Rising costs of electricity generation not stopping in Ontario

Ontario’s six-month electricity summary shows that the new government’s promise of cutting costs is going to be tough to achieve. Is it impossible?

IESO finally released their June “Monthly Summary Report” allowing one to determine if Ontario ratepayers consumed more or less electricity in the first six months of 2019 compared to 2018.  As it turns out, grid-connected (TX) consumption was down by 270,000 megawatt hours (MWh), dropping from 66,847 GWh (gigawatt hours) to 66,577 GWh.

Ontario’s gross exports also dropped nominally from 9,791 GWh to 9,718 GWh, but the cost to Ontario ratepayers (due to a higher GA [global adjustment])* in 2019 is approximately $1 billion, and in 2018 up to the end of June, the cost was less at approximately $920 million. The combined average as at June 30th of the HOEP and the GA jumped by $7.14 per MWh for Class B ratepayers from 2018, meaning it added about $346 million in additional costs in the six months.  While most of those increased costs won’t suddenly show up in November when rates are reset by the OEB, it will accumulate in the “Global Adjustment Modifier”** and will hit ratepayers and taxpayers in the future.

Hydro One’s six-month results:                                                                            Comparing the consumption drop IESO reported to Hydro One’s six-month report is interesting: they noted “Electricity distributed to Hydro One customers” actually increased by 294 GWh from 13,517 GWh to 13,811 GWh or 2.2%.  Revenue (net of purchased power) from Hydro One’s local distribution customers however was up by $134 million*** or an impressive 17.7% mainly due to rate increases granted by the OEB.  Transmission revenue was down $49 million (5.8%) as Hydro One stated: “due to cooler weather in the 2nd Quarter” and “lower peak demand”. Despite the overall $85 million revenue jump, Hydro One’s net income was down $96 million as they took the hit for the aborted Avista acquisition along with increases in financing charges and higher OMA costs.

The net income drop meant Hydro One paid out 84.2% ($282 million) of their net income via dividends to shareholders. This was in excess of their targeted payout rate of 70% – 80%. Ratepayers should hope the OEB takes this into account during present and future rate application reviews as, to the best of my knowledge, municipally owned LDC (local distribution companies) payout ratios are in the 50%-60% range! Toronto Hydro, as one example earned $167.3 million in 2018 and paid out $93.9 million in dividends to the City of Toronto for a 56.1% dividend rate. Retaining equity helps keep rates down!

OPG’s six-month results:

Ontario Power Generation just released their financial results for the first six months of 2019 and it looks like they are back in business, generating more electricity and big profits.  For the first six months of the current year they generated 39.3 TWh versus 36 TWh in 2018 increasing their percentage of TX generation consumed by Ontario ratepayers from 53.9% to 59%.  As well, “Income before interest and income taxes” for the “Electricity generating business segments” was up by 44.4%  to $715 million from $496 million.  While some of the increase was due to increased generation, most of it was due to the fact that the OEB granted substantial increases for both nuclear (increased to 8.1 cents/kWh from 7.5 cents/kWh [+8%]) and hydro (increased to 4.5 cents/kWh from 4.2 cents/kWh [+7.1%]) having sat on the rate application approvals**** for a considerable time.  Additionally, OPG were paid for 2.2 TWh of spilled hydro in 2019 versus 2 TWh in 2018 adding $15 million to revenue; however, the real shocker in the reported results was the fact they show OMA costs dropped $35 million.

Industrial wind turbines six-month results:   Thanks to Scott Luft’s data, wind power’s contribution (if one can call it that) for the six months for 2019 was up all-in (TX and DX [distribution connected] plus curtailed) slightly to 7.3 TWh versus 6.9 TWh in 2018. The overall cost however, was higher jumping from approximately $955 million to $1.079 billion.  Coincidently, the 7.3 TWh of 2019 is 83% of gross exports versus 80.9% of 2018’s gross exports.  That simply demonstrates the fact that wind turbines do nothing more than add to the costs of generating electricity in Ontario.  We could have easily done without their generation and their added costs!  Many people who have experienced health problems caused by the audible and inaudible noises produced by the turbines would also welcome their demise.

Conclusion:                                                                                                                                     One can determine from all this that the rising cost of electricity generation in Ontario has not slowed or stopped despite the change of government just over one year ago.

The damage caused through implementation of the Green Energy and Green Economy Act in 2009 continues and it is difficult to see how the current government will reverse the harm the GEA caused.

PARKER GALLANT        

*The GA pot only affects Ontario ratepayers as the market price (HOEP) is the price surplus electricity is sold at in the export market.                                                                                                                                                **The Ontario Minister of Energy announced future rate increases would be held to the rate of inflation.                                                                                                                                             ***In the 6-month comparison Hydro One’s average “Delivery” charge increased from 5.59 cents/kWh to 6.44 cents/kWh or 15.3% for their 1.3 million customers.                                                                                                                                        ****This was noted by the Energy Minister when passing the “Fixing the Hydro Mess Act”.

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Wind power and reliability: 180 degrees apart

An article posted on my blog on February 17, 2019 was related to IESO’s release of grid-connected (TX) 2018 Electricity Data. It disclosed the cost of electricity for the average Class B ratepayer had fallen ever so slightly from 2017, reducing costs by about $5 annually.  The savings on the electricity portion of the average bill may have been eaten up by additional delivery and/or regulatory charges, so was probably not even noticed by most ratepayers.

As I noted then, what caused rates to drop was that we consumed more in 2018 than 2019, resulting in less wasted generation. In 2018, Ontario’s total demand was 137.4 TWh (terawatt hours) — up from 2017 when we consumed 130.3 TWh, for an increase of 7.1 TWh or 5.4%.  Nuclear and hydroelectric generation in 2018 generated 92.5% of total Ontario demand, not including spilled hydro or steamed-off nuclear which is paid for via the GA (Global Adjustment).

As an example of less wasted generation, OPG reported in 2018 that due to SBG (surplus baseload generation) they spilled 3.5 TWh, whereas in 2017 they spilled 5.9 TWh. That was 2.4 TWh less wasted hydroelectric generation we didn’t have to pay for!

Since IESO’s release of the grid-connected data, we are now able to see exactly where all Ontario generation came from, including both grid (TX) and distribution-connected (DX) due to the recent release of the OEB report “Ontario’s System-Wide Electricity Supply Mix: 2018 Data”. The OEB report indicates total Ontario generation of 154.4 TWh in 2018 up from 2017 when it was 150.75 TWh.

About the same time as the OEB released their report, the Ontario Energy Report was also released and it includes both TX and DX generation in detail. It also includes specific information on our exports and imports of electricity plus individual capacities of our generation sources.

Looking at some of the specifics causing our electricity rates to soar since the advent of the Green Energy Act (GEA) in 2009, it is relatively easy to see the principal causes. Wind and solar generation’s inability to deliver power when needed, despite its “baseload” designation, has factored in rising costs in two ways. The first is its detrimental effect on the HOEP and the second is its preponderance to create surplus generation that must be exported, curtailed, spilled or steamed off.

The HOEP in 2017 was the lowest ever, averaging 1.58 cents/kWh increasing to 2.43 cents/kWh in 2018. That means our exports of 18.591 TWh in 2018 generated revenue of approximately $451.8 million ($24.3 million per TWh) but cost ratepayers around $2.138 billion.

That means we lost almost $1.7 billion. The bulk of our exports (15.531 TWh) were sold to New York and Michigan so $1.4 billion of the $1.7 billion in ratepayer costs went to provide cheap power to those two US States.

The further driver to increased costs can be blamed on what we pay wind** and solar generators. For wind it averages $135/MWh and for solar $445/MWh. In 2018 TX plus DX wind generation was 12.3 TWh and curtailed wind was 1.9 TWh for which we pay $120/MWh. Total wind generation costs in 2018 therefore were about $1.888 billion. Solar generation in 2018 from DX and TX connected plants was 3.5 TWh and cost $1.55 billion bringing costs for the two intermittent sources of “baseload” generation to $3.438 billion or about 22 cents/kWh.

The combined cost of losses on exports plus the costs of wind and solar was $5.1 billion.   Is it any wonder our rates are so high?

Perhaps the time has come for all energy ministries to recognize wind and solar are not “baseload” power as defined due to their intermittent and unreliable nature.

Wind and solar power’s designation should logically be changed from “baseload” power to “abstract” or “symbolic” power! That change would better reflect their ability to deliver power when needed.

 

PARKER GALLANT

*Includes both the GA and the HOEP (hourly Ontario energy price).

**IESO suggests we can only count on wind to produce at a level of 13.6% of its capacity.  For solar it’s at about the same level suggesting solar is (in IESO’s view) actually more dependable!

Ontario’s lavish, expensive electricity weekend

Enjoy the weekend and the balmy weather? Good: you paid millions for it.

Live it up, baby

Ontarians waited a while for Mother Nature to bless them with a good weekend and it finally happened. June 8th and 9th were beautiful days filled with sunshine and temperatures that were warm but not hot.   A nice breeze added to the two spring days.

So, while Mother Nature treated us nicely, that meant people were out enjoying the weather and electricity consumption was, as it usually is during the Spring and Fall, low. Consumption at its lowest (Ontario demand) point over the weekend was 10,564 MW during one hour, and average Ontario demand over the 48 hours was a very low 12,975 MW*.

The combination of nice weather and low electricity consumption however, created an expensive weekend for Ontario ratepayers. Those breezes were generating surplus wind power from industrial wind turbines and water was flowing through our rivers and through and over our dams. The combination cost Ontario ratepayers lots!

For example, wind which delivered 39,870 MWh but the IESO (Independent Electricity System Operator) was, at the same time, getting IWT to curtail wind — that amounted to 58,870 MWh**. Those wind power operators were paid $120.00/MWh for curtailed wind and $135.00/MWh for grid-accepted wind.

Wind at 3.7 cents a kilowatt hour? How about 31?

So, collectively over the two days, wind generation and its curtailment alone cost ratepayer $12.448 million or over $312.00/MWh (31.2 cents/KWh).

Over those same two days our net exports (exports minus imports) were 123,960 MWh and most of it was sold at negative prices.   Those 123,960 exported MWh cost Ontario’s ratepayers an average price in excess of $115/MWH, so that was another $14.3 million added to the weekend’s expenses!

It also appears IESO were spilling quite a bit of hydro as well. Scott Luft estimates hydro spillage was somewhere around 50,000 MWh** which would add a further $2.3 million to our expensive weekend.

As if these costs weren’t enough, we also shut one nuclear plant down early Saturday morning and steamed-off nuclear power at Bruce Nuclear — that resulted in another waste of around 43,700 MWh at a cost of $2.884 million which Ontario’s ratepayers are obliged to pay.

And just to put some icing on the cake, our 7,925 MW of gas plants (backing up renewable intermittent wind and solar generation) were idling all weekend at a cost (estimated) of $10,000 per MW of capacity per month. That cost ratepayers about $5.2 million for those two days.

So add up the waste of the two days for curtailed wind of 58,870 MWh, steamed-off nuclear of 50,000 MWh, spilled hydro of 43,700 MWh and net exports of 123,960 MWh you will see Ontario’s ratepayers will pay for 276,530 MWh of unneeded power, or 44.4% of what was actually consumed.

That’s almost $26 million. For one weekend.

If one includes idling gas plants, total costs were north of $31 million to be paid for, but provided absolutely no benefit to Ontario ratepayers!

PARKER GALLANT

*Nuclear power alone could have supplied about 85% of total consumption over the 48 hours.

**Thanks to Scott Luft for this information.

Global Wind Day is coming: should you cheer or cry?

Canada’s wind power lobby says wind power is not only cheap, it is dependable enough to supply one-third of our power needs. Is this true? (No.)

Celebrate? Maybe not… [SmallSteps photo]
CanWEA (Canadian Wind Energy Association) recently posted an article about an upcoming event they seem quite excited about.  Apparently, “Every year, June 15 is Global Wind Day, a day to celebrate the incredible momentum of wind energy.”

CanWEA goes on to make extraordinary claims and these two top the list: “Costs have also dropped significantly in Canada, and a power auction in Alberta, in 2017, established wind energy as the most cost-competitive source of new electricity generation in Canada” and “… it could supply more than one-third of the country’s electricity without compromising grid reliability.”

Well, I just had to look into that, especially after Ontario’s experience with wind power. Thanks to Scott Luft’s data gathering from IESO and his ability to organize it nicely, it’s an easy task to see how wind performed in Ontario over the past three years.

As we are five months into 2019 let’s look back at that same period over the last three years and review wind’s performance. It is important to understand that wind generation, for some reason, gets “first-to-the -grid” rights and are also paid handsomely ($120/MWh) for curtailing their generation.

The meaning of ‘curtailment’                                                                                                                                   Starting with wind capacity*, which at the start of 2017 was about 4,460 MW with 570 MW of that embedded. At the beginning of 2018, capacity had increased to 4,900 MW with 580 MW of that embedded; at the start of 2019 we had 5,090 MW with 590 MW embedded. Wind’s capacity increased over those three years to the point where it represents over 10% of capacity.

Once industrial wind turbines represented a significant amount of capacity in Ontario, reality dawned: wind is unable to deliver generation when actually needed. This raised concerns with the grid operator, the Independent Electricity System Operator or IESO. As this situation constituted a possibility of lack of grid control, the deal struck with the wind generators was to get them to curtail their generation, when asked, in exchange for a significant payment.

When this agreement was reached, IESO began to curtail wind on a regular basis, particularly during Ontario’s low demand periods which occur during the Spring and Fall. That’s also exactly when wind generates power at its highest levels in Ontario. So, for 2017 wind developers curtailed 1,420.6 million MWh in the five months which earned them $170.5; in 2018 they curtailed 1,019.6 million MWh earning $120 million; and in 2019 curtailed 786,900 MWh which earned them $94.8 million.

Ontario’s ratepayers generously picked up the bill of almost $400 million for that curtailed generation for the first five months of each year since 2017.

Wind power generation                                                                                                                                       Power generation from wind in the first five months of 2017 (either grid-accepted or distributor-accepted) was 7,080.8 million MWh; in 2018 it declined slightly to 7,027.6 million MWh. For the first five months of 2019 it increased to 7,211.7 million MWh (up 2.6%). The cost of the generation (at $135/MWh) brought costs to ratepayer of $955.9 million for 2017, $948.7 for 2018 and $973.4 for 2019.

That represents a total cost to Ontario’s ratepayers of $2.878 billion for the 21.3 TWh (terawatts) either grid- or distributor-accepted.

The total cost of wind: more than you think

So now, let’s check to see if the costs of power generation from wind are falling as claimed by CanWEA. To do that, we must add the cost of curtailed wind to the cost of what was delivered.

That cost was $3.278 billion!

Looking at 2017, the math on what it cost ratepayers for the period of the first five months of each of the last three years works out to $159.10/MWH and for 2018 slightly lower at $152.40/MWh and for 2019 it fell slightly again to $150.00/MWh.

It appears, on its own, wind generation costs in Ontario fell from 15.9 cents/kWh in 2017 to 15.0 cents/kWh in 2019.

However, not accounted for is the annual “cost of living”** increase granted to wind power operators in their contracts. Also not accounted for is the cost of back-up generation (principally gas generation paid to idle) for when the wind isn’t blowing. And other unaccounted for cost is what wind does when delivering generation out of sync with demand! It drives down the market price (HOEP) and our exported power is sold for cents on the dollar and Ontario ratepayers pick up the losses on those sales.

On top of all those other costs, excess wind power generation out of sync with demand causes hydro spillage and nuclear steam off — both of which are paid for by ratepayers!

Clearly, this demonstrates that CanWEA’s claim that wind power is cost competitive is fictitious — it isn’t!

And the other claim – that wind could supply one-third of the country’s electricity needs — is also bogus. As a recent IESO report notes, “The transmission-connected supply mix has shifted from only synchronous generation facilities to more inverter-based generation facilities (e.g., wind and solar). This change has lowered system inertia, which is a critical element that supports the secure operation of the ICG, [IESO Controlled Grid] especially during light demand conditions.” Translation: Adding more intermittent and unreliable wind power to the grid severely impacts grid stability, particularly in the spring and fall when demand (in Ontario) can fall to almost 50% of the peak demand which occurs on hot summer days or very cold winter days.

In short, “Global Wind Day” is no reason to celebrate.

PARKER GALLANT

*rounded                                                                                                                                           **wind turbine contracts also included a cost of living annual increase to a maximum of 20% of the original contracted amount

#GlobalWindDay

Do wind turbines contribute to flooding?

A look at how water flows are managed brings up a few questions …

[ Ashley Fraser/Postmedia]
The Government of Ontario recently announced their plans to initiate “an internal task force that will consult with our municipal partners and other stakeholders in impacted areas on ways to improve the province’s resilience to flooding.” The announcement occurred as many areas in Ontario experienced water levels approaching the 2017 levels. Since then water levels in Lake Ontario have surpassed those of 2017 as noted in the Democrat & Chronicle: “The water level in Lake Ontario hit a modern-day high on Friday, exceeding by a sliver the record set just two years ago.”

Flooding in Lake Ontario is not a new event as that story noted: it “has happened in seven spring-summer periods since 1918, when record-keeping began: 1993, 1974, 1973, 1952, 1951, 1947 and 1943. The lake’s waters rose very close to 248 feet* on four other occasions dating as far back as 1929.”

The parties involved in managing water levels are numerous and include the IJC (International Joint Commission) which controls the Moses-Saunders dam between Cornwall, Ontario and Massena, New York. That dam controls the water levels in the Great Lakes to try and prevent flooding along the St. Lawrence River.

As well, the Ottawa River Planning Board was established to ensure integrated management of the principal reservoirs of the Ottawa River Basin.  Members on this Board include representation from OPG and Hydro Quebec as well as Federal Government members.  Interestingly, IESO, who manage Ontario’s electricity grid, are not members; yet on a minute by minute basis, IESO determine the flows for generation and spillage of almost all hydro dams in Ontario.

As if all this wasn’t enough to create complexity in water management, back in December 2016 the IJC adopted “Plan 2014” aimed at increasing “wetlands” in the Great Lakes. It was endorsed by Prime Minister Trudeau and President Obama.  Its effect was aimed at raising lake levels to create wetlands after lobbying efforts by people who thought this was good for the environment.  The IJC said, the lake will often be a bit higher than it had been in the spring and fall, and roughly the same in summertime.

Now the IJC and all the other bodies involved in managing the water levels are blaming good old “Mother Nature” for the 2017 and 2019 events! The floods occurred despite the record snowfalls being reported by weather stations throughout the first three months of 2019. Record snowfalls generally signal major spring runoffs.

So, let’s look at 2019 and review the first three months of specific electricity generation in Ontario and compare it to the same three months in 2017 to see what might be different and determine if it raises a question—did wind power generation play a role in causing flooding in 2019?

If you look at the IESO’s “Generator Output by Fuel Type Monthly Report” for the first three months of 2017 you see grid-accepted wind power generation was 3,462.5 GWh (gigawatt hours); in 2019 it was 3,919.7 GWh or 12.9% higher.  Curtailed wind** on the other hand decreased from 635.7 GWh to 225.2 GWh which was a decrease of 410.5 GWh or 64.4%.   Coincidentally, that decrease was almost equal to the higher grid-accepted wind amount and also coincidentally quite close to the decrease in SBG (surplus baseload generation) spillage by hydro dams as noted below.

Looking at grid-accepted hydro for those three months, we note in 2017 it was 9,544.1 GWh and in 2019 was 9,787.5 GWh, an increase of only 243.4 GWh or 2.6%. Hydro spillage for SBG in 2019 was 0.3 TWh (terawatt hours) whereas in 2017 it was 0.8 TWh (also in 2018), a drop of 0.5 TWh or 64%.

So another question is: why was SBG spillage in the first three of 2019 about 500 GWh less, while Ontario’s demand during those same three months was up by 1,411.1 GWh?

One would expect when a major spring melt is anticipated, reducing water levels in reservoirs from mid-February into March would be the accepted practice in order to alleviate flooding later. The spring melt from tributaries deliver the melted snow to places like the Ottawa River basin where its funneled for run-off or held in those reservoirs.

For the 2019 flooding, the question becomes: did IESO favour industrial wind turbines (IWT) over either increased hydro generation or reduced spillage? OPG is paid for SBG spillage as are IWT developments for curtailed wind.  Paying for curtailed wind while allowing more hydro generation and/or spillage may well have resulted in less flood damage costs which in 2017 were estimated at $200 million!  This year’s cost could be higher.

One would hope the Ontario government’s “internal task force” investigates the above issues to more effectively understand all the reasons for the excess flooding and not simply blame “Mother Nature”!

PARKER GALLANT

*Refers to “above sea level”.

**Thanks to Scott Luft who tracks both grid-accepted and distributed curtailed wind.

Why warm breezy spring days are horrible for Ontario

but New York and Michigan think they’re great. 

The Victoria Day weekend often brings nice weather and the recent weekend was no exception in Ontario.  Sunday was a beautiful day in most of the province, with temperatures in the high teens to low twenties.

Pleasant, but if you are an electricity customer? Horrible.

As a direct result of that really nice day on May 19, Ontario’s demand for electricity was low — according to IESO’s daily summary demand was just under 296,000 MWh.   Ontario’s nuclear plants combined with a little bit of hydro could easily have supplied all our electricity needs that day.

But, the wind was blowing and according to IESO’s forecast was expected to generate over 59,200 MWh of power or about 20% of Ontario’s demand.  Even though wind generation gets “first-to-the-grid” rights (because of the contracts the wind industry negotiated) the IESO only accepted 40% (23,700 MWh) of the forecast amount, presumably at standard contracted price of $135/MWh (plus cost of living increases since contract signing).

IESO curtailed the balance of 35,500 MWh and paid the CanWEA-negotiated price of $120/MWH.

So the total cost of power generation from wind was almost $7.5 million or about $315/MWH — about 31.5 cents/kWh.

As if that wasn’t bad enough, IESO were busy selling off surplus generation to our neighbours. Cheap.

Our net exports (exports minus imports) averaged 2,860/MWh for 24 hours, meaning net exports for the day were just over 68,600 MWh.  As a reminder, exports are sold at the market price or what is referred to as HOEP (Hourly Ontario Energy Price) and that averaged -$2.16 (negative) for the day, meaning it cost us about $150,000 to just get rid of our surplus power on top of paying for the HOEP and the GA (Global Adjustment).

The IESO in their April 2019 monthly summary said the combined HOEP and GA cost averaged $116.77/MWh* up to that date.  A quick calculation on this indicates Ontario’s ratepayers picked up costs of $8,150,000 for power shipped off (via transmission lines we pay for too) to New York (31,160 MWh), Michigan (19,180), Quebec, etc. That helps them to keep their costs down.

In summary, Ontario’s ratepayers picked up the costs for wind generation and curtailment of $7.5 million together with the cost of exports of $8.150 million without inclusion of solar, hydro spillage and nuclear steam-off costs. While we may have been outside enjoying a nice sunny spring day, Ontario’s ratepayers were being treated as scapegoats for the mess that permeates the electricity system.

The total damage was $15,650,000 for just one day.

This waste is offensive to both ratepayers and taxpayers — the time has come to stop.

PARKER GALLANT

*Scott Luft reported April set a new record for Class B ratepayers which IESO said was $138.90/MWH

“Quebec Inc” scoops up Ontario renewable energy projects

Valuable contracts with above-market rates for wind and solar power are attracting investor attention

Perhaps unbeknownst to many, Ontario’s electricity ratepayers are accumulating debt in the electricity file (Fair Hydro Plan or FHP); that debt will reappear in future years to ensure electricity rate increases exceed inflation by a wide margin.

The cause of the FHP debt can be traced to the Green Energy Act (GEA) and the FIT and MicroFIT contracts handed out by the Ontario Liberal Government under Premiers McGuinty and Wynne.  Those lucrative above-market (confirmed by the Auditor General) contracts were granted to mainly foreign-owned companies. The companies rushed to Ontario to take advantage of the above-market rates offered for renewable energy of the wind and solar variety.

Many of those foreign-owned companies are now leaving Ontario, cashing out on the lucrative contracts by selling them to willing buyers. Our provincial neighbour “Quebec Inc.”, with its cheap electricity prices, is rushing in to scoop up many of those contracts along with others like the Canada Pension Plan Investment Board (CPPIB). The latter purchased NextEra’s portfolio (Head Office Florida) of 396 MW of wind and solar contracts, paying $1.871 million per MW for a total of $741 million CAD and assuming the debt (US $689 million).

“Quebec Inc’s” acquisitions are more “under the radar” and most costs are unknown, but some of the bigger investment players with Quebec headquarters are very active.

The one recent acquisition from “Quebec Inc.” caught the attention of many in Eastern Ontario was the purchase of a controlling interest in the unbuilt 100-MW Nation Rise wind power project in North Stormont, south of Ottawa. When newly elected Premier Ford’s government announced they were cancelling 758 renewable wind and solar energy projects, most Ontarians thought Nation Rise would be one of: it wasn’t. Somehow the bureaucrats in the former Ministry of the Environment and Climate Change managed to issue the REA (renewable energy approval) just a few days before the election writ was dropped despite wind power and this project in particular being a prominent election issue.

To top things off, the IESO (Independent Electricity System Operator) were satisfied that EDPR had met their “key development milestones” and issued the NTP (Notice to Proceed) on June 13, 2019, days after the election and weeks before the Ford government announced the new cabinet.

When the approval became public, community group Concerned Citizens of North Stormont, stepped up their fight to stop the power project.

Project developer EDPR then sold off controlling interest in the Nation Rise project along with other existing operating projects. Before that happened however, EDPR submitted an application dated October 11, 2018 to the Ontario Energy Board (OEB) for a electricity generation licence. Question 13 of the application asks the question; “Has the applicant secured financing?”

EDPR ticked the NO box.

The OEB appears to have overlooked the lack of secured financing (based on the application) and granted the licence December 20, 2018 without comment.

EDPR is a subsidiary of EDP a global energy company with its headquarters in Portugal and with significant renewable energy assets in North and South America. With 2,300 industrial wind turbines in the USA, EDP rank third in installations.

EDP has been a takeover target for several years by Three Gorges, a Chinese state-owned company who are already a significant shareholder. Because of the Chinese state ownership the US government expressed concerns with the possible purchase by Three Gorges. The principal concern is the volatility of US electricity grids and security issues surrounding them. Other EU countries with EDP electricity generation assets are also concerned with grid security issues in the event of a takeover by Three Gorges.

In the midst of takeover buzz, EDPR suddenly sold off controlling interest in some of their North American generation assets to a Quebec-based company, Axium Infrastructure Inc. Eight days after the OEB blessed the EDPR licence application for Nation Rise, Axium issued a press release announcing they had closed an agreement to acquire an 80-percent interest in three wind power projects, totaling 499 MW in the U.S. and Canada from EDPR.

Nation Rise was one of those acquired.

A month and a half earlier, Axium was the lead investor in the purchase from U.S.-based Pattern Energy Group of a 90-MW minority interest in the 270 MW K2* wind generation project. The purchase price was CAD $216 million.

Following OEB’s approval of the EDPR Nation Rise generation licence, Axium Infrastructure submitted an application to the OEB dated January 14, 2019 seeking approval of their majority (80 percent) acquisition. The application form asks no questions about financing, nor does it ask questions about bankruptcy or criminal issues for either the company or individual officers, unlike the “generation licence” application format.

The application to the OEB indicated Axium held investments in seven of Ontario’s wind turbine developments and 19 solar projects. It also included the following: “After completion of the Proposed Transaction and the Project, Axium and its affiliates will have a generation capacity of 1,050 MW** on a gross basis and 563 MW on a net basis within the Province of Ontario.”

On February 28, 2019 Axium issued a further press release reporting they acquired a 50-percent interest in a 101-MW solar portfolio in Ontario from Mitsubishi Corporation.

In short, Axium has been very aggressive in acquiring Ontario’s foreign-owned wind and solar projects and Ontario’s regulator, the OEB, have blessed everything Axium has done.

That’s obvious if one reads the short letter dated February 14, 2019 from the OEB notifying  Axium about their Nation Rise acquisition: “the OEB does not intend to issue a notice of review of the proposal.”  Was this due diligence?

Tomorrow, in Part 2 of my look at the “Quebec Inc” acquisition spree, I will attempt to explore who is behind Axium Infrastructure, the interaction with the Ontario Energy Board and how the latter executes its Vision: “The OEB supports and guides the continuing evolution of the Ontario energy sector by promoting outcomes and innovation that deliver value for all Ontario energy consumers.”

PARKER GALLANT

 

*K2 was a Samsung project commissioned in September 2015 so has about 17 years left in its contract and if it operated at 30% of capacity would generate approximately $540 million in gross revenue over the remaining term of its contract for the 90 MW of capacity now owned by the Axium consortium.                                                                                                                                 **That amount of renewable generation would represent approximately 14% of all current operating renewable wind and solar in Ontario.