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.