If limiting greenhouse gas emissions is the goal, the system is increasingly designed to fail.
Ontario fell into paying capacity payments over time. The key moments were a 2004/05 decision to offer "net revenue requirement contracts" to natural gas-fired generators - primarily to encourage market entrants to displace coal-fired generators. The enormous Lennox Generating station became less utilized and uneconomical - but the system operator felt it was necessary to the system and it started to receive contingency support payments soon after. In 2008/09 demand dropped with the recession, and the coal-fired generators (also felt necessary by system operators) also began receiving contingency support payments.
|Graphic from Behind the Switch .... | The Pembina Institute|
Traditionally, all numbers related to producing electricity are thrown into a calculation and out pops a levelized unit cost. The graphic displays some estimated ranges for these costs (they aren't reflective of costs in Ontario for legacy hydro and existing wind contracts)
Looking at the data from May-July 2013, and the same months in 2012, reveals the magic impact of capacity payments as replacing high cost generation with low-cost generation drives up Ontario's electricity rates.