I haven’t noticed the price of Ontario’s electricity dropping despite an over supply of generation and a ten year low in north American natural gas prices. Blame the Ontario government’s misguided policy of promoting more and more wind generation on the grid under the protection of the Green Energy Act. Large amounts of intermittent wind skew the market leading to take-or-pay contracts (necessary to ensure capacity is built and always available, in part to cover for the vagaries of wind) with the gas-fired generators and the need to export electricity at subsidized give away prices. No one would build merchant gas-fired generators in Ontario at present since they would be operating at low capacity factors and would price themselves out of the market.
Nuclear electricity provides around 60 percent of Ontario demand and hydro about 20 percent leaving 20 percent or so for the rest, that is, mostly natural gas and some unreliable wind under Ontario government authority contracts, with flexible coal coming in at times of peak demand. Without wind on the grid gas would have a better chance of supplying all the intermediate and peaking load and see an increasing amount of steady operating hours with lower generation costs. More and more wind being added to the grid in times of low demand result in very low market prices, and frequent periods of surplus baseload generation (SBG) that is indicative of a poorly designed grid.
Since 2009 October Ontario has had feed-in-tariff (FIT) contracts for wind (and wind is mandated to grow from the present 1,700 nameplate MW to over 8,000 MW by 2018 or sooner) and for the small amount of solar and other renewables. As well as natural gas and most of Bruce nuclear output being under various kinds of contracts, regulated rates are paid to Ontario Power Generation’s (OPG’s) nuclear and baseload hydro facilities all of which results in the so called Global Adjustment (GA). This GA accounts for the difference between the present very low market or spot price and the rates paid to contracted and regulated suppliers and is added to the market price to give the generation cost. The GA is by far the major part of the generation cost. The residential homeowner can pay around twice the generation cost when delivery cost and the other costs are added to the bill. OPG’s hydro stations that are not under regulated rates are paid the very low market price for their output and even OPG’s regulated rates are lower than the contract rates paid to other suppliers.
Even without wind any new generating plant in Ontario would likely still require some kind of guaranteed floor price for its output in order to get built but without wind there would be a better correlation between supply and demand giving a more stable and reasonable market price and the GA would be a lot smaller. Remember, surplus electricity is exported at the market price and the GA is not paid by the importing jurisdiction, a subsidy from Ontario consumers!
Most, if not all, the present 1,700 MW or so of wind is under pre-2009 rules and has priority on the grid. It cannot be dispatched off for economic reasons and there are no financial incentives for wind generators to do so. It can only be dispatched off for grid reliability reasons so SBG, after maximizing exports, results in water being spilled at the baseload hydro stations like Niagara Falls and power being reduced, or even units shutdown, at the Bruce B nuclear station. This makes no environmental, economic or technical sense.
The grid operator, the IESO, is going to implement new market rules making all wind subject to its five minute economic dispatch with payment for foregone generation – so much for economic dispatch! Until this happens any wind generators under FIT rules, and privately operated Bruce B, get paid for foregone generation as at present when requested to reduce power or to shutdown. This payment for foregone generation does not apply to the provincially owned OPG which loses money when its hydro output is curtailed and is maybe the reason why it is not keen to manoeuvre its Darlington nuclear units (Note: Darlington adjuster rods were reconfigured from the original design to out of core position in the late 1990s to improve fuel burn-up and baseload operation; steam bypass is only used for unanticipated events and not for load-cycling) during periods of SBG, like Bruce B presently does and like Bruce A will.
These new IESO rules will dispatch wind and baseload hydro before nuclear and this will reduce, but not eliminate, the amount of nuclear manoeuvring now taking place. However the root cause of Ontario’s dysfunctional grid still remains, large amounts of expensive unreliable and unnecessary wind that not only result in Ontario not being able to take advantage of the existing very low natural gas prices but is resulting in steadily increasing electricity prices. Subsidized electricity exports, inefficient operating modes of the grid balancing gas-fired generators, new transmission infrastructure to connect up wind, and the parts of the so called smart grid needed to incorporate the wind, are all part of the increasing costs due to wind. The real cost of wind to Ontarians is much more than the 13.5 c/kWh paid to the wind generators. Costs can only go up. I am not an energy market analyst but that’s how I see it.
by Don Jones
Donald Jones, P.Eng., is a retired nuclear industry engineer. An earlier version of this article, posted under a different title by Scott Luft, appears here.