While Ottawa’s Bob Chiarelli, Ontario Minister of Energy, insists that paying high and selling low is a good economic strategy (meanwhile inflicting dramatic increases in bills to consumers), economic analysts don’t seem to agree. Here from Forbes. com is a view of Ontario’s handling of the electricity sector.
Ontario’s high electricity prices are bad for business
Jude Clemente, Forbes/Energy, March 30, 2016
“Ontario is probably the worst electricity market in the world,” Pierre-Olivier Pineau, University of Montreal
Ontario’s auditor general just reported that the province paid an extra $37 billion for electricity from 2006-2014, likely the most ludicrous energy story that I’ve ever read (here). Ontario has gone from having some of the most affordable electricity in North America to having some of the most expensive. From 2013-2015 alone, industrial electricity rates increased 16%.
In 2003, the provincial government decided to phase-out coal-fired generation by 2007 (later extended to 2014), perhaps the most cost effective source of power.
This necessitated investment in new sources of electricity. For example, more expensive wind has provided less than 4% of Ontario’s power but accounts for 20% of the cost of electricity. In January, Ontario Power Generation unveiled plans for a $13 billion refurbishment of four nuclear reactors, which could crush ratepayers to recover the total costs.
Earth Hour 2016 is tomorrow, March 19, 2016 from 8.30 PM to 9.30 PM when all the world is encouraged to turn off their lights for an hour of symbolic action. Specifically the goal is: “Earth Hour aims to encourage an interconnected global community to share the opportunities and challenges of creating a sustainable world.”
This is an admirable objective – everyone wants to do their best for the environment – but the truth is, much depends on how sustainability is positioned by politicians.
In Ontario the OEB (Ontario Energy Board) noted in a 45 page report dated December 22, 2014: “Using LIM1. as a measuring tool, and relying on Statistics Canada household data, Ontario has 713,300 low-income households. The OESP is estimated to reach 571,000. This estimate recognizes that not all low-income households in the province pay their electricity bills directly (i.e., utilities included in rent).”That report led to the introduction of the OESP or Ontario Electricity Support Program start-up on January 1, 2016, expected to cost between $175 and $225 million, paid for by those 3.9 million households who don’t qualify for the OESP.
So did the Ontario government simply not understand creation of the Green Energy & Green Economy Act (GEA) would result in so many low-income households? It is now apparent the advent of the GEA played a major role, by raising the cost of the production of electricity by well over 70% since its enactment. The push for renewables in the form of industrial wind turbines, solar panels, etc., which require back-up from gas plants due to the intermittent and unreliable nature of renewables, added billions in costs. The transmission builds to bring wind and solar power to the grid added billions more and, coupled with the other billions spent trying to convince us to conserve, added even more costs.
The addition of almost 10,000 MW (so far) of renewable generation at prices over market impacted disposable income for all Ontarians living at, or close to, minimum wage and for many others living on fixed incomes. The other result of adding renewable power is that Ontario is now in the position of having surplus power generated at the wrong time of the year and night when demand is low. This surplus must be either sold off (exported), curtailed (wind and solar) or steamed-off (nuclear). Additionally, ratepayers and taxpayers are charged for the ideasNB: related to conservation such as paying for grants for electric vehicles and their charging stations.
March 13, 2016 is an example: it was a day when the sun shone and the wind was blowing. Ontario demand was low reaching only 320,000 megawatt hours (MWh) while generation, coupled with curtailed wind, idling gas plants, spilled hydro and even curtailed solar along with all of the distribution connected (Dx) power (principally wind and solar) was about 463,000 Mwh2.. Ontario’s ratepayers needed only 68% of that 463,000 MWh, so the other 32% was either exported or curtailed (to avoid blackouts) while being billed to Ontario ratepayers. Production costs (without the other items tossed into the “Global Adjustment pot) were over $100/per MWh, meaning the 143,000 MWh surplus picked ratepayers’ pockets for more than $14 million or $2.85 per ratepayer for just one day. (Bob Chiarelli, our Minister of Energy, would probably say that was just the cost of a “Timmies”!)
In 2015, Glen Murray, Ontario’s Minister of the Environment and Climate Change, said Earth Hour “Every passing year it becomes more infectious. It’s actually really doing what it intended to do, which is to get into the popular culture.”
Minister Murray should note we have turned off the lights, not because we want to but because we can’t afford to “keep them on.”
It appears to this Ontario ratepayer that what is really “infectious” is the Ontario government’s ability to create “energy poverty” for hundreds of thousands of Ontario’s households and, instead of promoting sustainability, it has instead driven many to a situation where they now have to decide whether to “heat or eat”.
Hardly the lofty goal that Earth Hour aspires to, and clearly not what well-meaning citizens wanted to happen.
EXXON’S VIEW OF GLOBAL ENERGY SUPPLY AND DEMAND TO 2040
By Robert Lyman
EXXON Corporation, one of the world’s largest energy enterprises, recently published its updated projection of energy supply and demand to 2040. The International Energy Agency, the United States Energy Information Administration, and British Petroleum have recently issued similar projections.
Projections of these kinds are interesting for several reasons, among which is the fact that they offer informed judgments about the trends in the world economy and energy sector that one may compare to the political aspirations of governments that the world sharply reduce fossil fuel consumption as a way to reduce greenhouse gas emissions. At the recent Conference of the Parties to the Climate Change Convention in 2015 in Paris, several governments committed in principle to the goal of eliminating the use of fossil fuels by 2100 and aiming to do this in the developed (OECD) countries by 2050. In short, several governments have claimed that they will eliminate all use of oil, natural gas, and coal by 2050. Environmentalists seek to do while also prohibiting any growth in the use of nuclear energy, the most reliable source of non-carbon base load electricity generation.
A question, therefore, is how do EXXON’s projections square with the goals articulated at the COP 21 meeting?
Generally, EXXON has accepted that the political push to reduce GHG emissions will have significant impacts in the OECD countries over the period to 2040, especially in terms of altering the sources of electricity generation and requiring fuel economy improvements in light duty vehicles and other energy-using equipment.
The following are the main observations that come from the EXXON report as to the changes that will occur from 2014 to 2040:
World population will grow 25% from 7.2 to 9 billion people.
Global income will more than double, with developing countries leading the growth.
Global energy demand consequently will grow by 25%. China and India together will account for almost half this increase.
The world middle class will grow from 2 billion to nearly 5 billion; the new members will want to have the cars, quality residences and appliances enjoyed by the middle class today.
By 2040, oil, natural gas and coal will not fade away as hoped by governments. In fact, they will continue to meet about 80 % of global energy demand. Natural gas demand will grow more that any other source.
Substantial gains in energy efficiency will see the carbon dioxide intensity of the global economy cut in half by 2040.
Global demand for transportation will increase by about 30%. Today there are about 1 billion light-duty vehicles (cars and SUVs) in the world. This number will rise by close to 800 million vehicles by 2040, with about 90% of this growth outside of the OECD.
Hybrid vehicles will increase from 2% of new car sales today to 40% by 2040, but all-electric plug-ins are likely to account for less than 10% of new car sales by 2040.
Demand for heavy-duty vehicles (i.e., trucks and buses) will increase by 45% by 2040, with about 85% of the growth coming from non-OECD countries.
Energy demand from ships, planes and trains will grow by 65%.
Over 90% of transportation demand will still be met by oil in 2040.
Global demand for electricity is expected to rise by 65% by 2040; 85% of electricity demand growth will comes from developing countries.
By 2040, the share of electricity generated by natural gas will rise to 30% and be about even with coal. (In other words, despite claims that coal will be eliminated, it will still be a major source of electricity supply globally.) The amount of electricity generated by coal in India will rise 150% from 2014 to 2040.
The amount of electricity from nuclear power will double from 2014 to 2040, with much of this growth coming in China.
Wind and solar energy will account for about 10% of electricity generation in 2040, up from 4% in 2014. (This projection is entirely at odds with the predictions of environmental groups that wind and solar energy will replace all other energy sources by 2030.)
Carbon dioxide emissions will rise from about 30 billion tonnes per year in 2014 to a peak of about 37 billion tonnes by 2030, before slightly declining thereafter. By 2040, global emissions still will be about 35 billion tonnes, even though emissions in the OECD will drop by 20%.
Robert Lyman is an Ottawa-area economist who specializes in analyzing energy issues.
It is worth a reminder that the Ontario Liberal government, despite recommendations from TWO Auditors General, NEVER did a cost-benefit analysis or impact of its renewable power program. Are we going to see the lessons learned in Ontario played out on a national scale?
Trudeau has a particularly ambitious plan for renewable energy projects, with a promise to commit nearly $6 billion in green spending over a four-year period and ramping that up to nearly $20 billion over 10 years. The Liberals will also incorporate climate impact analysis into federal contracting, which could get further money flowing into the green space.
All of that will be welcome news for Canada’s renewable energy companies, especially as the previous government focused investment on the oil and gas sector.
“It is fair to assume that the sector will be a big net winner under this government, as they have carved out specific spending in their infrastructure outlays for green energy,” said BMO’s Porter. “Beyond direct spending on the sector, it’s also safe to assume that the government will support the sector heavily through direct measures.”
For more information on who’s advising our Prime Minister designate, read this account on Gerald Butts, formerly a staffer in the office of Dalton McGuinty, now Trudeau’s top adviser:
Butts was principal secretary to Dalton McGuinty when he assumed the premier’s office. Former secretary of cabinet Tony Dean calls Butts the “smartest senior political and policy adviser that I worked with in almost 20 years in government.”
As Butts helped implement a green energy strategy that would phase out coal and sell a tax his leader had promised never to implement, Telford set out with Kennedy to implement the premier’s ambitious agenda in education.
Health researcher Carmen Krogh was a guest speaker at this year’s ideacity event in Toronto. No matter where in the world industrial-scale wind turbines have been installed, she said, the constellation of symptoms is the same.
This has become a world public health concern.
Take 20 minutes, please, to view this presentation, and ask yourself about the role of the Government of Canada in this, as the wind power industry leads the government down the renewable energy “roadmap” using taxpayer dollars. It is time the government sponsor proper, independent research that really wants to find an answer, not promote the industry on the untested promise of green energy and jobs.
Ross McKitrick and Tom Adams, The Financial Post, October 30, 2014
Adding renewable generating capacity triggers changes throughout the system that multiply costs for consumers
Ontario’s green energy transformation – initiated a decade ago under then-Premier Dalton McGuinty – is now hitting consumers. The Nov 1 increase for households is the next twist of that screw. As Ontario consumers know all too well, the province has gone from having affordable electricity to having some of the highest and fastest-increasing rates in Canada.
Last year, in a report for the Fraser Institute called “Environmental and Economic Consequences of Ontario’s Green Energy Act,” one of us (McKitrick) explained how the Green Energy Act, passed in 2009, yielded at best tiny environmental benefits that cost at least ten times more than conventional pollution control methods, and was directly harming growth by driving down rates of return in key sectors like manufacturing.
But complex financial structures and a lack of official disclosure around large embedded costs have let supporters of the green energy act deny that green power is responsible for the price hikes. Green industry advocates, including the consulting firm Power Advisory and advocacy group Environmental Defense, have added up the direct payments to new renewable generators, and concluded that since those costs are relatively small, the impact of renewables on the total cost of power is likewise small.
However, such analyses ignore the indirect costs that arise from the way renewables interact with the rest of the power system. Adding renewable generating capacity triggers changes throughout the system that multiply costs for consumers through a mechanism called the Global Adjustment. Our new study, released Wednesday by the Fraser Institute, quantifies the impacts of different types of new generators on the Global Adjustment. The analysis pinpoints what causes the raw deal for consumers.
Here’s how it works: over the last decade, Ontario closed its coal-fired power plants and built a rapidly expanding portfolio of contracts with other generators including renewable energy companies producing power from hydro, wind, solar and biomass. These companies charge the Ontario Power Authority (OPA) higher-than-market-value prices for energy. To make up the difference, the OPA slaps an extra charge – called the Global Adjustment – on the electricity bills of Ontarians.
The Global Adjustment adds to the commodity portion of rates, which combined with charges for delivery, debt recovery, and regulatory factors constitute the overall rate. Elements of the Global Adjustment that are not disclosed include payments to generators to not generate, rates paid to historic non-utility generators, and costs for new hydro-electric developments.
Since 2007, the Global Adjustment has risen six cents per kilowatt-hour in inflation-adjusted terms, pushing up the commodity portion of bills by 50%. Not long ago, Ontario’s total industrial rate was less than six cents per kilowatt-hour. The rising Global Adjustment is by far the biggest driver of the resulting 21% increase in the overall average cost of power in the province over the period 2007-2013. The Global Adjustment’s upward path is a direct consequence of government intervention in the electricity market. Our analysis unpacking the costs of different types of generation shows that the consumer impact of new renewables substantially exceeds the direct payments to those generators by as much as 3 to 1. And renewables are a big part of the problem: Wind and solar systems provided less than 4% of Ontario’s power in 2013 but accounted for 20% of the commodity cost paid by Ontarians.
Getting to the bottom of the rate implications of adding renewables gained new urgency when Premier Wynne declared last month that the 2013 fleet of wind and solar will almost triple by 2021. This is an incredibly reckless decision. In his National Post column recently on the 2014 Ontario Economic Summit, co-chair Kevin Lynch, Vice-Chair of BMO Financial Group, stated bluntly “That Ontario has a serious growth problem is rather difficult to deny, or debate.”
What’s the solution? If the Province wants to contain electricity rate increases it needs to halt new hydroelectric, wind and solar projects. In order to reverse rate increases, the province should seek opportunities to terminate existing contracts between renewable energy companies and the OPA. Alas, as the Premier has indicated, that’s not where they’re headed.
Alternatives to costly new renewables include using some imported electricity from Quebec while Ontario refurbishes its nuclear power plants and maintaining 4 of 12 coal-fired power units at Lambton and Nanticoke that had been outfitted with advanced air pollution control equipment just prior to their closure, making them effectively as clean to operate as natural gas plants. Costly conservation programs encouraging consumers to use less electricity make particularly little sense these days in Ontario. Right now, Ontario is exporting vast amounts of electricity at prices that yield only pennies on the dollar, and also paying vast but undisclosed sums to generators to not generate.
Many European countries made costly commitments to renewable energy but are now winding them back. Germany is investing in new smog-free coal power generation. Environmentalists often suggested that following Europe is the way to go. Perhaps Ontario should consider following them now.
Ross McKitrick is a Professor of Economics at the University of Guelph and Senior Fellow of the Fraser Institute. Tom Adams is an independent energy consultant and advisor.
Florida Power & Light Company (FPL), the largest subsidiary in NextEra Energy Inc’s portfolio with 4.7 million customers, is doing a fantastic job of keeping their rates low. In fact they have had declining rates for a few years as noted in this post from one of their webpages: “Bills Are Decreasing – Again! Since 2009, FPL’s typical 1,000-kWh customer bill has decreased by 7 percent. And in January 2015, FPL expects to decrease the typical residential customer bill by nearly $2 a month.”
While the FPL customers can currently consume 1,000 kWh a month at an all-in price of 10.2 cents/kWh, rates in Ontario have been increasing at about 10% annually. That 1,000 kWh purchased from Toronto Hydro will set you back $169.00 (65% higher) versus $102.00 from FPL. The natural and first inclination is to believe that it is probably due to their sources of electricity and perhaps their efficiency levels; while the latter is probably true (they claim 8,900 employees versus the 20,000 plus we have in Ontario) their sources of electricity only include a passing nod at renewables and then only “solar” which seems reasonable in the Sunshine State! The pie chart showing FPL’s “Fuel mix & purchased power” indicates at least 75% of electricity supplied to their ratepayers is fossil fuel-based. Solar provides just over a half of 1%!
Look at the parent company, NextEra: it generates electricity from wind turbines where the company can find subsidies. They rushed to Ontario to snap up at least six Ontario Power Authority (OPA) contracts with a rated capacity of just over 482 MW (megawatts). A quick calculation of that rated capacity discloses Ontario’s ratepayers will pay a lot of money to NextEra over the next 20 years, which NextEra can use to either pay dividends to their shareholders, or allow some of the revenue used to keep rates low in the Sunshine State for Canadian “Snowbirds.”
The 482 MW of rated capacity should produce power at 29% of capacity, which means they should generate about 1.2 million MWh (megawatt hours). The equation therefore is as follows: 482 MW @ 29% X 8760 hours in a year X $135 per MWh x 20 years = $3.2 billion. That means revenue per FPL customer of about $35 per year. If only $2 finds its way to FPL’s customers, it will help to keep the rates down.
Ironically, Ontario’s Snowbirds pay much higher rates at home; no wonder Canadians own more property in Florida than citizens from the next five nationalities combined! Too bad their winter electricity bills will be waiting for them when they get back home.
You may recall we posted an earlier video prepared by Ben Acheson.
This video is currently making the rounds. The spokesperson here is Ben Acheson, who is actually a Policy Advisor in the European Parliament. He has made several other videos on “green” power and wind in particular, which are well worth seeing. Perhaps you have seen Wind Energy: chalk it up to a loss, which is also one of Ben’s.
In this video, Acheson suggest that business is capitalizing on people’s wishes to do the “right thing” for the environment, but that various money-making ideas which DON’T help the environment (like wind power) have been promoted.