More Global Adjustment: what the costs are

February 21, 2017

The Global Adjustment (GA) charge in 2016 was responsible for 85% of the cost of electricity billed to all of Ontario’s ratepayers, less for large industrial clients.  The cost of the GA is for the cost of generation of electricity at the door (metaphorically) of the generation unit.  It does not include “line losses” which are found in the “delivery” lines of our bills and represented a cost of approximately $400 million at an average 3% line loss!

In dollar terms, IESO reported the 85% cost of the GA was $12.333 billion in 2016.  Because of the size of those GA costs the question on many minds is, what is it?   Steve Aplin of Canadian Energy Issues defines it this way: “It is simply a price recovery mechanism. It is the difference between the price the government promised any particular electricity generating company and the ‘market’ price of electricity.” 

So what are the relative parts of the GA which place the biggest burden on the climb in costs in the “electricity” line we have experienced.

The IESO published a News Release  on January 18, 2017 providing statistics on:  generation by fuel type and its percentage of contribution; ratepayer costs per kilowatt (kWh) for both the GA (9.66 cents per  kWh) and for the HOEP (1.66 cents/kWh) or market price;  and, imports and exports and provincial demand (137 TWh).  IESO don’t provide generation produced within the DX (distributor connected) sector.  The following are best estimates of some of the DX generated electricity and curtailed wind.

Wind

IESO report wind generated 9.3 TWh and Scott Luft reported 1.7 TWh were generated by DX connected wind turbines making total generated generation 11 TWh at a cost of $135 million per TWH (3.5 cents/kWh). An additional 2.2 TWh were curtailed at a cost of $120 million/TWh.

Total cost of wind capacity in 2016

11 TWh @ $135MM/TWh: $1,485 MM

2.2 TWh curtailed wind @$120MM/TWh: $264MM

TOTAL cost wind: $1,749 MM

LESS HOEP value of 11 TWh @$16.6MM/TWh: $183 MM

NET COST of wind to GA $1,566 MM

Solar

IESO reported solar generated .46 TWh in 2016 and the best estimate of DX generated solar at 15% of rated capacity for the 2,100 MW is 2.76 TWh for a total of 3.22 TWh. The average cost of solar generation in the province (roof and ground mounted) is about $480 million per TWh (48 cents/kWh).

Total cost of solar capacity in 2016:

3.22 TWh @480MM/TWh: $1,546MM

LESS HOEP value of 3.22 TWh @$16.6 MM/TWh: $53MM

NET COST of solar to GA: $1,493 MM         

Gas

Due to the intermittent and unreliable nature of wind and solar generation it must be backed up by other reliable generation capable of providing generation when the wind isn’t blowing or the clouds cover the sky. The back-up is generally provided by gas plants.  With 6,800 MW of wind and solar capacity the suggested replacement is 90% of capacity or about 6,120 MW of gas generation representing about 62% of its installed capacity (9,943 MW per IESO).  Gas plants are viewed as “peaking” plant capacity so contracts call for a monthly payment related to the amortized cost per MW and reputedly ranges from $10/15,000 per month per MW.   This calculation will use $10,000 per month/MW!

Total cost of gas generation as back-up for Wind and Solar in 2016

 6,120 MW @ $10,000 per month (6,120 X $10,000 X 12): $ 734 MM

Conservation

Another portion of money included in the GA is conservation spending allocated to all of the LDC based on commitments to reduce their demand over the 2015-2020 period. The total budget over those six years is about $2 billion so equates to $300 million per annum with a significant portion allocated to businesses and upgrades for low-income households.  The LDCs are allowed to apply for rate increases associated with their decline in revenue as a result of the conservation once achieved.

Total cost of conservation spending in 2016

Estimate based on 2015-2020 budget of $2B over 6 years: $ 300 MM

Ontario Electricity Support Program

The Ontario Electricity Support Program (OESP) launched on January 1, 2016 is aimed at low-income households who have suffered from the climb in electricity rates. The OEB study released in late 2014 estimated the cost of the program at $200/$225 million.  Logically, if the province was responsible for driving an estimated 571,000 ratepayers into energy poverty, the program’s cost should have been allocated to the Ontario Ministry of  Community and Social Services, but instead it has become another cost to all Ontario ratepayers.  At this point, the estimate of the first year’s costs are unknown, but if one assumes the OEB’s estimates were close they will impact all ratepayers.

Total cost of the OESP

 Estimate based on OEB’s study: $ 200 MM

GRAND TOTAL COST all of the above: $4,293 MM

Cost per terawatt hour of 14.22 TWh from wind, solar, conservation and OESP added to the GA  $302 million/TWh or 30.2 cents per kWh

 Missing from the above calculation is spilled hydro and nuclear power steamed off at Bruce Nuclear due to surplus base-load generation from wind and solar. The latter would add about another 5 TWh and another $300 million driving the per kWh cost to 32.5 cents per kWh.

If one deducts the 14.22 TWh from total Ontario generation (including DX) in 2016 one is left with 140.1 TWh and if the $4,293 million is deducted from the $12.333 billion of the 2014 GA cost the 140.1 terawatts from nuclear, hydro and gas generation cost was 19% of the GA or                   $57.38 million/TWh or 5.74 cents per kWh

The time has come to kill the Green Energy Act and return to sanity!

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10 thoughts on “More Global Adjustment: what the costs are”

  1. It appears to me that when I read about the GA cost calculation here http://www.ieso.ca/Pages/Ontario's-Power-System/Electricity-Pricing-in-Ontario/Global-Adjustment.aspx it appears that it’s an adjustment that incorporates all electricity rates received by OPG, wind, solar etc. So it would explain to me why our conventional forms of energy are not incensed about the rates that wind & solar get, when these rates are included in the GA calculation that everybody receives. I’m I reading this right???

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    1. Its simply the difference between the market price (HOEP) and either the contracted price (wind, solar, biomass, etc) or the difference between the HOEP and the “regulated price”, nuclear, hydro, etc.! eg: wind contracts signed will pay 13.5 cents per kWh but the HOEP value at time of generation is only 2 cents per kWh means the difference (11.5 cents/kWh) is paid out of the GA pot. If the “regulated price for say, nuclear, is 6.5 cents per kWh the difference would be 4.5 cents per kWh and that would be paid out of the GA pot.

      The OEB looks at the size of the pot every 6 months to see if the amount being collected from the ratepayers is sufficient to cover the GA costs that have accumulated and resets (when necessary) the charge all ratepayers are billed under the TOU (etc.) pricing At that time the OEB advises us the rates will change (or not) and tell what they will be for the next 6 months commencing on May 1st or November 1st

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  2. Hydroelectric also generates intermittent power (efficiency is between 15 to 30% according to a 2014 OPA report, and should not be bunched in with nuclear power generation in your calculations which has a much higher efficiency rating. Hydroelectric is priced even higher than wind and solar in recent FIT 5 pricing at 24.1 cents/kWh <500 kW, compared to 19.2 for non-rooftop solar and 12.5 cents for wind. So don't look to hydroelectric as a preferred alternative to wind and solar.

    Also, contrary to popular belief, hydroelectric is far from clean and green, with their reservoirs contributing significant amounts of greenhouse gas emissions, especially methane, as well as the many other negative environmental impacts on water quality, water quantity, and aquatic life.

    Conservation is the best alternative – that's what Ontario needs to focus on!

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    1. Please be advised Lindagaleheron. Even if you conserve all the way to zero consumption, you will be charged distribution, HST, debt relief, etc., etc.,. You will be paying for,,,,,, “NOTHING”. Work the percentages on that cost! Also, FYI, this is a convenient method for the Liberal Government to redistribute the general revenue while retaining some control over where it goes.
      Stan Thayer, Alexandria On.

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      1. I don’t disagree with you Stan – the GA problem is largely due to the lucrative FIT and LRP Contracts the Liberals have signed with private developers; however, I am saying that rather than give out more contracts, let’s focus on Conservation because there is much more that can be done in that area. I would like to see current FIT and LRP contracts renegotiated – better yet terminated.

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  3. Residential ratepayers have conserved and many cannot conserve any more unless they live in discomfort. The reason the OEB reduced the calculation for the “average” customer is because we are consuming less per household. We have been squeezed. We also pick up the costs spent by the utilities on conservation which amounts to about $400 million per year. That is another reason rates have climbed and placed over 570,000 households in “energy poverty” and why the media are now paying attention to the many households that were disconnected. Consumption in Ontario has dropped from 154 terawatts annually to 137 terawatts in 2016. The drop of 17 TWh would be enough to supply 1.9 million average households (42% of all households in the province) with power for a full year. Think about that — 4 out of every 10 households on your street!

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    1. I’m talking about major conservation efforts through improvements to transmission and distribution of electricity – this is where the Province needs to focus their efforts – and push the pause button on new renewable power projects.

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      1. Hydro One has spent billions on transmission for the sole purpose of getting wind and solar generation into the grid system meaning that spending was wasted! Those transmission lines carry no power if the wind isn’t blowing or the sun isn’t shining. Those lines are operating at a fraction of their capacity but need to be reserved for when the wind is blowing (average of 30% of the time) or the sun is shining (average of 15% of the time). The spending should have focused on refurbishment of older lines! More conservation will simply increase the waste. We need to be allowed to utilize some of the surplus generation (not conserve more) so that we are not giving it away to our neighbours or paying to curtail it, spill it, or steam it off! Consuming more would reduce the surplus, increase the HOEP and reduce the GA.

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      2. Okay – I think you would agree that we need to forget about contracting any new renewable energy projects. I agree that the whole time of use program is a farce.

        We also agree on the root problem – even Wynne and Thibeault have admitted that the Liberal government made a total mess out of the electricity file – there is no disagreement there.

        My point is that if there is any concern for the LTEP, of not having enough power to meet our needs into 2025 and beyond, that the focus should be on efficiencies of transmission and distribution of electricity across the entire province.

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