November 2019 a reflection on the cost of reducing emissions in Ontario’s electricity system

IESO finally released the November 2019 Monthly Market Report in early January and compared with November 2018 overall costs (GA + HOEP) for Class B ratepayers was down slightly from $123.69/MWh to $120.54MWh (12 cents/kWh) or 2.8%. Falling exports of 975,600 MWh (down by 151,200 MWh or 13.4%) from 2018 resulted in Ontario experiencing a drop in overall costs despite the GA being slightly higher (98 cents/MWh) in 2019*.  The drop in exports resulted in ratepayer costs of $97.1 million versus $111 million in November 2018. Ontario ratepayers are obliged to pick up the GA costs**.

Intrigued by the marginal good news for November 2019 and the arrival of 2020, nostalgia overtook my brain waves!  A decade ago, I started my quest to explore the electricity sector in Ontario. My quest coincided with a high electricity bill and the passage of the Green Energy and Green Economy Act (GEA) in 2009.  The GEA passage led to the OPA (Ontario Power Authority) receiving directives from various Energy Ministers in the McGuinty/Wynne led Liberal provincial governments telling the bureaucratic experts how to run the system.  It was meant to signal the world; Ontario was a beacon in emission reductions.1 The ministerial directives were aimed at contracting for renewable energy (principally in the form of industrial wind turbines [IWT] and solar panels) and closing two coal power plants.  Due to above market rates offered to (mainly foreign) companies and the lack of a cost/benefit analysis rates skyrocketed as projects were commissioned.  The consequence of creating the highest electricity rates in Canada and the US resulted in total defeat of the Ontario Liberal Party in 2018.

Based on the “nostalgia” it is perhaps worth going back a decade to November 2009 and compare it with the one just passed.

All-in Generation Costs for November 2009:

The IESO Monthly Market Report for November 2009 indicated the weather over the month was warmer than normal whereas in November 2019 is was colder than normal and as one might expect the latter resulted in higher Ontario demand coming in at a daily average of 375,178 MWh versus 370,578 MWh in 2009.  The extra 138,000 MWh we consumed in 2019 would translate into higher costs even if the cost of generation had remained the same. The weighed average cost (GA +HOEP) for November 2009 was $68.39 MWh so the additional 138,000 MWh Ontario ratepayers consumed should have added approximately $9.4 million.  It is worth noting back in 2009 there was only one ratepayer class so the $9.4 million would have added 84 cents for each additional MWh consumed. The average household back then was consuming 800 kWh monthly.  The total consumption of 11.117 TWh (terawatt hours) by Ontario ratepayers in November 2009 had a cost of $760.4 million.

All-in Generation Costs for November 2019:

 So, ten years later in November 2019 the 11.255 TWh consumed by Ontario ratepayers cost considerably more than the $760.4 million suggested above.  The weighted average cost for this recent November came in at $120.24 for Class B ratepayers; an increase of $51.85/MWh or 75.8% for the 8.106 TWh they consumed.  For Class A ratepayers the ten-year increase was only $3.59/MWh or 5.2% for the 3.384 TWh they consumed.  Putting the foregoing in perspective if Class B ratepayers consumed 8.106 TWh in 2009 the cost would have been $554.4 million and in 2019 it was $974.7 million or $420.3 million more for just November!   For Class A ratepayers the increase would have been a much lower amount of only $12.1 million costing them $243.6 million versus $231.4 in 2009.

As one can deduce from the foregoing the $760.4 million all-in costs for one month of electricity generation in 2009 jumped to $1.218 billion (up $457.9 million) in the decade.  The jump of $457.9 million impacted Class B ratepayers (residential and small and medium sized businesses) to a much greater extent than Class A businesses and is only representative of one month.

What caused the jump?

The increased costs drove our average rate of 6.84 cents/kWh in November 2009 to 12.02 cents/kWh (UP 75.7%) in November 2019.  That increase is about four times the inflation rate and there are several reasons for the jump in costs.

One of the major causes of the increase was the addition of industrial wind generation and solar to our grid(s) over the decade.  Their intermittent and unreliable ability to generate electricity when needed meant back-up capacity (principally gas plants including the $1 billion to move two of them) was required. To top things off the intermittency of wind generation caused the market price (HOEP) to fall and the GA to increase.  The GA is not included in the sale of surplus electricity to our neighbours so we earn less for our exports to NY, Michigan, etc. but Ontario ratepayers must absorb the difference (the GA) in the contracted value and the HOEP market price.

A rough calculation of the additional losses on our exports in November 2019 versus November 2009 indicate it represents about $68 million of added costs.  Thanks to Scott Luft’s wind generation and curtailment files I was also able to calculate IWT generation costs which increased considerably from November 2009 adding $178 million to the increase. Those two additional costs of about $246 million represent about 54% of the $457.9 million increase. The balance of increased costs can be attributed to payment for additions in; solar generation, gas plants (idling costs), biomass, and some of OPG’s expenditures on Big Becky ($1.5 billion) and the Lower Mattagami ($2.6 billion) hydro projects.

If November’s comparison becomes a measure of how the GEA harmed our electricity sector by driving our electricity rates up almost 76% in the last decade we will be looking at total additional costs of around $5.5 billion in 2019 versus 2009. The $457.9 million is but one month of comparison out of the 120 months since the start of 2009 so the final number for the decade will probably be in the tens of billions of dollars to achieve those emission reductions sought by the governing Ontario Liberals.

*The GA or Global Adjustment rate for Class B ratepayers has been higher in 10 of 11 months in 2019 compared to 2018.                                                                                                    **Exports are sold at the HOEP (hourly Ontario electricity price) price via the market to traders who buy/sell our surplus energy to Michigan, New York, Quebec and other grid connected markets.

  1. The Ontario Energy Quarterly shows our CO2 emissions fell from 20 megatonnes at the start of 2010 to 2 megatonnes at the end of the 2019 second quarter.

Author: parkergallantenergyperspectivesblog

Retired international banker.

5 thoughts on “November 2019 a reflection on the cost of reducing emissions in Ontario’s electricity system”

  1. Reducing CO2 emissions, when plants actually need it, is a subject that needs to be understood.
    Cleaning up truly toxic emissions is a more rational focus if one is really concerned about the environment.
    If the Liberal government was actually serious about toxic emissions, industrial scale wind and solar generation, which involves serious toxic ingredients in both their creation and residues after their lifetime, would never have been acceptable.

    Liked by 1 person

  2. What a tragedy you are documenting with your posts, Parker. A 1.24% increase in demand resulted in a 75% increase in costs., ignoring the additional costs that will be added on due to the insanity of deferring much of the additional costs to 2017. All to pursue an ideological commitment to reduce greenhouse gas emissions in a world in which such emissions are growing every year due to economic developments in Asia. I hope the day comes when historians will document this horrific policy and explain to a future generation of electricity consumers and voters why this must never be allowed to happen again.

    Liked by 1 person

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