The costs may be high and the need questionable, but Ontarians signed up to buy a lot more renewable power last week when Ontario’s Independent Power System Operator (IESO) announced the results of the province’s latest procurement. The new deal brings “low prices” for new wind and solar generation, says Ontario Energy Minister Bob Chiarelli.
No, not “low” like Ontario’s dysfunctional market price for electricity, which was less than two cents/kilowatt-hour (kWh) over half of all hours in 2015. And not “low” like the average 1.2 cents/kWh rate that electricity bound for New York and Michigan has sold for this year. When the Ontario government says “low,” it means seven to fourteen times as much as that, with the IESO reporting the weighted-average price of the new wind power at 8.6 cents/kWh and new solar at 15.7 cents/kWh.
But the effective cost to consumers for the new power, taking into account the portion of the total output that Ontario consumers will actually use, will be much higher than the costs the government quotes in its press releases.
The system operator’s announcement relies on the fallacy of relative privation. In other words: “this unreliable power is not as costly as some other unreliable power you’ve been stuck with.” For instance, the operator’s press release proclaims, “For context, these prices are lower than the Feed-in Tariff (FIT) rates…”
That’s not saying much. The non-competitive FIT wind and solar program started in 2010. Recall in 2011 Ontario’s auditor general warning the province was paying among the highest FIT prices in the world. Revisiting the issue last year, a subsequent auditor general said the program would add billions of dollars to future bills when compared to contracting solar and wind power purchase agreements through competitive bidding.
But rather than heed such warnings, the government barges on. Under the current version of the FIT program, the government will buy wind power from small projects at a 50 per cent premium over the competitive wind price, and solar power at a 30 to 90 per cent premium over competitive solar prices. Other bonuses available to FIT producers allow them to add even higher charges to the bill by, for instance, finding First Nations to accept ownership positions with their projects.
Whether procured competitively or non-competitively, payments to generators for wind and solar production are only the beginning of the ratepayer impact.
New wind and solar contract holders will likely be paid not only for how much power they actually generate, but for a significant portion of their “deemed generation” — that is, what they didn’t produce but might have had the grid been able to accept all of their production, but instead ended up “curtailed” because the grid was oversupplied.
Limiting generators’ exposure to potential curtailment is one way to attract more solar and wind investment (it was even made retroactive to contracts that originally only covered actual generation). When there’s no wind and no sun, such producers aren’t much good, of course. But, now when the wind really blows or it’s brilliantly sunny, Ontario’s power system is increasingly flooded with far more renewable power than it can use. The IESO manages this excess production by selling its power to export markets (with Ontarians subsidizing American power). But even then, the transmission system is often unable to manage carrying the entire surplus away. That leads to nuclear, hydro-electric, wind, and solar production being curtailed, while generators get paid anyway for what they didn’t produce. In 2015, the auditor general found that from 2009 to 2014, Ontario consumers paid generators $339 million for curtailment. And the more wind and solar power we add, the bigger these expensive surpluses become.
Using the most recently available data, the amount of potential production from nuclear, hydro-electric, and wind sources that had to be curtailed in 2014 to manage excess supplies amounted to five times the amount that these new contracts will produce. Curtailments in 2015 were even greater but the official figures have yet to be reported.
The new procurements also reflect a continuation of the government’s negligent practice of ignoring the transmission consequences of its contracting. Of the 300 MW of new wind power, more than one-third will be sited in Chatham-Kent, a region of the province already experiencing higher-than-average wind curtailments.
Not only are Ontario ratepayers burdened with payments to generators to not generate, but as the auditor general has pointed out, our losses on exporting surplus power keep growing. Net exports in 2014 equalled 10 per cent of Ontario usage — well over half of Toronto’s total usage, sold to the U.S. at a fraction of the price that actual Torontonians paid. In 2015, net exports hit 12 per cent of Ontario’s usage.
Figuring out how much all this new procurement will cost, taking into account indirect impacts like curtailment and exports, would require intensive analysis. Trying to convince Ontarians that the prices are “low” gives no indication such an evaluation occurred. What we do know is that Ontario just signed up for yet more costly, unreliable and unnecessary energy.
Tom Adams is a Toronto-based energy consultant. Scott Luft is a data analyst and writer