LTEP Backgrounder: The Con in Conservation

Ontario's government is currently presenting an appearance of consulting on another iteration of a long-term energy plan (LTEP).   Immediately after announcing they wanted input, they announced Ontario's New Energy Vision Puts Conservation First.

This post looks at the presentation of conservation in the first content pages of a document presented as authoritative "in support of the 2013's LTEP Consultation."

One of the resources the Ministry of Energy notes for the LTEP process is an Ontario Power Authority "Technical Presentation": Status, Outlook and Options for Electricity Service In Support of the 2013 LTEP Consultation

It's an interesting but flawed document.

In terms of costing out an electricity supply mix, slides 2 and 3 of the document present a generation capacity comparison between 2003 and 2013, and a comparable comparison of the energy produced in 2003 and the OPA's anticipated production in 2013.

Diving into the numbers one fascinating fact emerges - one which it's hard to imagine is a coincidence. Tallying up the generation and accounting for net exports (Exports - Imports), it turns out that the two years, a decade apart, are equal.

If you think about this presentation from the OPA, that seems to indicate that all Ontario demand reductions since 2003 are due to the OPA run conservation programs.

Uh huh.

If you think about it a little longer, it also means that all conservation savings have been exported.

Hmmmm.

Since 2008 exports have averaged around $30/MWh (3 cents/kWh).

The OPA produced a 2011 Conservation Results Report which boasted:

"From 2006 to 2011, conservation programs have seen an investment of $2.0 billion and have saved customers $4.0 billion in avoided costs. Overall, 2011 conservation programs in Ontario influenced 717 million kWh of verified and sustainable annual energy savings yielding a program cost to consumers of 3 cents per kWh. The most cost effective year to date"

There's a couple of issues here:

• 717 million kWh is 0.7TWh, which is less than 1/10th of the conservation production indicated for 2013 in the "technical presentation" for the LTEP. 
• Natural gas contracts guarantee a "net revenue requirement" (NRR), which means the incremental cost of generation is essentially the cost of the fuel to produce it. With gas prices at low levels, the conservation, if it displaced anything, would usually displace production with an incremental cost similar to that claimed for the conservation programs.

The non-technical term for the conservation claims on these slides is "bullshit".

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The LTEP is too broad a topic for me to map out a column - or a chapter.

So I've began a site with the intent of working through issues separately.  If all goes well it will be the web equivalent of sausage making.  The site is here (the bulk of this post came from initial work on this page)

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Addendum

3.1 The Directive

The Directive’s Conservation goals are to reduce demand by 1,350 MW by 2010 and an additional 3,600 MW by 2025. The Directive states:

The plan should define programs and actions which aim to reduce projected peak demand by 1,350 MW by 2010, and by an additional 3,600 MW by 2025. The reductions of 1,350 MW and 3,600 MW are to be in addition to the 1,350 MW reduction set by the government as a target for achievement by 2007. The plan should assume Conservation includes continued use by the Government of vehicles such as energy efficiency standards under the Energy Efficiency Act and the Building Code, and should include load reductions from initiatives such as : geothermal heating and cooling; solar heating; fuel switching; small scale (10 MW or less) customer-based electricity generation, including small scale natural gas-fired co-generation and tri-generation, and including generation encouraged by the recently finalized net metering regulation. 

Directive Priority
Conservation takes priority over supply resources in that the IPSP first applies all economic and feasible Conservation to meeting resource requirements before applying supply resources. Economic Conservation is defined as Conservation that is more cost effective than supply resources as determined by applying a Total Resource Cost (“TRC”) Test.
Feasible Conservation is Conservation that can be used for resource planning. In other words, the Conservation contribution can make as predictable and reliable a contribution to meeting resource requirements as the alternative supply resource.
The OPA will seek to develop and identify Conservation opportunities that exceed the Directive’s 2010 and 2025 Conservation goals. However, determining whether and how this can be done requires a realistic understanding of the feasibility of achieving Conservation beyond the goals. Such an understanding can only occur as Ontario gains more experience in Conservation and in associated evaluation, measurement and verification (“EM&V”) results. In addition, the OPA will monitor future policy changes such as codes and standards, price, carbon taxes and land use that underpin the potential estimate to establish the feasibility of exceeding the goal.
The IPSP has sufficient flexibility to develop a number of options on both the Conservation and the supply side. If experience from the 2008 to 2010 Conservation programs demonstrates that there is feasible Conservation to exceed the Directive goal, that Conservation will be compared to alternative supply resources before any commitment is made.

Sound like 2013's Ontario's New Energy Vision Puts Conservation First.?

It is from the 2008 Integrated Power System Plan that was abandoned due to the Green Energy Act. 

Nothing is NOT better than Junk Generation

Junk generation is a term I picked up from Tom Adams, but I'll attempt to define it: generation that exists to meet a proponent's need for revenue, not a consumer's need for power.

Like, for instance, industrial wind turbines in Ontario.


The past two days were the hottest of the year, with demand averaging 28% more than it has thus far into 2013.
Coal and natural gas collectively produced twice what they usually do
Nuclear 16% above its average
Hydro is right on it's average (being strongest during the sprint freshet)

Wind produced at 12.6% of it's average generation level

12.6%.


The Ontario Power Authority's 2013 Q1 Quarterly Progress Report on Contracted Electricity Supply indicates that the majority of supply contracted to come online prior to 2017 is industrial wind turbines: supply that is particularly unreliable in the peak demand summer season, but is also not reliable during the secondary peak winter season.  Another 21% of already contracted supply is solar, which makes no contribution whatsoever to winter peak demand.

Slowing growth is a long-term trend in Ontario, where demand peaked
 in 2005.  Graph 1st appeared in Stranded Debt - Abandoned Responsibility

Because over 80% of the supply the government is stupidly proceeding with can't be dispatched to meet demand, while the coal that can be dispatched is marked for death at  the year's end, something must be done to deflect from the lousy bet on industrial wind.

With no desire to act responsibly and cancel all wind projects not yet though the entire approvals process, the Ministry of Energy is sabotaging it's next Long Term Energy Plan by returning to nothing - which they refer to as conservation.

Now, conservation, and demand management (CDM) are genuine things that deserve a genuine measurement against other options (which I'll get to some other time) - but they are also a tool of the bureaucratic fop to expand empires.

The last LTEP's supply mix: ~1/2 of post-2010 additions

We've seen this movie.

It's Groundhog Day, redone for an Etobicoke crowd.

The last LTEP called for almost 1/2 of all new generation to come from Conservation.  I wrote on it rather brashly at the time; in reading my old entry one sentence jumped out at me:

For bureaucracies to do what they do – expand - they needed to grow despite the decades old trend now resulting in declining consumption.

There is an assumption that bureaucracies intend to do good, but there also Parkinson's law that dictates bureaucrats will make work to take up as much time as possible.

CDM is beautiful because it's complicated.

The most logical reason for non-energy to be the centerpiece of a 'long term' energy plan is in it ensuring continued employment for long-term planners.

One of my favourite moments on Twitter was reminding an economist that perhaps the UNFCCC was not failing to reach agreement on emissions, but consistently succeeding in not reaching agreements:

If the success of a coming together of bureaucrats is in establishing more coming togethers, the performance is impressive. 

Premier Wynne returns to work poorly

Yesterday Ontario Liberal Party leader, and therefore Ontario's Premier, returned from vacation to her role as Liberal leader.

Levin, J. Trudeau and Wynne - at Pride event (source)

During the week she was away there were a couple of incidents one might have expected the Premier to be around to address: 

• a transformer station failed causing prolonged power supply problems in a transmission system that had been referred to, years ago, as, "the weakest of any major financial centre in North America and probably the weakest such centre in the OECD"
• Benjamin Levin, the deputy minister that served in the Ministry of Education while Kathleen Wynne was the minister, a man who recently served on the transition team as she became Premier, and shared a stage with her at Toronto's recent Pride festivities, was charged with child porn offences

In her return to the public stage, the unofficial scribe of the Liberal Party of Ontario tells us:

“Ministers and deputy ministers do not write curriculum,” said Wynne, a former education minister whose revamp of sex education was kiboshed by ex-premier Dalton McGuinty in 2010 after some religious groups complained it was too risque.
“Curriculum is written by subject experts in conversation and in consultation with a wide array of people — and curriculum is reviewed and written on an ongoing basis...
So you know, any suggestion that there was that kind of interference, it just demonstrates a lack of understanding of how curriculum actually is written”

Followers of Ontario's electricity sector could have taken some solace in this Premier enunciating such a vision of bureaucratic competence, but they would not recognize it in the Ministry of Energy, nor, probably, would followers of the sex-ed curriculum Wynne is fictionalizing a history of.

From the time the curriculum changes died in April 2010:

A controversial new sex education curriculum that would have seen Ontario children learn about sexual orientation in Grade 3 and masturbation in Grade 6 will be postponed and reworked, Premier Dalton McGuinty said Thursday.
It's obvious from listening to parents over the past two days that the curriculum needs a "serious rethink," McGuinty said after an unrelated event in London, Ont.
"We'll take the [sex ed curriculum] we had proposed putting into place back off the shelf," he said.
The government, McGuinty added, will "create more opportunities for parents to lend shape to a policy with which they are more comfortable."
"I know that parents are supportive of the idea that children should be taught about their body parts, relationships and those kinds of things," said McGuinty. "But they are obviously not comfortable with the proposal that we put forward, and so we are going to improve upon that."

The old boss killed it (after parents entered the conversation), and Wynne soon had a change of portfolios.

In Wynne's first news conference as Premier she claimed the curriculum was coming back:

..new Premier Kathleen Wynne promised to bring back a controversial sex-ed program at her first news conference after winning the leadership of Ontario’s Liberal Party.

The curriculum, which would have had students learning about “gender identity” in grade 3 and anal intercourse in grade 7, was shelved temporarily by Premier Dalton McGuinty in 2010 after strong backlash from parents.

No change in what ministry workers were developing in the interim 3 years?

By June the usual coalition of well-funded (by government) groups were ready with material to lobby the government to act on the unpopular thing the government wished to do:

Ontario now boasts the most dated sexual education curriculum in Canada, largely untouched since 1998. Parents, teachers, and health experts are demanding another attempt at reform. Gathering at Queen’s Park on Monday, the coalition called on Premier Kathleen Wynne to shepherd sexual education into the 21st century.

Shepherds' sexual education jokes aside...
The problem that is preventing acting on the Premier's curriculum is the belief of those in her party that,“We won’t get a single new voter with this. We can only lose voters.”

If there is any doubt that politics drives policy, today's release by the Ministry of Energy announcing, at the start of a consultation process for the long-term energy plan, that the conclusion is already known, should put it to rest.

Premier Wynne was already appearing to be a follower of Janus in talking about communication while accelerating renewable energy certificate approvals for wind projects that are, as we've seen during this week's hot spell, totally irrelevant to meeting Ontario's electricity requirements.

The ministry release has the hallmarks of the bad/faked planning that Parker Gallant has calculated will cost Ontarians over $100 billion by the time all the poorly conceived commitments have been fulfilled:

If there is to be meaningful input in a meaningful consultation this routine of funding groups to back poor policy positions has no place in it.

If there is not to be a meaningful discussion it would probably be politically astute for those concerned with the direction of the past 10-years of energy policy by parasite to instead discuss kiddie porn, grade 3 sex ed, and the Premier of Ontario's relationship to both, instead of doing the hard work of providing thoughtful input into an electricity system.

That would be unfortunate.

The Real High Price of Low-Value Electricity

The costs of generating electricity from various technologies is always a contentious subject, but particularly so in Ontario, where 2009's Green Energy Act entrenched a feed-in tariff (FIT) regime specifically to grow the presence of variable Renewable Energy Sources (vRES) in Ontario's high-baseload electricity system. With the new nuclear build for Darlington also prominent in a supply picture being redrawn with a new long-term energy plan, it's an important time to define the value proposition, for the public, for Ontario's generation options.

A value proposition is not solely about costs, but it's important to address the cost factors more thoroughly than the standard levelized unit costs that historically have formed the basis to compare different supply options.

2011 IPSP Stakeholder Consultation Supply Presentation, Slide 39 [1] 

The Ontario Power Authority (OPA), tasked with preparing an Integrated Power System Plant (IPSP) in 2011 presented the levelized cost estimates, from the U.S. Energy Information Administration (EIA), for a variety of new generation sources.

The 2011 EIA document provides a guide to establishing costs only if the columns containing the assumptions/parameters aren't ignored in jumping to the final column containing the levelized cost.

Firm price contracts for each unit of output, whether they are referenced as feed-in tariffs or strike prices, are easy to misinterpret as representing a levelized unit cost to a consumer, but they do not. A recent report from the Organization for Economic Co-Operation and Development and the Nuclear Energy Agency (OECD/NEA) [2] attempted to quantify "grid-level systems costs" for a variety of generation technologies in a number of countries:

The results show that system costs for the dispatchable technologies are relatively modest and usually below USD 3 per MWh. They are considerably higher for variable technologies and can reach up to USD 40 per MWh for onshore wind, up to USD 45 per MWh for offshore wind and up to USD 80 per MWh for solar, with the high costs for adequacy and grid connection weighing heaviest.

In Ontario, such costs have been reported at over $60/MWh for industrial wind turbines. [3]
These costs far exceed the EIA's 2011 levelized cost estimates for transmission investments; a great portion of the difference is in the accounting for "back up" dispatchable capacity - a shortcoming of the EIA's analysis that they tacitly admit to by 2013's estimates, when the levelized cost estimates for wind and solar are demoted to a "Non-Dispatchable Technologies" section of the table. [4]

With the increasing presence of vRES in generation mixes, the particular figures contained in full-cost estimates are not as important as understanding the elements of costs; figures are useful to establish why that is, and why an altogether different view is required to establish costs of a new generation source within a supply mix.

The estimates for "Conventional Combined Cycle" natural gas-fired generation (CCGT) are instructive"; the EIA estimates the "total system levelized cost" of $65.1/MWh based on a capacity factor of 87% leading to distribution of capital costs, operations and maintenance and transmission capital costs across a high level of production.

Ontario does not have 87% capacity factors currently, or envisioned, for it's CCGT generators. Amir Shalaby, of the OPA, delivered a presentation late in 2012 that forecast 9 TWh of gas-fired generation would be produced from 9300MW of capacity in 2015, which corresponds to an 11% capacity factor. Without dwelling on the details, in Ontario the average cost of a unit of production from CCGT generators contracted since 2004 would be ~$82/MWh at the mythical 87% capacity factor, but ~$360/MWh at an 11% capacity factor.

Examining the characteristics impacting the costing of natural gas-fired generation is relevant to discussing the value proposition of vRES (wind and solar) and nuclear; in the OPA presentation it is both increasing nuclear production and increasing vRES output that drives down the productivity of CCGT generators. This is a clear indication that new generation sources with no ability to displace "dispatchable technologies" have a poor value proposition, and in Ontario this is the case with industrial wind energy.

The wind profile being used by Ontario's system operator anticipates only approximately 13.5% of nameplate capacity to be produced by the turbines during peak summer demand periods [5]. This means that a system can only replace 13.5 MW of dispatchable capacity for each 100MW of industrial wind capacity added; that means that the value of almost all wind output can be measured as simply the cost of the fuel displaced.

In Ontario, if we assume all wind production displaces, as intended, natural gas-fired generation, the extra cost of wind is therefore the contracted rate (the vast majority of wind contracted by 2013 was contracted at a rate of $135/MWh), less the cost of the fuel not used. For 2000MW of wind capacity - approximately the contracted capacity in Ontario, this amounts to ~$490 million a year. [6]

If we count savings of displaced natural gas-fired generation equal to 13.5 (270MW), this reduces to ~$447 million per year.

Estimating avoided emissions from the displace fuel, a carbon cost of ~230/metric ton CO2 equivalent is required to justify the expense in the scenario where each unit of wind production displaces a unit of natural gas-fired generation

This seems very high considering the government of the United States recently escalated it's estimate of the social cost of carbon to only $36/metric ton, but it is a fictional "best case" figure. The actual situation is worse.

For the 12 month period from July 2012 through June 2013, the output of nuclear, hydro-electric and contracted non-utility generators exceeded Ontario demand ~29% of all hours. During those hours wind either displaced non-carbon emitting generation with low, or no, fuel costs, or there were additional cost to curtail committed generation, or carbon was displaced in a jurisdiction other than Ontario, or some combination of the above.

Over the most recent 12-month period the carbon cost required to justify the in-service industrial wind production is ~$325/ton CO2e, and the systemic cost, ignoring the significant transmission costs, over half a billion dollars.

This for 2000MW of capacity - the current plan calling for another 6000MW.

In a traditional levelized unit cost accounting the impact of adding set-priced vRES is to drive up the levelized cost of increasingly less-utilized dispatchable assets. This has lead to jurisdictions adding vRES capacity now being characterized by escalating total system capacity, escalating consumer rates, and escalating accusations that it is the traditional capacity driving the rate hikes.

If one is using an abstract levelized unit cost model, the addition of non-dispatchable, low capacity value generation has the systemic impact of driving up the levelized cost of the dispatchable high capacity value generation.

The only appropriate measurement of the cost of adding a generator to a system is the additional systemic cost resulting from the addition of that generator. For wind capacity in service in Ontario, that is over half a billion dollars annually, but the methodology won't simply expose wind as a high cost source - both solar and demand response will fare poorly in a systemic approach to estimating costs.

Notes

[1] 2011 IPSP Stakeholder Consultation Supply Presentation | Amir Shalagy | May 31, 2011, Slide 39.

[2] Nuclear Energy and Renewables: System Effects in Low-carbon Electricity Systems | Executive Summary | NUCLEAR ENERGY AGENCY ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT | 2012
[3] Omitted Costs, Inflated Benefits: Renewable Energy Policy in Ontario | Parker Gallant and Glenn Fox | Bulletin of Science Technology & Society published online 30 September 2011
[4] Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013 | US. Energy Information Administration
[5] The calculation is done using the summer figures provided by the the IESO in table 4.1 of their 18-Month Outlooks.
The figure is questionable as the actual wind output is often below that level.
[6] assumptions/figures used in estimates:
13.5% capability factor for industrial wind (expected output during peak summer demand periods)
$13,187/MWmonth net revenue requirement (NRR), or capacity payment, for natural gas-fired generation - from The High Costs of Ontario's very provincial electricity debacle
$4/MMBtu natural gas price
7.5 Heat rate
$135/MWh contracted cost for wind turbine output
30% annual capacity factor for wind turbines
398 kg/MWh of CO2 equivalent emissions from natural gas-fired generation

Conversation as cover: electricity siting consultation in Ontario

The Premier has directed the Ontario Power Authority (OPA) and the Independent Electricity System Operator (IESO) to "invite Ontarians to join the conversation and share their views about Ontario’s regional energy planning and siting processes."

This strikes me as pretending the distasteful electricity sector scandals have something to do with inadequate conversation between government professionals and whoever wishes to speak at them.

As much of Toronto suffered blackouts due to inclement weather last week (combined with a known lack of redundancy), the Minister of Energy issued a statement including:

Provincial energy agencies will conduct a review to determine how our energy infrastructure performed and how personnel responded. This process ensures that best practices are in place to learn from every outage, and to minimize future system issues. It's an opportunity to determine causes, learn what worked and ensure we can deliver the best service for families and businesses.

Perhaps some honest background would have been a helpful conversation starter.


In the instance of the cancelled Mississauga plant a call went out for generation (in 2004) and one of the proponents that was awarded a contract was for the Greenfield South project.  That proponent was required to get all approvals - which they did only by going to the Ontario Municipal Board to overrule the will of the city.
If it was in the wrong place, the review should be of the OMB's role is electricity generation siting.

In Oakville some claim the project would have died in its attempts to acquire local approvals  - as the contract required the proponent to do.

In wind turbine project siting, controversy is acknowledged but the Wynne government continues to award renewable energy approvals despite massive surpluses in electricity supply already in service - in fact these REA approvals have accelerated since Kathleen Wynne became Premier.

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While I am appalled at the use of consultation as a charade to avoid responsibility for the damage done by crass political interference and undue political meddling in our electricity system, the outcome of the consultation need not be simply to provide cover for the incompetence that lead to it.

Link: OPA questionnaire

CTV reports on one symptom of Ontario's surplus generation

CTV's Paul Bliss reported on the cost of curtailing generation at Bruce Power's nuclear units.  The report had some information not available elsewhere.

Exclusive: Ontario spending millions to halt surplus electricity production | CTV Toronto News:

Bruce Power has turned five units off at different times this year to cut supply for a total down time of 40 days. Since the plant is paid about $1 million per day, it cost Ontario $40 million for reactors to idle.
Bruce also conducted steam diversions from turbines to cut power production 84 times this year, which is the equivalent of approximately 22 unit days offline. For that, the plant was paid $22 million to vent steam into the air instead of operating turbines.
In total, $62 million was paid to the Bruce plant this year to suppress electricity production.

The full article, and more comprehensive video report, are at CTV Toronto News

I think some context on the figures is important, both for understanding the role of the curtailments in the rapidly escalating prices Ontarians are, or soon will be, experiencing, and to understand while they'll be experiencing escalating escalations.

Slide from Amir Shalaby APPrO 2012 Conference Presentation

In the first half of 2013 Ontario demand has been essentially flat according by the IESO figures (the Independent Electricity System Operator - featured in Bliss' report); the total combined market value of Ontario's consumption, plus total global adjustment charges, are up 15%, or ~$725 million.

So $60 million is not a big number driving inflation.

A bigger number, not reported anywhere, would be for solar.  Estimating from Ontario Power Authority (OPA)quarterly reports, I've estimated solar costs to be up ~$130 million in the first half of 2013 (from the same period in 2012).

With additional intermittent renewables contracted to come online, the situation with surplus generation is anticipated to worsen through 2015.  According to a recent presentation from an OPA expert, it will be 2018 before surplus generation is less of an issue than it is now.

The implication in the report is that we are now experiencing the worst of the surplus generation, but that is not likely.  As Parker Gallant recently noted the forecast is for record high electricity prices.

Ontario's Electricity System Halfway into 2013: 2011 rewritten

A couple of years ago, today, I posted a half-year review titled Ontario's Electricity System Halfway into 2011 ... here it is for 2013 with some crossouts, updated graphics, and some new commentary(bold italics)
I have not included the factor new to this year, which is the surge in high cost generation not reported by the system operator (IESO) or the system planner (OPA).  That will be left for another post, except to note generation, and demand figures for the first half of 2013 I estimate to be underreported by ~1.1TWh, roughly double the unreported amounts for 2011 which were double the amounts for 2009.
Other than that, the trends apparent 2 years ago continue, and the excessive rate hikes of the past couple of months are due to the government's consistent disinterest in competently managing supply.
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Ontario's electricity sector experienced more of the same during the first half of the year - which continues to betray the ongoing mistakes of the government and the Ontario Power Authority (OPA).

The headline figures for the first half the year, when June's numbers are finalized in a couple of weeks, should be anemic demand growth accompanied by inflation in pricing of almost exceeding 10%. But the same headlines should have been written one year years ago. Instead, Ontario's residents continue to be subjected to errant implications an insatiable appetite for ever more electricity is driving the price hikes.

With supply mix issues in the forefront, including the demon wind and the sale/disposal of AECL this week, I thought I'd review what the supply mix actually was, in terms of production, over the first half of this, and past, years. The quick visuals show that the big growth stories (since 2004) have been nuclear, and natural gas - with coal the obvious target of reductions.

The government has been fairly consistent in noting a desire for about 50% of the supply being provided by nuclear power. The supply mix I've shown is production, which includes electricity that gets exported. In the first half of 2011 2013, nuclear power generated about 42.5 43.1 TWh of electricity, and Ontario consumed about 70.2 69.5  TWh [IESO Ontario demand]- so nuclear production was over 60% of Ontario consumption.  I am a strong supporter of nuclear, and I invite readers to view Donald Jones' Alternative Long-Term Energy Plan, but currently only 2 reactors at Bruce B are consistently used in demand response supply curtailment actions by the IESO.  There is a flexibility issue with output from our current nuclear, and that is why the plans kept it at 50%.  I'd prefer the flexibility issue was addressed (it has been at Bruce's reactors), but that's a separate issue.

To understand how we got to the elevated share of nuclear, it's important to note the government's agencies' belief in what was going to happen with demand, and illustrate that against what did happen. I would argue 2011 2013 is likely to come in below around 2010 levels, so we see that in 2004 forecasts were too high, just as they were in 1989, when Ontario Hydro prepared “Providing the Balance of Power”. That document should have provided a warning as it wrongly predicted annualized growth of 2.2% over the 25 years to 2014. In 1989 Ontario's demand was 140.7 TWh, which is right about where we are heading in 2011 2013.

The problem with the inability to accurately foresee the future is the planning for the future which fails to account for the possibility of error. We see this in numerous ways. One of those frequently noted on this blog is the desperate need to dump exports. I noted yet another indicator of this trend the other day in looking at data changes since 2005 - the year of peak electricity demand in Ontario. This graph shows 12-month running totals where the growth in exports (shown as negative imports) end up almost exactly matching the decline in Ontario demand over that time - so cuts in demand are not met with cuts in overall production, but through increased exports.

The problem with this need to export is it has come at a time when the price of electricity is very depressed not only in Ontario, but in our primary export markets, which also saw demand peak in 2005 (although their declines have been less severe). I've been tracking, again as 12-month running totals, the difference between what export markets pay for Ontario electricity, and what Ontario residents/businesses would pay for the same amount of electricity. I've defined that as a subsidy. One notable from the first half of 2011 2013 is this figure is at a new all-time high.

There are 2 factors that have driven the estimated annual 'subsidy' back up above half a billion dollars. The volume is one, and the other is the amount of the global adjustment. Almost all Ontario supply is contracted (one reason it can't be easily cut), but the IESO does operate a market, and the market price has indicated supply gluts as the Hourly Ontario Energy Price (HOEP) has dropped. The difference between the contracted totals, and the totals recovered by the HOEP pricing, comprises the bulk of the amount charged back to the customers of Ontario's Wholesale Market as the Global Adjustment (GA) - so export customers pay only the HOEP, and Ontario customers pay the HOEP plus the Global Adjustment.

Reducing emissions has  been the target of Ontario's electricity policies. Estimating emissions related to electricity generation, we see emissions have been reduced, and it does relate to the reduction of coal use.

Again the figures are relative to the peak demand year of 2005, and the chart indicates the variance to that (earlier the same dataset showed the relationship between declining demand and growing exports). These are my own lame estimates using intensity figures cited by OSPE (Ontario Society of Professional Engineers), of only CO2e based on 0.85 0.973MT/MWh for Coal, and 0.5 .398 MT/MWh for gas. Unfortunately, this method matches up pretty well to falls short of the figures for Ontario emissions shown in Canada's latest GHG reporting. The reason for that is we We don't actually measure emissions at the source, despite the increasing body of evidence that more intermittent generation (wind and solar) increases the emissions intensity of the natural gas back-up systems. GE is now targeting the performance, as back-up to intermittent sources, in its latest natural gas turbine designs, while across the world natural gas lobby groups are targeting governments to provide 'capacity' payments as they sell a blend of wind and gas supply.

It is in the relationship of intermittent, or 'green', generation sources, and natural gas back-up supply, that we have received the large price increases in Ontario, even as we have seen demand crumbling. Ontario could be cited as a world leader for its contracts with the big 5 CCGT installations that became operational since 2007, all of which basically receive capacity payment. Earlier this year a leading US electricity executive declared his company “almost as dependent on natural gas prices for earnings and growth as a gas exploration company.” Shortly thereafter another former executive was noting depressed prices were a market signal that no new generation should be built, and that gave way to a big push for 'capacity' payments, or subsidies, by the natural gas industry in North America; a call now being echoed across the Atlantic. If other jurisdictions are duped, Ontario will prove to have been a world leader as it figured out how to pay over $100/MWh for natural gas generation while less enlightened jurisdictions paid less than half that amount.

The other 'forward thinking' accomplishment of the first half of the year was the IESO's establishing methods to pay wind producers (and perhaps solar in the future) not to produce electricity. Because of the aggressive targets for adding wind - unneeded and unwanted - the IESO recognized we would increasingly have too much power, contracted by the inept OPA, and the threats to the grid required some action.

In fact they required the opposite of action.

They required the procurement of more supply to stop until there was a plan to avoid paying suppliers not to supply.

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One stat I omitted when first posting, that I think is extremely relevant, is the number of hours of 'high' demand is falling consistently since 2005's peak.  From a supply mix point of view, quite frequently nuclear is providing over 10000MW, hydro is capable of over 5000MW much of the day, and gas should be able to deliver another 5000MW (including over 4000MW of CCGT supply built in the past 4 years).   The law of declining returns is kicking in extra hard as the coal use we are attempting to avoid is necessary fewer, and fewer, and fewer, hours almost every year.

Ontario's Jeopardy: The highest level of the civil service

"Over the past six or seven years, Ontario has beefed up its electricity exports and made $5-$6 billion selling excess electricity, says IESO President and CEO Bruce Campbell. "

Christina Blizzard 

"Made"?

Hell no.

Calculations from IESO HOEP and Import/export .csv files

There are lots of ways to estimate profits and losses on exports, but over "the past six of seven years" Ontario doesn't even have $5-$6 billion in revenues from exports. $4-$5 billion is a revenue range for all exports since 2006 began, but most imports (particularly in the most recent years) occur while we are exporting even more, so at the most rudimentary level one might say the net revenue from export/import activities has been $2-$2.5 billion in the past 6 or 7 years.[1]

Newly crowned President and CEO Campbell is forgetting costs as, previously, Premier McGuinty, Minsiter Duguid, Minister Bentley and Minister Ciarelli have done.

One has to wonder if the ability to forget things is a quality that acquires position in Ontario's ruling culture.

What would this cost me?

In Ontario, consumers make up the difference between the price paid to generators, and the amount paid for that generation on the market (as estimated by the Hourly Ontario Energy Price, or HOEP) through the global adjustment mechanism (GA or GAM).

As export customers don't pay the global adjustment component of the price, the average (Class B) customer in Ontario might like to see how much more customers of his class would have paid for the same amount of electricity exported.

To add information to sentences referencing revenue:

• If Ontario made $4-5 billion in revenue on exports over the past 6 or 7 years, it would have made almost $3 billion more selling the electricity in Ontario;
• If Ontario (more logically) made ~$2 billion on net exports, it would have made ~$2 billion more selling the electricity within Ontario.

The summary numbers since 2006 don't tell the relevant statistical story though.  If we use the market recovery (valuation at HOEP) plus the global adjustment to estimate the full cost of generation, from 2006-2008 roughly 90% of the cost of exported generation was recovered (using the "net export" figures); by 2012-2013 this had declined to 30% of the costs being recovered.

The trend is clear whatever rules are used in charting.  Using the rules that the unit cost of electricity generation is the HOEP plus the Global Adjustment (a rule many might believe as that is what it is presented as on their bill!), the trend is a continuing crescendo where the monthly subsidy of exports has broken $100 million recently, and the 12-month running total is streaking towards $1 billion.  [2]

There are a couple of problems with this nice simple method of estimating the cost added to Ontario's invoices by exporting record amounts (the most recent 12 months do hold a record for net export volumes) at depressed pricing - not the least of which is that the cost of subsidizing exports is included in the global adjustment charge.  A second, rapidly growing problem, is the quality of the IESO's reporting on supply, and demand, is rapidly deteriorating.

While all charges (my numerator) for generation (and perhaps many other things) are included in estimates using total market demand at HOEP rates plus the bulk amount of all global adjustment classes, the amount of generation (my denominator) is not well reported as more and more solar and wind begin grabbing ratepayer dollars while embedded with local distribution companies beyond the view of the IESO.[3]

Estimating as best I can, I come up with an average unit cost of supply from which to calculate losses, over time, on net exports:

This May's record wholesale market pricing is probably a good indication we aren't raking it in on the export business.

June's second estimates from the IESO indicate the May record will be shattered by over 10%.

July's initial global adjustment estimate is higher than last July's global adjustment AND HOEP combined; another indicator things are now officially off the rails.

In this scenario or record net export levels coinciding with record domestic pricing, the Energy Minister and Sun columnist Blizzard are brought in to see the machines that are bling at the IESO's top secret building, where the IESO's new President and CEO reportedly claims we've "made $5-$6 billion selling excess electricity."

What is the appropriate position for somebody whose primarily ability is to say whatever the incumbent government wishes them to say?

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Endnotes
[1] Exports aren't necessarily sold at the HOEP rate - evidence (NEB, IESO) suggests they have been sold at, on average, approximately 10% higher pricing

[2] After the initial posting of this article, I spotted this reference to the Auditor General's statement on the cost Ontario's uncosted green energy plans (in an article by Parker Gallant):

“Based on our analysis of net exports and pricing data from the IESO, we estimated that from 2005 to the end of our audit in 2011, Ontario received $1.8 billion less for its electricity exports than what it actually cost electricity ratepayers of Ontario.”

This appears to be the same methodology which puts the annual costs pushing $900 million with the rate of increase accelerating (monthly exports at global adjustment rate).


[3] The IESO is in charge of the smart metering data - collected from essentially every household in the province - yet they provide no indication they have a clue what generators - a much smaller data set - are generating.

[3] It has been almost 2 years since The Financial Post published "Power Dumping" - much of this post is a rehash/update of the information Parker Gallant and I wrote on them.