Samsung’s Hit on Ontario Power Consumers: Counting the Costs

Typical press coverage of the secret, sole-sourced power deal between the Samsung-led consortium with the McGuinty government for wind and solar power development in Ontario describes the deal using only details in the McGuinty government’s press releases. The details normally set out are that it is a $7 billion deal with “economic development” incentive payments of as much as $437 million. On closer inspection, the deal is actually much larger than the description drawn from McGuinty’s press releases would suggest.

The deal is apparently for 2000 MW of wind and 500 MW of solar with preferred access to transmission and “economic development” incentive payments topping up standard 20 year guaranteed Feed-In Tariff prices. All of this is to be paid for by consumers, not taxpayers.

The “economic development” incentives payments are reported to be 1 cent/kWh for wind power and 3 cent/kWh for solar power. The published Feed-In Tariff prices are 13.5 cents/kWh for wind power and 44.3 cents/kWh for solar power.

Assuming capacity factors of 30% and 17% for wind and solar power respectively, if all the Samsung megawatts were installed today, consumers would be forking over about $1.11 billion per year to Samsung. Of this amount, approximately $75 million is for “economic development” incentive payments. If fully implemented today, the Samsung deal would jack up your rates by approximately 7%.

No matter how you slice it, the Feed In Tariff costs to consumers for solar power are a pure rip-off. Except for new nuclear, the Feed-In Tariff wind prices are far higher than any comparator. Keep in mind that intermittent wind and solar power is not worth as much to consumers as more reliable sources.

The marginal cost of operating the existing coal power stations, some of which have very good pollution controls and some of which do not, has in recent years when the plants were more regularly used, been approximately 3 cents/kWh. The charge to consumers for operating the existing nuclear power Ontario is in the range of 5.6 cents/kWh to about 7.1 cents/kWh, with some additional costs buried in the 0.7 cent/kWh Debt Reduction Charge. The cost of power from new state-of-the-art gas-fired power plants in steady use is in the order of 5 cents/kWh at current gas prices. The cost of power from the most recently competitively bid wind power contracts in Ontario is approximately 8-9 cents/kWh. If press reports pegging the cost of Darlington B capacity at about $10,800/kW are correct, the cost of power from Darlington B will be in the range of 18 cents/kWh assuming the plant operates well — more if the plant suffer hiccups.

Except for the preferred access to transmission, the deal offered to Samsung is less rich than deals offered to others of McGuinty’s friends.

The McGuinty government has steadfastly refused to verify the costs of canceling the Samsung deal.

Although the government has kept the details secret, enough information has leaked out to strongly suggest that the Samsung deal can be canceled with minimal blow-back on consumers. The fact that Samsung has still not bothered to comply with our lobbyist registry laws while government passes regulation after regulation in Samsung’s favour may enhance the case against damages.

It appears that Samsung does not yet have any firm power purchase agreements yet. If Energy Minister Brad Duguid was sitting on real contracts, the Liberals would have already done the ribbon cutting ceremonies already.  Instead it appears that Samsung and the OPA are still in negotiations.  The recent collapse of the Six Nations talks has set Samsung back, too.

The Samsung framework agreement, which may not be a contract but a memorandum of understanding, is to trade four manufacturing facilities for the incentive payments and preferential transmission access.  The likely penalty for renegotiating the agreement would be fewer guarantees around promised manufacturing facilities.

There is a clear risk that McGuinty will make the Samsung deal and other similar outrageous rip-offs irrevocable in the dying days of his mandate. If there is a change in government, the new energy minister should release all the details on the ugly Samsung and similar deals, including the dates that any contracts were signed.

 

25 Comments

  1. A 7% increase in hydro bills is a bargain compared to the billions of dollars in costs from global warming and deaths from decreased air quality attributable to fossil fuels.

  2. Great article Tom.

    Given Robert’s comment, I have to assume he is already a customer of Bullfrog Power and voluntarily paying a premium for “green” power. Good on you Robert!

  3. So, Robert. By your logic, this Samsung deal is going to “cure” global warming. Take some downers and get yourself educated.

  4. What in the world is global warming? I thought Al Gore changed it to Climate Change. And another thing, where is David Suzuki? I thought he received thousands of dollars because HE was going to save the earth. How’s that working out?
    Mr. McGuinty is creating “Green Jobs”, and reading Van Jones books.
    And then there’s Washington – still working on a definition – for ‘Green Job”. A judge says – he’ll believe it when he sees one.
    Oh great, I now have to look at a chart – to see if it’s a peak electricity rate.
    Yup! I knew it. More punishment……..
    Conservation now comes with potential punishment. Nevada Sun reports citizens will pay more for “CONSERVATION OF ELECTRICITY”

    Ontario is morally bankrupt. Sad.
    Dream on Robert McClelland, dream on.

    Private energy corporations love guys like you!

  5. Robert McClelland…..We are they hiding all the dead bodies in Ontario from the massive numbers of deaths from decreased air quality….?

    The HOAX related to health issues and death due to air quality attributable to fossil fuels is even more exaggerated than Man-made Global Warming….Stop drinking the Kool-Aid and hiding under the bed covers in the dark….

  6. Robert’s comments may be valid IF “Global Warming” was a scientifically proven phenomenon, which it isn’t! Also IF the statement: “decreased air quality attributable to fossil fuels” wasn’t such an unqualified statement that is at best a “scare tactic” used by all “Renewable Developers” without substantiating their statements, then Robert’s generic claim may be responsible. It is nothing but pure propaganda and rhetoric that would be laughable it it wasn’t so seriously flawed! Who do you work for Robert?……..Pembina or CANWEA?

  7. Robert,

    What is the point of investing in wind turbines if they have not proven to save C02’s any where in the world? If we’re going to spend tax dollars on the environment, do it on something that actually makes a difference.

  8. Robert McClelland:

    It is the intentional ignorance of people like yourself that give these green energy snake oil salesmen the leave to peddle their expensive, worthless wares! Ask Denmark, Spain, Germany, Holland and many others who have gone this route of what benefit to either environment or economy it has been to them?

    Although I may not agree all of the time with everything Tom Adams writes and/or says, I have never found reason to question his expertise. I recognize many who posted on this blog and can attest that they have spent years or like myself, decades, doing actual, empirical research on the topic of energy, green or otherwise.

    Many of us in the past truly believed in the green energy fairy tale. At least I did. But it does not stand up to even rudimentary scrutiny.

    Unfortunately, “green energy” does not and never will involve grid-tied wind and/or solar energy. Off grid; well, that is an entirely different kettle of fish and has nothing to do with the GEA, the Samsung deal, FIT program or general, blatant Ontario Liberal thievery and corruption! In NEITHER case (on or off grid) would these technologies be useful at mitigating anthropomorphic CO2 emissions. Although, why one would want to reduce atmospheric CO2 is a complete mystery…

    To point out the absolute absurdity of your assertions Robert: If you are as truly concerned about anthropomorphic CO2 emissions as your comments would have us believe, you can make a positive reduction in that right now by ceasing to EXHALE – FOREVER!

    Humm… That’s what I thought!

    You’ve been GREENWASHED!

    Good luck with that… You’ll need it!

    Sean Holt.

  9. Pingback: Green Energy Act a #Failure | Blue Like You

  10. Very interesting article Tom.

    The historical wind data collected by Sygration supports the assumption of a 30% capacity factor for Ontario, and that is what I seen as the average CF for Ontario Wind over the past year. In fact, that number may be a little low going forward, since wind farm capacity has grown 50% during the past year and the CF of these new generators is typically low during commissioning and shortly afterwards.

    Your value of 17% Capacity Factor is low based on the OPA report (link provided at bottom). They said the CF ranges from 17% to 21% across regions of Ontario, and that a CF of 19% should be used.

    So, the Samsung 20-Year deal is NOT a $7B deal. How much is it in today’s dollars? Below is a present value calculation on this, assuming 2% inflation going forward (which is what the annual average inflation for the past 20 years). Also, you mentioned at another time that 20% of the FIT portion of the Wind rate (20% of $135 = $27) was indexed to inflation for Samsung, so I will use that too.

    Wind: 2000MW, 31% CF, $145/MWh ($27/MWh indexed, $118/MWh not indexed), rate = 2%
    20-Year Discounted value = 2000 * 27 * .30 * 8760 * 20 yr
    + 2000 * 118 * .30 * 8760 * a(20yr,2%)
    = $2.84B + $620.2M (16.3514)
    = $13.0 B
    Solar: 500MW, 19% CF, $473/MWh (non-indexed), rate=2%
    20-Year Discounted value = 500 * 473 * .19 * 8760 * a(20yr, 2%)
    = $393.6M (16.3514)
    = $6.4 B

    Total Net Present Discounted Value = $19.4 B

    OPA Solar Reference:
    http://webcache.googleusercontent.com/search?q=cache:xr9dXSQBel4J:www.fit.powerauthority.on.ca/Page.asp%3FPageID%3D122%26ContentID%3D7292%26SiteNodeID%3D564%26AA_PrintFriendlyMode%3DTrue+ontario+fit+solar+capacity+factor&cd=1&hl=en&ct=clnk&gl=ca&source=www.google.ca

  11. Bruce, Ontario hydro rates have always been and still are highly subsidized. The majority of the increases we’re going to see is due to the gradual elimination of that subsidy as we move to market rates.

  12. Robert,
    Please share any support you have for your claim that Ontario power rates are “highly subsidized”. Of course nuclear insurance costs are subsidized, that doesn’t matter from the perspective of overall rate subsidization. Households now pay a commodity rate of about 7.1 cents/kWh. The cost of power from a brand new gas plant is in the order of 5 cents for baseload and 6 cents for load following. It is hard to find the subsidy.
    Tom

  13. Robert McClelland, Figure 6.4 of the IESO monthly reporting graphs prices not just for Ontario’s market, but neighbouring NEPOOL, NYISO, PJM, and MISO control areas. They have kept the same graph since 2004.
    http://ieso.ca/imoweb/pubs/marketReports/monthly/2011apr.pdf
    Your argument would have to everybody, everywhere, is heavily subsidized.

    Ontario is so heavily contracted that when demand doesn’t go up (as with last summer’s heat), actual price (inclusive of the global adjustment) does go up. It seems rather ill-mannered to talk about ‘markets’ given the wreckage of Ontario’s attempt at one.
    http://morecoldair.blogspot.com/2011/05/price-of-ontarios-electricity-policies.html

  14. If the 7% from the Samsung deal was the only increase in our electricity bills we wouldn’t be blogging. Unfortunately it is only the icing on the cake! What Tom benevolently didn’t include in his numbers was the need to backup wind and solar with power that can be actually delivered when we need it-not when we don’t! Tom didn’t include the spilled hydro, (caused by wind), or blown steam from nuclear, (caused by wind), subsidized exports of power (caused by wind, new transmission builds (caused by wind), etc.

    Me thinks Robert has spent too much time reading the pronouncements of Dr. Giddy On Fore Man, who while not a doctor, is quoted extensivly by McGuinty & Duguid as if CAPE members consisted of more then a very tiny percentage of actual MEDICAL doctors.

  15. Tom Hilbig

    Use a commercial discount rate closer to 10% and recalculate. Why would Samsung (or anyone) invest in Ontario using a 2% discount rate on renewable energy projects? My understanding is that there is no contract between Samsung and Ontario.

    • Bob,

      I think that Tom Hilbig’s approach makes sense if we are looking at the cash flows from the consumer’s point of view. Naturally, Samsung will want a higher discount rate. Samsung might even have the opinion that a 10% discount rate is too low considering the risk. Samsung might have taken action to lower its investment risk by playing by the rules. For example, Samsung could have signed up for the Ontario lobbyist registry as the law requires.

      Tom Adams

  16. The 14MW plant at Nellis Nevada with 2 axis tracking has achieved a 22% capacity factor. Which brand of panel is being used to achieve 19% in Ontario? A Panel that can function under deep snow and heavy clouds could also be installed underground for storm protection. A real breakthrough.
    Or is there a plan to move parts of Ontario to Nevada?

  17. Tom + Tom

    Nuclear power is heavly subsidized and only nuclear die-hards refuse to accept the facts.

    The discount rate has a material impact on the calculation results. You can cheery pick the discount rate that suits your argument but that doesn’t make it right.

    Renewable energy power plants are “insurable”, “cost competitive” and “less risky” than development of new nuclear reactors:

    http://alturl.com/tzzs2
    http://alturl.com/f4n3h
    http://alturl.com/oms8c

    References on taxpayer subsidization of Ontario nuclear:

    Until recent, AECL was owned by the government of Canada. AECL received $815 Million in fiscal March 31, 2010-11 (Pg. 17) from the taxpayers of Canada. AECL’s accumulated deficit as at March 31, 2011, was $3,784,799 (Pg. 37)[AECL’s 2011 Annual Report] http://alturl.com/8tanm

    The Globe and Mail (June 29-11) reported on the sale of AECL – http://alturl.com/dooc4 [SNC takes charge of Canada’s nuclear future]:

    “After 60 years of operation and $21-billion invested, Ottawa is unloading Atomic Energy of Canada Ltd.’s Candu business for a mere $15-million and future royalties.”

    CBC’s investigative report [June 29-2011, Weston: Taxpayers’ AECL losses won’t end with sale] on ‘other’ subsidized costs current/future:

    http://alturl.com/o44jd

    “According to AECL’s latest annual report, taxpayers have poured more than $225 million into development of the ACR-1000 just in the past two years”

    “AECL’s refurbishment of the Point Lepreau reactor in New Brunswick is so behind schedule and over budget that the provincial government is now demanding more than $2 billion in compensation.”

    “Making matters worse, AECL’s commercial partner in that snafu [“AECL has spent years and hundreds of millions of dollars at Chalk River building two new isotope reactors that don’t work and likely never will.”], MDS Nordion, is now suing the federal agency for $1.6 billion in damages.”

    “Finally, there is the small matter of six decades of nuclear waste at Chalk River, a mess the federal government has now started to clean up. That shouldn’t cost taxpayers more than an estimated $3 billion.”

  18. Aug-3-2011; 2:04pm EST: Globe and Mail reported this afternoon that Ontario government renegotiated Samsung deal. Samsung to invest $7 Billion and open 4 solar/wind manufacfurering facilities + generate 16,000 jobs. In return, Samsung receives $110 Million subsidy that will cost Ontario electricity customers 36 cents per year for 25 years.

    Tim Hudak, Leader of Ontario’s Conservative Party, claimed the Samsung deal was completed in secret to the detriment of Ontario’s electricity ratepayers. That deal would have cost each and every Ontario electricity customer $1.60 per year for 25 years:

    “And finally, I believe these expensive energy experiments like the Samsung deal flunk economic sense.” [Hudak’s statment May-11-2011]

    Tim Hudak could not comment on the early and current deals that were released today by the Ontario government. Mr. Hudak is on vacation.

    References

    http://alturl.com/i4dyj
    http://alturl.com/h6ubm

  19. The 2% discount rate was an estimate for future inflation index rate only, in order to bring the total cash flow back to 2011 dollars. The discount was only to bring future dollars back to current dollars. I did not attempt to guess at what Samsung’s actual costs are, or what their expected rate of return was.

  20. Pingback: Not such a good deal after all?

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