Monday, October 15, 2012

Developing A Culture of Incompetence in Ontario's Electricity Sector

On October 12 the Ontario Power Authority (OPA) released 20000 pages of documents related to the 'relocation' of a gas plant to service the southwestern GTA; from the southwestern GTA to hundreds of kilometres from the southwestern GTA (story here).  The 20000 pages are now added to the release of a number of heavily redacted documents weeks ago in what was, up until 20000 more pages,  a comprehensive sharing of documentation.  The interesting question, from my perspective, is not how 20000 pages were missed, it is how a culture came to exist where 20000 pages can be missed.

I'll start exploring that culture with some timely data following the latest meddling in Ontario's electricity market design.

Ontario's Independent Electricity System Operator (IESO) passed a rule change, effective October 1st, 2012, to prevent exporting electricity at negative prices.  Operators at the IESO had already been having some success at curtailing generation to control the occurance of negative pricing.  The most recent 12 month period (Oct. 1, 2011 to Sept. 30, 2012) had about half the number of hours with negative pricing as the same dates 3 years earlier.  The average negative price was 5 times greater [1]  than 3 years earlier, but still, in a market valued at roughly $10 billion per year, negative exports likely cost about $12 million.  There is no new market impetus for a new policy, and the stakeholder group exploring the issue did not suggest this policy.
It is another policy made for political reasons - in this case to avoid to optics of paying neighbours to take excess generation.
.
We've had 3 instances of negative Hourly Ontario Energy Price (HOEP) since the rule was to be effective - in each instance supply was curtailed by dispatching down nuclear units:
  • Oct. 1, hour 4, the price dropped to -$29.17/MWh.  Bruce B Unit 8 was dispatched down until hour 7
  • Oct. 4, hour 24, the price dropped to -$51.91/MWh, Bruce B Unit  7 was dispatched down until hour 6 of the 5th.
  • Oct. 9 hour 23, the price dropped to %-10.24/MWh, Bruce B Unit 7 was dispatched down until hour 4 of the 10th, and Pickering unit 4 suddenly dropped offline during that time.
Negative pricing has been studied in depth by the Ontario Energy Board (OEB) market surveillance panel (MSP - see page 32 of their latest report).  The OEB MSP is very informative on the technicalities and market mechanisms, but generally the negative pricing is simply attributable to demand being lower than anticipated, supply higher than anticipated, or committed 'baseload' supply exceeding the ability of the market (including export customers) to consume it.  In all 3 hours noted above, there was essentially no coal or natural gas generation that could be curtailed (the gas generators online at the times were primarily must-run sites), and there were no imports to curtail.

The negative pricing on the 1st appeared to be due to a sudden drop in export levels.  
The negative pricing on the 4th and the 9th occurred as Ontario demand was dropping rapidly (885 MW from hour 23 to 24 on the 4th, 1263MW between hours 22 and 23 on the 9th); during both periods wind generator output was high (1096MW and 1356MW).

The reason the wind generators carry on while nuclear units are maneuvered is noted in the previously cited MSP report, on page 36:
With SBG conditions throughout most of the night, the IESO changed wind generator offers in pre-dispatch from -$1/MWh to -$2,000/MWh
Ontario's market structure was intended to work off accepting the lowest bid, so dropping the bid to the ridiculously low price is preventing wind from being dispatched off.  The mechanism allows contracted generators to cross their arms, set their feet, drop their chin into their chest and say "No - I'm not gonna" when curtailing supply is required for the good of the system.

The long weekend saw very high surplus baseload generation (SBG) - although curtailments seemed to have remained below noticeable levels as exports remained possible.  The negative pricing on the 9th put an end to the luck with export markets accepting the surplus supply that had seen the system operator generate SBG alerts for all days since October began.
On October 9th the next 3 days had alerts but on the 10th, with Pickering Unit 4 suddenly offline, the alerts ceased.

The problems with dispatching off nuclear units include increased greenhouse gas emissions (slides 11 and 12 of this IESO presentation), and the financial considerations.  The IESO's stakeholder initiative is defining “Flexible nuclear generation” as "flexibility for reductions due to changes to the operation of condenser steam discharge valves (CSDV)" - this is the maneuver the Bruce units undergo to avoid generating electricity. The IESO noted possible implications of the maneuver:
... can lead to increased costs associated with inspections and repairs. The primary function of the CSDV is to bypass steam to the condenser under turbine load rejection conditions and not unit manoeuvring. Using the CSDV for something other than its intended purpose may result in increased risk of equipment failure.
The same IESO analysis also lists the implications of dispatching off wind turbines:
None
Considering generators as assets also seems to have been forgotten.  The IESO board's rash order is a temporary measure until they deal with another stakeholder initiative's conclusions regarding minimum bid pricing for different groups of generators.  While the -$2000 looks insane, the newly proposed minimum price of -$10 will accomplish the same trick most of the time because the proposed minimum for nuclear is -$5, so the "flexible nuclear generation" would still be dispatched first.  If nuclear "flexible" generation is one choice, dispatching off units at Pickering appears to be another (if the surplus will extend into the daytime hours).

This means that nuclear assets are required to adjust prior to assets with a fraction of their value.

Wind contracts pay ~$135 (earlier contracts may pay less, but with adjustor clauses may not), and Bruce B nuclear units have a floor price of ~$52/MWh.   In a reverse market, wind should be dispatched first (thus the game of setting the bid price to -$2000).  In meddling with regulation to prevent a functioning market, the curtailment in economic intelligence is more important that the curtailment of the electricity supply.

It does not seem anybody considered the impact on the cultural environment in the public sector of being forced to equate $135 with -$2,000, or of dispatching off billion dollar assets with full knowledge of negative implications instead of million dollar assets without negative implications, but it is within that cultural environment that a CCGT generating facility for the southwest GTA can end up hundreds of kilometres away from there, 20000 pages can be forgotten in releasing all documents, and a lowball figure of $40 million can be provided as a total cost, when the total cost of the relocation is more credibly estimated at nearly 20 times that amount.

Still, the added cost of relocating the plant are not the only substantial costs of the decision to relocate it.

I'll explore the ongoing costs of that decision in a future post.

---

Note:
[1]  This origally read that the average HOEP was 5 times "lower" than 3 years ago - which is exactly the opposite of being correct.
On a positive note, the IESO initiative setting minimum pricing may reduce the extent of the negative pricing, which is the aspect of the problem that is growing (the average negative price in 2012 is $51.96/MWh; in 2009 it was only $8.42/MWh).

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