(This post is based on lecture notes presented in Professor Desrochers GGR333, April 1, 2014.)
Facts about Ontario’s electricity situation that you can trust would be nice. Debates over Ontario’s electricity situation are deluged with propaganda from all sides. When it comes to Ontario’s electricity situation, what constitutes a credible source?
Here are three examples of apparently respectable sources making apparently simple factual statements about electricity in Ontario. How do the claims being made hold up? Who do you trust?
– Provincial energy minister (Bob Chiarelli) citing basic historical facts about electricity exports
– Environmental group (Environmental Defence) citing a prominent commercial energy consultancy (Power Advisory)
– Taxpayer/consumer organization (Canadian Taxpayer’s Federation) analysing the cause of a recent power rate hike
Here is a brief fact check of these three claims.
Ontario’s $6 Billion Man
Minister Chiarelli’s claimed in a December 3, 2014 interview with Steve Paikin on TVO that Ontario had earned $6 billion “profit” on power exports. The December 3 interview is recorded here, and the minister’s $6 billion profit claim is at 4:45. Minister Chiarelli later repeated this claim in the legislature.
In the ensuing debate, Chiarelli noted that he had relied on a puffy profile column about the IESO in the Toronto Sun for his research on electricity exports. The minister had mistaken revenues for profits. The minister had misunderstood an off-hand comment from the IESO’s CEO to a political affairs reporter. The IESO CEO had intended to comment on the importance of electricity trade to reliable grid operations, not its profitability for Ontarian ratepayers.
Since 2008, Ontario has been adding very costly new generating capacity in large amounts while electricity demand has been dropping, reselling excess power in export markets at market prices which happen to be very low. The Auditor General’s 2011 report addresses the subject of the net value of exports (see figure 11), finding that from 2005 until 2010, consumers lost $1.8 billion.
Since then, export losses borne by Ontario electricity ratepayers have accelerated. In 2013, new generation was coming onto the Ontario grid at prices mostly above 13.5 cents/kWh while market prices averaged 2.65 cents/kWh. Net exports in 2013 were 13.4 TWh after averaging 10 TWh/yr over the 2008-2010 period. When surplus electricity is available in Ontario, ratepayers are better off to find some salvage value rather than wasting the potential generation, but claiming the salvage value as “profit” makes a mockery of the term.
Renewable Energy is Affordable
Environmental Defence (ED) issued this undated report announced on Twitter March 14, 2014. The study accurately claims that in 2014, only 9% of the residential power bill will be attributable to wind and solar generation. ED’s report references a report it commissioned from the consulting firm Power Advisory.
ED has been a prominent proponent for the Ontario government’s Green Energy and Green Economy Act and has received substantial Ontario government funding, such as this grant for $750,000. The Power Advisory report’s authors were a former OPA official, directly involved in setting up and administering the non-competitive Feed-In Tariff (FIT) program to subsidize renewable developments, and an advisor to the OPA. Both now represent FIT developers.
Both the Power Advisory study and the ED report omit three pieces of contextual information useful for understanding the significance of wind and solar power for ratepayers. The first two pieces of contextual information are simple. While it is true that direct wind and solar costs are today small relative to the amount of the total bill, the energy contribution of wind and solar together is much smaller still. In addition, wind and solar will rapidly grow in the near term, thereby directly driving rates. In addition, connecting and integrating wind and solar are driving costs in other billing components, particularly export losses, transmission capital additions, distribution capital additions associated with “smart grid”, storage costs, and gas-fired generation capacity and utilization.
Based on data from the IESO on energy production in 2013 and from the OPA on costs contained here (at slide 48), in 2013 wind and solar generation provided 4.15% of Ontario’s total power generation but accounted for 10.65% of total generation cost (not including non-energy charges such as distribution and transmission) or about 6.7% of the total bill. The implications for consumers of this unfavourable ratio are exacerbated by the problem that almost none of the output from wind and solar is delivered during periods of peak usage. In the years 2014 and 2015, the OPA forecasts that wind and solar costs will increase by 130% to constitute 14% of the bill. No other bill component is rising so fast.
Had ED and its consultant presented their cost information in context of information about the amount of power generated and the near term rate impacts, it would have been clear to readers that the basic thesis presented by ED is that dilution is the solution for the unfavourable economics of wind and solar power. If the contribution of wind and solar is small enough, the rate impact is moderate.
The ED document makes a host of additional popular, government-endorsed assertions about electricity facts that do not withstand scrutiny. ED claims that reduction in home energy use can offset a large part of the projected increase in electricity prices, a claim I address here. ED blames the August 2003 North Central blackout on underinvestment in the grid in Ontario, a claim comprehensively dispelled by the international inquiry into the blackout lead by the North-American Electric Reliability Council. ED repeats the claim that coal power in Ontario in recent years caused damage to human health and the environmental amounting to $4.4 billion per year, a claim addressed here. Successive Energy Ministers in Ontario have relied on these talking points in their speeches but the statements are all junk.
Gas Scandal as the Source of all Evil (and news hits)
From the opposite side of the ideological divide, the Canadian Taxpayer’s Federation (CTF) published a statement timed to coincide with a November 1, 2013 electricity rate increase “blaming Ontario’s Liberal government and the cost of their gas plant cancellations for electricity rate increases that came into effect today.” The statement was reported repeatedly by the mainstream media. As of April 9, 2014, the press release had registered 45 direct tweets. A CTF commentary posted November 4th claimed “The consequences of the gas plant boondoggle are now coming to fruition, as evident in the drastic rate increase in our power bills starting on November 1st.” That commentary registered 51 tweets.
Here is an example of the TV coverage of the CTF’s statements. It would take a substantial effort to untangle fact from fiction in this interview but notice how the statement that a large amount of gas plant costs will be recovered over 20 years contradicts the claim that the November 1 rate increase was caused by the gas scandal.
The costs created by the cancellation and renegotiations of the gas plants once contracted for Mississauga and Oakville fall into two categories — upfront costs of $230 million and an incremental energy charge over the life of the relocated plants estimated by the Auditor General in the order of $900 million. The $230 million amount was split with part recovered from customers in 2012 and 2013 through charges passed through the Ontario Power Authority and part through a direct $40 million payment from the government. The remaining approximately $900 million will be recovered in incremental energy costs starting once the relocated plants go into service and will extend over the life of their 20 generating contracts. The incremental costs will be blended with other contract costs and will be subject to changing market and operational conditions that make precise forecasting of the costs difficult. The key point is that none of the costs of the gas plant scandal drove the November 2013 rate increase.
The ensuing discussion on decoding propaganda was animated. Here are some of the main points that were introduced by members of the class.
It is difficult for news consumers to get context information to evaluate the accuracy or otherwise of statements in the news.
Many news consumers probably consider all the information they are exposed to associated with Ontario’s electricity system as just another government rip-off and scandal.
Complex, interdisciplinary subjects, relying on concepts like net present value financial analysis (to pick just one example), are challenging and prone to propaganda.
Trusted sources of information and analysis could assist news consumers.
I hope I was able to convey to the students the message that energy news should be read with scepticism and cross-checking. Discussions about Ontario electricity situation are so polluted with junk information that finding facts you can trust is a non-trivial exercise.
I don’t want my survey of junk information dominating popular discourse about Ontario’s energy situation to dissuade young people from participating in the energy industry. As I noted during the lecture, many parts of Canada’s energy industry face demographic challenges that provide excellent opportunities for motivated, well educated young people interested in the field. Here is one reference.
I’d like to thank Professor Desrochers and his GGR333 students for the opportunity to present some ideas and for the engaging discussion. Comments and criticisms on this post would be most appreciated.
Post Script April 19, 2014: Here is a recommended analysis by Scott Luft of the Environmental Defence report discussed above.