Sunday, January 20, 2013

Hundred of millions of dollars kept by Ontario's Ratepayers

The price of the electricity commodity in Ontario was only 2% higher in 2012.  The figure is a lot lower than anticipated, and it's worthwhile reviewing why that might be.
Sometimes I think it's a sin
When I feel like I'm losin' when I'm winnin' again. 
-an incorrect recollection of Sundown
According to the year-to-date "commodity charge" noted on the Independent Electricity System Operator (IESO) Decembers' reporting, the commodity charge was $73.3/MWh in 2012, up from $71.95 in 2011 (for a class B customer).

The increase is far less than anticipated in Ontario's Long Term Energy Plan.  The introduction of the Green Energy Act, in 2009, was accompanied by claims the impact on bills would be "about 1% per year of additional rate increase associated with the bill’s implementation over the next 15 years."  Expert analysis, such as that performed by Bruce Sharp, would soon show the costs would be much higher, and the government's November 2010 Long Term Energy Plan revealed "residential electricity prices are expected to rise by about 7.9 per cent annually" for the next 5 years.

With a market value of approximately $10 billion, total cost inflation in 2012 amounts to approximately $550 million less than anticipated.

The drop in the Hourly Ontario Energy Price (HOEP) continues, and that continues to indicate overcapacity.  The most recent release of the Ontario Energy Board (OEB) Market Surveillance Panel (MSP) notes:
612 MW of new capacity was installed in the 2011/12 Annual Period, principally from large-scale wind projects and a new gas-fired facility.  However, Ontario still experienced a net reduction in generating capacity due to the removal from service of two coal-fired generation units in January 2012, representing a loss of 975 MW of capacity. [see endnote 1]
The IESO notes only one industrial wind generator achieving commercial operation in 2012 - along with two nuclear units that entered service late in the year.  In fact the IESO didn't introduce a single wind generator to it's hourly reporting in 2012, although 2011's 3 additions drove up generation totals in 2012, their first full year of service.  Similarly, the impacts of the 2012's additional nuclear units are likely to have a much larger impact in 2013.

It is notable that 2 wind generators that started reporting in 2011 continue to avoid achieving "commercial operation" status even now - the only two "on grid" feed-in tariff (FIT) contract holders. Pointe-Aux-Roches and Comber both appear to be avoiding achieving commercial operation, and I'd suggest that is due to worries about the ability of the system operator to curtail their production once they do so.  I wrote a series of posts in 2011 which forecast over 40% of all wind generation, in upcoming years, was likely to bump hydroelectric and nuclear production, or to be dumped on export markets.  I neglected to note it may simply be curtailed.

In the summer of 2011 I had co-written an article with Parker Gallant on the cost of dumping surplus generation in export markets.  In that article we cited projections from a report Clearsky Advisors Inc.had prepared for the wind industry.  Comparing that report's forecast for 2012 to the actuals reported by the IESO, the growth in wind output, since 2010, is 1/3rd less than expected and net exports are 9.7 TWh less than Clearsky projected.

  • At $135/MWh, the 800 GWh reduction in the wind output equates to ~$108 million.
  • At a subsidy cost of $45/MWh, the 9.7 TWh reduction in net exports equates to $437 million (see endnote 22]).
The total is close to the $550 million not charged to ratepayers as the inflation rate was held to 2%.

Some of the savings may be short-lived.  The two nuclear units returned to service late in 2012 - not early in 2012 as had been expected.  That will put some pressure on export levels in 2013.

Nonetheless, it's hard not to assume some success in restraining supply.

The combined themes of continued surplus generation and uncertainty about payment requirements  under the FIT contracts appear to have led to the Canadian Wind Industry reducing expectations to an additional 2500MW of capacity by 2016; while that sounds impressive, contracts exist for approximetely 3000MW of additional wind without accouning for the "Samsung" deal's 2000MW (of which only 870MW have firm plans).

Nevertheless, there have been no announcements in changes to Ontario's electricity sector plans.
Parker Gallant recently estimated the cost of those plans at over $2000 per ratepayer.  Perhaps 2012 indicates those costs could be held to half that level.
That would be a win, of sorts, for ratepayers.

But it would feel like losin' ... again.

[1] The OEB MSP report is not correct.  They include Point Aux Roches in this total, which did enter reporting, but did not officially become "operational" during the time period, while omitting Comber, which also entered reporting but did not officially become operation during the time period.  Both Comber and Point Aux Roches are early feed-in tariff (FIT) contract recipients, and I presume the exceptionally long period during which they have been producing power without acquiring commercial operation status is due to a dispute over the requirement to pay suppliers during periods of curtailment.
Also of interest from the MSP report is this helpful discription of 'embedded' generators and their treatment in reporting:
In addition, 283 MW of renewable generation capacity (a combination of wind, solar/photovoltaic and bioenergy) under the feed-in tariff (or FIT) program came online in the 2011/12 Annual Period, as did 66 MW of renewable generation capacity under the micro-FIT program (for projects that are 10 kW or less).
  These generators are embedded with the service areas of distributors and are not directly connected to the
IESO-controlled grid.  They are not counted as additions to Ontario’s installed generation capacity as reported by the IESO, nor are they generally included in the analyses set out in this report.  Rather, when a generator that is embedded within the service area of a distributor produces power, the distributor’s demand for power from the IESO-controlled grid decreases.  Embedded generation capacity is therefore reflected as a reduction in Ontario demand.
[2]  From the IESO's .csv files for HOEP, demand, and import-export schedules:  Total HOEP value is estimated as "total market demand" multiplied by HOEP plus the sum of global adjustment dollars; that total then divided by the "total market demand" yields an averag cost/MWh of $65.49 in 2012.
The value of 1 MWh of net exports is hourly exports less imports, multiplied by HOEP.  Summarized to the year, the average revenue on is $20.44/MWh.


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