Thursday, October 28, 2021

ignore those promoting a death date for natural gas in Ontario's Electricity System

The last contracting of a new and significant natural gas-fired generating station in Ontario happened 12 years ago.

It's been 7 months since my previous post. Among the reasons for my blogging hiatus is the prominence of the future of natural gas as discussed in the mainstream media, at municipal councils, and at the province’s electricity system operator (IESO). This has put me in the uncomfortable position of advocating for Ontario’s natural gas generating capacity, which I do unenthusiastically, but responsibly must in advocating for consumers. My previous post was titled ‘Ontario’s electricity system has not yet passed gas.’ This post will provide background on the building of natural gas-fueled generating in Ontario with the intent of altering the popular perception of expertise on environmentalism and electricity.

11 years ago I began communicating that the extremely generous feed-in tariff contracts (FITs) being awarded had to result in steep increases in electricity rates. I demonstrated what must, and consequently did, happen in writing driven by my research and data work. Today most ‘experts’ say there were obvious flaws in the procurement of electricity supply in Ontario a decade ago that any idiot could see, but I assure you few idiots, and only a tiny minority of allegedly ‘expert’ ones, did at the time. My target market in writing was primarily the people working in government who had to sit around a table listening to spectacularly poor direction from a Minister or Premier to arm them with better information than the politicians and lobbyists in the hopes of allowing public servants the weaponry to resist those people and actually serve the public. Today the situation is considerably different: the IESO has produced a solid report in response to calls, from lobbyists and politicians, for natural gas to be phased out by 2030.

It’s been several years since direction from the provincial government was obnoxiously poor.

The problems today are elsewhere.

The Ontario Clean Air Alliance (OCAA), led by Jack Gibbons, has seized the opportunity to return to the limelight in Ontario’s energy discourse in calling for “a complete gas plant phase-out by 2030,” an idea it’s actively working to get municipal councils to endorse and commit to desiring. The campaign has had some success as municipalities join on, but phasing out gas has long been a desire of the provincial legislature. Want is not the issue.

Here’s how the OCAA began its response to the system operator’s report:
Yesterday the so-called “Independent” Electricity System Operator (IESO), under the helm of climate denier Joe Oliver, released a report that seems more like a pre-Halloween prank than a serious analysis of how Ontario can lower its climate pollution by phasing out gas-fired electricity generation.
Jack Gibbons is not one who should be talking about emissions in anything but an apologetic manner - as is true of many people the press considers both environmentalists and experts in Ontario electricity policy.

The desire to eliminate all fossil fuels from electricity existed back in 2002 when a report of a Committee of the Legislative Assembly kicked off the province’s off-coal policy:
...based on current technology, Ontario should work to first eliminate coal-fired generation. Oil and natural gas-fired generation should also be phased out.

30. The Ontario government shall complete, within 12 months, an assessment of the feasibility and cost of converting all Ontario Power Generation coal and oil-fired generating stations to natural gas.
In case you missed the message there, immediately after stating “gas-fired generation should also be phased out” the 2002 report recommended studying converting coal-fired generators to be fired by natural gas. This unfortunate conflict between reality and fantasy has persisted.

Shortly after the 2002 report the closure of the coal-fired generating station in Mississauga was announced. The 2003 election saw all parties run on platforms that included phasing out coal. 2 parties, known collectively as the losers, ran on platforms heeding the all-party committees suggestion of phasing out coal by 2015. The other main party won as it struck the greenest stance in lying it would be done for 2007. This led to Jack Gibbons’ moment: his OCAA and similarly minded mind guys created a campaign to demonize coal and accelerate the phase out to the earlier date.

Which didn’t actually happen - but the mythology endures that Gibbons was relevant in ending coal.

I won’t revisit the entire coal phase out here [1], but concurrent with the demonization campaign the faile market system was being rejigged to use public assets (OPG) to control the cost pressures of new private supply in a hybrid market featuring a global adjustment mechanism. This allowed, initially, a relatively independent Ontario Power Authority (OPA), created as a planning and contracting body to insulate professionals from day-to-day political scheming, to contract supply to replace coal. When the OPA called for comments on future supply mix in 2005, the Ontario Clean Air Alliance responded. For 2020 they wanted not only all the coal plants gone, but all the nuclear ones too - facilitated by “a standard offer price for natural gas and biomass-fired combined heat and power” and “a competitive bidding process for additional gas-fired combined-cycle power plants.”[2]

Among the OCAA’s co-conspirators of that time was the Pembina Institute, then led by Executive Director Marlo Raynolds who is currently 6 years into being the Chief of Staff at the Ministry of the Environment and Climate Change Canada. Pembina’s Power for the Future, co-published with another anti-nuclear group (CELA) and written by anti-nuclear Mark Winfield, contained a recommended production profile for 2020. Elements of the mix are difficult to compare to today’s mix as it has 73.5 TWh of “Demand Reductions - Efficiency/Cogeneration”. Realizing “cogeneration” is generally short-hand for “fueled by natural gas”, the Pembina mix, cited by the OCAA would have produced at least 400% more emissions than the Ontario electricity sector actually did in 2020.

While the current electricity sector was far lower in emissions during 2020 than lobbied for by the OCAA and Pembina in 2005 it’s important to note that has been true for a decade and will be true for years to come. The IESO doesn’t foresee the levels of gas generation planned by Pembina until the latter part of the 2030’s - which is more indicative of the limits of forecasting than a possibility fossil fuels will ever be as prominent in Ontario’s electricity system than the OCAA, Pembina and CELA promoted.

I don’t know if the current IESO Chairman of the Board is opposed to mitigating greenhouse gas emissions, but I know Gibbons is among the last people in Ontario who should be calling another out on that issue.

Sadly the OCAA continues to impact professional operators and planners, if only as a nuisance.

Upon the release of the IESO’s Natural Gas Phase-Out Study the new Minister of Energy in Ontario, Todd Smith issued a directive for the IESO to, “evaluate a moratorium on the procurement of new natural gas generating stations and develop an achievable pathway to zero emissions in the electricity sector.

Minister Smith is new.

Perhaps he hasn’t been briefed on the history of natural gas procurement in Ontario, so I’ll offer a refresher. This will also introduce an estimate on the stranding of costs if the dopey idea of phasing out gas by 2030 was adopted.

The last natural gas-fueled major power plant construction in Ontario was initially contracted in 2009 as the Oakville Power Plant. Opposition to that plant, and another planned in Toronto’s western suburbs, resulted in redoing the contracts and moving what are now the Green Electron and Napanee plants to distant locations, but in reality the last large “new natural gas generating [station]” was contracted 12 years ago. The Globe and Mail featured the OCAA’s Gibbons’ support for the Oakville Plant in a 2009 article, Oakville's wealthy fight the power.

There have been electricity generators contracted by the IESO in the interim 12 years, but they’ve been one of 2 categories: re-contracting older sites, and smaller combined-heat-and-power generation. As a result the majority of costs committed in contracts beyond 2029 I estimate will be due to the Oakville GS contract.

Here’s a manipulative question for this, and future, Ontario governments: Do you think it would be a good idea to pay out contracts on projects that the Auditor General has previously reported cancellation costs for? Oakville - now Napanee - “may cost the public $675 million … However, this cost may increase by up to about $140 million because of a possible increase in the tolls relating to the delivery of gas…”. The relocation of Mississauga - now Green Electron - was estimated by an earlier Auditor General to result in, “a cost to the public of $275 million.” The cost of honouring the contracts for these facilities, if all gas was cancelled by 2030, would roughly double the penalties already estimated by the Office of the Auditor General of Ontario.

The “NUG” contracts reported by the IESO would have far less post-2029 cancellation costs than the big two gas plants, but it would also not be the first time the facilities resulted in stranded costs for consumers. NUG stands for non-utility generator. The term originates when Ontario had a single integrated utility, Ontario Hydro, providing “power at cost”. During the 1980’s and early 1990s, after the fall of Progressive Conservatize rule, the Liberal and NDP leaders forced the public company to contract with private generators. The so-called NUGs did well with those contracts: when Ontario Hydro was broken up in 1999 a liability of $4.286 billion was recorded for the NUGs.[3]  By 2016 courts had tagged on another half a billion dollars to ratepayers for the NUGs.[4] In November of 2010, as the gas plant scandals were raging, the Minister of Energy directed the OPA, “to negotiate for new contracts with the owners or operators of the non-utility generators (“NUG Parties”) where these would have cost and reliability benefits to Ontario electricity customers.” This seemed a tacit recognition that new gas plants would not be politically acceptable - and the Oakville Generating Station Jack Gibbons lobbied for remains the last new-build pure generating station contracted. The NUG contracts that run into the 2030’s, signed after 2009, are re-contracting old sites or combined heat-and-power (CHP) projects.

The re-contracting is a reminder than natural gas generation facilities, while generally contracting in 20-year terms, have value much longer than that. The average operation generating station fueled by natural gas entered commercial operation more than 20 years ago, and it's unsurprising the NUGs are now contracted to be in operation for 40 years.

By 2015 directions from the government were to cease negotiating new contracts with NUGs as contracts expired, but that was not due to an intent to eliminate gas. Following the failure to locate new gas generation near growing loads the focus had turned to ordering old plants (NUGs) re-contracted. When the 2013 Long-Term Energy Plan (LTEP) they avoided discussing new gas capacity simply by noting the need for “planned flexibility” which, I noted at the time, was costed exactly the same as new natural gas-fired generation. By the time the next LTEP appeared the plan had become to let a market decide on what firm sources would exist by way of developing a capacity market - and projected savings from this approach was a main feature of LTEP 2017: Delivering Fairness and Choice. This coincides with the order to halt negotiations on long-term contract extensions with non-utility generators as it was hoped those generators would bid into the capacity market - with new hope that new technologies, and particularly demand response initiatives, would undercut gas-based bids allowing for an affordable transition from that fossil fuel. If not, the capacity auction mechanism would pay the facilities in 2 or 3 year commitments after their initial 20-year contracts expired but would reasonability be considered as middle-aged.

An intelligent appraisal of the feasibility of fully eliminating natural gas generation should be from a perspective cognizant that a reversal away from writing “Clean Electricity Supply” contracts for natural gas-fueled generators occurred a dozen years ago. An intelligent appraiser would be cognizant of the past record of people in advocating for low emission supply, and of advocating for supply fueled by gas. It is easy to desire an end to fossil fuels but simply lazy to assume competence in those who promise to know how. We cannot advance by putting the fiction of self-promoters ahead of the work developing affordable alternatives to a fuel which does, despite emissions, provide affordable firm capacity and needed flexibility.

I could rebut the OCAA’s latest claimed alternatives-to-nuclear cost graphic, as I did an older version in 2016, and I could rebut their more recent nonsensical claims about the ease with which more supply could be sourced from Quebec, as I did in 2014, but I see no reason to repeat my steps. If actual accomplishment and credibility are important to a reader, the OCAA is not. 

As for municipalities wanting zero emission electricity, there are schemes that would allow them to claim that accomplish not just tomorrow but well into the past. I've argued Ontario's electricity system could be considered as having a net of zero emissions for each of the past 6 years. It has certainly produced more trivial-emission electricity than needed to meet the needs of municipalities wanting zero-emissions for not only those 6 years but also decades before. We just need the IESO to separate the environmental attribute of trivial emissions, price it, and sell it to the councils wishing to signal their concern. Energy Certificates separating the green attribute(of low/no emissions) from the energy produced are not new. They might not accomplish much, but they can be sold as if they do. 


[1] There is a superb slide deck by the original head of the Ontario Power Authority, Jan Carr, I wrote a number of things but the most relevant might be the piece on the costs of ending coal

[2] Alleged letter to Jan Carr from Jack Gibbons dated August 2005 (sent to me anonymously)

[4] I wrote on in the court’s punishment of consumers in Ontario appeals court upholds sentence of higher costs for ratepayers

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