Price of Ontario's Electricity Policies Hits New High In April

The Global Adjustment rate for April is $43.89/MWh, which is the highest it has ever been. The reality of the mess we are in is being hidden by the mainstream press deflecting the blame from the government, such as Metro Martin's, “a small proportion of the recent hikes can be attributed to subsidies, for the simple reason that few renewable energy projects are up and running yet.” At The Globe and Mail, Adam Radwanski toned down the not-due-to government policy theme so trendy in the media hub of Toronto; “Mr. Hudak stands to capitalize on pocketbook angst over rising energy prices for which green projects have (to an exaggerated extent) been blamed.”

Exaggerated eh?

Eight years after the IESO began it's management of a market in supplying electricity, April's average HOEP price (weighted) of $29.71 is supplemented by an additional charge of $43.89 to cover the costs of our contracted supply commitments. The combined wholesale price, of $73.60, is up 7.5% from March's rate. Over time, the price has been increasing only because the government has been paying more for contracted supply - this graph shows the monthly HOEP in blue, and the the GA in red (notice during the hot summer of 2010 the final wholesale price irrationally dropped while the HOEP rationally escalated ):

I do not understand how an honest man could attribute that price increase to anything other than choosing to avoid markets that respond to lower consumption with lower prices via excessive contracting, both in price and volume, that rewards negotiating with government instead of producing efficient supply.

I've estimated the monthly generation totals, by energy source, using either IESO graphs or, more recently, IESO hourly data. Wind has now outpaced coal - so if we take the price increase and related it to the claims wind can replace coal, there's ample reason to attribute a portion of the price increase there. The wind output, for just April, was bought (assuming a price of $135/MWh) at about $45 million less than we paid for it. Similarly, we exported a little over 1 TWh, at the minimal HOEP prices without the global adjustment Ontarians pay - so there's another $45 million subsidy added on. That is not even a quarter of the total amount the global adjustment is calculated from.  For Ontarians to understand why prices are escalating, they need to start paying far more attention to the natural gas production.

Nuclear is cheaper than you pay (and the Ontario Energy Board won't allow it to receive more), and hydro is far less (under 4 cents/kWh - or $40/MWh). The wind supply is expensive, but the green bar, signifying primarily gas, is why the wholesale rate spikes when demand is low and hydro is plentiful.

There are two reasons for that. The first is the non-utility generator (NUG) contracts. These are primarily natural gas suppliers contracted by the now defunct Ontario Hydro. The Ontario Power Authority (OPA), in formulating an Integrated Power System Plan (IPSP), anticipated that as these contracts expired, the supply would become intermediate supply - meaning instead of having to take it all whenever it was provided, it could be matched to demand. Minister Duguid issued a directive, last October, indicating the OPA should try and extend the contracts, following lobbying from the larger NUG's.  Operationally, the NUG's add about 1000MW of baseload supply - in this case baseload due to the contracts, not the technology. Coupled with hydro and nuclear, that brings Ontario's baseload commitments to approximately 14000MW. Ontario's average hourly consumption in April was 14984MW - and hydro would have enough flexibility to almost meet that demand. The current IESO short-term forecast has baseload supply exceeding Ontario demand over 70% of the time.

So why do we run increasingly more gas production, much of which is for cheap exports?

That answer lies in the contracted gas supply since 2007. These 5 big CCGT plants have been cited as having net revenue requirements of $7900/MW month¹, and it has been implied we pay a fixed costs for their availability and then only the cost of the fuel when they actually run². This is why they run every time electricity is likely to stay above 3-3.5 cents/kWh for more than a couple of hours. While Ontario consumption is down near historic lows, Ontario production has had many hourly highs in the recent past, providing cheap exports to the US market. The dynamic is set by these sites - when they are not used they are paid for anyway and thus we see the relationship - as demand declines, price increases.

There are other contributors to that relationship. Bruce B was using steam bypass techniques not to produce electricity many nights in April - and the last 3 weekends it looks as though the IESO has managed to halt production at about half of the NUG's (for between 48 and 60 hours, as this a more complicated process involving the OEFC). These are instances where we likely pay suppliers not to produce - and then there are the instances where we pay suppliers to produce with gas while the turbines just spin at public hydro plants (April's hydro output seems very depressed considering a very healthy spring freshet).  Our supply policies do not synchronize with our demand management policies.

Perhaps the Globe's Radwanski meant that the government's gas policies are to blame - and not their green policies at all. The policies of the McGuinty government aren't that green - they demand gas be used even when it is unnecessary, they have made little, if any, progress on real transit and urban planning issues, and they have driven manufacturing away (almost always to higher polluting jurisdictions). Electricity was already a small portion of Ontario's emissions profile, and as commute times in the GTA have blossomed, the relevance of generation has shrunk even more.  The one environmental accomplishment the government could be credited with is replacing dirty US production with cheap Ontario exports. If reporters started with facts we'd have a much healthier discussion about how much energy we wish to give away to jurisdictions to save them running coal plants.

I think the figure is none.

1-Page 15 of this RPP document 

2-Page 35 of this transcript, lines 18-24