Tuesday, February 11, 2020

The threat/promise of more electricity from natural gas in Ontario

presentation during the planning period of the IESO’s recently released Annual Planning Outlook (APO) included this line:
“Over time, production from [Ontario’s gas-fueled generator fleet] could exceed the utilization levels expected from those facilities (generally 40-60% capacity factor for [combined-cycle gas turbines]).“
The low utilization of generators contracted on capacity terms is something I tried to report on when writing of Available low-cost electricity not utilized in Ontario. We have been very far from 40-60% capacity factors over the past decade, and a breakdown of cost should demonstrate why that’s relevant to controlling expenses.

I am including in this analysis generators on the IESO-controlled grid fueled by natural gas and contracted under various Clean Energy Standard (CES) programs between 2005 and 2010. It may be anachronistic but a decade ago the authorities in Ontario were referring to gas as "clean"! The specific generating stations in this group are: Brighton Beach, Greenfield Energy Centre, Greenfield South, GTAA, Halton Hills, Portlands, Goreway, St. Clair and TransAlta Sarnia. Not all of these facilities would be on comparable net revenue requirement contracts (NRRs), and contracted capacity isn't provided for all facilities. There's some other reasons to expect minor discrepancies, but this simple presentation of data for an unedited grouping of generators shows capacity building into 2011, and utilization (indicated by the capacity factor) falling after 2012.

Net Revenue Requirement (NRR) contracts pay generators to be available to produce as needed, with profits made from selling into the market about fuel costs expected to be clawed back by the IESO. The cost of supply should therefore closely track the cost of fuel. I understand the NRR's to adjust to inflation annually, but in real terms the base cost of these generators is fixed while the fuel costs will vary from year to year based of the cost of natural gas and the utilization rates of the generators.

If you stare at the two graphics above you might note that 2017's output dropped notably (36%), but the total cost only dropped a little that year (6%). The next year, in 2018, output rose 80%, but the cost only went up 27%. That should demonstrate the impact of fixing much of the the cost with the NRR contracts - the more the plants are utilized the cheaper the unit cost.

I'll conclude with a return to the 40%-60%, "utilization levels expected from those facilities." The energy cost in the previous graphic becomes the incremental cost (basically the fuel cost) of the next megawatt-hour (MWh) of production. 8 of the past 9 years the energy/incremental rate has been less than $40/MWh (4 cents/kWh). In those years the average cost of supply at a 40% capacity factor would have been less than $75/MWh (7.5 cents/kWh), and at 60% capacity factors the average price since 2008 would be below 6 cents/kWh for output (including capacity costs) from gas-fired generators contracted on "Clean Energy Standard" programs.

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