Wednesday, June 1, 2011

Mayday, Mayday! Global Adjustment Still Soaring to Monthly Records

The operator of Ontario's electricity system, the IESO has posted it's 2nd estimate of the global adjustment for May 2011, and the estimated rate of $49.94/MWh is a record high, as is the $496.1 million dollars. I've been on the themes driving the increased pricing in Ontario for some time, and May serves as the starkest reminder of the remarkable callousness of Ontario's electricity policy in disregarding Ontario's residents, and it's businesses.

Preliminary numbers I've compiled, from various sources1, estimate May's relevant figures for the expense of electricity produced at the estimated price of each source. 
Update June 2nd:  With further research I believe the solar figure is far too high - probably by a factor of 4! - current capacity is likely around 250MW (220 + 27 in 2011), but the figure in the calculations is likely in 1 year 1).  It is unclear what the unaccounted for generation is.

If we purchase those volumes of electricity at those prices, our expenses would be approximately $768 million dollars. Total system revenues for this generation, prior to the application of the global adjustment, would be around $300 million dollars. 

There is $469 million of the approximately $500 million global adjustment total. The remainder would be divided up between other factors including paying suppliers to curtail supply, and customer demand reduction programs,.

I mentioned only a couple of weeks ago the impact natural gas policies were having on electricity pricing. Here's my guess at how the unseen contracts impact the decisions on how much power to generate with natural gas2:

The more we use the cheaper the price. This has had some pretty strange impacts this year. We added natural gas to replace coal, and at our peak production periods in January we were exporting thousands of MW's to drive down the price of the natural gas supply. US CCGT plants are operating at 45% capacity factors - running at half that is clearly far more expensive. I have pointed out that almost all of the time wind production in Ontario is less than the amount we are exporting. In May, the combined total from expensive wind generation and pricey natural gas generation was less than we were exporting almost half of all hours.
That's quite remarkable in a jurisdiction that has dumped it's traditional pricing advantage in electricity for the purpose of ridding itself of coal production, only to shackle itself with expensive natural gas contracts forcing the use of that only slightly less dirty source.

Here's the situation we are now in. Our cheapest supply is hydro, and our second cheapest is nuclear. In May, nuclear and hydro provided 85% of production, and that amounted to around 95% of all consumption in Ontario. This graphic of May shows 2011 with high nuclear and hydro production, but also with record net export levels:

Because of the need to generate with gas, and the inability to utilize any wind output economically, we have developed a bizarre relationship where lowered demand drives up the price, via the global adjustment.

Finally, I'll revisit a graph with updated figures including my estimates for May. This graph shows 12-month moving averages which have supply increasing while demand is now decreasing (May 2011 was near May 2009 levels of consumption), and that has the usual impact of driving the price higher exclusively via the global adjustment.

Low HOEP pricing (without the global adjustment) and high production levels equate to high export levels. As demonstrated in the first chart of this post, the exports we sold at a low price ($23/MWh), we bought at a high price ($64/MWh). In May the external purchases of Ontario electricity paid about $2 million a day less than it would cost Ontario's customers to purchase the same amount of power.

The wholesale rate for electricity to Ontario's businesses will be approximately $75.82/MWh in May 2011, 17% higher than May 2010, and $20/MWh more than the average price for the nuclear and hydro output that equalled 95% of our consumption.

Meanwhile, the Ontario Power Authority is holding 'stakeholder' consultations on an Integrated Power System Plan...

 1 Some are easier to explain than others - solar is particularly problematic.  It is treated as the difference between the IESO hourly generation reporting, and the figures compiled from the IESO historical .csv files (demand + export - import = generation).   The volume is plausible per OPA figures of installed capacity - the price is a guess based on large solar in the $400/MWh, and small as high as $800/MWh
2 There is guaranteed revenue requirement for the 5 CCGT plants contracted since 2007, estimated at $7900/MWmonth on the 4055MW, plus the cost of the fuel when the generators generate.

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