Ontario Energy Minister Thibeault: he really believes this stuff?
From all appearances, Ontario Energy Minister Glenn Thibeault sincerely believes Premier Wynne’s plan to reduce our hydro bills is the right one and the opposition parties have got it all wrong.
Shortly after Premier Wynne and her loyal servant Glenn Thibeault announced the Liberals’ “Fair Hydro Plan” Andrea Horwath, leader of the NDP, announced their plan. Thibeault had this to say about the NDP’s plans to repurchase Hydro One shares: “Buying back $4 billion in Hydro One shares is costly, he added, and ‘will not take one cent off electricity bills. What it will do is send billions to the stock market instead of making much needed infrastructure investments in communities across Ontario.’ ”
When PC MPP Vic Fedeli suggested diverting our surplus power to local businesses so they can create jobs, instead of exporting it to U.S. states at staggeringly low prices*Thibeault lashed out, saying that was “back-of-the-napkin” thinking. Thibeault did admit Ontario “doesn’t have sufficient electricity demand at home to use up the electricity we export to other markets.”
This begs the question: why does the Energy Minister not cancel contracts recently awarded (LRP 1) and permanently cancel plans (LRP 2) to add more renewables that will be surplus due to insufficient demand and plant closures. In respect to the latter, demand will continue to be insufficient as the recent announcements about the closing of the Proctor and Gamble plant (500 employees) in Brockville and the Siemens plant in Tillsonburg (340 employees), just to name two, will further reduce demand.
The Siemens announcement undermines the Green Energy Act which the Liberals originally touted as destined to create 50,000 jobs, but fell miserably short of that goal. In fact it cost Ontario jobs as suggested by former Ontario Auditor General McCarter in his 2011 report.
Thibeault might also stop directing IESO to spend $400 million annually on conservation programs which further reduces demand, but at a cost that is added to ratepayer bills and negatively affects export sale prices.*
Now, when Minister Thibeault or Premier Wynne speak about the Liberal Plan, they revert to the main “Fair Hydro Plan” talking point which is “This is the largest rate cut in Ontario history”. What Minister Thibeault always fails to note is Ontario’s ratepayers have experienced the largest rate increases in history thanks to the GEA’s passage in 2009! He also fails to acknowledge the future costs due to the Fair Hydro Plan which will push rates up well past those before the “largest rate cut in Ontario history”. That cost (subject to balanced budgets) according to the Financial Accountability Office will be $45 billion versus a benefit of $24 billion. That $45 billion will easily drive up electricity rates and represents in excess of two years of current total electricity costs.
Amortized over 10 years we should expect annual rate increases well in excess of 10%. At that time, all ratepayers will be exposed to the Ontario Liberal government’s incredibility bad planning!
Parker Gallant
* For the first six months of 2017 IESO report the sales price for surplus exports was $14.93 a megawatt hour (MWh) or 1.49 cents a kWh which is close to 10% of what it costs to produce. Ontario’s ratepayers pay for the losses via their monthly bills
A few days ago (July 11, 2017) Ontario’s Minister of Health and Long-Term Care Dr. Eric Hoskins issued a press release saying 131 hospitals would receive $175 million for “repairs and upgrades”. That’s an average of $1.3 million per hospital to be doled out, apparently because the Wynne government finally produced a “balanced budget”.
The press release states: “Funding from the province allows hospitals to make critical improvements to their facilities, including upgrades or replacements to roofs, windows, heating and air conditioning systems, fire alarms and back-up generators.”
One wonders if Minister Hoskins ever chats with Minister of Energy Glenn Thibeault who doles out money to industrial wind turbine (IWT) developments at a pace that would make his $1.3 million per hospital look like small potatoes! In the first six months of 2017, the bill to Ontario ratepayers was approximately $1.089 billion for accepted and curtailed industrial wind. That works out to approximately $475,000 per turbine … for six months! (That assumes there are about 2300 turbines with an average capacity of 2 MW or megawatts currently operating in the province.)
Also in the first six months of 2017, grid-connected and distributor-connected IWT collectively generated 6,143,000 MWh and curtailed 1,906,000 MWh* according to IESO data and curtailed estimates by Scott Luft. That means the cost per grid-accepted MWh was about $177 or 17.7 cents/kWh! If the next six months are similar to the first six, each average 2-MW wind turbine will cost $950,000** generating or curtailing the intermittent and unreliable power they are famous for.
Those wind turbines require back-up by gas plants and frequently cause the spilling of hydro power and the steam-off of nuclear plants. The costs of these grid managing activities to ratepayers easily drive the costs per turbine well past the hospital repair allocations.
Kicking the can down the road under the Fair Hydro Act will see the foregoing incredible waste of ratepayer dollars accumulate within OPG, and result in rate increases as high as those we have experienced over the past 10 years, once 2021 arrives.
Try to imagine how much better our health care system would be with that estimated annual waste of $2 billion ($40 billion over the 20-year terms of the contracts) allocated towards health care instead of handing it over to mainly foreign industrial wind developers.
The time has come to stop signing those contracts!
Parker Gallant
* The average curtailed wind for the first 6 months of 2017 was 23.6% and for May was 43.8%.
** This assumes accepted generation is paid $140/MWh and curtailed wind is paid $120/MWh.
Former Premier Dalton McGuinty: The Liberal promises of affordable electricity and politics-free policy were discarded [Photo: Huffington Post]A Globe and Mailarticle of November 11, 2002 reported that Dalton McGuinty, leader of the Ontario Liberal Party (OLP), then in Opposition, was upset because Premier Ernie Eves had promised legislation to cap electricity prices.
Liberal Leader Dalton McGuinty said the true cost of the Conservative government’s hydro bungling will add billions of dollars to the debt.
“Now that families and businesses have been scared to death, now that new investment in supply has been scared off, now that everyone knows hydro has been completely mismanaged, Ernie Eves is going back to square one,” Mr. McGuinty said in a news release on Monday.
“The government should have had its act together before the market opened. And the bill for its failure to do that hasn’t been cancelled — it’s just been put off.”
Mr. McGuinty said the Ontario Liberals have been calling for action for months, but the Eves government has not acted until now to freeze electricity prices and increase supply.
The Liberal Leader said his real concern is what Ontarians will have to pay over the long term.
Fast forward to September 14, 2005 when Dalton McGuinty was Ontario’s Premier. In a keynote speech to the Ontario Energy Association, he bragged about what the OLP had accomplished and their plans for the future. Let’s examine the promises made in that speech.
McGuinty: “We won’t gamble away Ontario’s future prosperity because of what the next poll might or might not say...”
A noble thought, but discarded by the OLP. When seeking re-election in 2011 McGuinty cancelled the Mississauga and Oakville gas plants and plans to contract for offshore wind developments. Polling in ridings affected by the foregoing showed several Liberal seats in jeopardy. More recently, shortly after a poll indicated Premier Wynne’s approval rating was at 20 %, she announced hydro rates would be cut by 25 %. Policy by polls…
McGuinty: … Or because of what new technology might or might not be developed.
The launch of the Green Energy and Green Economy Act (GEA) in 2009 focused on wind and solar generation at above market prices, without a cost/benefit study as pointed out by the Ontario Auditor General in his December 5, 2011 report. Both wind and solar were old technologies promoted by ENGO and wind and solar associations and known to be intermittent and unreliable sources of generation.
McGuinty: That’s why we asked the OPA to report on a long-term plan.
The Ontario Power Authority (OPA) produced a viable plan with limited wind and solar capacity to be contracted for in a competitive environment, but the plan was suspended by Energy and Infrastructure Minister George Smitherman before approval via his directive to the OPA dated September 17, 2008.
McGuinty: That’s why we acted to take the politics out of pricing.
The recent Fair Hydro Act and the gas plant moves dispel the notion that politics has been removed from pricing, as do the FIT and MicroFIT programs that past Minister Smitherman enabled via a directive issued September 24, 2009 to the OPA which included a domestic content requirement. The latter resulted in a challenge before the World Trade Organization which Canada lost and taxpayers picked up the costs.
McGuinty: This spring, the Ontario Energy Board, a truly arms-length public agency will set the price of power for small consumers. The OEB sets the price based on what electricity costs, not on what politicians think it should cost, or wish it would cost.
While those homilies are correct, the prices are set based on input costs which the OEB has no control over. In simple terms, they divide the input costs accumulated (Global Adjustment + Hourly Ontario Electricity Price + transmission) and divide it by kilowatt hours consumed. The impact of above market (highlighted by the Auditor General reports) contracts with wind, solar, and other generators and the plethora of other spending (e.g., conservation $400 million per year, etc.) dictated by the Energy Minister, plus above market salaries and benefits for OPG and Hydro One employees etc., are all part of those costs.
McGuinty: We could require our businesses and families to subsidize the price of electricity through their taxes.
Premier McGuinty did just that when he moved the gas plants and part of the cost was paid by taxpayers. The Liberal government also drove up the price of hydro and put 600,000 household into energy poverty. It fell on charities, supported by Ontario taxpayers, to help those households. Tax dollars from those households also supplied grants to buyers of expensive Tesla automobiles and those grants continue today!
McGuinty: But, having finally put our province on a sound financial footing, we choose to ensure the price of electricity reflects the true cost of electricity.
The “sound financial footing” didn’t last long, and during the Liberals’ reign Ontario’s debt has increased from $132 billion to over $300 billion. Ontario has seen only one budget in the last decade that will seemingly balance and that was the most recent one.
McGuinty: We can’t guarantee price certainty –; that just isn’t realistic, given the nature of the challenges before us.
The Fair Hydro Act just passed by the Wynne government guarantees price certainty for four years for certain classes of ratepayers. This isn’t realistic: refinancing those assets may conflict with their ability to continue to generate electricity for an additional ten years. Amortization of fixed assets is based on the longevity of those assets, but the Wynne government has decreed that they can extend their life so that our children will be stuck with the replacement costs.
McGuinty: But I can assure you that we will do everything we can to ensure safe, clean, affordable electricity is always in full supply in the Province of Ontario.
When the OLP became the government, the average price of a kilowatt hour was 4.3 cents. By 2016 it averaged 11.2 cents — a 160% increase. The 25% reduction touted by Premier Wynne as the largest in Ontario’s history followed. The subsidy to cover that 25% will accumulate within the confines of OPG and at the end of increases held to “the rate of inflation for the next four years,” that subsidy will rise well above that benchmark in the years following that moratorium.
McGuinty: We won’t subsidize prices or cap prices –; that would mean more debt or higher deficits. Both of which would lead ultimately to higher taxes.
By deferring debt to subsidize hydro prices for four years within OPG’s balance sheet (guaranteed by the Province), the plan is to hide (temporarily) the impact from ratepayers while supposedly balancing the budget.
So, what happened to all those lofty promises of “affordable” electricity costs for consumers and business, that is immune to politics?
Was this what all those promises really meant?
“The true cost of the Liberal government’s hydro bungling will addtens ofbillions of dollars to the debt.”
If May is any indication, the Wynne government’s “Fair Hydro” plan costs will be considerable
The “Fair Hydro” plan ushered in by the Wynne government is setting up ratepayers for higher bills as soon as 2021 arrives. When the hiatus ends, limiting increases to ratepayer bills to no more than the “cost of living” (COL) over the next four years, the cumulative debt acquired by OPG to “refinance” the reported $50 billion of electricity assets will have to be repaid.
Early indications suggest the costs will be higher than the $2.5 billion being set aside for the next three years by Premier Wynne and Energy Minister, Glenn Thibeault.
Evidence? A look at May 2017 compared to May 2016 indicates the increase in the Global Adjustment (GA) costs for Class B ratepayers was 7.9% higher than 2016 and well above the May COL index of 1.4%. Any increase in costs above the inflation rate will be added to the $2.5 billion being refinanced and become the responsibility of ratepayers to pay when the hiatus ends.
Demand drops but the cost goes UP
The IESO May 2017 Monthly Market Report indicates Ontario Class B ratepayers consumed 344,000 megawatt hours (MWh) less than they did in May 2016, which represents a 4% drop. That’s about the same as 460,000 average households would consume for the month. The Global Adjustment (GA) costs on the reduced amount of electricity consumed, however, increased by $82.7 million from $931.2 million in 2016 to $1,013.9 million in 2017. Many will recall in May 2016, lower consumption during the prior six months caused the OEB to raise rates!
So, what caused the 7.9% spike ($82.7 million) in GA costs? It appears there were two principal causes with one of them related to Ontario’s “Net Exports”.*
In 2017, net exports averaged 600 MW per hour higher than 2016, meaning they increased by 446,400 MWh (600MWh X 24 hours X 31 days) in May 2017 (enough to power almost 600,000 average households for the month). The buyers in New York, Michigan, Quebec, etc., paid only the Hourly Ontario Electricity Price (HOEP) of $3.17/MWh, while Ontario’s ratepayers were required to pay the GA costs of $54.8 million or $122.89/MWh.
The other major cause of the GA spike appears related to power generation from wind and its record curtailment in May 2017. My friend Scott Luft posts both the generation from TX (transmission connected) and DX (distributor connected) industrial wind turbines (IWT), and also conservatively estimates “curtailment”. In May 2016 TX and DX connected IWT generated 699,371 MWh, not including 130,000 MWh of curtailed generation.
Combined: wind power in May 2016 cost ratepayers about $113 million or $162/MWh. May 2017 saw 669,011 MWh of wind power delivered either to the grid (TX) or to local distribution companies (DX). Curtailed wind in May 2017 was a record as Scott estimated almost 524,000 MWh (enough to power almost 700,000 average households for the month) were curtailed. The cost for generated and curtailed wind increased to slightly more than $158 million for the month, which raised the cost of accepted wind generation to $236/MWh.
$100 million added … for just one month
What this means is, wind-generated and curtailed costs in May 2017 were $45 million higher. Coupled with the increase in net exports of surplus generation and related costs, $100 million was added to the GA … for just one month. If May 2017 is in any way representative of the four years of the rate freeze (tied to the COL index), the costs of refinancing those assets will be much more than the March 2, 2017 press release suggested it would be: “These new measures will cost the government up to $2.5 billion over the next three years.”
Based on past forecasts by the Ontario’s Liberal government, keeping the costs at $2.5 billion over the next three years may be a “stretch goal”!
Parker Gallant
*“Net Exports” are total exports less total imports.
Glaring omissions from the OEB about the “Fair Hydro Plan”
Hydro One’s “low-density” customers pay more —way more
The June 22, 2017 news release from the Ontario Energy Board tells Ontario ratepayers about the wonders of the “Fair Hydro Plan” and how much rates would have increased without it.
But other related information on the OEB website discloses cherry-picked data and, on examination, reveals shortcomings. One small example is a chart comparing Ontario residential rates with other cities in Canada and the U.S. San Francisco is at the top; Hydro One low-density in fourth place; and Toronto Hydro is in sixth place. The lowest five cities on the chart are all Canadian cities including Montreal; comparing their cost of electricity shows Hydro One’s (low density) costs are 232% higher!
The average monthly cost for U.S. cities are converted into Canadian dollars at $1.3046, pushing them up the scale to create the impression that Ontario’s electricity rates are competitive. What isn’t disclosed is average household income and what percentage of the income is consumed by electricity bill(s) on a comparative basis. In San Francisco, 1.3% of household income (US$104,879) goes to pay for the comparable “average” electricity bill, whereas in Toronto (household income $75,270) it consumes over 2% of household income. Household incomes in rural Ontario are lower (20% or more) than large urban centres such as Toronto, etc., as Statscan noted in an extensive report. Hydro One’s billings in some cases, for their serviced areas, represents 5 to 10% of pre-tax household income.
The news release said if the Fair Hydro Plan hadn’t kicked in, rates per household were scheduled to increase 3.2% May 1st or about $33 annually for the “average” residential ratepayer. That would have increased total costs of power (COP) by almost $200 million over 12 months for just residential ratepayers, and another $3/400 million (estimated) for the rest of the Class A and Class B ratepayers. That money will now be part of the 30 year refinancing flowing from the “Fair Hydro Plan.” Many of those “refinanced” assets will have reached their best before date so ratepayers will be paying for assets with little or no value requiring replacement.
Instead of the rate increase that would have occurred, the average household will see a monthly reduction of almost $22 ($263 a year) commencing July 1, 2017. The foregoing monthly decrease reflects the reduction in time-of-use (TOU) rates taking effect on that date based on the OEB’s standards of usage calculations. The decrease includes prior announcements moving the OESP (Ontario Electricity Support Program) and the RRRP (Rural or Remote Rate Protection) allocation to the provincial treasury, instead of on the backs of ratepayers. This was contained in the directive given to the OEB by Energy Minister Glenn Thibeault April 10, 2017. The latter (OESP + RRRP) are estimated (by the writer) to have cost ratepayers about $5/600 million in 2016, and will increase as the OESP and the RRRP have both been expanded. Those costs will become the responsibility of Ontario’s taxpayers. Taxpayers will also bear the burden of the foregone revenue previously generated from the 8% provincial portion of the HST on electricity bills, removed as of January 1, 2017 the same time as “cap and trade” charges began.
More conflicting information in the OEB news release was the sentence: “With the new RPP prices that will start to apply on July 1, the total bill for the proxy customer described under the Fair Hydro Act, 2017 will be about $121. That is about $41 or 25% lower than it would have been without the following mitigation*” That suggests the “proxy customer” was paying $162 per month, yet the “chart” referenced in the second paragraph contains what is shown as a “Median Ontario Utility (OEB regulated)” with a monthly bill (as of November 2016) of $130.46. The OEB does not clarify what a “proxy customer” is and the “Fair Hydro Act 2017” contains no reference to a “proxy customer”!
With all this conflicting information from the OEB, it is hard to understand how they are fulfilling item number three in their “Mission” statement which reads: “Making the consumer’s own usage, and the broader energy issues, easier to understand”.
If the OEB was attempting to add clarity to the messages from Premier Wynne and the Minister of Energy, Glenn Thibeault about the Fair Hydro Plan, they have failed!
Parker Gallant
* “Mitigation” includes the OESP, RRRP, removal of the 8% provincial portion of the HST and the “refinancing of a portion of the costs of the Global Adjustment”
Ontario news in May focused on record rainfalls in many areas of the province, records were being set elsewhere, too: in Ontario’s our electricity sector.
While one of those records occurred on May 27 when the 4,500 MW capacity of industrial wind turbines generated a record low of one (1) megawatt hour, there were others. They won’t make you proud.
Highest “B” Class GA per MWh ever @ $123.07/MWH – What the $123.07 represents is a Global Adjustment cost to all Class B ratepayers of 12.3 cents /kWh without including the HOEP (Hourly Ontario Electricity Price) at a time when Premier Wynne has told us her government is reducing our electricity bills by 25%* so the difference between what the cost of electricity was in May and other months and the TOU rates (to be announced) will be “kicked down the road” to be paid at a future date.
Highest “B” Class total dollar GA cost ever @ $1,013.9 million – The Class “B” ratepayers got stung badly in May 2017 as their portion of the GA reached record levels.
Highest OPA contracted GA monthly cost ever @ $838.3 million – The Ontario Power Authority (since merged with IESO) was created by Dwight Duncan when Minister of Energy and contracted for all new power contracts, including those above market ones for renewable energy (wind, solar and biomass). Those contracted generation sources set a new record for contribution to the GA representing 73.2% of the total amount as noted under # 5. below.
Lowest “B” Class consumption for May (in evidence) @ 8.310 TWh – It would appear that Class “B” ratepayers did their best to reduce consumption and based on data on the IESO website consumption levels set a record low in May 2017.
Highest overall total GA costs ever @ $1,144.5 million – The total GA costs for May 2017 for the combination of Class B and A ratepayers achieved this record level since the GA was first created.
Based on what happened in May, it would appear that holding future rate increases in the next four years to the inflation index will result in huge increases when the hold-back (financed by taxpayers via the OPG) is slated for recovery.
That could make the Debt Retirement Charge look like chump change!
—-
* The OEB has not yet announced the TOU rates that will apply effective July 1, 2017 as a result of the passing of the “Fair Hydro Plan” Act in the Ontario Legislature.
To: The Honourable Glenn Thibeault, Minister of Energy, Ontario
EB-2017-0049 Hydro One Rate Increase application
My views/thoughts and “What the OEB needs to consider”
The OEB must consider the fact Hydro One has publicly declared1(a) their intent to pay 70% to 80% of their net income after taxes as dividends to shareholders. No other publicly owned LDC pays out at that level. Toronto Hydro has recently informed the City of Toronto they will reduce their dividend.(b) It should be a point of the review by the OEB to limit the payout dividend rate by Hydro One to no more than the average of all of the other LDC dividend payout rates as the higher payout rate increases borrowing needs and resulting interest payments thereby increasing the need for the raising of distribution rates!
The OEB is currently in the process of endeavouring to have the distribution rates become more of a “fixed” cost moving away from variable rates currently embedded within the rate application system. Hydro One’s application ventures away from that path even though they cite the move to fixed rates on their website!(a) The OEB needs to re-establish their regulatory purpose.
A review of the Yearbook of Distributors(a) filings on the OEB website comparing Hydro One’s filings for 2014 with 2015 (2016 filings not posted yet) indicates OMA costs fell by $103 million from 2014 to 2015 while depreciation increased by $14 million. One would suspect the reported drop in OMA costs would have caused a drop in Hydro One’s distribution costs but no reduction was forthcoming. One must assume the increased depreciation was due to the OEB approving the completion of capital spending moving previously approved spending within a variance account to current rate recovery status. Presumably due to the drop in OMA costs; Hydro One reported an after-tax profit in their distribution business of $257.3 million an increase of $68,1 million in fiscal 2015.
We would note either Hydro One has been effective at getting ratepayers to conserve OR their out of line distribution rates have driven ratepaying households into “energy poverty”. The foregoing is evident in comparing the year ended December 31, 2015 with the comparable year ended December 31, 2016. Distribution volumes fell 8.6% whereas Transmission volumes increased 1.7% signaling distribution rates are out of line with other LDC! A further 1.1% reduction in distributed electricity is evident in reviewing the 1st Quarter of 2017 as compared to the 1st Quarter of 2016! NB:
We would note that asset classifications of: “Goodwill” and “Intangible Assets” now cumulatively represent $676 million having increased from $400 million in 2012. Those assets now represent 6.7% of Hydro One’s equity base and in line with the OEB’s annual setting of the ROE allowed by the LDC has the effect of inflation of Hydro One’s rate increases. It is time to discount the $676 million when considering the current application. Hydro One has inflated the goodwill (in particular) by enticing local councils to sell their LDC to Hydro One at prices that exceed normal acquisition activities in the private market. That in turn impacts not only the ratepayers of the acquired LDC but also (via the inclusion of the goodwill) impact all other Hydro One ratepayers.
Of note in respect to the OEB’s responsibility is the January 14, 2016 “Review of the Cost of Capital for Ontario’s Regulated Utilities”(a) wherein we find the following under the heading “Electricity Distributors” and labeled # 4) under “The differences between the OEB approved and the actual results can be attributed to the following:”: is the following: “4) The utility’s ability to manage its costs leading to under or over spending, and demand pressures”! Ontario’s ratepayers should rightly expect the OEB to not only “attribute” differences between “approved and the actual results” for the foregoing reason but to also bear that in mind on a comparative basis with all LDC ensuring that “over spending” is not granted the freedom given to Hydro One in the past and in the future!Costs for the same relative activities should be similar for all LDC!
Parker Gallant
NB: What that suggests is having the highest distribution rates during a time when the grid has a large surplus of electricity has two negative effects on ratepayers. The first is that reducing consumption will have a detrimental impact on the HOEP driving it down further particularly during the shoulder seasons when demand is low and secondly the reduced revenue to Hydro One will cause them to apply for rate increases associated with the revenue drop thereby increasing distribution rates. It is a downward spiral for ratepayers! We would also point out that while Hydro One experienced an 8.6% drop in consumption the IESO report that consumption from 2015 to 2016 remained flat at 137 TWh.
On one day recently, for one hour, Ontario’s thousands of towering wind turbines delivered just one megawatt of power. And still, Ontario had a surplus that was sold off cheap.
May 27 was a Saturday which is usually a “low demand” day for electricity in Ontario, compared to weekday power demand and assuming weather patterns are close to average. The temperature on the recent May 27 was slightly below historic averages in Toronto; as people woke up and set about their activities that day, the demand for electricity built slowly.
According to the IESO’s (Independent Electricity System Operator) Daily Market Summary, Ontario demand peaked at 14,069 MW and averaged 12,751 MW (total Ontario demand was 306,024 MWh for the whole day). If anyone checked IESO’s “Power Data” page at, say, just after 11 AM, they would have noted demand was 13,208 MW at 10 AM and the HOEP (Hourly Ontario Energy Price) was indicating a negative price of -$4.00 /MWh. If one had also looked at the “Generator Output and Capability” and scrolled down to “Wind Total” they would have seen that under the heading “Output” the number appearing on the screen was “1”!
As in, one single megawatt of power.
About half the capacity of one ordinary wind turbine.
So, at 10 AM on May 27, 2017 the approximately 4,500 MW capacity of the more than 2,000 wind turbines installed throughout the province by the McGuinty/Wynne governments with lucrative, 20-year contracts, were delivering one megawatt of power.
And yet, to the best of my knowledge, Ontario didn’t experience a blackout or brownout because intermittent wind power generation was almost completely absent, nor did our emissions increase, as we got all the power needed from nuclear and hydro resources. In addition, the almost 9,000 MW of gas generation was idling, operating at an average of about 2% of capacity almost all day.
Despite wind only producing an average hourly output of 75 MW for the day and just the “1” for hour 10, Ontario still exported 43,584 MW of power at a cost to ratepayers of $5.6 million*.
Despite the lackluster performance of industrial wind turbines May 27 and on many other occasions, a visit to the home page of CanWEA still claims: “Wind is delivering clean, reliable and low-cost electricity”!
Sure!
Perhaps with another 4,500 MW of capacity in Ontario, the industrial wind turbines may have delivered TWO MW of power at 10 AM on May 27?
*Cost estimate assumes the second IESO estimate of May’s Global Adjustment of $127.76 holds up.
The wind industry association claims wind power is the “least-cost” option. The numbers tell a different story [Photo: IESO]The past few days presented a couple of conflicting news events that made you want to scratch your head in wonderment.
First was a CTV news item June 5 headlined “Wasted green power tests China’s energy leadership”. The article stated: “In western China’s Gansu province, 43 per cent of energy from wind went unused in 2016, a phenomenon known in the energy industry as ‘curtailment.’ In the neighbouring Xinjiang region, the curtailment figure was 38 per cent and in northeast China’s Jilin province it was 30 per cent. The nationwide figure, 17 per cent, was described by Qiao’s organization as ‘shockingly high’ after increasing for several years in a row.” It went on to say: “The problem threatens to slow China’s progress in clearing its air and controlling the greenhouse gas emissions that make it the top contributor to climate change.”
A CanWEA blog (Canadian Wind Energy Association) by Brandy Giannetta, also on June 5, was headlined: “Adding more wind to the Ontario grid: no problem!”
Ms. Giannetta made these claims:
“Ontario could reliably integrate about 16,000 megawatts of wind energy (which would be able to meet more than a third of electricity demand in the scenario studied).
The additional amount of electricity generation reserves required to back up that 16,000 MW of wind (beyond the reserve capacity already in the system) would be as small as 196 megawatts, or 1.2 per cent of the wind energy capacity.
Wind energy, which is now the least-cost option for new electricity generation available in Ontario, would avoid about $49 per megawatt-hour of production costs within the electricity system if it supplied 35 per cent of Ontario’s electricity demand.”
The claims made on the blog supposedly used information from a partially taxpayer-funded, three-year study released in July 2016 co-sponsored by CanWEA and Natural Resources Canada and carried out by GE Energy Consulting, a subsidiary of General Electric. (GE’s website claims “Our portfolio of turbines feature rated capacities from 1.7 MW to 3.8 MW (Onshore) and 6MW (Offshore), we are uniquely suited to meet the needs of a broad range of wind regimes.”) As one would expect there is a “legal notice” (disclaimer) at the start of the report which names CanWEA as their client.
Needless to say, the report is extensive but looking at the 62-page Section 1, Summary Report, I noted the following, suggesting CanWEA suggest the small “reserve capacity” of only 196 MW is required to back up the 11,000 MW of new wind capacity and could be integrated:
“1.11.9 Reduced Reserves from Conventional Generation — This sensitivity examined the impact of reducing the level of spinning reserves obtained from conventional generation resources (thermal and hydro). Instead the reserves could be obtained from demand response, storage devices, or other nonconventional resources. This approach could reduce curtailment during periods where conventional generation resources are dispatched to their minimum output limits.”
The suggested CanWEA small 196-MW “reserves” being all that would be needed is a huge “stretch goal” (to use a phrase once favoured by the ruling Ontario government) and highly improbable! It suggests dispatching existing “conventional generation resources” will allow wind to contribute a lot more of its intermittent and unreliable generation.
The same section contained a stumbling block in respect to containing further cost increases as it notes: “Production simulation results show no significant reduction in curtailment. This indicates that the system is not constrained by the commitment of conventional generation units for reserve services.”
What that means is, curtailment will remain as is, as long as ratepayers pick up the costs of constraining conventional generation. It infers industrial wind generation be treated as “base-load” with “first to the grid” rights! Somehow, CanWEA view the expensive: “demand response, storage devices or other nonconventional resources” along with dispatch of conventional generation as an unrelated cost ratepayers must pay for unreliable and intermittent generation from industrial wind turbines, yet they claim “wind is now the least-cost option”. This appears to be CanWEA’s contribution to the “Fair Hydro Plan” kicking wind’s integration costs to the ratepayers bills!
Now with two conflicting perspectives about IWT curtailment from China and CanWEA, let’s look at recent Ontario history sourced from IESO and Scott Luft’s Monthly Wind data.
IESO reported in their 2016 Year-End Data they dispatched 2,244,230 MWh “representing 19 per cent of the total amount of wind energy produced in the province.” So, 2% more than China’s “shockingly high” amount garnered no attention in Ontario! Dispatched wind in 2016 added approximately $270 million to the GA for undelivered power, and no doubt caused nuclear steam-off and spilled hydro adding additional costs to the GA pot.
Scott’s files contain TX (transmission connected) and DX (distributor connected) wind generation as well as what has proven to be relatively conservative estimates of “curtailed” generation. For the first five months of the current year, curtailed wind was 1,580,629 MWh, which represented 22.3% of grid delivered and curtailed wind. It looks like the current year will easily surpass the record amount dispatched in 2016 in MWh and percentage terms.
Combining the average costs of wind generated MWh along with dispatched MWh suggests an average cost of a kWh from industrial wind turbines for the first five months of 2017 was 17.5 cents /kWh and for May 2017 was 23.4 cents /kWh.
Those costs to Ontario ratepayers makes it relatively easy to understand Ms. Giannetta’s closing paragraph on her blog where the “we” in the following sentence suggests she is clearly speaking for the members of CanWEA!
“It’s increasingly obvious that we are only beginning to reap the benefits of wind energy in Ontario.”
Stumbling over the IESO weekly summary* for May 24th to May 30th came with a shocking discovery that the HOEP (Hourly Ontario Electricity Price) for the week had descended to a low of $1.05 /MWh (megawatt hour) or 0.11 cents /kWh (kilowatt hour).
As it turns out, there is probably nothing you could buy for eleven one hundredths of a cent except for what was surplus to Ontario’s electricity demand for the week.
If you were looking to buy power from Ontario while living elsewhere it was much better than a Boxing Day or Black Friday sale! During that week IESO exported 278,712 MWh to NY, Michigan, Quebec, etc., which could have supplied 1.6 million average Ontario households with their electricity needs for the whole week for 19 cents. Yes, you read that right! The 278,812 MWh cost Ontario ratepayers the GA (Global Adjustment) which IESO’s 2nd estimate for May suggests will be $127.76/MWh (12.8 cents /kWh)!
What that means is, Ontario’s ratepayers will pick up $35.6 million in GA costs reducing electricity rates for our neighbours. Our neighbours can use that cheap power to lure small and medium sized businesses to their state or province. The businesses being lured away provide employment for many Ontarians.
Now, so surprised was I by the foregoing I fired off an e-mail to my friend Scott Luft about the meager amount of the HOEP for that week. Scott quickly responded suggesting a look at the prior week which he said was even more egregious. So egregious, that the HOEP for the week of May 17th to May 23rd was negative at -0.48 /MWh or -0.5 cents /kWh. He closed with the thought provoking “free power is really expensive” alluding to wind and solar as a fuel having virtually no cost!
It turned out the 308,616 MWh exported to NY, Michigan, etc., for the week commencing May 17th required Ontario ratepayers to pick up almost the full costs of our surplus and unneeded** generation and to also pay our neighbours to take it off our hands. The cost of the latter was $148,134. and the cost of the generation based on the second IESO estimate of the GA for May was $39.4 million! Those exported 308,616 MWh were equivalent to the “average” consumption of 1.8 million Ontario ratepayers for one week. Those 1.8 million ratepayers if they lived in Ontario, unburdened by the GA costs, would have been paid .83 cents for their average weekly consumption.
Instead of a benefit, those ratepayers were obliged to pay 12.8 cents /kWh for power they didn’t consume and also pay $20.00 for their own “average” consumption of 172 kWh for the week.
Conclusion
In just two weeks of May Ontario ratepayers subsidized the generation and export of 587,328 MWh at a cost of $75 million (excluding costs of curtailed wind, spilled hydro, etc.) to ensure our grid was stable and not cause blackouts or brownouts.
What the foregoing highlights is the complete mess our various Ministers of Energy have made of Ontario’s electricity system by catering to the whims of the many unqualified environmental groups who have led our government down the path of contracting for intermittent and unreliable wind and solar generation at high rates to save the world without even so much as a cursory cost/benefit analysis.
Just those two weeks of May 2017 make it obvious: Free power is really expensive!
Parker Gallant,
June 6, 2017
* IESO’s weekly summaries commence Wednesday running to Tuesday of the following week.
**Unneeded generation costs include: spilled hydro, curtailed wind, steamed-off nuclear and idling gas plants.
Parker Gallant Energy Perspectives 