Friday, June 28, 2013

Ontario's Electricity System Plan: Designed Uncompetitiveness

In a recent Google search I accidentally stumbled upon the original news release from the ministry on signing the Greenfield South project, which is the now famous Mississauaga project to be relocated hundreds of kilometers from Mississauga, in the Sarnia-Lambton area.  The 2005 release, combined with information provided in a presentation by the Ontario Power Authority's Amir Shalaby last year, can be used to communicate why Ontario's planned supply mix cannot produce electricity at costs competitive with most other jurisdictions.

Here's how the 2005 press release described the capacity payment mechanism of Ontario's natural gas contracts:
The contract winners are assured that they will have sufficient ongoing revenue to meet their fixed project costs, such as capital and financing, if they operate efficiently according to the pre-agreed standards. When market revenues exceed these fixed-cost requirements, the contracts stipulate that 95 per cent of the surplus will flow back to ratepayers. The proponents that submitted proposals under this RFP each bid a "Net Revenue Requirement" (NRR), which includes all fixed project costs. The weighted average NRR that was bid by the six selected proponents is about $7,900 per megawatt-month. This is the average amount required on a per-megawatt basis to cover the monthly fixed costs of these projects.
The actual cost of power from the five generation facilities will vary with the price of natural gas, which fluctuates from season to season and year to year. However, using historical market data from the last two years as an example, the average price of power from the five generation projects would have been less than 7.8 cents per kilowatt-hour.
This provides much of the information to needed to calculate the levelized unit energy cost (LUEC): 
(capacity * capacity factor * hours * Heat Rate * Gas Cost/MMBtu) + NRR / (capacity * capacity factor * hours)
Bringing the figures up-to-date, the last average NRR provided for natural gas generators was $13,187/MWmonth, but gas prices have fallen considerably: at $5/MMBtu (higher than it's been for some time now), and the 45% capacity factor noted in 2005's price release, the LUEC today would be roughly the same as the 7.8 cents/kWh projected in 2005.

Wednesday, June 26, 2013

Ontario's Class A Con: A problem of Machiavellian Governance

The government of Premier Wynne has recently backtracked on the McGuinty government's big green deal, launched a consultation on "siting large energy infrastructure" and is preparing to invite input on the next long-term energy plan.
The Ontario Energy Board (OEB MSP) recently released the latest report from it's Market Surveillance Panel, and that provides some fresh data, and analysis, through which I can review how the appearance of 'consultation' was manipulated in the past to the detriment of the average Ontario electricity consumer.

The Class A Global Adjustment

In 2009 Ontario's economy, particularly its manufacturing sector, was indisputably in trouble.  While the government prayed to the wrong deities, and had their prayers answered with the the Green Energy and Green Economy Act, Ontario's largest users of electricity sought to avoid the coming cost increases, and many of the charges they already incurred, by lobbying privately with government insiders.
The rumour was that it was the provincial Environment Minister who took up the cause and rammed through a change to the global adjustment mechanism that rewarded large users of electricity, now known as "Class A" customers, for being large users of electricity.

The changes occurred out of the light of disclosure and under the green cloak of the environmental registry.

This is not meant to slight the accomplishment of the Class A mechanism in reducing costs for Ontario's largest consumers of electricity.  Piecing together bits of information from the OEB MSP reports U.S. EIA and Ontario's IESO, it seems the program was very successful at transferring costs from Class A to other consumers.

Unfortunately, the accomplishment came at a rather steep cost if one is to place the level of faith in "conversation" espoused by Premier Wynne.

Conversation itself.

Sunday, June 16, 2013

May's Record electricity price only a hint of pain to come

When the IESO posts the monthly report for May 2013, it should show a record high commodity price of $92.97/MWh - comprised of an HOEP of $25.38/MWh and a Class B global adjustment charge of $67.59/MWh (also a record).

This is just a hint of the enormous increases Ontarians will be seeing though 2016.  Communicating those increases is something a number of people, including myself, have been attempting for some time; hopefully some of the graphics I've built will bring some urgency to the reader about what is occurring in Ontario; not simply in terms of energy pricing, but in the declining quality of public institutions, the data they provide, and the mainstream media dominated by forces disinterested in looking for the implications of the breakdowns in public governance demonstrated by events such as the gas plant scandals.

Thursday, June 13, 2013

The Final Day of Dalton McGuinty, MPP

The end of this session marks an opportune time for me to bring to a close my service to the people of Ottawa South as their member of provincial parliament.
I leave politics with my idealism intact and a deep sense of gratitude for the opportunity to have served in public life
"Idealism?" wrote Martin Regg Cohn, provincial politics writer for the Toronto Star.

"This is the point at which we could be saying generous things about Dalton McGuinty" began the column from the Globe and Mail's Ontario politics columnist Adam Radwanski.

Well maybe ... if it's warranted by his performance measured against his promised performance.

Dalton McGuinty came to power in 2003.  He'd lost his first election leading the Liberal party (as most first-time leaders do) to an incumbent Premier, but in 2003 Mike Harris had retired and Ernie Eves had been hurt by, amongst other issues, electricity costs.   

During the provincial election of 1971, when I was a teenager, over 73% of eligible voters went to the polls.
Voter turnout hit historic in 2007, and 2011
Lessons From Ontario's Record Low Election Turnout
By the 1999 election, the turnout among eligible voters was little over 50%.
When barely half our population takes the time to exercise their most basic democratic right, when turnout among young people and new Canadians hardly hits one-third, real change is needed.
People have lost faith in their politicians and their institutions of government.
Disturbing as it is, it is not hard to understand why.
For decades we have watched our democratic institutions erode. And for the last eight years we have seen these trends accelerate dramatically under the Harris-Eves government.

Sunday, June 9, 2013

The diminishing value, and increasing costs, of wind and solar generation in Ontario

This post is a follow-up to my previous post.
I've formatted some data to emphasize the full impact of the now defunct FIT program will not be felt for several years - and the price impacts, should the contracted projects be constructed, are likely to be increasingly more severe throughout that period.

"Value of wind production continues to drop"
The more wind, and the more solar, capacity that is added to the electricity system, the more expensive the entire system will become, unless the price of wind and solar is declining quickly enough to offset the diminishing value of a unit of output as capacity increases.

The Market Value of Variable Renewables, by Lion Hirth, writing for Vattenfall [1], inspired me to look at the data in Ontario with the idea of demonstrating that as wind output increased, the relative value of a unit of wind decreased.

Saturday, June 8, 2013

Wind Feed-in Tariffs in Ontario: An Info-Obit

Ontario's Ministry of Energy recently announced that, " the province will develop a competitive procurement process for renewable projects over 500 kilowatts (kW). The new process will replace the existing large project stream of the Feed-In Tariff (FIT) program."

I believe the announcement does end a FIT policy I've written extensively on, particularly in a pair of posts in November 2011 (here and here), and recently in a post concluding, of the FIT program.
It is a failure; a high cost, low value, artificial creature that deserves to be killed.
I say to the government, "well done"
but ...
The scenario that lead to the FIT policy, where professional planning was replaced with amatuerish whimsy, should not be allowed to repeat itself.
There is reason to believe that is exaclty what is happening.

Saturday, June 1, 2013

Ontario Electricity Rate Increases 38% since December

Ontario''s Independent Electricity System Operator (IESO) posted the estimate for the May 2013 Global Adjustment (GA), and it is $66.36/MWh. Coupled with my estimate of the Hourly Ontario Energy Price (HOEP) of $25.22, the monthly wholesale commodity rate in Ontario in May is estimated to be $91.58.

In December 2012, the HOEP was similar, at $25.51, but the GA was $40.64 - for a total of $66.15.

If you are a "class B" customer exposed to the market rate, the increase in your rate is therefore 38% in the past 5 months. Regulated price plans (including residential ones) will reflect the same costs, but not in the same months.

The last time prices approached this height, a government''s panicked rate freeze failed to prevent it''s electoral defeat. May''s commodity charge is the highest since Ontario''s market opened, and in reality it is much higher. While the HOEP exceeded $80/MWh early in 2003, it wasn''t meaningful for customers as there was a price freeze at $43/MWh introduced (with retroactive payments) after prices peaked in September 2002 at $83.14.

The IESO will eventually report May''s Ontario demand average just over 14,000MW per hour in May 2013, which is lower than they''ve reported for any month except May 2009. Don''t panic that the low total indicates we''ve returned to the depths of the recession; the IESO''s reporting is increasingly less indicative of actual supply, and actual demand, in the province.