The low price of reliable electricity

Power prices in Ontario are on a steady upward climb, and if you think they’re bad now just wait. You’ll soon look back at February 2014 as the good old days. Ontario continues to add wind farms to the grid—the latest one began reporting to the system operator on January 30, bringing the total to 20. Wind is extremely inefficient, and therefore extremely expensive. Its inefficiency adds further system costs: because we all expect that when we flick a switch we will get light, our electricity system planners have to make sure that some reliable electricity source will provide the power that lights the light. That costs money. And the more wind you put into a grid, the higher the overall costs of lighting lights.

Up to recently, the electricity generators in Ontario were able to moderate the price effect of adding wind. Back at the beginning of 2013, for example, there were only 15 wind farms in our system. Because there were enough non-wind generators producing cheap electricity, the price effect of those 15 wind farms was not so pronounced. But we now have 20. And we are adding more.

It is remarkable that the rush to decarbonize Ontario’s power system has produced a situation in which the most reliable generators—and most effective at actually reducing carbon—get paid among the lowest per-kilowatt-hour prices, while the least efficient ones get the highest prices. That is like paying the most incompetent employee with the worst absentee record the highest salary, while making the best (and lowest paid) employees do the actual work.

I have demonstrated in earlier posts that rushing wind into electricity systems has the effect not only of driving up costs, but of making electricity dirtier than it originally was. Germany, Denmark, China: all three of these countries have added enormous amounts of wind to their systems, and all three are among the dirtiest producers of power in the developed world. The reason for this is simple. People in those countries, just like we here in Ontario, expect that when they flick a switch the light comes on. So power planners in Germany, Denmark, and China have made sure that that happens. Because they cannot rely on wind, because wind is inherently unreliable, they rely mostly on fossil-fired generators. Hence dirty power.

You will also notice that in two of those countries, Germany and Denmark, electricity is also extremely expensive. Again, this is the effect of wind’s unreliability. As I mentioned above, wind’s unreliability makes it expensive on its own AND necessitates a parallel fleet of reliable generators, running mostly on fossil fuel, to make sure the lights come on when people flick the switch. That parallel fleet of reliable generators does not come for free: it is run by people who expect to be paid to run them.

And power becomes even more expensive if wind receives pride of place on the grid, that is, if the system rules are such that wind power must be purchased whether it is needed or not. In those cases, you pay top dollar for the wind-generated electricity, plus you pay the reliable generators to not produce power. i.e., you pay the reliable generators for their capacity, as well as for energy. This is the case in Ontario. If the wind kicks up in the middle of the night when most people are sleeping and have turned the lights off, then the system rules say we still must purchase the expensive output. Often we then dump it to other jurisdictions. Which means that Ontario ratepayers, including struggling single mothers and seniors, pay top dollar for electricity they don’t need, only to see the same electricity wheeled into other jurisdictions and sold to make a profit for somebody else.

If all this sounds crazy, that is because it is. Ontario has plenty of generating capacity, and has for a long time. Up to very recently, we could have easily kept the lights on, cleanly and cheaply, without any of the bother and expense of inefficient and essentially useless wind power. On the Carbon-Price Matrix, we have been a Quadrant IV jurisdiction (see my articles on the Electric Power Carbon-Price Matrix) for many years; in fact we were a Quadrant IV jurisdiction back when we had not four but five major coal-fired power plants in service. How is this possible, you ask? Because we made most of our electricity with nuclear power. Nuclear is cheap, and emits no carbon. Most important, it makes gigantic amounts of reliable power. It keeps the lights on.

It is a remarkable development that the rush to decarbonize our power system has produced a situation in which the most reliable generators get paid among the lowest per-kilowatt-hour prices, and the least efficient ones get the highest prices. That is like paying the most incompetent employee with the worst absentee record the highest salary, while making the best (and lowest paid) employees do the actual work. That is a recipe for a dysfunctional workplace.

We in Ontario should take a fresh look at how we are doing electricity. We should begin by seeing how we got into Quadrant IV of the Carbon-Price Matrix. We should see how other jurisdictions—like France, Sweden, and Switzerland—have remained comfortably in Quadrant IV for decades. We should ask ourselves why we are following Germany’s lead, when Germany is stuck in its Quadrant II rut and will not escape it.

14 comments for “The low price of reliable electricity

  1. February 11, 2014 at 13:10

    I have no idea what the situation is in Canada, but natural gas prices at the Henry hub are well north of USD7/mmBTU for the first time in years.  The era of cheap gas for backing up wind farms may be over.  That would seriously cramp the style of the proponents of “renewables”.

    If this situation is sustained, nuclear will start looking very good by comparison.

    NB:  Last night I talked to some people who have an almost religious opposition to nuclear energy, despite it providing 30% of their own electricity.  The fear from the last several decades of propaganda has taken a dreadful toll.

    • February 11, 2014 at 13:37

      our supplies are mostly conventional, but it’s still a generally continental market, so Henry Hub is not a bad indicator. (Right now, AECO-C gas spot price is about $6 per GJ, so slightly less than HH price. Nevertheless, we — Ontario — generated record amounts of electricity with gas in January, and once the nuke refurbs begin that’ll stay permanently up. Given that people have been marketed into using gas for heat as well, the double squeeze on supply can only force the price to go one way. Up.

      • February 11, 2014 at 14:14

        The alternatives to NG for heat are propane, oil, electricity and wood, none of them matching the low cost combined with convenience.

        I am still wondering what Freewatt-style cogenerators could do for the big picture.

        • February 11, 2014 at 14:24

          The alternatives to NG for heat are propane, oil, electricity… .

          Another reason why electricity should be made cheaply. I think that when the grid CIPK is lower than about 175 grams, electricity is cleaner than gas, kWh for kWh.

          So scale up nuclear, drive the cost down, and have cheap, clean heat.

          • February 11, 2014 at 14:39

            Remember, when you turn on the resistance heat, you are not using the average grid watt, you are using the marginal grid watt.  The figure to use for evaluation is probably the highest-emitting generator on the grid.

          • February 11, 2014 at 14:59

            why? that watt is coming from the collective spinning turbines. So use the average emissions of the fuels that made them spin, no?

          • February 11, 2014 at 20:24

            why? that watt is coming from the collective spinning turbines. So use the average emissions of the fuels that made them spin, no?

            I don’t think so.  Let me try to explain this (“to teach is to learn twice”):

            Suppose for a moment that your grid has 10 GW of zero-carbon generation running, and demand is exactly 10 GW.  (Ignoring details like spinning reserve.)  Any additional power demand must be supplied by NG-fired gas turbines, emitting 550 gCO2/kWh (200 gCH4/kWH).

            There’s demand for another 1 GW of space heat.  This heat can be supplied in one of two ways:  (1) by 100% efficient resistance heaters using grid power (meaning the gas turbines must switch on), or (2) by burning methane in 95%-efficient condensing furnaces.  Using resistance heat burns 200 tph of methane and emits 550 tph of CO2.  Using the condensing furnaces burning methane at 55.4 MJ/kg HHV burns 68.5 tph of methane and emits 188 tph of CO2.  That is the difference between the average emissions per kWh (50 gCO2/kWH at 11 GW) and the delta at the margin (550 tph CO2 for the additional 1 GW in the electric case).  The condensing furnaces cut the added emissions by almost 2/3.

            I did a post at The Oil Drum years ago on the idea of using small NG-fired engines for auxiliary space heat, with main space heat provided by heat pumps.  You wouldn’t even need every building to have both.  That would allow the unit size to be larger and cheaper per watt.

          • February 12, 2014 at 08:32

            That assumes that the original 10 GW demand does not include space heating. What if it does? That is the case in France and Quebec. French/Quebecois heat kWhs are low carbon. Their space heating is not incremental, it’s part of the baseload.

            Also, what if incremental demand is met with hydro or load-cycling nuclear? That happens in Ontario, maybe not enough in the case of nuclear (since only Bruce B I believe can ramp down and up without poisoning the reactor) but it’s technologically possible. The new EC6 can, using steam bypass, stay at full reactor power while totally disconnected from the grid.

            It’s a matter of setting a sensible long-term policy. This is what I’m talking about.

          • seth
            February 12, 2014 at 02:18

            That’s why ground source heat pumps with a high COE are used instead of resistance heat.

          • February 12, 2014 at 10:48

            That’s why ground source heat pumps with a high COE are used instead of resistance heat.

            Yes, that does change the equation.  However, the capital cost (embodied resources) of a high CoP heat pump are far greater than a resistance heater.  That is the sort of change that moves through slowly, with new construction and replacement of old equipment as it wears out.

            It also changes your load curve, and you can’t use a heat battery nearly so easily with a heat pump.

  2. Martin Burkle
    February 12, 2014 at 09:41

    I have been thinking about an electric car and how much grid CO2 the car would demand. I live in Muncie Indiana. One way to do the calculation is to look at the percentage of fossil fuel generation in Indiana (95%). But then I looked at my utility bill and saw a charge for the Cook Nuclear plant which is part of I&M my utility. I&M uses 65% fossil fuels. But really I am in the PJM grid which is about 75% fossil fuel generation.
    Now you want me to think about marginal electric use. But if I charge the car at night i am not causing the grid system to use marginal power. If fact, i think the grid must take all the wind power generated and mostly that is at night. So what percent should I use?
    Really guys! I do not control the grid but I am responsible for my actions. I think I should buy an electric car because I want everyone to buy an electric car. I also want the grid to be CO2 free but that is a different matter.

    • February 12, 2014 at 09:51

      Martin, I agree. We can only apportion “responsibility” for grid CO2 by dividing CO2 output in a given hour by the total kWhs put into that grid at that hour.

      Getting into the marginal stuff… as Horatio said, ‘Twere to consider too curiously.

      Really, the only thing ratepayers can do is to call for as much affordable zero-carbon capacity as possible.

    • February 12, 2014 at 10:59

      I have been thinking about an electric car and how much grid CO2 the car would demand.

      I wouldn’t worry about that.  Even when the marginal kilowatt is gas, you’re close to Prius-level emissions.  But despite that, the use of EV chargers as dispatchable load (especially overnight) is going to be a big factor in pushing nuclear power forward.  The more EVs there are, the better the business case looks.  “Renewables” (unreliables) will often not be there when that battery needs juice.  Nuclear is there all day and all night.

  3. February 12, 2014 at 10:50

    I’m re-parenting this reply because it’s too big for a skinny little column:

    That assumes that the original 10 GW demand does not include space heating.

    No it doesn’t.  It makes no difference at the margin what the rest of the load is, just like the bid prices of the lower bidders into a real-time electricity market don’t matter to the clearing price; it’s the price of the last bid accepted that sets the price for all.  From a carbon standpoint, you are almost 3x better off turning on a condensing furnace than a gas turbine feeding a resistance heater.  While it’s ultimately the total that matters, watching the margin is what keeps the total down.

    By all means, any heat demand that can be met by nuclear electricity should be.  Heat batteries and other cheap, dispatchable dump loads may be handy things in the load management toolbox, to level that overnight demand and allow the expansion of nuclear baseload generation.  But managing that marginal kilowatt…

    Ultimately, this will come down to life-cycle resource issues.  It may be cheaper overall to use the gas turbines with some cheap heaters than to build everything else out for optimal energy consumption down the line.  But again, this all works out at the margins!

    Also, what if incremental demand is met with hydro or load-cycling nuclear?

    Then that’s the way to go, because the marginal carbon emissions are 0.  It would even be worthwhile to use resistance heaters as dump loads in lieu of gas furnaces, to allow running the nuclear plants at 100% all the time.  The heating elements used in electric dryers are quite cheap, and just slapping one or two in the furnace outlet would cost very little if done at installation.  If you can make a heat battery to soak up overnight surpluses and feed space heat and DHW the next day, even better; the heat battery is dispatchable load and maybe spinning reserve.

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