I recently participated in a very interesting discussion on Tyler Hamilton’s blog. Tyler as you may know also covers energy for the Toronto Star, and is generally anti-nuclear—especially when it comes to the CANDU. As you can see in the comments, I and others suggested that revenues from Ontario’s nuclear-generated electricity are actually subsidizing the competition. To me this is a fairly simple conclusion once you look at even the meagre public data that’s out there.
What do the data say? First, nuclear energy provides more than half Ontario’s electricity most of the time. Go to www.ieso.ca any time of the day, and look at the pie chart under the heading “Generation by Fuel Type”; it shows data from two hours ago. Nuclear is always the single biggest contributor, and most hours of the day it contributes well over half Ontario’s power.
This by itself proves my point. Ontario rate payers, as you’ll see below, are paying for all sorts of policy initiatives related to electricity. The mechanisms through which they are paying, the Global Adjustment and Debt Retirement Charge, are tied to every kilowatt-hour that is consumed in Ontario (outside of Cornwall, which gets its power from Hydro Quebec). If the nuclear plants generate the bulk of those kWhs, then nuclear power also generates most of the add-on revenue. As one of Tyler’s other commenters said, that’s not speculation. It’s math.
The second thing the data tell us is that most nuclear-generated electricity comes with an average price of roughly 5.8 cents per kilowatt-hour. How do I get that number? The output from Bruce units 3 and 4 (the “A” station) fetches something like 7.1 cents per kWh according to Ontario’s Auditor General. Bruce units 5 through 8, a.k.a. Bruce B, fetched 5.8 cents per kWh in the first 9 months of 2010, according to Cameco (which has an interest only in units 5 through 8). Output from Pickering and Darlington gets 5.5 cents per kWh according to Ontario Power Generation.
From IESO data, I estimate that the average Hourly Ontario Electricity Price (HOEP)—the market price—in the first 9 months of 2010 was roughly 3.77 cents per kWh. This means that on average the price of nuclear output was something like just over 2 cents per kWh above the market price. Broken down among the stations, Bruce A’s price was 3.4 cents per kWh above market, Bruce B’s 2.1 cents, and OPG’s was 1.8 cents above.
Anti-nukes will point to that as proof that nuclear is too expensive. The problem is, their preferred generation types—wind, solar, and of course natural gas—demanded far more than 2 cents per kWh above market. You’ll get an idea how much later on; you may be shocked.
This is plain if you look at the Global Adjustment figures for 2010. The Global Adjustment is a cost recovery mechanism that covers the gap between the market price of power and the price promised to certain contracted and regulated generators. The GA applies to all consumers, but unless you use at least 250,000 kWh per year or have signed an electricity contract with an energy retailer, you won’t see “Global Adjustment” (or “Provincial Benefit”) as a line item on your power bill; it is included in the “Electricity Charge” line item.
If there is any difference between the market price of electricity and the price the Government of Ontario has promised to pay certain generators, then the Global Adjustment makes up for it. If the market price is higher than the contract price, then customers receive a credit; if the market price is lower, customers are charged.
Looking at the 2010 GA figures, you’ll see that they have been negative in almost every month in every category. That means that the market price was lower than the contracted and regulated prices, and that the eligible generators needed a top-up to cover the difference between what they were getting in the market and what the Ontario government promised them.
As you can see, the biggest amounts belong to a combination of “non-utility generators” (NUGs), with a total of 1,652 megawatts of primarily gas-fired capacity (according to a Macquarie report), and OPA contracted suppliers. (The latter also include conservation and demand efforts.) These two categories easily outweighed the amounts due to OPG. Though the OPA contractees include Bruce Power, by far most are in the so-called “clean energy” category, i.e., also natural gas.
Think about this for a second. Gas has been very cheap for most of this year. The mix of politically correct gas and renewables contributes around 12 percent of Ontario’s electricity in a given year—most of it gas, which emits huge amounts of carbon dioxide. These sources are on track to receive an average of 66 percent of the Global Adjustment payments so far this year. In absolute amounts, that’s over $1.7 billion. (I got to that amount by adding the NUG total to that of the OPA, then subtracting my estimate of Bruce A’s top-up from January to September—8.8 billion kWh at 3.4 cents per kWh.)
By my estimate, those sources—the NUGs plus OPA excluding Bruce A—have generated around 13 billion kWh so far in 2010. If they required a top-up of $1.7 billion, that works out to 17 cents per kWh.
And that is during a time of cheap gas prices.
Good thing these sources provide only one-tenth of Ontario’s electricity. Can you imagine what our power would cost if they provided even one-fifth?
It is really clear from this that OPG and Bruce Power are the only reason Ontario electricity costs haven’t gone completely out of control. While it is true that OPG’s hydro generators provide the lowest-cost power in the province, it is also true that the nuclear generators, which provide twice as much power as hydro, are the next cheapest.
Up to the end of this year, all electricity customers will, through the GA, cover the $2.6 billion top-up. As mentioned, 66 percent of that top-up will go to the politically correct energy sources that provide 12 percent of Ontario’s electricity. Only 34 percent will pay for purely carbon-free power, which was the whole idea for phasing out coal in the first place. Beginning January 1, 2011, there will be a time-of-use formula for consumers whose peak demand is more than 5 megawatts. That is, those big consumers will get a price break. Meaning, the rest of us will cover that gap. Is the “Ontario Clean Energy Benefit,” a soon-to-be-announced measure to provide $1 billion relief on Ontarians’ hydro bills, intended to address this?
I’m not saying that the big consumers shouldn’t pay lower prices. I’m saying we should all pay lower prices. And that means we should stop paying for political correctness. It’s too expensive, and reduces too litttle carbon dioxide.