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.
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
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
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
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!