Friday, September 9, 2011

August Electricity Stats, and Thoughts On the Election

I've been discombobulated this week, after driving my son off to begin university last weekend.  I did run my normal routines capturing summary figures for Ontario's electricity system in August, and I did watch energy specialists from Ontario's major parties, and the Greens, on The Agenda with Steve Paikin.  It was an ugly display for somebody with my positions on the electricity system.

My discombobulated might be far more coherent than people find in other places, so ... here's my look at August's stats using the Agenda discussion to indicate points of interest.

Mr Paikin started off the discussion with "The cost of energy seems to be going up.  How Come?"

The answer is probably somewhere between 'because we are eliminating coal' and; ' because the government is contracting supply that is more expensive, and has all but eliminated any hope of a functional market benefiting Ontario's energy consumers'.

I have a template for estimating the global adjustment figure.  I'm sure it is not entirely accurate - but it usually ends up underestimating the global adjustment figures by about 10%, and that should be true because the Ontario Power Authority's programs add about that much on top of the generation contracts.  For August, the figures from my estimates look like this:

MW $/MWh Expense
Nuclear 7,771,211 57.5 $446,844,633
Hydro 2,425,470 37 $89,742,390
Wind 143,204 135 $19,332,540
Gas 2,162,027 100 $216,202,700
Coal 533,675 35 $18,678,625
Other 68,349 600 $41,009,400
Solar 0 600 $0
Total 13,103,936 $63.48 $831,810,287


My estimates for August indicate the market recovered about $452 million through the hourly Ontario Energy Price (HOEP), and the other $379.5 will need to be paid through the global adjustment (GA).  The IESO estimate is currently $420.4 million, which is up 268% from $156.8 million in August 2010.

A couple of the people at that table on the TV show - most vociferously Mr. Dyck from the Green party, argued your rates are up around $73/MWh because of $57.50/MWh nuclear supply (the DRC charge I've dealt with separately).  To the extent that is true, it is only true because improving performance from an aging fleet of reactors is both replacing an even cheaper source, and contributing to increased dumping of excess production at rates far below the cost of production.

Confusing stuff to explain - but lets' start with the coal issue.

We are using less of the cheapest supply - coal.  This graph is a rearrangement of Figure 19 in every monthly IESO report, with the supply by fuel stacked from cheapest to most expensive, and the commodity charge (HOEP plus GA) added on a second Y axis):

My larger interest, at the moment, is this dysfunctional 'hybrid' market we have is producing a trend that higher consumption equates to lower prices ... but the point here is the coal-fired generation is inversely related to the commodity charge.  Note the highest price is in May - during the cheap hydro supply glut of the spring freshet!

But the answer that prices are increasing because we are replacing coal isn't very communicative.  It is how we are replacing coal that impacts not only the commodity charges, but delivery charges, the debt retirement charge (DRC), and the Ontario Clean Energy Benefit (OCEB).   The next chart is year-date figures with, primarily publicly owned, nuclear and hydro, at the base of the stack, and again the commodity charge/wholesale rate on the second axis.

Here we see an acceleration in price increases, which is largely unique to Ontario in North America.  We also see production stabilized after 2009's sharp drop.  In terms of the election, a breakdown of sources on year-to-date figures to the end of August, from just the last election of 2007 and now in 2011, shows the rapid price increase in 2011 is bizarrely accompanied by a banner year in cheaper hydro and nuclear (cheaper in terms of the rates paid to OPG and Bruce Power for their production).

So the big hit must be for natural gas - and those who follow the industry know that throughout the rest of our continent other sources of electricity are being made uneconomical by the current glut of cheap natural gas supply, while Ontario pays dearly  to private suppliers for natural gas supply.

The big hit on natural gas-fired generation is because the new supply is attracted by guaranteeing net revenue requirements.  Economically, this is where the 'green' energy is hammering the commodity charge.  It is because wind and solar are purchased on a must take basis that no other supplier will build in Ontario on the basis of selling their output into a free market.  A new CCGT plant in the US - and there are many - can expect to operate at a capacity factor of over 40%.  In Ontario the plant has no expectation of what their capacity factor might be in 5 years.  'Green' energy has also clearly had a big impact on the delivery section of the bill - and the demand reduction programs noted as barely existent, by the NDP and Green party participants in the TV discussion, will add over $300 million to bills this year.

I have argued, on this site, that the debt retirement is essentially dishonest now.  The value of Ontario Hydro was underestimated, and the value of OPG's generation is being used to fund private generation - private generation that is argued to be replacing coal.
The OCEB is, similarly, being used to disguise the true cost of changing supply and infrastructure.
Both are successful (as is the HST discussion) in that they deflect the conversation from real issues related to markets, and value ... and values.


  1. Great connection. The Pie Charts paint the picture clearly that gas (as contracted for in Ontario) has displaced coal despite claims that wind would. I think it's ironic that Suzuki on his site was anti-gas (the particulates are smaller and more damaging to our system then coal emissions) but he supports wind in the current election. In effect what he is supporting is what he is against--Ironic eh?

  2. Its a real hoot when the current Liberal TV infomercial comes on with McGuinty naming David Suzuki and stating the wonderful world of Green Wind Power growing from 10 units to 1000. Man, now that's progress. Let's see Premier Dad, doesn't say that he is subsidizing this orphan duck of energy. He doesn't tell the consumers that all this seed money is being removed from the province in support to preferred contracts to places like Sumsung. Premier Dad doesn't tell the people that when Green energy comes online it disrupts the entire provincial grid system. He doesn't tell the people that the consumers are on the hook for the difference between the actual Grid market price and the agreed Contract minimum limit to the Wind Farms.
    For 1.4 % of the province's energy producers Wind Power cause immense destabilization with the Market Price sold to the consumers. And you wonder why Ontario's industrial base is leaving for better places of business. But you have to expect this from liberals. They've been sold on government paychecks and the removal of those damned dirty industrial manufacturing jobs. Liberals want and plan to remove as much industry out of the province of Ontario as possible. And if you "Force Conservation" onto the backs of consumers. You can pretty well bet that industry will leave and so will million of skilled trades jobs. But in a liberal world, skilled trades are dirty people, unwanted, and unneeded.

  3. yes, gas is contracted preferrably by the Liberal government but where and to whom? Not to the companies owned by the Ontario tax payers, Ontario Power Generation, but to competitor companies whose profits leave the province and go elsewhere to out of province people. Please keep this in mind, that Ontario has no Gas and it buys out of province from Alberta. And Ontario is not the preferred customer. You pal, Dufus McGuinty screwed around and lost his position at the table with the United States consumers for preferred customer status. But that too is neatly left out of liberal MSM stories. I'm still trying to figure out the liberal mentality saying natural gas is a Good CO2, but coal fired plants are Bad CO2. Strange, when I took chemistry the charts didn't list Good or Bad CO2, but somewhere our progressive liberal education has created a new term for chemistry. Is that what they mean by CHANGE?