Monday, January 27, 2014

Power Surge: 2013's annual commodity cost increase equals rise from 2006-2012

2013 Ontario Electricity Annual Review: Part 2 

The cost of the electricity commodity surged in 2013. I estimate the total cost for electricity grew from approximately $10.2 billion in 2012 to almost $11.9 billion in 2013; $1.7 billion is also the growth of the commodity cost between 2006 and 2012.

The price paid by most consumers in the province is determined by two things: the costs of purchasing supply, and the distribution of those costs between consumer classes.
TABLE 1: costs are increasingly being recoverd via the global adjustment
The simplest method to estimate the total cost of the market is to take the IESO's "Total Market Demand" valued at the Ontario market rate, and add the Global Adjustment (which is the charge for the supply costs not recovered by the market price). 1

Between the IESO's hourly data and the monthly global adjustment values, not only the overall value of the market can be estimated, but the costs per unit for different consumer segments.

GRAPH 1: Note that exports are far below the "Total market", or average rate; making the Class B rate above the average

Estimating the composition of costs that we know must add up to approximately $11.9 billion is not easy.  A comparison of my historical supply cost estimates only partially indicates where the increased costs came from; here I've added estimates for known additional expenses; curtailment, conservation/efficiency programs spending by the Ontario Power Authority (OPA) and partial costs of the Oakville Generating Station debacle.

There are many articles that have, or could, be written, reflected by these numbers.
Generation increases, in 2013, mostly came from the sources with the lowest per unit cost in traditional levelized unit cost accounting (hydro and nuclear);
  • generation declined for both gas and coal, which, per unit, were far more expensive that hydro and nuclear in 2012 (and even more so in 2013)
  • while solar growth was a fraction of nuclear's, by output, I have estimated it more than doubled in becoming the second largest contributor to the growth in total market costs, and it is entirely possible total payments for solar procurement exceeded payments for wind;
  • despite a predictable supply glut driving supply curtailment and dumping on export markets, the OPA spending on conservation likely continued unabated.
.Lessons that should be learned from this are:
  • the value of the next kilowatt is determined by the need for it;
  • In 2013, more frequently than not, there was no need to conserve. OPA spending was simply a waste;
  • In 2013, all new generation simply displaced the fuel cost of natural gas-fired generators procured with net revenue requirement contracts (by the OPA).
In 2013, Ontario's largest annual increase did occur only due to the cost of new supply but largely because the value of any additional supply was going to be essentially nil - as it will be in 2014.

My figures, hopefully, present a plausible estimate, while still being slightly below the figure estimated in Graph 1, providing a second path to the  $75/MWh average cost estimate.

$75 is below the commodity rate paid by most Ontario ratepayers which, according to the IESO's December 2013 report, was $85.68.

The majority of the difference is due to the export of 18.3TWh.  Valued at the hourly Ontario Energy Price (HOEP) [2], exported electricity recovered only about $24/MWh, transferring the remainder of the $75 average supply cost to Ontario's ratepayers.
That added about $6.55 to the per megawatt-hour charge in Ontario in 2013.

There is, since 2011, a second method of allocating global adjustment charges in Ontario that allows large, "Class A", customers the ability to lower their charges based on how little they can take off the grid during a period's 5 daily peak demand hours.  It's difficult to put a figure on the charges to Class A customers (and more difficult to explain it), but it's reasonable to say that the impact on the rest of Ontario's ratepayers is the ~$4/MWh that is the difference between the IESO's  $85.68 and the combination of the $75 average plus the $6.55 impact of dumping exports.


Part 1 of this review focussed more on supply components after beginning, "In 2013 Ontario's demand was little changed, while prices for the electricity commodity in Ontario escalated about 16%."  That figure has since been supported by the Independent Electricity System Operator (IESO) news release on its 2013 data, and their December monthly reporting
There are some discrepancies between the figures I've reported (in this post as well as part 1) and figure the IESO has reported on consumption by fuel types.Part of the difference is superior data at the IESO: my "unknown" is a calculated figure for the total generation indicated by the IESO's "Total Market Demand" and the data in the IESO's "Hourly Generator Output and Capability reporting;" that report does not include smaller generators, and I would assume most of my "unknown" would be smaller hydroelectric generation, and the IESO does show higher hydro generation.
Another part of a difference is due to changing definitions, or standards, at the IESO.  This is obscure; "total market demand" was defined to cover everything supplied.  In the past Ontario demand was "Total Market Demand" less exports, but that is no longer the case.
I have been unable to confirm why that changed.
A third problem with both the IESO reporting and my estimates is that there is strong growth in "embedded" generation - which are generators not on the grid.
What the IESO reports as "demand' is supply directly onto their grid, not including supply embedded with local distribution companies (behind the connection points).
What the IESO reports as demand can't be used for allocating costs, due to line loss (a little over 3% is estimated based on OEB annual yearbooks of electricity distributors); this was partially offset by embedded generation I've guessed was equal to about half of the line loss amount prior to the FIT program expanding embedded generation.
In this post it was assumed by the end of 2012 embedded generation was roughly equal to line loss, and that in 2013, and going forward, additional embedded generators will make the IESO's "Ontario Demand" increasingly less than actual demand.
That both exagerates whatever success the Ontario Power Authority's demand reduction programs have, and demonstrates that the OPA's non-existent accounting, and accountability, conveniently serves to hide the damage being done by their, on behalf of their governments, contracting.


1.  Ontario's Independent Electricity System Operator (IESO) monthly reporting states, in section 2.1, "The IESO calculates Total Market Demand by summing all output from generators registered in the Market plus all scheduled imports to the province."
Hourly .csv files are usually available for both demand (Ontario and "Total Market") and the Hourly Ontario Energy Price (HOEP), so it's possible to estimate the recoveries through market sales (exports need not be sold at the HOEP, but for many reasons, include this report, the methodology is known to be valid).
Currently the IESO has one data file from market inception in 2002 to the end of 2012, and another for the current year (2014).  I'm assuming the data that was posted for 2013 will return at some point.

2.  This values hourly exports at the hourly Ontario energy price (HOEP); support for this method of estimation can be found at Ontario's Electricity Export "Profits" | The Inside Agenda Blog

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