Friday, November 2, 2012

ON latest stats; Reinforced lessons on policy errors

The beginning of the month can be a busy time querying the stats for regular reporting, and to evaluate the messages contained therein.  Recently there's also broad coverage on Ontario's electricity sector in the mainstream media that touches on many subjects I've written on previously.   The most recent figures reinforce some old messages related to the news of the day.

Increased Wind and Increased Coal

While the final days of the month led to coal having it's first decline in 8 weeks, it ended the month with an increase to 240 GWh, from 105 GWh the previous October, which was enough to move coal-fired generation in 2012 up on 2011 on a comparable year-to-date basis.
The jump in coal use did not surprise me as it accompanied a growth in wind generation of 50% from October 2011.  Gas-fired generation, meanwhile, fell 36% from October 2011.
Combined, this indicates emissions can fall through better supply management in allowing the most appropriate generation to be utilized; given Ontario's high baseload mix (hydro output was up 4%, nuclear 5%), and increased intermittent supply from renewables, there are situations when that probably is coal.
As renewable capacity increases, so too do the situations when the flexibility provided by the peaking depth of coal is desirable (see At the end of the IESO18-month outlook).

High Winds Make Wind Cheaper than Natural Gas Generation

My global adjustment estimates are built by generator, and for natural gas generators the average price I've estimated for October is ~$140/MWh, up from $83 in July.  This is because the more that gets generated, the cheaper the rate becomes.  October's 1.2 TWh estimate of gas-fired generation is my lowest monthly total for the fuel in 32 months.  Under a third of that 1.2 TWh was generated at the Greenfield, Halton Hills, Portlands, Goreway or St.Clair CGS sites - relatively recent builds with Net Revenue Requirement contracts likely over $15000 per MW month (reference).

A recent post demonstrated the levelized unit energy cost (LUEC) from the Oakville Generating Station, now planned for Bath, under different capacity factors - or utilization rates.  October provided a glimpse of what I'll call the Pembina scenario in that post, with the cumulative capacity factor for previously cited sites at 13.5% leading to a LUEC of $177/MWh despite low natural gas prices.

The increased presence of intermittent generation drives down the capacity factor of gas (and coal) units, and therefore drives up the price.

Negative Pricing and Exports Continue

The month started with the implementation of a rule to prevent exports at negative prices (see 3rd paragraph here).  By the end of the month the rule appears to have been unhelpful.
While the actual price exports are sold at is not available (and complicated by the involvement of multiple markets), monthly totals don't vary much from the value at the Hourly Ontario Energy Price (HOEP).  The IESO's figures for exports, and the HOEP, indicate about $3 million was paid to export electricity during negatively priced hours.

Originally appeared in "At Any Price ..."
It is notable that the most severe pricing events occurred towards the end of the month.  Analysis of Ontario's generation needs, treating renewables as negative load (here), shows that this is a time of year where versatility will be increasingly important in Ontario's generators.  The lack of versatility must result in excess generation - or curtailment of the intermittent sources that corrupt the load profile.

It could be seen as courageous that the IESO introduced this rule entering such a challenging period, but in it's early testing, the rule appears to be a failure.

The Global Adjustment

The past 3 months the month-end estimate of the global adjustment I've made has been more accurate than the second estimate from the IESO.  They'll need to revise upward their estimate of $542 million by close to 10% if the final ends close to my estimate of  $585 million. (previous article on the diffence)

The weighted average HOEP is only around $22.26 for October, so even a 10% hike on the IESO's new estimated Class B rate, of $52.02 will only push the total commodity charge to the regulated price plans most Ontarians would know, which is around $80/MWh (my supply cost estimates are here - for more on the global adjustment see here).

Transfer of Wealth From Public Generator to Public Generators

Tom Adams' Green Zombies , in the Financial Post, provided an overview of  Premier McGuinty's electricity policy history.   I recently tweeted a reference to an article I'd written during the summer of 2011, and Mr. Adam's article was one more reason to return my attention to Duncan's Grow-Op is Stealing Hydro, in which I included a 2004 quote from Mr. Duncan indicating, to me (with hindsight) the planned strangulation of public power and transfer of wealth to private operators:
OPG's nuclear and baseload hydroelectric assets would be regulated by the Ontario Energy Board...Fixed prices for a large part of the energy consumed in the province would keep the overall blended price for electricity relatively stable.
In the article I provided a graphical overview indicating the 'fixed' pricing at OPG meant their average rate was stable while overall rates escalated in Ontario.  With the database I now maintain I can provide better estimates - with a breakdown separating Bruce Nuclear and OPG from all other generation (no solar is included, and the figures do not include the share of OPA's CDM programs also included in the global adjustment).

OPG rates actually look to be falling back towards $50/MWh.  This is due to the depressed HOEP price impacting their our unregulated hydroelectric assets, which is essentially the only generation in the province the government has not provided a contracted rate to.
The rates for OPG have been, essentially, 'fixed' for a very long time.

Bruce Power average rates likely fell, on a 12-month moving average basis, as Bruce A units, contracted at a higher rate than Bruce B units, were removed from service for life-extension projects.  Recently 3 of the 4 Bruce A units, including 2 newly refurbished units operating for the first time in a 14 years, are operating so the Bruce Power pricing will now increase.
Obviously the most expensive generation is neither public not nuclear.  The annual price of all other power is over $100/MWh.  It is the most volatile pricing precisely because it moves up on low generating levels (the shoulder seasons), and down on high generating levels (particularly summer heat).

Mr. Duncan is the architect of a system designed to pay the public generator far less than their output is resold at, in order to fund paying private generators far more.

The Debt Retirement Charge

The Ontario Electricity Financial Corporation Annual Report for 2011-2012 has not been presented.
This is the first time since 2002-03 when the Annual report was not presented prior to November 1st.  At that time a fall election had delayed the sitting of the legislature; generally the annual reports are filed while the legislature is sitting, but that was not the case when the Annual Report for 2010-2011 was hurried out in the summer of 2011 with the appearance of providing a defense for the governing Liberal Party under attack for continuing to apply the Debt Retirement Charge (DRC) after the Residual Stranded Debt (RSD) that he PC's claimed should have been retired.

When the government did provide information on the Residual Stranded Debt, beneath the words lay facts that showed the last full year before the Liberals took power, the RSD stood at $7.5 billion (March 31, 2003).  After 8 years collecting approximately $1 billion a year from the DRC, it still stood at $5.8 billion (March 31, 2011), and had been rising in recent years.

Encouragingly, the government projected the RSD would fall rapidly in the years ending March 31, 2012 and 2013.  Discouragingly, it seems unlikely that other sources will suddenly provide sufficient funds to halt the pilfering of the DRC as the profits at Hydro One did not change significantly from the prior year, nor did the profits at other distribution companies, and OPG is kept in the position of having essentially no profits (as discussed above).
Most discouragingly, the projection is made by the Finance Department - the Minister of Finance being the architect of the continued debt, Dwight Duncan.

All of which belongs in a monthly review for October only to point out the 2011-12 Annual report of the OEFC is long past due.

The likelihood is that the ~$1 billion in DRC received will not go to retiring debt.

The Gas Plant Cancellation Costs

The big news in the mainstream media continues to be various estimates of the cost to Ontario taxpayers, and/or ratepayers.  Some reports (such as this), put the cost in the area of $1 billion.

We weren't sure exactly how they'd throw $1 billion away, but we did know it happens every year.


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