The more wind power we add, the more expensive Ontario’s electricity becomes, say Tom Adams and Scott Luft
Financial Post, March 17, 2016
The costs may be high and the need questionable, but Ontarians signed up to buy a lot more renewable power last week when Ontario’s Independent Power System Operator (IESO) announced the results of the province’s latest procurement. The new deal brings “low prices” for new wind and solar generation, says Ontario Energy Minister Bob Chiarelli.
No, not “low” like Ontario’s dysfunctional market price for electricity, which was less than two cents/kilowatt-hour (kWh) over half of all hours in 2015. And not “low” like the average 1.2 cents/kWh rate that electricity bound for New York and Michigan has sold for this year. When the Ontario government says “low,” it means seven to fourteen times as much as that, with the IESO reporting the weighted-average price of the new wind power at 8.6 cents/kWh and new solar at 15.7 cents/kWh.
But the effective cost to consumers for the new power, taking into account the portion of the total output that Ontario consumers will actually use, will be much higher than the costs the government quotes in its press releases.
The system operator’s announcement relies on the fallacy of relative privation. In other words: “this unreliable power is not as costly as some other unreliable power you’ve been stuck with.” For instance, the operator’s press release proclaims, “For context, these prices are lower than the Feed-in Tariff (FIT) rates…”
That’s not saying much. The non-competitive FIT wind and solar program started in 2010. Recall in 2011 Ontario’s auditor general warning the province was paying among the highest FIT prices in the world. Revisiting the issue last year, a subsequent auditor general said the program would add billions of dollars to future bills when compared to contracting solar and wind power purchase agreements through competitive bidding.
But rather than heed such warnings, the government barges on. Under the current version of the FIT program, the government will buy wind power from small projects at a 50 per cent premium over the competitive wind price, and solar power at a 30 to 90 per cent premium over competitive solar prices. Other bonuses available to FIT producers allow them to add even higher charges to the bill by, for instance, finding First Nations to accept ownership positions with their projects.
Whether procured competitively or non-competitively, payments to generators for wind and solar production are only the beginning of the ratepayer impact.
New wind and solar contract holders will likely be paid not only for how much power they actually generate, but for a significant portion of their “deemed generation” — that is, what they didn’t produce but might have had the grid been able to accept all of their production, but instead ended up “curtailed” because the grid was oversupplied.
Limiting generators’ exposure to potential curtailment is one way to attract more solar and wind investment (it was even made retroactive to contracts that originally only covered actual generation). When there’s no wind and no sun, such producers aren’t much good, of course. But, now when the wind really blows or it’s brilliantly sunny, Ontario’s power system is increasingly flooded with far more renewable power than it can use. The IESO manages this excess production by selling its power to export markets (with Ontarians subsidizing American power). But even then, the transmission system is often unable to manage carrying the entire surplus away. That leads to nuclear, hydro-electric, wind, and solar production being curtailed, while generators get paid anyway for what they didn’t produce. In 2015, the auditor general found that from 2009 to 2014, Ontario consumers paid generators $339 million for curtailment. And the more wind and solar power we add, the bigger these expensive surpluses become. …
Read the full article here.