Monday, March 15, 2021

Ontario's electricity system has not yet passed gas

Ontario's electricity system has not yet passed gas 1 Ontario’s electricity system includes generators fueled by natural gas. This is suddenly a hot topic as a campaign lobbying councils to say no to this type of generation moves through municipalities. The “no gas” lobbying appeals to a desire to reduce greenhouse gas emissions, exploiting predictions of increased use of natural gas in generating electricity in the province. This article will explore what entities have been the key drivers of emissions in Ontario’s electricity system, the credibility of the body being cited predicting increased generation fueled by natural gas and, if all goes well, convince the reader they are not willing to decrease global carbon emissions at any cost.

Background on the IESO’s pretend market

My previous post reconstructed a method to estimate losses on electricity exports out of Ontario. The measure does not indicate Ontario would be better off if it didn’t export its excess, but that Ontario would be better off with data discipline and consistent metrics capable of informing, and influencing, the managers of the system. Most years we pay more, per unit of electricity, and receive less from exporters of that electricity. It’s a bad trend, but not one Ontario’s electricity system has been structured to notice.

In Ontario the system is operated by the IESO. The IESO’s system includes what should be called a pretend market - it was called a hybrid market when introduced in 2005 after a collapsed attempt at a real market, but it’s deteriorated significantly since then. From a recent report:

...Over 98% of Ontario’s generation costs are controlled through either regulation or contracts, and even the fixed costs of most of the assets that trade on the market are contracted. As a result, less than 2% of the total system costs are actually price-exposed and influenced by the market (the dark blue area)
The creation of a market for electricity in Ontario revealed itself as a fantasy in four acts:
  1. the freezing of the market price shortly after its birth in 2002 killed any chance of merchant generation getting built;
  2. the introduction of the global adjustment mechanism (2005) separated the contracting of new generation from a need for revenue from sales into the market, and was accompanied by regulating rates for public Ontario Power Generation (OPG) nuclear and very large hydroelectric generators;
  3. the introduction of contingency payments to keep coal generators operating after the market collapse of 2008, and,
  4. Regulating the rates for the remainder of OPG’s hydro-electric facilities for 2015.

The final 2 of these 4, it must be noted, only removed publicly owned generation from being reliant on market rates for revenue. There’s been nothing resembling a functioning market for private generators in the IESO’s system for 15 years. Even imports, the final supplies exposed to a market price, were impacted through a contract signed in 2016 with Quebec removing 2 TWh a year that had been exposed to the so-called market’s pricing.

Generation from fossil fuels in Ontario 2008-2020

The market inherited a number of contracts with natural gas fueled non-utility generators (NUGs) when it began in 2002. These contracts originated in the latter half of the 1980’s as Liberal governments under David Peterson (with NDP support) bought into the soft path’s efficiency tenet in forcing the publicly integrated utility (Ontario Hydro) to sign must-take contracts with private generators, often cogeneration facilities, at prices far higher than those received by the public utility. As the global adjustment came into existence a second wave of contracted “clean” (as they were called at the time) generation from natural gas occurred from 2005-2008. The contracts from the current century are mostly “net revenue requirement” (NRR) contracts which pay the generator to be available and in return the generator is expected to play a role in the pretend market - although any profits made through selling above the cost of fuel are to be clawed back by the system operator. NRR generators, unlike the older NUGs, need not produce any electricity to be profitable. Looking at generation from fossil fuels we therefore have 2 distinct groups: committed (the aged NUG contracts require payment on all that’s generated), and discretionary (the generator is paid regardless of whether it is dispatched by the system operator to generate). At the end of 2016 the IESO bought out most remaining NUG contracts, and since then most gas generation is discretionary, and is dispatched through the structure of the IESO’s system.

I wanted a method to measure the amount of generation fueled by natural gas, and coal, that did not serve the Ontario consumer, but to better demonstrate related issues with Ontario’s electricity supply system I will use two methods. As with my previous post on exports, and models in general, specific numbers are less meaningful than trends. An electricity system needs more than just energy - things like operating reserves and ancillary services - but for my purposes I’ll stick to electricity. What is being measured is therefore the generation not necessary to meet demand for energy from the IESO-controlled grid (ICG) - although the IESO may need those generators to be productive for non-energy specific purposes (such as meeting operating reserve requirements).

Net zero Ontario Electricity System

Each of the past 6 years the IESO’s system exported more electricity than it generated by burning natural gas. If exports simply displaced generation from natural gas in the United States, Ontario could be considered a “net zero” jurisdiction, but 46% of exports over that period have been to Michigan. Exports into Michigan may get wheeled through to other states, and these exports are likely to displace coal in either Michigan, Indiana, or Ohio.

Net zero is a significant over-estimate of annual emissions from Ontario’s electricity system: if it was removed from the planet emissions from electricity generation would rise.

This does not mean Ontario can’t lower emissions, although it offers a firm warning that the net impact of meddling with the system could be negative for global emissions.

An argument that gas could be eliminated is that exporting occurs during periods of surplus “baseload” generation, which isn’t when gas is fueling generation. I’ll use two methods of analyzing hourly data to demonstrate that a surplus of contracted generation is not solely driving exports.

Methods to measure exported electricity generated with fossil fuels.

I’ll describe my approach to modelling, but realize many will skip to the summary - which is that in recent years 39% to 65% of natural gas generation in Ontario was not necessary to meet Ontario’s demand for electricity.

When the financial crisis of 2008-09 tanked the economy a new acronym entered our lexicon: SBG. Many in Ontario believe Surplus Baseload Generation (SBG) drives exports although few agree on what “baseload” is and not that many can describe a good methodology for determining what is “surplus”. In this analysis I want to avoid the term baseload, but instead speak to “committed” supply.

Using hourly data from 2008 through 2020 I summed the hourly generation reported for Ontario, by generator (2008-2014) or by fuel (2015-2020) added hourly trade figures and created an adjustment to balance the total to the IESO’s reported “Ontario Demand” (there are good reasons the two ought not be equal, but are similar). The electricity system requires supply that fulfils needs other than meeting demand - including auxiliary services and operational reserves - so I’ll not say all supply above Ontario Demand levels is necessarily “surplus” generated for export. However, the system does have to balance supply and demand so if the IESO needs to generate more electricity than is consumed in the province another, connected, grid is generating less electricity than is consumed in their jurisdiction. Perhaps it’s a moot point, but I will not say generation exceeding Ontario demand is for export, but that it is not to meet energy demand in Ontario.

Scenario 1

As shown earlier, most supply in Ontario is contracted, and for nuclear, hydro, wind, solar, and biomass those contracts pay for production. An older generation of contracts with generators fueled by natural gas also paid for output (on a ‘must take’ basis), so these are also included as committed supply. I use hourly generation totals for each supply type, with gas subdivided for committed supply (non-utility generators, or NUGs), and discretionary supply which bids into the system’s pretend market which often dispatches these generators to run based on that system’s structure. If dispatchable fossil fuels (dFF) could be eliminated from the operation of the system, this is the measure of how much supply would be in excess of the demand for electricity from the system.

It is assumed the IESO system utilized committed supply rationally, meaning that generator output has not been modelled (ie. hydro is assumed to have been optimally distributed). Similarly, I have not included estimates of curtailed supply in this hourly analysis, despite realizing that curtailment has averaged at least 762 MW over the past 7 years. [1]

Since 2012 Ontario has had a surplus of committed supply (treating all publicly owned hydro as committed supply even prior to all public generators receiving a regulated rate for 2015). Over the past 7 years the average hourly excess of committed generation above Ontario demand is 1,050 MW. Couple that with the annual curtailment reported by the IESO (for wind, solar and nuclear) and Ontario Power Generation (for hydro) and the excess grows to at least 1,812 MW.

Supply from discretionary/dispatched fossil fuel generators above the level required to meet Ontario demand is greater, on average, during hours when Ontario does not have a surplus of committed generation. This demonstrates not all exports are due to what some call SBG: exports are constant with gas often stepping in when committed supply isn’t excessive.

Scenario 1 treats imports as irrelevant, but the public discourse continues to contain claims generation in Ontario can be replaced with imports from Quebec (which I dispute).

Scenario 2

Scenario 2 simply adds hourly imports to the committed generation in Ontario, which essentially makes committed generation equate to trivial-emission supply, as imports are mostly from hydro-rich Quebec, with only a drab of output from the few remaining non-utility generator (NUG) gas contracts.

The reason imports are omitted from scenario 1 is much of the trade is outside of the contract and its suspected much of the import from Quebec is wheeled through Ontario to US markets. The argument supporting the treatment of imports from Quebec as committed supply is some of it is: Ontario and Quebec have contracts with each other. This methodology is useful in addressing the chatter about replacing supply in Ontario with imports from Quebec. While I feel this chatter poorly informed it costs me little to show how much more oversupplied we are if existing imports are treated as Ontario supply.

Treating imports as committed supply in Ontario raises the average hourly excess of committed generation above Ontario demand over the past 7 years beyond 1,450 MW: coupled with the annual reported curtailment the excess grows beyond 2,200 MW.

Since 2013, under this scenario, over half of all fossil fuel generation in Ontario was not to service Ontario demand for electricity from the IESO-controlled grid (ICG), with the percentage climbing to a high of 75% of all gas generation being for other purposes/consumers in 2020.


Natural gas plays a critical role in many electricity systems, including Ontario’s. The past year saw failures in 2 of the 3 states that, like Ontario, operate their own systems as distinct markets: CAISO in California limited blackouts only with strong support from the population in reducing usage during their crisis while ERCOT, in Texas, failed on a much greater scale. New York, the third state with its own market, is still working towards its failure. The best people to defend gas’ role should be the operators of the systems.

But not so much.

In Ontario Jack Gibbons of the deceptively named Ontario Clean Air Alliance (OCAA) has been leading a campaign to get municipalities to petition the Ontario government to commit to ending gas in electricity generation by 2030 - and finding many councilors welcoming their campaign with the enthusiasm of a pious Swedish teenager. 
This petition is an unfortunate impediment to good policy as we don’t need an electricity policy outside the context of a broader energy policy. From the OCAA:
The greenhouse gas (GHG) pollution from Ontario’s gas-fired power plants will increase by more than 300% by 2030 and by 500% or more by 2040 as the province uses gas to replace aging nuclear plants and to meet growing demand for electricity from population growth and increased electrification (electric cars, home heating).
So? I’ve shown Ontario is net negative on emissions from electricity, once the impact of exports are considere, in this post. Ontario could grow emissions from its electricity sector and displace emissions in other sectors by far greater amounts. In the most recent accounting of annual greenhouse gas emissions electricity produced 1/10th the emissions from passenger vehicles (where electricity is planned to displace gasoline), and 1/10th the emissions from residential and service industry buildings (where electricity looks to displace direct burning of fossil fuels). The fetish with reducing emissions from the sector with 2.3% of the total will block efforts to address the building and personal transportation sectors which, combined, created 45% of the province’s emissions in 2018.

Childish councilors and prima donna “clean” campaigners aside the whole nonsense warns of a leadership and planning vacuum in the province.

I watched the Kingston council discussion of the policy, including presentations by the OCAA’s Gibbons (urging them on) and the IESO’s Terry Young - who was presumably expected to debate the other side of the proposal but did not:
[47:29] I'm not here to caution you about your motion. I'm really just here to make sure that you understand how gas is utilized in the sector that we have.

[55:19] ...we're agnostic about the resource that we use. The resources have to have certain characteristics so that we get the flexibility. We have resources that are baseload that provide the majority of the power, and that's largely nuclear and hydro, but then what we need is the resources that have the characteristics so as load goes up as demand goes up that generation can follow it and as it goes down you can turn it off.
That’s standard operating language for the large regional transmission organizations (RTOs) in the United States, but the IESO is not an RTO: it is active only in a province with a pretend market where much of the costs of supplying the electricity system is borne directly by taxpayers (and/or their descendants). Given this reality it seems reasonable for the population, via the government, to offer direction to the IESO. Does the population wish to subsidize exports at the $1.8 billion level I estimated for 2020 in order to reduce global emissions by the 10 million tonne of CO2e I estimated in this post? That’s $180/t CO2e - which is not much higher than the current federal government wants to push the price on emissions by 2030, so maybe they do - although I personally do not.

There’s also a question of what we expect from the IESO and their/our electricity system. Here’s 2 approaches to procuring firm capacity to ensure a reliable system:
  1. A capacity auction resulting in 10% actual generation, 8% actual import, and 80% demand response or “dispatchable load”;
  2. A single-source contract with a large legacy generator deemed necessary to the system as it can run on both natural gas or oil.
Both of these approaches have been taken by the IESO recently: the first in a capacity auction last December and the latter is promised in their 2020 Annual Planning Outlook.

It feels, to me, like experimentation, and that explains Mr. Young’s ‘que cera cera’ attitude to the continued operation of gas - why have an old reliable flexible generator when you’re free to experiment on new toys without financial constraint?

The campaign to have municipalities opine on something they know very little about coincides with a government avoiding participation in long-term planning. The government first revoked its responsibility to produce a long-term energy plan and then invited comments on abdicating the planning of “ the most reliable and cost-effective system,” to the IESO. If the current government is not setting parameters for planning we can’t be surprised municipalities are jumping into the void with whimsical demands.


[1]  The IESO has reported annual totals of curtailed nuclear, wind and solar since 2014. OPG reports on annual foregone regulated hydro. It is not known how much contracted hydro is curtailed and paid for by the IESO

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