with a view to establishing new targets in the following areas, and in a manner consistent with further enhancing its current emphasis in these areas:

• The amount and diversity of renewable energy sources in the supply mix;

• The improvement of transmission capacity in the ‘orange zones' in northern Ontario and other parts of the province that is limiting the development of new renewable energy supply...

One need only look at the pricing in the northern region Smitherman singled out for removing limits to "the development of new renewable energy supply" to see the folly of abandoing a coherent, transparent and professional planning process for one driven by politics and related subterfuge.  The average price in the zone Minister Smitherman wanted generation developed in has been around negative $100/MWh ever since he directed the OPA to do something other than what they had done.

Estimated prices rise with FIT introduction: from L.C. Stokes [5]

In reality, Smitherman and McGuinty had both been taken in by a gaggle of lobbyist that had come together under the banner of "The Green Energy Act Alliance" to recreate German policies in Ontairo - a feat they celebrated accomplishing in May 2009 as the Green Energy Act (May 2009), and the feed-in tariff program, became law.

Supply mix considerations were no longer based on anticipated demand and an appropriate generation mix to meet that demand, but in simple, very very simple, terms:

Renewables good; less demand good; cost irrelevant ... that thinking replaced professional planning as the FIT came to town.

The Feed-In Tariff Contracts

FIT ramped contracted capacity: from L.C. Stokes [5]

By April 2010 Ontairo was embarking on a 15 month contracting spree:

April 8, 2010 -       2,500MW including ~1,210 MW of on-shore  wind
February 28, 2011 -  872 MW including ~615MW of on-shore wind
March 8, 2011 -     1,070 MW including 870 MW of on-shore wind [3]
July 4, 2011 -         1,046MW including  ~1,018MW of on-shore  wind

July 4, 2011 marked the last of the feed-in tariff contracts for large industrial wind.  The OPA reported 5721MW of wind contracts for 2011's 3rd quarter (with solar and bioenergy the total was slightly under 8000MW).  There was essentially no movement after that, with 2012's Q4 summary slightly over 8000MW of non-hydro renewables contracted, but only 2727 MW of non-hydro renewables were in-service, and of that less than 400MW held FIT contracts (another 130MW of solar held micro-FIT contracts).

The Long Term Energy Plan (LTEP)/ IPSP II

The Ontario government released a Long Term Energy Plan (LTEP) in November 2010 in an attempt to return to professional planning - or to feign an attempt at returning to professional planning.  The supply mix proposed in the LTEP included 10,700MW of "renewable capacity (wind, solar, bioenergy)" by 2018 - and that was shown as the planned contribution from the sources in 2030 too.

The LTEP kicked off a process: 

• Comments were invited on the supply mix directive (through the environmental registry), although, unlike for comments submitted as part of the first IPSP process, no comments were ever published [1]
• The Minister of Energy issued a directive to the Ontairo Power Authority (OPA) in February of 2011, including the supply mix to be developed in the integrated power system plan the directive launched.
• The OPA developed the 2011 IPSP in a relatively transparent process, with an intial draft of the document reportedly delivered to the Minister of Energy late in the summer of 2011 - prior to a fall election campaign. [4]

The IPSP 2011 has, to the best of my knowledge, never been made available for public viewing.  Queries made by people who maintain e-mail records indicate the process was shelved by the Ministry in 2012 - apparently anything involving documentation was too cumbersome for use in planning.

The FIT Review

March 2012 brought the release of "Ontario's Feed-in Tariff Program: Two-Year Review Report," a report which stated:

With Ontario on track to procure 10,700 MW of non-hydro renewable energy generation by 2015, the government should review Ontario’s electricity supply and demand forecast in 2013 to explore whether a higher renewables capacity target is warranted.

The review is problematic in a number of ways - not the least of which is that in 3 years between the first FIT contracts being issued and the review, the OPA showed only 133.6 MW of solar FIT contracts had entered operation (of 1539MW), and only 224MW of wind FIT contracts were operational (of 4003MW).

The FIT review could only review the ability to award FIT contracts.

The Ontario Clean Energy Task Force

Having declared the FIT program a success for signing so many contracts, the government outsourced planning again (as with the Green Energy Act Alliance):

Ontario’s Clean Energy Task Force has been established to help broaden the Province’s energy focus. The Task Force will facilitate collaboration within Ontario’s clean energy industry to identify export markets, marketing opportunities and approaches to demonstrate Ontario’s advanced clean energy systems.

Having constructed little of the contracted capacity, apparently we are looking at exporting our expertise at awarding "clean energy" contracts.
This is surprising given the enormous costs of relocating 2 contracted gas plants, muliple NAFTA lawsuits (MESA and Wolfe Island Shoals), judged violation of World Trade Organization obligations, and widespread local opposition to projects contracted in Toronto.

The New Long Term Energy Plan

The Ministry of Energy has posted:

The Ministry of Energy will review Ontario’s Long-Term Energy Plan and wants to hear from you.
The original Plan, released in November 2010, recommended a three-year review....

The review includes a strong and transparent consultation process with the public, municipalities and the energy sector and engagement of Aboriginal leaders and communities. These conversations will be on all aspects of our energy plan including the different forms of generation such as renewable, hydroelectric, natural gas, and nuclear, our conservation efforts and opportunities to control costs and ensure affordability.

At the time this review was posted - essentially taking planning away from the Ontario Power Authority  - Ontario's active supply mix was essentially as planned in the original IPSP (2007/08), which also coinicides with the last "strong and transparent consultation process" producing a document available to the public.

The input that the Ministry of Energy needs is to return planning to public planners - removing it from evidence-destroying political operatives and outsourced incompetents.

As it stands now, the government has positioned itself to recreate the conditions that lead to escalating costs, escalating regional tensions, escalating legal actions, and diminishing faith in responsible government.

___

Endnotes

[1] The first supply mix, although issued by the Minister of Energy, followed an extensive process documented, by the OPA
The second supply mix was put up for comment on the environmental registry, but no changes were made and comments were never made public ( I posted mine, and Tom Adams posted comments from himself and Parker Gallant)

[2] The OPA reported an actual total of 1788MW installed capacity of "in-service" renewable energy for the 4th quarter of 2010
The 2700MW of renewables, directed in the supply mix, could be found in the IPSP, with already contracted sources forecast to add ~270MW of hydro, 2000MW of wind, 135MW of bioenergy and 355 MW of solar by the end of 2010; at the end of 2010 about 2/3rd's of the total were reported, by the OPA, as in service.
The closest to the planned capacity was wind (71% of plan), while hydroelectric and bioenergy were the least likely to have been constructed.

[3]  These contracts were a result of a Directive from the Minister on April Fools' Day 2010 which was subsequent to a preliminary Green Energy Investment Agreement (GEIA) with a Korean Consortium  in January 2010 (frequently simply referenced as the Samsung deail).
The government accounts for the GEIA separately from the FIT, but the contracts are very similar

[4]  Tthe head of the OPA, Colin Andersen, states this about 4 minutes into this quarterly call  in October 2011.

[5] The politics of renewable energy policies: The case of feed-in tariffs in Ontario, Canada, Leah C. Stokes, Department of Urban Studies and Planning, Massachusetts Institute of Technology. Published in Energy Policy

Ontario Electricity Rate Increases 38% since December

Ontario''s Independent Electricity System Operator (IESO) posted the estimate for the May 2013 Global Adjustment (GA), and it is $66.36/MWh. Coupled with my estimate of the Hourly Ontario Energy Price (HOEP) of $25.22, the monthly wholesale commodity rate in Ontario in May is estimated to be $91.58.

In December 2012, the HOEP was similar, at $25.51, but the GA was $40.64 - for a total of $66.15.

If you are a "class B" customer exposed to the market rate, the increase in your rate is therefore 38% in the past 5 months. Regulated price plans (including residential ones) will reflect the same costs, but not in the same months.

The last time prices approached this height, a government''s panicked rate freeze failed to prevent it''s electoral defeat. May''s commodity charge is the highest since Ontario''s market opened, and in reality it is much higher. While the HOEP exceeded $80/MWh early in 2003, it wasn''t meaningful for customers as there was a price freeze at $43/MWh introduced (with retroactive payments) after prices peaked in September 2002 at $83.14.

The IESO will eventually report May''s Ontario demand average just over 14,000MW per hour in May 2013, which is lower than they''ve reported for any month except May 2009. Don''t panic that the low total indicates we''ve returned to the depths of the recession; the IESO''s reporting is increasingly less indicative of actual supply, and actual demand, in the province.


Supply from generators less than 10MW is not captured in IESO reporting as supply - it is referenced as "embedded" generation and it impacts IESO reporting as negative demand. While the IESO reports on many wind generators, there''s probably another 20-25% of the reported capacity operating as embedded generators, in addition to all solar.

The lack of transparency in reporting the production, and costs, of solar is increasingly problematic in estimating cost, and also demand, in Ontario. As I noted in a post during May, it''s apparent sunny hours show much less demand, in IESO reporting, than comparable days in the past. What''s not apparent is that the IESO, even as it discusses integrating renewable generation and altering HOEP and Global Adjustment policies, has collected the necessary data, without which it cannot intelligently consider the implications of the data.

It is, I think, likely that solar peaks in May, concurrent with hydro, concurrent with a relatively productive period for wind generators, and concurrent with the weakest demand period of the year. If solar capacity is at 800MW (plausible), and if May 2013 was very sunny and those generators operated at a 20% capacity factor for the month, "Ontario Demand" was actually about 120GWh higher - coupled with with embedded wind 226GWh higher ...meaning May 2013 had a fairly typical demand for a May, but the costs of procuring generation was ~$75 million higher than anticipated.

That would show in the global adjustment.

Ontario has essentially instituted capacity payments for it''s coal and natural gas plants that recover all non-fuel costs for the operators - a starting point, before the generation of any electricity, I have estimated at approximately $145 million a month. For generation, the cost benefit is that the incremental cost of generation - largely the fuel cost - is the only cost of generation. For May, this design is particularly expensive because May didn't see very high output from fossil fueled generators: in fact, it probably saw the lowest combined generation from the combined sources of natural gas, coal, and oil than the market has experienced.

Great stuff for emissions - but not a lot of generation to distribute the $145 million capacity cost across... and with natural gas prices continuing to be at low levels, it's simply true that each MWh produced by Ontarians with large acreage and solar panels, at a cost to consumers exceeding $500/MWh, replaces a MWh that would have cost maybe $30.

Of course much of our generation is not replacing gas generation or meeting Ontario's demand.

While demand is recording near the record low of 2009, net exports for May 2013 will also be near record levels; approximately 1893MW was exported (net) each hour in May, a figure higher than all months but December 2010. In December 2010 the cost of procuring supply was lower, and the price received for exports was much higher.

Exports don't recover any portion of the global adjustment charge, so every hour an average of 1893 MW was sold to export customers for $125, 619 less than Ontarians would paying for 1893 MW.

Which is $93.4 million over the month of May.

There are other costs not captured in the regular reporting. The IESO released an outlook on May 24th that showed approximately 170,000MWh of nuclear curtailment in May.  I assume this figure ended the month higher, pushing another 10-15 million dollars into the global adjustment charges needing to be recovered.

Notes:

Hydro output has been up, compared to the same week in 2012, each of the past 4 weeks - or in all weeks since I said it had been down every one of the first 17 weeks of 2013

Yes, I saw the cancellation of the FIT program - I''ll have some comments later.  What I worked on so far impacted this post, as there is an argument that the government is burying the big projects for political reasons/optics, while ignoring the costs of smaller capacity projects numbering in the thousands.

On the data site (works with a fast connection and Chrome browser - not sure about other situations)
I updated the weekly shadow report for the IESO week ended May 29th
I updated supply cost estimate tables to include May 2013
I update the preliminary monthly shadow report, which is now for May 2013