The annual cost of closing Ontario’s coal plants
Part II of Parker Gallant’s series on how Ontario continues to mismanage the energy file.
The previous article in respect to Ontario’s decision to close our coal plants examined the MW (megawatt) capacity and the type of generating capacity added to our electricity grid since 2011. The added capacity replaced the 4,484 MW of coal-fired generation at the end of 2011 in anticipation of increasing demand.
What I’ve done is approximate the costs of the added capacity versus the 4.1 TWh generated by the 4,484 MW of coal-fired plants, which cost only $135 million (3.3 cents/kWh) in 2011.
Nuclear instead of wind and solar
As an example, the 1,532 MW of emissions-free Bruce Nuclear refurbished generation, at a capacity factor of 90% supplying 12.08 TWh, easily covered the loss of 4.1 TWh of coal-fired generation and left 8.7 TWh for added demand due to its flexibility to steam off or bypass the turbines. The 12.08 TWh could have supplied most of the 2015 solar generation of 3.04 TWh and the 10.2 TWh of wind, which proved to be unneeded. The latter two alone in 2015 added an additional $2.7 billion to generation costs before curtailment (wind) costs of $88 million.
Bruce Power supplies from the 1,532 MW would have cost ratepayers $800 million, reducing the ratepayer burden by almost $2 billion annually. Additionally “nuclear maneuvers” (reductions), of 897 gigawatt hours added about $60 million during surplus baseload periods, caused mainly by (unreliable) intermittent power generation from wind.
Too much gas?
Let’s look at the gas plant addition of 602 MW: In 2011 the 9,549 MW of gas generation produced 22 TWh, operating at a capacity factor of 26.3%. Fast forward to 2015: the 10,151 MW generated 15.5 TWh operating at a capacity factor of 17.5%. Gas plants are quite capable of operating at a capacity factor of 40% to 60% (combined or single cycle). In either case, they are regarded as peaking plants and for that reason investors know they will be called on when needed. Their contracts pay them for simply being “at the ready.” Those costs vary but generally payments are $7,000 to $15,000 per MW per month. The additional 602 MW of gas added about $100 million annually to the costs. With gas generation falling from 22 TWh in 2011 to 15.5 TWh in 2015, ratepayers were burdened with the costs of the drop of 6.5 TWh at a cost of approximately $100 million per TWh, raising the cost of gas generation by $750 million since 2011.
Adding costly hydro
The bulk of the 754 MW added to the grid since 2011 came from the Niagara tunnel, (“Big Becky”) with a promise of 150 MW, and the Mattagami expansion added 438 MW of run-of-river hydro. Both of these projects by OPG were hugely expensive, costing ratepayers $4.1 billion plus interest on the money borrowed to fund the projects. If one amortizes those costs over 50 years it adds about $80 annually to ratepayer bills and the interest costs annually add about $120 million at 3% per annum. So that is $200 million for those two projects, without adding their OMA (operations, management and administration) costs.
As well, OPG is frequently forced to “spill” water under SBG (surplus baseload generation) periods mainly due to excessive intermittent wind and solar generation. In 2015 the latter was 3.4 TWh which cost ratepayers $150 million. The other event affecting hydro costs was an amendment to change “unregulated” hydro to regulated pricing. This change added $474 million to ratepayers’ bills for 2015 for the 30.4 TWh generated by OPG versus 2011. So hydro costs in the four years from 2011 jumped from a cost of $37.7 million/TWh to $53.3/TWh. The total additional costs of hydro (OPG only) in 2015 was therefore over $800 million.
The Ontario Energy ministers also issued directives instructing conversion of the 200-MW Atikokan and the 300-MW Thunder Bay coal plants operated by OPG. A 2005 directive from Dwight Duncan was the first and told OPG to convert Thunder Bay “to operate using a fuel source other than coal”. Later on when Brad Duguid sat in the energy chair he ordered it converted to gas but in the end it became a shareholder direction from Bob Chiarelli, ordering it to be converted to “advanced biomass” and agreed to cover the annual $30 million operating costs. As disclosed by the Auditor General, if Thunder Bay produces any power, it will cost $1,500 per megawatt hour (MWh). In respect to the conversion of Atikokan it may produce cheaper power in the 20 cents/kWh range but will probably operate at 10% of capacity and generate an annual cost of about $35 million. So collectively, both of these conversions will produce almost no power but will add approximately $65 million annually to ratepayers’ bills.
Conservation is expensive
The long-term conservation budget for 2015-2020 is $2.6 billion, meaning IESO will allocate spending of $433 million annually to local distribution companies (LDC) to reduce consumption by 7 TWh. Should the LDC be successful, their delivery revenue will drop. Assuming the delivery charge represents about 35% (on average) the revenue drop for all LDC would be approximately $300 million. Then the LDC will be entitled to apply for a rate increase based on the drop in revenue, meaning the $300 million may be fully recovered. Adding that to the monies spent annually convincing us to reduce our electricity consumption via the “conservation budget” adds another $483 million annually ($433 million + [$300/6 years = $50 million] = $483 million).
$4 billion … a year
So the cost of replacing the 4.1 TWh of coal generated at a cost of about $135 million in 2011 is in excess of $4 billion annually.
Confirmation of the foregoing cost can be simply calculated. If one reviews the “average” cost of a kWh on the OEB “Historical Electricity Prices” as of November 1, 2011 was 7.57 cents/kWh versus 10.70 cents/kWh on November 1, 2015. The increase of 3.13 cents/kWh (+41.3%) translates to an increase of $31.3 million per TWh and applied to the 143.6 TWh consumed in 2015 provides an annual cost increase of $4.5 billion to ratepayers since 2011.
The cost blows away the purported healthcare costs supposedly caused by coal generation. At the same time, it removes about $1,000 of after-tax money from the pockets of the 4.5 million ratepayers in the province every year.
This is a sad commentary on what the Ontario Liberal government has done to Ontarians.
August 29, 2016
Also available at Parker Gallant Energy Perspectives.