Time to tax the wind?

March 19, 2018

Ontario electricity consumers are already on track this year to pay more for wind, and for the cost of wasting (clean) power from other sources due to surplus power — is it time for some fairness in the electricity sector?

The science on using wind energy to generate electricity is branded as innovation, but it’s actually very old.

Power generation via windmills was technology developed by Scottish engineer James Blyth (1839-1906). “In 1887, while a professor at Anderson’s College in Glasgow (an ancestor of the modern Strathclyde University), he constructed a windmill attached to a dynamo to light his cottage in his home village of Marykirk.”

In Ontario, government brought us the Green Energy Act touted as a revelation to clean our air and create 50,000 jobs. The government claimed: “Ontario wants green energy business. These regulations will help ensure industry and municipalities that jobs will be created, investment is committed and that the renewable energy industry grows across the province.”

To try to make that happen, we were saddled with the FIT (feed in tariff) program offering payment for generation by wind and solar generators at multiples of power already in place. Additionally, to attract the investment in renewable energy, developers and operators were granted tax breaks. Examples follow.

Tax Breaks                                                                                                                                    The Finance Minister instructed MPAC to limit their assessment of wind turbines to $40,000 per/MW of capacity, meaning municipalities would receive meagre realty taxes and had no say in accepting or rejecting them. Subsequent to that direction it was changed for large installations (over 500 kW) of both wind and solar to: “10.7% to the industrial tax class.”

Additionally, the federal government granted wind developers the ability to allow them to accelerate deductions (depreciation) of the capital costs under “Class 43.2 of the Income Tax Act.” And those rights were recently extended by the federal government, as noted by CanWEA here to 2025.

So, wind and solar power developers are paid high prices for generation classified as “baseload” power meaning the grid operator, IESO, is obliged to accept and pay for the power. That’s a guarantee whether the sun shines or the wind blows they will be paid the contracted prices, or paid slightly less for curtailed generation. At the same time, developers walk away with the cash and pay almost no taxes except for meagre realty taxes.

Cashing in                                                                                                                                    Ontario’s ratepayers have been adversely affected by the continued addition of wind capacity as IESO and its predecessor, the OPA, follow[ed] ministerial directives and continue to contract for more and more capacity. As CanWEA notes, “Ontario remains Canada’s leader in clean wind energy with 4,900 MW of installed capacity.”

The cost of grid- (TX) and distribution-accepted (DX) wind and curtailed wind in 2017 was more than $1.6 billion, and that’s without factoring in the additional ratepayer costs of steamed-off nuclear, spilled hydro, subsidized exports of surplus generation or idling gas plants (built to back-up the wind and solar generation). So far in 2018, the costs of wind (generated and accepted plus curtailed) versus 2017 for the months of January and February are $447 million — $44.7 million higher than 2017.

Evidence clearly points to wind power generation occurring during low demand hours, days and months, rather than high demand hours causing waste of nuclear and hydro power, still paid for by ratepayers.

Time for a tax?

If industrial wind power plants can’t generate power when needed, maybe it’s time to reconsider the pricing model, or find a way to recover some of those additional costs. As noted, above the only tax paid by wind power operators is realty tax at a rate of about $4,000 per turbine annually (estimated) which collectively, returns tax revenue of about $2 per ratepaying household.*

That $4,000 tax, however, is really not much more than the taxes paid for an ordinary house in Ontario. For a home assessed at $300,000, for example, the average realty tax is $3,300. Not far off from a huge, industrial-scale wind turbine which is reaping hundreds of thousands in income each year for its owners.**

The state of Wyoming has found a way to increase tax revenue: it simply levies a tax per MWh (megawatt hour) of generation.  Wyoming is currently looking at increasing that tax from $1/MWh to $2/MWh and had considered levying it at the rate of $5/MWh.

If Ontario used the Wyoming model, for example, a $5/MWh tax for grid-accepted generation (9.2 TWh) and a $20/MW tax for curtailed generation (3.3 TWh) in 2017 would have generated approximately $60 million in tax revenue. Even at those rates, it would only represent 2.2% of what ratepayers are paying for intermittent and unreliable wind power.

Perhaps it would be more fair for wind power developers and operators to pay up for the constant subsidization by the ratepayers and taxpayers of Ontario, and bring more revenues to Ontario’s stressed municipalities — tax them!

© Parker Gallant

* Ontario has approximately 4.9 million households.

** From The Toronto Star: “A turbine with a feed-in tariff contract receives 13.5 cents a kilowatt hour, or $135 a megawatt hour for its output. A two-megawatt turbine running at full speed, 24 hours a day for a year, would therefore produce 17,520 megawatt hours of power. Assuming it operates at 35 per cent capacity, in the real world it will produce about 6,132 megawatt hours. At $135 a megawatt hour, that means revenue of $827,820 annually. Assuming a more conservative capacity of 27 per cent, it would generate revenue of $638,604.” There are capital costs of course, like the “rent” paid to the landowner which might be $15,000 to $40,000 per year.

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How much does wind power cost us?

March 5, 2018

Ontario turbines near Comber: wind is not free

Being asked to do a presentation at Wind Concerns Ontario’s annual conference this past Saturday to describe the costs associated with industrial wind turbines was something I relished!

The presentation I developed used IESO information for 2017.

Discovered in the preparation of my presentation was the fact that nuclear and hydro power alone could have supplied over 100% of all grid-connected consumption for 2017, at a average cost of about 5.9 cents per kilowatt hour.

The cost for Class B ratepayers in 2017 however, was almost double, coming in at 11.55 cents per kwh.

So why the big jump? Have a look at the presentation to see why and look at Slide 6 in particular where you get an inkling of how IESO views the reliability of industrial wind generation in their forward planning process!

presentationparkerppt-final

 

Multi-million-dollar power contracts IESO style

Or, how the IESO could have saved Ontario ratepayers more than $400 million by cancelling one wind power project, but didn’t 

Surplus power in Ontario: why not get out of a contract if you could?[Photo: IESO]
February 6, 2018

On March 10, 2016 the Independent Electricity System Operator or IESO announced the outcome of the “Competitive Bids for Large Renewable Projects” via a news release which, among other issues claimed, they said they would award “five wind contracts totalling 299.5 MW, with a weighted average price of 8.59 cents/kWh”. The news release also described the contracting process: “The LRP process was administered by the IESO and overseen by an external fairness advisor. Robust and transparent public procurement practices were followed throughout the process, and each proposal was carefully evaluated for compliance against a list of specific mandatory requirements and rated criteria.”

Fast forward to October 26, 2017 and the release of Energy Minister Glenn Thibeault’s “Long-Term Energy Plan 2017 Delivering Fairness and Choice,” which offers some context for power contracts currently.

“Due to the substantial decline in the cost of wind and solar technologies over the last decade, renewables are increasingly competitive with conventional energy sources and will continue to play a key role in helping Ontario meet its climate change goals.”

and

“Ontario is Canada’s leader in installed wind and solar power.”

Economics of power procurement

Further on in the Plan are examples of how the Ministry, via the institutions under it, is working with communities. This one suggests the IESO is cognizant of the costs affecting ratepayers: “Ontario Power Generation (OPG) and Gull Bay First Nation (GBFN) are in the early stages of building an advanced renewable microgrid on the GBFN reserve on the western shore of Lake Nipigon. GBFN has an on-reserve population of 300 people and is one of the four remote First Nation communities that the IESO has determined to be economically unfeasible to connect to the provincial grid at this time.”

IESO recently issued their 18-Month Outlook for the period January 2018 to June 2019 and this report also noted the situation in respect to surplus power: “Conditions for surplus baseload generation (SBG) will continue over the Outlook period. It is expected that SBG will continue to be managed effectively through existing market mechanisms, which include intertie scheduling, the dispatch of grid-connected renewable resources and nuclear manoeuvres or shutdowns.”

Those manoeuvres or shutdowns in 2017 caused over 10 TWh (terawatt hours) to be wasted, but their costs were added to ratepayers’ bills and included 3.3 TWh of curtailed wind.

So, the province has a surplus of power, and the costs of wind and solar have become more competitive. Why would the IESO then not seize upon the opportunity to deal with a high-cost industrial-scale wind power project, when they had the ability to cancel it due to non-compliance with the original contract? At the very least shouldn’t they have renegotiated the contract to reduce the impact on ratepayers?

They did neither.

The White Pines story is a curious exercise in contract law, to be sure. A successful appeal* to the Environmental Review Tribunal by the community group the Alliance to Protect Prince Edward County** resulted in the project being reduced from 59.45 MW to 18.45 MW last fall. IESO could have simply canceled it because it was clearly unable to meet a condition requiring delivery of 75% of the capacity agreed to in the contract. At the very least, IESO could have renegotiated the terms of the contract to fulfill the Energy Minister’s claim that “renewables are increasingly competitive”.

But the IESO amended the contract for the reduced project, and granted waivers to the original conditions of performance, it was learned in a Belleville courtroom recently.

Cancelling would save millions

If IESO had canceled the contract, the Ministry could have claimed they reduced future rate increases saving ratepayers $21 million annually or $420 million over the full 20-year term. Even if IESO had only renegotiated the contract to the 8.59 cents/kWh achieved via the competitive bidding process instead of the 13.5 cents/kWh of the original contract, the Ministry could have claimed savings of about $5 million over the full term of the contract based on the currently approved 18.45 MW of capacity.

Has the IESO forgotten this line in in its Mission Statement ?

“Planning for and competitively procuring the resources that meet Ontario’s electricity needs today and tomorrow”

Cancelling just this one project*** would have helped to reduce surplus baseload and therefore the costs kicked down the road under the Fair Hydro Plan to be paid for in the future.

 

 

*The appeal was one on the grounds that the project would cause serious and irreversible harm to wildlife

**Disclosure: I am a member of the community group

*** The IESO has five contracts for more wind power projects totaling $3 billion, for power Ontario does not need.

Wind waste should worry Ontario ratepayers

Ontario’s electricity ratepayers paid more than $500 million in 2017 for nothing

With only one month left in the current year, the bad news on the electricity sector keeps getting worse.

Well before the official sources such as IESO report on how much power industrial wind turbines generated and how much was curtailed (constrained, or paid for but not added to the power grid), my friend Scott Luft has published his estimates for both the former and the latter for the month of November.

As he reports (conservatively), curtailed wind in November was over 422,000 megawatt hours (MWh)  that could have supplied 562,000 average Ontario households with free power for the month.

Instead, no one got free power; the cost of the 422,000 MWh of undelivered wind power to Ontario ratepayers was $120/MWh.  That $50.7-million cost for the month was simply added to the costs of the electricity bills ratepayers will be obliged to pay, while some of it will deferred to the future as part of the Fair Hydro Plan.

Somebody’s enjoying cheap power — not you  

No doubt the wasted wind power presented itself when it wasn’t needed; if it had been accepted into the grid, that extra power could have caused blackouts or brownouts, so it was curtailed.  At the same time, much of the grid-accepted wind was exported to our neighbours in New York, Michigan and elsewhere, at discount prices!  Curtailed wind for November 2017 compared to 2016 was almost 55% higher.

How bad is it? Let’s review the first 11 months of the current year, compared to 2016.

So far in 2017, curtailed wind is about 786,000 MWh higher (+33.8%) at just over 3.1million MWh.  The cost of all the curtailed wind so far in 2017 is approximately $373.6 million, or $94.3 million more than 2016 costs.

And wind wasn’t the only source of power generation constrained. When Ontario Power Group reported their third Quarter (September 30, 2017) results they said this:

“Baseload generation supply surplus in Ontario continued to be prevalent in 2017, resulting in forgone hydroelectric generation for OPG of 1.1 TWh*: and 4.5 TWh in the three and nine month periods ended September 30, 2017, respectively, compared to 0.5 TWh and 3.9 TWh during the corresponding periods in 2016.”  

Translation: ratepayers will pick up the approximately $165 million cost of that waste via their electricity bills.

Not only are we curtailing wind and spilling hydro, but we also steamed off nuclear power generated by Bruce Nuclear at the same time we pay for idling gas plants to back up intermittent wind and solar power generation.

Intermittent wind and solar cost us

The cost of “greening” Ontario with unreliable and intermittent wind and solar keeps climbing, no matter what their proponents or politicians say.  As ratepayers and taxpayers we should reflect on why 25% of the waste of the noted 7.6 TWh of undelivered power and its cost of $539 million (so far this year) is being deferred via the Fair Hydro Plan.  And at the same time, we should recognize that we have experienced the worst possible planning in the Energy Ministry in the history of the province.

The energy sector in Ontario needs real planning by experts that will provide real value for money and save ratepayers from paying more than $500 million a year … for nothing!

~

*  1 (one) terawatt is equivalent to 1 billion kWh

And the winner (loser) is … Ontario!

Ontario ratepayers well ahead in international competition to see who pays more for nothing.

Ontario turbines near Comber: money for nothing

A recent article appearing in Energy Voice was all about the costs of “constraint” payments to onshore industrial wind developments in Scotland.  It started with the following bad news:

“According to figures received by Energy Voice, the cost of paying wind farm operators to power down in order to prevent the generation of excess energy is stacking up with more than £300million* paid out since 2010.”  (£300 million at the current exchange rate is equal to about CAD $500 million. ) 

What Scotland refers to as “constrained” Ontario calls “curtailed,” but they mean exactly the same thing. Ontario didn’t start constraining/curtailing generation until mid-September 2013, or almost three full years after the article’s reference date for Scotland. Curtailment prevents the grid from breaking down and causing blackout or brownouts.

The article from Energy Voice goes on: “In 2016 alone, Scottish onshore wind farms received £69million in constraint payments for limiting 1,048,890MWh worth of energy”.

Ontario in 2016, curtailed 2,327,228 MWh (megawatt hours). That figure comes from Scott Luft who uses data supplied by IESO (Independent Electricity System Operator) for grid-connected wind power projects and conservatively estimates curtailed wind for distributor-connected turbines to compile the information.

What that means: in 2016 it cost Ontario’s ratepayers CAD $$279.2 million** versus £69 million (CAD equivalent $115.2 million) for Scottish ratepayers. So, Ontario easily beat Scotland in both the amount of constrained wind generation as well as the subsidy cost for ratepayers who in both cases paid handsomely for the non-delivery of power!

The article went on to note: “By August 2017, the bill had already reached in excess of £55million in payments for 800,000MWh”!

Once again Ontario’s ratepayers easily took the subsidy title by curtailing 2.1 million MWh in the first eight months of the current year, coughing up over $252.5 million Canadian versus the equivalent of CAD $92 million by Scottish ratepayers.

In fact, since September 2013, Ontario has curtailed about 5.5 million MWh and ratepayers picked up subsidy costs of over $660 million.

Ratepayers in both Ontario and Scotland are victims of government mismanagement and wind power industry propaganda, and are paying to subsidize the intermittent and unreliable generation of electricity by industrial wind turbines.

(C) Parker Gallant

* One British Pound is currently equal to approximately CAD $1.67.

**Industrial wind generators are strongly rumored to be paid $120 per MWh for curtailed generation.

Wind power: if this is “reliable,” get ready for lights out!

The wind power developers’ lobbyist/trade association is proposing a tripling of Ontario’s wind turbine capacity. What would that look like?

A June 5, 2017 article by Brandy Giannetta, the Ontario Regional Director at the Canadian Wind Energy Association (CanWEA), states that “Ontario could reliably integrate 16,000 megawatts of wind energy” . Later in the article, she says wind power would be “low-cost, emission-free and increasingly reliable”.

The 16,000 MW of wind capacity suggested in the article would more than triple the current 4,000 MW of grid-connected industrial wind turbines (IWT) and the 600 MW of embedded (approximately) capacity.   CanWEA just recently repeated this suggestion in a Tweet, so apparently the lobbyist/trade association thinks it’s a real idea.

Let’s see how “reliable” wind power is, right now.

It is important to look at the pattern of wind power generation.  In the four hours from 10 AM to 2 PM on September 12th , the grid-connected industrial wind turbine (IWT) capacity of 4,000 MW generated almost 340 MWh, according to the IESO’s Generator Output and Capability report of September 12, 2017.   During those four hours, Ontario demand totaled about 58,500 MW, so the 340 MWh delivered by wind turbines provided .58% of Ontario’s power demand — yet they represent 10.9% of Ontario’s grid-connected capacity of 36.563 MW!

It is hard to fathom how delivering just over ½ % of Ontario’s demand can be vaguely considered as reliable.   The full CanWEA article suggests tripling the current contracted industrial wind so that .58% delivered during those four hours would have generated 1.7% of demand over the same four hours.   Connecting the additional 10,400 MW to the grid would mean major expenditures (and by that I mean, billions of dollars) on the transmission system, while neglecting spending on truly reliable generation and the various parts of the transmission system that have been neglected.

It would also cost ratepayers for additional reliable back-up generation.

The CanWEA article also suggests wind at the 16,000 MW level would avoid “about $49 per megawatt-hour of production costs” if it supplied 35% of Ontario’s electricity demand.  If the four-hour experience of power generation on September 12 shows wind turbines would supply only 1.7% of our demand, it also demonstrates one thing clearly: the last thing we need in Ontario is more wind turbines, generating intermittent unreliable power!

Ontario’s ratepayers can’t afford any more wind.

Parker Gallant

September 12, 2017

April winds blow in high wind power costs

How badly were ratepayers hit? Millions upon millions for power produced out of phase with demand…

The Independent Electricity System Operator or IESO’s 18 month outlook report uses theirMethodology to Perform Long Term Assessments” to forecast what industrial wind turbines (IWT) are likely to generate as a percentage of their rated capacity.

The Methodology description follows.

“Monthly Wind Capacity Contribution (WCC) values are used to forecast the contribution from wind generators. WCC values in percentage of installed capacity are determined from actual historic median wind generator contribution over the last 10 years at the top 5 contiguous demand hours of the day for each winter and summer season, or shoulder period month. The top 5 contiguous demand hours are determined by the frequency of demand peak occurrences over the last 12 months.”

 The most recent 18-month outlook forecast wind production at an average (capacity 4,000 MW growing to 4,500 MW) over 12 months at 22.2%, which is well under the assumed 29-30 % capacity claimed by wind developers. For the month of April, IESO forecast wind generation at 33.2% of capacity.

April 2017 has now passed; my friend Scott Luft has posted the actual generation and estimated the curtailed generation produced by Ontario’s contracted IWT.   For April, IESO reported grid- and distribution-connected IWT generated almost 703,000 megawatt hours (MWh), or approximately 24% of their generation capacity. Scott also estimated they curtailed 521,000 MWh or 18 % of generation capacity.

So, actual generation could have been 42% of rated capacity as a result of Ontario’s very windy month of April 2017, but Ontario’s demand for power wasn’t sufficient to absorb it! April is typically a “shoulder” month with low demand, but at the same time it is a high generation month for wind turbines.

How badly did Ontario’s ratepayers get hit? In April, they paid the costs to pay wind developers – that doesn’t include the cost of back-up from gas plants or spilled or steamed off emissions-free hydro and nuclear or losses on exported surpluses.

Wind cost=22.9 cents per kWh

For the 703,000 MWh, the cost* of grid accepted generation at $140/MWh was $98.4 million and the cost of the “curtailed” generation at $120/MWh was $62.5 million making the total cost of wind for the month of April $160.9 million.   That translates to a cost per MWh of grid accepted wind of $229.50 or 22.9 cents per kWh.

Despite clear evidence that wind turbines fail to provide competitively priced electricity when it is actually needed, the Premier Wynne-led government continues to allow more capacity to be added instead of killing the Green Energy Act and cancelling contracts that have not commenced installation.

* Most wind contracts are priced at 13.5 cents/kilowatt (kWh) and the contracts include a cost of living (COL) annual increase to a maximum of 20% so the current cost is expected to be in the range of $140/MWh or 14cents/kWh.