Contributed by Robert Lyman @September 2016
Parker Gallant is a retired banker who does a public service by regularly analyzing and reporting on the financial performance of the Crown Corporations responsible for managing Ontario’s electricity system. In August 2016, he published two informative articles in which he assessed the results of actions taken by the Ontario government to transform electricity generation over the period 2011 to 2015. The government’s announced intention in 2011 was to eliminate the four coal-fired generating plants that then operated in Lambton, Nanticoke, Atikokan and Thunder Bay, allegedly to improve air quality and achieve the related health benefits.
In 2011, the coal plants’ maximum generating capacity (i.e. ability to produce electricity) was 4,484 megawatts (MW). However, the plants operated only occasionally, producing 4.1 terawatt hours (TWh) of power – just 10.5% of their capacity. The 4.1 TWH cost electricity ratepayers $135 million (3.3 cents per kWh) in 2011. The government never disclosed how much it would cost to end coal-fired power generation.
Gallant shows that the Ontario government did three different things:
- It added significant additional generating capacity from nuclear, hydro, natural gas, wind and solar power sources;
- It converted two of the coal plants (at Atikokan and Thunder Bay) to burn biomass (wood chips) instead; and
- It spent, and continues to spend, a large amount of money on programs to reduce electricity consumption.
The nuclear power added was 1,532 MW at Bruce Nuclear, which can operate at a capacity factor of 90% to supply 12.08 TWh. This alone easily covered the loss of the 4.1 TWH of coal-fired capacity and added an additional 8.7 TWH for new demand growth. The electricity produced by the Bruce Nuclear alone cost ratepayers $800 million per year.
New industrial wind turbines added 2,580 MW of capacity. Wind turbines usually operate, on average, at a capacity factor of 30%, because the wind does not blow all the time. New solar power capacity added 2,078 MW of capacity, which also runs at low capacity rates because the sun does not shine all the time. Wind and solar thus are “intermittent” energy sources, and they operate out-of-phase with the times when electricity is most needed. However, the Province gave wind and solar priority in the form of “first-to-the-grid” rights over other, cheaper energy sources. Consequently, the province needs additional power generation from “peaking’ plants, mostly natural gas, to provide the power sometimes needed when demand is high and the power produced by wind and solar is not enough. Wind produced 10.2 TWh of electricity in 2015 and solar produced 3.04 TWH, for a combined cost of $2.7 billion a year.
The new natural gas peaking plants added 602 MW of capacity to the 9,549 MW that was available in 2011 to reach a 2015 generation capacity of 10,151 MW. In 2015, the average capacity factor of the gas plants was only 17.5%. This added $100 million annually to ratepayers’ costs.
The 754 MW of hydropower capacity added since 2011 came mainly from the modifications to the Niagara tunnel (150 MW) and the Mattagami run-of-river project (438 MW). These were hugely expensive, costing $4.1 billion in capital costs alone, not counting interest or operating costs. Without counting operating costs, these additions now cost ratepayers about $200 million per year.
In a move that has received virtually no media attention, the Government brought the historical hydro generation from Ontario Power Generation out from “unregulated” (i.e. subject to market rates) to “regulated” rates, thus adding $474 million annually to ratepayers’ bills.
The conversion of coal plants to biomass generation was also enormously costly; if they operate at all, they will add about $65 million to ratepayers’ bills.
When electricity production from all generation sources exceeds provincial demand, the Independent Electricity Systems Operator (IESO) acts to cut back (“curtail”) production from natural gas, hydro and nuclear power sources. The curtailment costs were about $400 million in 2015. When even that is not enough, IESO must dump power at depressed rates on export markets.
Currently, the government requires IESO to allocate about $433 million annually to local distribution companies like HydroOttawa to promote reduced electricity use. If the distribution utilities lose sales as a result, they can apply to the Ontario Energy Board to be reimbursed through higher rates charged to consumers. Thus, when consumers as a group reduce electricity use, the rates go up.
In total, nominally to replace 4,484 MW of coal-generating capacity costing $135 million per year, the province has added 8,037 MW of new, mostly wind and solar generating capacity, thus increasing ratepayers’ bills by more than $4 billion annually. That does not include any losses on export sales nor the costs of cancelling two natural gas plants during the 2011 election campaign.
$4 billion a year spent otherwise would have bought a lot of improvement to health care.