Saturday, June 11, 2011

A Valuable Lesson From Ontario-Quebec Electricity Trade

During the first 10 days of June the data shows Ontario has been a net exporter of electricity to Quebec, of approximately 27,565 MWh. Combine the hourly intertie data with hourly price data, and you get a net payment to Quebec of about $3,685,811, which works out to paying Quebec about $134/MWh - just using the net figures. Out of context it isn't a meaningful statistic, but put in context it communicates a lot about value in electricity generation sources. (updated June 12 - see end note 2)

Net Exports Divided by Net Revenue ($/MWh):

Quebec Not Quebec Total
April $6.11 $27.22 $22.12
May $10.85 $25.20 $21.89
June -$133.71 $32.47 $19.88

It's been a busy month for electricity policy both provincially, and globally. The Ontario Power Authority (OPA) held 'Stakeholder' Consultation sessions. I've been meaning to get around to addressing this because they should infuriate most residents of Ontario, both because there was little discussion of ratepayers' interest, and because there seemed to be no concept of value, but only of cost. Tackling the shortcoming of the LUEC (levelized unit electricity cost) models is a daunting task, but one a serious attempt at a long-term plan would address, and while it was rolling around my head, along came a number of reports from the wind machine. Most notably to me was a study prepared for CANWEA by Clearsky Advisors Inc., which I flipped through to see all the calculations, including some rather bizarre metrics on person-years of employment per GWh (wind was 2nd highest, only to PV), and conversely cost per person-year by technology, where wind was second lowest (only to PV). Despite trying to trick folks away from the inadequate LUEC models, this still completely misses the idea of value.
The study was yet another take on the economic argument that spending is good - in fact the green subsidies in Ontario, via the FIT mechanism, are backed by primarily the same economic philosophy that declares war is good, because it creates jobs. Hurricanes and earthquakes, tsunamis and tornadoes are all good too. My personal favourite is just collectively going into debt to give people money to spend is good for the economy. Again, too big a topic for me to fully grasp or communicate, but there is something wrong about calculating the benefit of something without reference to the value of it, and the value displaced for it.
During the past week there was also an Equinox Summit; Energy 2030, hosted in Ontario as an initiative of the Waterloo Global Science intiative. It has lectures, and other sessions, available for viewing online and I would invite readers to do so. I mention it because the 2030 date hosted by this conference, full of debate and intelligence, is roughly the same as the OPA's IPSP sessions, which are full on nonsense - mostly based on the nonsensical starting points of the supply mix and LTEP ... but those are subjects I've already covered.
Let's return to a concrete example of a more valuable generation source.
Value is simple to define in the market sense. It is the price a willing buyer would pay a willing seller. Our electricity markets are far from perfect, but they are not totally dysfunctional.
Exports from Ontario behave rationally. There are lots of facts impacting intertie volume, but overall we see that the volume isn't unrelated to price1:

Aside from April, where there is significant intertie activity generally we export more to the jurisdictions where the price looked to be higher. But that correlation isn't correct, as we see from the same charting of the importing into Ontario data:

We are importing by far the most electricity from the most expensive jurisdiction to import from. This isn't nearly as irrational as it appears, nor is the shock statistic I began this entry with.  The reason Quebec buys cheap and sells expensive is related to when they buy and when they sell. The following graphs show the average figures for the months, by hour of day. It is easy to see Quebec is importing when it is cheapest and exporting as the price is higher.

This is a clear demonstration of the value of Quebec's reservoir hydro, which isn't determined by the LUEC, it is determined by Quebec's participation in markets, with a product that has the ability to meet demand when willing buyers will pay more.

So the story is informative, in a positive way, about how to properly value sourcing in a broader context of markets and supply mix.

I'd caution people in Ontario about simply shrugging at this point. The OPA hearings for the Integrated Power System Plan don't seriously refer to value propositions.. The very concept of 'stakeholders' is somewhat repugnant, because the word only means lobbyist. The question from these import/export statistics remains why does Ontario import the Quebec output during the day - and presumably it is to avoid the emissions from running sources like coal and gas. However, in a broad market context inclusive of interties, they may do no such thing. Instead of more power being exported to the New England states from Quebec, those states likely burn more gas and coal to compensate for Ontario's purchases. Idling the cleaner coal units at Lambton and Nanticoke may be a feel good measure too, but that also prevents them from replacing dirtier sources in Michigan, Indiana, Ohio, etc. In fact Ontario measures it's emission reduction success against 1990, without accounting for dirty imports in 1990 - a year we imported a lot of electricity.

data is from daily IESO tables (by hour) for HOEP and intertie, complete for April and May and for first 10 days of June
2  I failed to note a data input error, on my part, for June 10th, and the original post noted, incorrectly, a net export rate of -$833.26, a net payment of $3,798,242 and a net export volume of 4,555MWh. While the difference in rate is dramatic, the dollars are actually little changed, only the export volume.


  1. I drop a leave a response whenever I like a article on a website or
    I have something to contribute to the conversation. Usually it's a result of the passion displayed in the article I read. And on this article "A Valuable Lesson From Ontario-Quebec Electricity Trade". I was excited enough to drop a thought :) I actually do have a couple of questions for you if you do not mind. Could it be only me or do a few of the remarks appear like written by brain dead visitors? :-P And, if you are posting on additional sites, I would like to follow anything fresh you have to post. Would you make a list all of your community pages like your twitter feed, Facebook page or linkedin profile?

    Look at my web-site; diets that Work

  2. Hey I know this is off topic but I was wondering
    if you knew of any widgets I could add to my
    blog that automatically tweet my newest twitter updates.
    I've been looking for a plug-in like this for quite some time and was hoping maybe you would have some experience with something like this. Please let me know if you run into anything. I truly enjoy reading your blog and I look forward to your new updates.

    My web-site: barbariousness

  3. Very good post. I definitely love this website.
    Continue the good work!

    Also visit my web-site - online graduate certificate

  4. Good post. I learn something new and challenging on websites I stumbleupon on a daily
    basis. It will always be interesting to read content from other writers and practice something from other web sites.

    Also visit my site airplane simulator games

  5. I'll immediately grasp your rss feed as I can not find your email subscription link or e-newsletter service. Do you have any? Please let me realize so that I could subscribe. Thanks.

    Also visit my web page; Daily car insurance