OVERKILL
$100 Site Donor 2021
Similar to what Shannow has seen unfold in Australia, Ontario had a government-forced Green Energy Act foisted upon the ratepayers. Officially coming into effect in December of 2009, the stage was set for it in January 2005 when generation costs were decoupled from rates and the Global Adjustment was spawned to cover the rate subsidies that would be provided as incentives to private contract holders for the installation of wind, solar and biomass.
In 2002, before tiered pricing was introduced and came into effect sometime in 2003, retail rates were $0.043/kWh. Generation mix was pretty basic with nuclear, coal, hydro and gas/oil/coal making up the mix. Demand in the province would have been around 152TWh, which means total retail cost to consumers was $6.5 billion dollars ($8.6 billion in 2017 dollars).
Rates went up modestly, with some variance, between 2004 and 2010 with tiered going from 5.8/6.7 and TOU from 3.5/7.5/10.5 in 2006 to 6.4/7.4 and 5.1/8.1/9.9 in November 2010.
Then things went sideways.
Between 2010 and present tiered has jumped to 10.3/12.1 and TOU to 8.7/13.2/18. Generation costs are the primary driver as Ontario struggles to deal with a precipitous drop in demand, going from 152TWh in 2007 to 137TWh in 2015 whilst continuing to dole out contracts for more intermittent generation with curtailment compensation clauses and rate subsidies. The increased costs, passed on to consumers, continued to push down demand, which in turn reduced the size of the pool from which the compensation for the subsidies was drawn, further driving up rates. This is evidenced via a comparison of rates relative to demand following 2010 through to 2015.
What is not seen through the lens of a rate focused approach are the infrastructure costs also passed on to consumers. This is represented by the Delivery Charge on our bills, and mostly affects HydroONE customers, as they are the largest provider in the province and serve the vast majority of rural consumers. Since most of the large scale renewable installs are outside city limits, their connection to the grid is tasked to HydroONE, who then receives approval from the Ontario Energy Board to recoup those costs from their customers via Delivery and Regulatory charges.
This brings us to what 2016 looked like. Note that generation breaks into two main categories:
Grid-Connected: These are resources, usually large scale, that participate in the IESO regulated energy market. These are reflected in the IESO generated distribution mix data. This is what I've focused on in past discussions.
Embedded: These are smaller scale installs connected and administered via local Utility companies, I have not mentioned these before. They operate at a local level to drive down grid demand. The IESO does not provide annual output data that I could find for these installs, so I have based it on the average large-scale data, which is readily available.
124TWh generated via grid-connected nuclear and hydro with a total cost of $8.28 Billion, which breaks down as:
Bruce Nuclear: $3.15 Billion
OPG Nuclear: $2.98 Billion
OPG Hydro: $2.14 Billon
23TWh generated via grid-connected gas, wind, solar and biofuel with a total cost of $3.59 Billion, which breaks down as:
Gas: $2.07 Billion
Wind: $1.24 Billion
Solar: $218 million
Bio: $63 Million
5.1TWh generated via embedded biofuel, gas, CHP, wind, solar and hydro with a total cost of $1.6 Billion, which breaks down as:
Solar: $1.34 Billion
Wind: $184 Million
Hydro: $58 Million
Bio: $14 Million
This gives us a total generating cost of $13.47 billion, of which $3.1 billion is wind, solar and biofuel, which account for less than 10% of the generating mix.
How this has unfolded would be novel had it not had the result of putting many residents of the province into energy poverty. Essentially, the goal was to replace two coal plants the province was operating with wind and solar. To incentivize investors, lucrative contracts were drafted with generous rate subsidies, compensation for non-generation and the like. In order to try and match the 30GWh the coal facilities provided, a significant amount of over-capacity was deemed necessary. On top of that, contracted Natural Gas generation would be added to prop-up the renewables for periods when they were not producing. These facilities were given similar contracts, being paid to idle.
The subsidies were recouped via an increase to consumer rates. This in turn drove down demand. This did not however cause the government to re-evaluate the contracts that had not yet begun construction. The government continued to allow new builds, which in turn further increased cost, which again drove down demand. This resulted in periods of significant surplus. As local embedded generation, which was also being subsidized, drove down grid demand even further, the surplus increased. Often these private facilities were generating when the power was not needed, which resulted in the province selling the power off at an average of 20% of what the Ontario rate payers paid the contract holder, or paying the facility for curtailment. Other times, they were not producing and expensive dispatchable gas generation was leaned on, again, at significant cost to the rate payer. In 2016, excess generation sold at a loss cost Ontarians $1.7 billion dollars.
But it gets even better. HydroONE has now announced that it needs more money to fund grid maintenance, as it has been neglected due to that money being funnelled into renewable connection infrastructure. This is at the heels of the Premier justifying all the extravagant expenditure which amounts to $50 billion as "upgrading the grid", stating that previous administrations had been neglecting it. That is quite obviously a lie.
This has all been an extensive exercise in how not to integrate renewables into your grid. This is because the entire plan revolved around agenda, not properly vetted policy and sound economics. There were plenty of ways that this could have been done properly, unfortunately those in charge had no intention of following any of those methods and instead charged ahead with a system that was destined to fail. This was due to an approach that did not properly evaluate the cumulative effect that the subsidies would have on consumer rates, or factor in the effect on demand that an increase in rates would have. Additionally, it did not factor in the relationship between those two items.
Where we go from here? That's to be seen. There are a variety of options being explored by the opposition, none of which are popular with the current administration because of various "cozy" relationships with contract holders. Alternative administrations have no such obligations to those parties, so it will be something to watch in the next year and a bit.
In 2002, before tiered pricing was introduced and came into effect sometime in 2003, retail rates were $0.043/kWh. Generation mix was pretty basic with nuclear, coal, hydro and gas/oil/coal making up the mix. Demand in the province would have been around 152TWh, which means total retail cost to consumers was $6.5 billion dollars ($8.6 billion in 2017 dollars).
Rates went up modestly, with some variance, between 2004 and 2010 with tiered going from 5.8/6.7 and TOU from 3.5/7.5/10.5 in 2006 to 6.4/7.4 and 5.1/8.1/9.9 in November 2010.
Then things went sideways.
Between 2010 and present tiered has jumped to 10.3/12.1 and TOU to 8.7/13.2/18. Generation costs are the primary driver as Ontario struggles to deal with a precipitous drop in demand, going from 152TWh in 2007 to 137TWh in 2015 whilst continuing to dole out contracts for more intermittent generation with curtailment compensation clauses and rate subsidies. The increased costs, passed on to consumers, continued to push down demand, which in turn reduced the size of the pool from which the compensation for the subsidies was drawn, further driving up rates. This is evidenced via a comparison of rates relative to demand following 2010 through to 2015.
What is not seen through the lens of a rate focused approach are the infrastructure costs also passed on to consumers. This is represented by the Delivery Charge on our bills, and mostly affects HydroONE customers, as they are the largest provider in the province and serve the vast majority of rural consumers. Since most of the large scale renewable installs are outside city limits, their connection to the grid is tasked to HydroONE, who then receives approval from the Ontario Energy Board to recoup those costs from their customers via Delivery and Regulatory charges.
This brings us to what 2016 looked like. Note that generation breaks into two main categories:
Grid-Connected: These are resources, usually large scale, that participate in the IESO regulated energy market. These are reflected in the IESO generated distribution mix data. This is what I've focused on in past discussions.
Embedded: These are smaller scale installs connected and administered via local Utility companies, I have not mentioned these before. They operate at a local level to drive down grid demand. The IESO does not provide annual output data that I could find for these installs, so I have based it on the average large-scale data, which is readily available.
124TWh generated via grid-connected nuclear and hydro with a total cost of $8.28 Billion, which breaks down as:
Bruce Nuclear: $3.15 Billion
OPG Nuclear: $2.98 Billion
OPG Hydro: $2.14 Billon
23TWh generated via grid-connected gas, wind, solar and biofuel with a total cost of $3.59 Billion, which breaks down as:
Gas: $2.07 Billion
Wind: $1.24 Billion
Solar: $218 million
Bio: $63 Million
5.1TWh generated via embedded biofuel, gas, CHP, wind, solar and hydro with a total cost of $1.6 Billion, which breaks down as:
Solar: $1.34 Billion
Wind: $184 Million
Hydro: $58 Million
Bio: $14 Million
This gives us a total generating cost of $13.47 billion, of which $3.1 billion is wind, solar and biofuel, which account for less than 10% of the generating mix.
How this has unfolded would be novel had it not had the result of putting many residents of the province into energy poverty. Essentially, the goal was to replace two coal plants the province was operating with wind and solar. To incentivize investors, lucrative contracts were drafted with generous rate subsidies, compensation for non-generation and the like. In order to try and match the 30GWh the coal facilities provided, a significant amount of over-capacity was deemed necessary. On top of that, contracted Natural Gas generation would be added to prop-up the renewables for periods when they were not producing. These facilities were given similar contracts, being paid to idle.
The subsidies were recouped via an increase to consumer rates. This in turn drove down demand. This did not however cause the government to re-evaluate the contracts that had not yet begun construction. The government continued to allow new builds, which in turn further increased cost, which again drove down demand. This resulted in periods of significant surplus. As local embedded generation, which was also being subsidized, drove down grid demand even further, the surplus increased. Often these private facilities were generating when the power was not needed, which resulted in the province selling the power off at an average of 20% of what the Ontario rate payers paid the contract holder, or paying the facility for curtailment. Other times, they were not producing and expensive dispatchable gas generation was leaned on, again, at significant cost to the rate payer. In 2016, excess generation sold at a loss cost Ontarians $1.7 billion dollars.
But it gets even better. HydroONE has now announced that it needs more money to fund grid maintenance, as it has been neglected due to that money being funnelled into renewable connection infrastructure. This is at the heels of the Premier justifying all the extravagant expenditure which amounts to $50 billion as "upgrading the grid", stating that previous administrations had been neglecting it. That is quite obviously a lie.
This has all been an extensive exercise in how not to integrate renewables into your grid. This is because the entire plan revolved around agenda, not properly vetted policy and sound economics. There were plenty of ways that this could have been done properly, unfortunately those in charge had no intention of following any of those methods and instead charged ahead with a system that was destined to fail. This was due to an approach that did not properly evaluate the cumulative effect that the subsidies would have on consumer rates, or factor in the effect on demand that an increase in rates would have. Additionally, it did not factor in the relationship between those two items.
Where we go from here? That's to be seen. There are a variety of options being explored by the opposition, none of which are popular with the current administration because of various "cozy" relationships with contract holders. Alternative administrations have no such obligations to those parties, so it will be something to watch in the next year and a bit.
