Tuesday, January 17, 2012

A Sober look at Ontario’s 2011 Electricity Figures

"He uses statistics as a drunken man uses lamp-posts...for support rather than illumination."
                                    -Andrew Lang (1844-1912) Scottish poet, novelist and literary critic

Ontario’s Independent Electricity System Operator (IESO) issued a news release on January 6th titled,“Composition of Ontario’s Electricity Supply Mix Continues to Change: Consumer Response Supports Reliability.” The introduction posits there were three trends highlighted in the data; “increasing production from renewable resources, reduced dependence on coal-fired units, and a more active role for consumers in managing their consumption.”   Not exactly the 3 trends I'd look for
  • The 'customers' most active in curtailing peak demand are businesses, as Parker Gallant and I demonstrated in a recent article. Many of them pitch in by closing up altogether;
  • Use of coal-fired generation is reduced because the periods we need it are down, but at peak demand we relied on coal-fired generation (I wrote on that here);
  • There is no trend to increasing production from renewables in the IESO data.
There is a brief uptick. From only the data presented by the IESO, summing up hydro and wind the numbers go from 39.7 TWh in 2008 to 40.4TWh in 2009, 33.5TWh in 2010, and then we have a singular point as an uptick in 2011, to 37.2TWh. While up on a dry 2010, the total renewables figure is unimpressive against a longer trend. In the past 22 years, renewables have infrequently produced less output than in 2011.

The IESO's news release is really talking about only the output of industrial wind turbines (IWT's).  The supporting statistic they lean on is a growth in wind generation of 1.1TWh.  The second paragraph ends with, "In annual terms, wind generation represented 2.6 per cent of total output across all fuel types of 149.9 TWh."  Yet, if we trust the figures in the report, and I do, we see Ontario Demand of 141.4 TWh and exports of 12.9TWh, with imports of only 3.9TWh.  Do the math and you discover that Ontario Production was not 149.9TWh, but 150.4 (in MWh, the difference is closer to 600,000).  The difference is because the IESO is reporting the sum of all hours in the years' Hourly Generator Output and Capability reporting system, which doesn't include small scale producers including, most notably a renewable source - solar production.  The figure grew by about 400GWh in 2011 over 2010, much of which is attributable to the growth in solar capacity.  In working through quarterly reports from the Ontario Power Authority (OPA), I found an annual tripling of solar capacity which would result in a 0.25TWh growth in annual production on a total of about 368GWh (an annual average of 300MW capacity operating at a 14% capacity factor).  These figures won't change the graph of renewables much, but  they do result in a big driver of 2011's price increases.
There's another category of Ontario production that isn't included in the IESO annual summary, and that is production from Ontario's generators that is fed directly to an adjacent grid.  This refers to, primarily, the Saunders hydroelectric plant, and I illustrated a method I've used to track in, since April 1st, 2011, in an earlier post.  As the winds returned in October, more turbines in Saunders were fed, for longer periods, into Quebec's grid.  In the final 9 months of 2011, over 700,000MWh of hydro production appear to have been output directly to Quebec's grid.  I discovered this long after posting a blog entry on how the IESO curtails supply during periods of surplus - and I also developed estimates on nuclear curtailment (about 577 hours and 195.GWh), and taking non-utility generators (NUGs) offline (about 167GWh).  None of these actions is particularly expensive in itself.  $35-$40 million is probably the cost to the private generators to curtail production, and public OPG curtailment likely doesn't cost us anything - hopefully we get something from Hydro-Quebec in return.
But ...
During the hours we took action not to have 1,075 GWh of production by redirecting hydro to another grid, redirecting steam away from turbines at Bruce B or idling NUGs for a period, 811 GWh of wind output existed to replace the output on our grid.  Put a couple of other ways, about 75% of reductions in production could have been cancelled out by wind, and about 21% of all wind production bumped another source.

The IESO report notes the total cost of power was $7.16 cents/kWh, up from $6.52 in 2010.  The numbers changed slightly due to the final global adjustment figure rising minimally to 4.02 cents/kWh ($40.22/MWh). The global adjustment (GA) has now, as predicted, become a larger component of the commodity price in Ontario than the market HOEP rate.  Using estimates of contractual pricing for each source, along with actual HOEP averages received for each (the more a source can be targeted to match demand, the more it is worth in a market), I've estimated the extent to which some sources subsidize others, and the systemic costs, in Ontario's electricity system..

The price each MWh averaged in 2010 is $68.23, which is calculated by multiplying all Ontario Demand by the commodity price (HOEP + GA), multiplying exports only  by the HOEP, and dividing those total dollars by all domestic and export demand.

The data above has the notable discrepancy where the costs of all supply is about $900 million less than the recovered amounts.  A slight majority of this discrepancy is explained by the funding of OPA programs.  The OPA had budgetted $421 million for 2011 in their 2011-2013 business plan filed late in 2010, plus $1789 million for generation contracts.  The IESO figures show the OPA's share of the global adjustment ended 2011 at $2865.6 million, which is $655.6 million more than planned only 14 months ago.  Much of the remaining discrepancy is likely paying for the continued operation of OPG's coal-fired thermal plants at Nanticoke and Lambton [1], and a small amount will be payments to curtail production at generators contracted on a must-take basis
I highlighted exports in the chart to demonstrate why the commodity $/MWh in Ontario was not the $68.23 I ran these figures at, but $71.68.  Exports don't pay the global adjustment - so that is power we paid suppliers $68.23/MWh for, and resold at $30.27 - the difference drives up the Global Adjustment for Ontario customers by about $500 million

It is a frequent refrain in Ontario's IWT and solar lobbies that renewables cannot be responsible for rate increases  because there are not that many of them.  We see clearly they added about $440 million to the global adjustment directly, and I've already noted expensive wind bumps cheaper power much of the time, adding somewhere around another $40 million in paying other producers not to produce.  The big hit, however, is in the natural gas-fired generation pricing.  Throughout North America depressed natural gas prices are keeping electricity market pricing at low levels - except in Ontario where low capacity factors at private gas generators demand contracts at much higher levels.  Those capacity factors are low because the gas plants are there to supplement the grid only during the daily peaks, or when wind and/or sun are absent.  This appears sensible to many, but I don't know how people reconcile clean public hydro subsidizing private natural gas ... particularly while hydroelectric turbines are redirected away from Ontario's grid.

The majority of hydro, and nuclear, production is publicly owned by OPG.  Much of the nearly $2 billion 'net contribution' to the global adjustment mechanism from those sources is essentially a transfer of wealth from public to private hands.  Those private hands note 2 things when this is observed: the debt retirement charge shows the error of public generation, and new public projects continue to be very costly.  The debt retirement charge I've covered before, and there has only been confirmation of my arguments since that time.  The McGuinty government imposed a system to take $1 billion a year as a payment for public debt, while taking $2 billion a year from the production of public assets.  The two big hydroelectric projects currently being undertaken by OPG are the Niagara Tunnel and the Lower Mattagami projects.  It's a topic that deserves a separate column - for now I'll state I don't believe either makes sense as a standalone project.  Both seem designed to strengthen the ability of those plants to balance intermittent generation - and OPG is prohibited from building the intermittent generation it is spending recklessly to support.

The change in pricing is therefore all very predictable - we are replacing the cheapest generation (although the one the market values the highest!)- coal, and doing so by focusing all new generation projects around supporting the most expensive options (which also are the option valued lease by the market). Many would see this as the cost of addressing greenhouse gas emissions, and some discuss health impacts from burning coal.  Both of those measurements escape quick year-end review because we don't really measure those things directly.  These are very broad topics, but for today I'll apply the same figures I've been applying in past posts (.85MT/MWh CO2e for Coal, .5 for natural gas), to look at annual GHG emissions from electricity generation back to 1990.[2] 

It does look like 2011's emissions will drop below the level of 1994.  Total demand in Ontario was about 5% higher in 2011 than it was in 1994 (and 1994 was about 5% below 1989's demand level!), so the low emissions back then aren't because demand was much lower.  The gas replacing coal correlation, to emissions, is straightforward using most emissions intensity targets in use...
as is correlation with the amount of nuclear generation, which had, in 2011, it's most productive year since 1995.  Perhaps a longer trend should be noted too - when nuclear production dropped, emissions rose, and when nuclear production has been highest, emissions have been the lowest.  The main difference between 1994 and 2011, in the generation mix, is natural gas replaced coal.

[1] Managed through the Ontario Electricity Finance Corporation (OEFC), with some information provided here and in their 2010 annual report
[2]  The specific figures change retroactively, ie. in Canada's GHG inventory reporting for 2004, 1990 emissions were 26400 (kt CO2 eq) but by .2009 the emissions for 1990 had dropped to 24400.  As far as I know there is no actual measurement, and the simplest way to reduce emissions is to change your estimating method!


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