Premier Wynne’s $50-billion elephant – Parker Gallant Energy Perspectives
Do a Google search of “premier wynne+elephant in the room” you get 1,140,000 hits while a search for just “premier wynne” only gets 486,000 hits. The word “elephant” has been used by Ontario’s premier on a number of occasions. For example, the “elephant” popped up at one of the expensive Ontario Liberal Party fundraising dinners a year ago where she declared, referring to the provincial deficit, “So while some want to characterize Ontario’s deficit as the elephant in the room, I think a panda is the more appropriate metaphor,” she said. “Truly, Jia Panpan and Jia Yueyue [visiting pandas at the Toronto Zoo] were adorable. But the pandas are leaving Ontario in 2018, and in 2017-18 our deficit will be gone, too.”
The “elephant” has returned for her government in the form of high electricity prices but instead of cute little “pandas,” Premier Wynne was forced to call them her “mistake”!
Let’s look at that elephant now.
The recent release of Ontario Power Generation (OPG) 2016 annual report provides enough information to allow one to figure out exactly what created the elephantine mistake and where to point the finger. To do that we will compare the results of 2016 to 2009* and show the cause of the above market climb in electricity prices.
IESO’s (Independent Electricity System Operator) data discloses the cost of electricity generation in 2009 was 6.22 cents/kWh or $62.20 per megawatt hour (MWh) or $62.2 million/TWh (terawatt hour) and in 2016 was 11.32 cents/kWh or $113.20/MWh or $113.2 million/TWh. The increase from 2009 to 2016 represents a jump of 82% in only seven years and in simple terms, is a jump of 11.7% annually.
Using the above prices to show the full cost of electricity generation in those two years is accomplished by multiplying total generation by the cost per TWh so:
Total generation 2009: 148 TWh X $62.2 MM= $9,205 MM
Total generation 2016: 149.5 TWh X $113.2 million = $16,923 MM
That means an increase of $7,718 million (+83.8%) in the raw cost of the commodity-electricity.
Finding the “mistake”
Why did the cost jump 83.8%?
Let’s start with the generation produced by OPG who, according to their 2009 annual report generated 92.5 TWh and 78.2 TWh in 2016. Bruce Nuclear in 2009 generated 35.7 TWh and in 2016 they generated 46.1 TWh. Collectively OPG plus Bruce generated 128.2 TWh in 2009 and that represented 86.6% of total generation (148 TWh) by all generators that year. In 2016 the collective total was 124.3 TWh which represented 83.1% of all generation (149.5 TWh) in that year as reported by IESO.
Costing the generation
For OPG: The costing of generation coming from OPG is a relatively simple task requiring only their gross revenue for the year divided by the generation they reported. For 2009 gross revenue was $5,640 million for the 92.5 TWh delivered making the all-in cost $61 million/TWh.
For Bruce Nuclear: The reported price paid to Bruce was $65.90/MWH. So, for the 35.7 TWh they generated, the gross revenue generated was $2,352 million or $65.9 million /TWh.
The combined costs of $5,640 million from OPG plus the $2,352 million from Bruce was $7,992 billion to produce 128.2 TWh making the combined cost per TWh $62.34 million or 6.23 cents/kWh.
As noted above, total costs for all generation reported by IESO for 2009 was $9,205 million meaning $1,213 million ($9,205 million less OPG/Bruce combined of $7,992 million) was spent to acquire the 19.8 TWh generated by the other private generators, making their costs per TWh $61.3 million or 6.13 cents/kWh. (Note: 9.8 TWh was generated by OPG’s coal plants in 2009.)
For OPG: As noted above OPG in 2016 generated 78.2 TWh and their gross revenue was $5,653 million making their generation cost per TWh $72.3 million (7.23 cents/kWh). Included in OPG’s gross revenue was a $207 million payment for hydro spillage of 4.7 TWh due to SPG2. (surplus base-load generation).
For Bruce Nuclear: Bruce in 2016 generated 46.1 TWh at a reported cost of $66 million/TWh making so gross revenue was $3,043 million including the cost of steaming off almost 1 TWh due to SBG.
The combined costs of $5,653 from OPG plus the $3,043 million from Bruce was $8,696 million to produce 124.3 TWh making the combined cost per TWh $70 million or 7.0 cents/kWh.
Cost of the “other” generation
The all-in costs for generation for 2016 was, as noted above, $16,923 million. If one deducts the combined costs of OPG and Bruce Nuclear for their generation in 2016 ($8,696 million) the balance of $8,227 million went to pay for the 25.2 TWh produced by other generators. Simply dividing the $8,227 million by the 25.2 TWh creates a cost per TWh of $326.5 million or 32.7 cents/kWh. ***
Had the 25.2 TWh cost ratepayers $70 million/TWh, or the same as the OPG/Bruce Nuclear generation combination (25.2 TWh X $70 million = $1,764 million), Ontario ratepayers would not be on the hook for the $6.9 billion in excess costs! ($8,227 million – $1,764 million= $6,932 million or the very high $326.5 million/TWh)
In just one year’s data, compared to 2009, we have located many of the reasons for higher electricity costs. The Premier now claims $50 billion was needed to invest in transmission and generation but her “mistake” was in not seeing the costs would go up more than 83%, principally related to the acquisition of intermittent, unreliable renewable energy from wind and solar!
There may be even more elephants in this particular room.
*The choice of 2009 is related to the Legislative passage of the Green Energy and Green Economy Act (GEA) in the Spring of that year creating the FIT and MicroFIT programs and subsequent acquisition of renewable energy at above market prices.
**Surplus Base-load Generation is simply anticipated “base-load less Ontario demand”.
***The per TWh cost reflects the FIT contracted generation for industrial wind turbines, solar panels, bio-mass along with curtailed wind, conservation spending, the cost of selling our surplus power to other jurisdictions at only 15% of its cost, etc. etc.