Ideas for a rational electricity policy platform

Rod Taylor

We are about 10 months away from the next Ontario provincial election, and electricity policy is likely to be one of the top five ballot issues. What follows is a short list of ideas, available free to any political party, on what should make up an electricity policy platform.

1. Reaffirm the principle that making Ontario’s electricity prices competitive with our neighbours is the overriding objective. This principle has been sadly neglected in the recent “maximum renewables whatever the cost” era of Ontario’s Green Energy Act. The price of electricity should be set in the market, but electricity policy should be guided by a comprehensive, independent regulatory analysis of which of the various generation, transmission and demand management options offer the lowest, long-term life-cycle costs.

This analysis should consider all costs, including environmental, such as the cost of long-term nuclear waste storage, mercury emissions from flooding, greenhouse-gas impacts from backing up intermittent solar and wind generation, etc.

2. Recognize that dispatchability is key to operating a power system. Demand and supply must be instantaneously matched, and this means generators must be dispatched on and off the system. Wind and solar power are intermittent, variable and non-dispatchable. Hydroelectricity is renewable and dispatchable.

There are 2000 megawatts of hydro power waiting to be developed in Ontario’s north. In its 2007 integrated plan, the Ontario Power Authority said this option is the most cost-effective of all renewables, including the cost of transmission incorporation.

3. Overcome Ontario’s delusional obsession with electricity self-sufficiency. It is delusional because two-thirds of our power is made from primary energy sources (uranium, natural gas, coal) sourced outside the province. If Boston can rely on northern Canadian hydro power for a substantial portion of its power, why can't Toronto? Ontario sits between the two lowest-cost power jurisdictions in Canada – Manitoba and Quebec. Once we’ve built out our own untapped and renewable northern hydro power, let’s import more from our neighbours. Ontario has world-beating expertise in transmitting high voltage power through climate and distance; let’s use it.

4. Revise the Clean Energy Act. Dramatically reduce the terms for new purchased power to five years; reduce the size of any single installation; reduce the subsidy offered; restore local planning authorities; make competitive electricity prices an objective of the act.

5. Rationalize Ontario’s power sector. The government has announced its intention to reduce the number of agencies, boards and commissions as part of its austerity program. Recombining parts of the power sector must be done with extreme care. For example, the planning parts of the OPA could be merged with the Independent Electricity System Operator, but if the contracting for long-term supply that the OPA currently does joins the IESO, the “I” (for “independent”) will be lost and the credibility of the Ontario market structure destroyed.

There is, however, room in Ontario’s power sector for significant rationalization and that’s on the distribution wires side. This sector offers major opportunities for economies of scale. Local distribution companies should be encouraged to amalgamate or, at the least, share scalable network services (e.g. billing, metering, forestry, line maintenance) to reduce costs.

6. Do not build social programs on the backs of ratepayers. No future government will be elected on the basis of tax increases; but unlike in other sectors (mining, forestry, chemicals, steel, autos, telecom, gas distribution, etc.), in the electricity sector, the province owns the lion’s share of the assets and can send directives to the regulator.

This tempts every government to build social programs (e.g. employment programs) and charge them to the electricity ratepayer (e.g. creating an Ontario nuclear industry, or an Ontario industrial windmill manufacturing industry). No new taxes should also mean no further plundering of the capital pool made available by raising electricity rates by ministerial direction. The best way to prevent this in future is by taking the assets out of the province’s hands, and relying on a well-funded, independent regulator to protect the consumer without ministerial direction.

By taking these six positions, a political party would have a rational and comprehensible electricity policy to offer voters in the October, 2011, election.

Rod Taylor is former executive vice-president, Hydro One, and was a member of the board of the Ontario Independent Market Operator and sat on Ontario’s Market Design Committee.

http://www.theglobeandmail.com/news/opinions/opinion/ideas-for-a-rational-electricity-policy-platform/article1876455/

Ontario’s new dilemma: Too much power

John SpearsBusiness Reporter
Ontario residents were bemused to discover that on New Year’s Day 2011, on average, they were paid to use electricity.

If that seemed unusual – and it is – it’s only the start.

Within the next two years, the conditions that produced the bonus New Year’s power could crop up about one day in every seven, according to an analysis by the agency that runs Ontario’s power market.

A big reason: about 5,000 megawatts of wind powered generation is due to be connected to the Ontario grid in the next few years, producing surges of power that are more than the province needs.

The power surplus may be a head-scratcher for consumers, who saw blackouts and power shortages only a few years ago.

But energy bureaucrats are now hard at work trying to head off the impending surpluses, which force the province to give away power not just to customers in Ontario, but also to the U.S.

The focus of their efforts is a report prepared by the Independent Electricity System Operator(IESO), which operates the provincial power grid.

The report notes that 5,000 megawatts of wind generation capacity will come on stream by 2013. (This is roughly the amount of power Toronto uses on a hot day.)

That flood of new wind power changes the balance of energy, says the report.

“The IESO would experience surplus conditions roughly 14.5% of the time based on average wind output,” it predicts.

Under normal market conditions that would cause the price to fall to zero or below and some generators would shut down.

But the new wind farms, operating under current contracts that pay the operator 13.5 cents a kilowatt hour, would see all of their power flow onto the grid at the contract price.

Customers shouldn’t start anticipating lower bills. Although the market price might show up as zero, customers are still on the hook for the contractual prices awarded to wind producers. That’s collected through the “provincial benefit” payment that shows up as a separate line on the bills of customers who buy from retailers. Other customers also pay, but it’s buried in their energy charge.

Most generators don’t suffer, despite the zero price. The majority sell their power at prices fixed by the Ontario Energy Board, or contracts through the Ontario Power Authority, all of which are funded through the provincial benefit payments.

There’s one other, counter-intuitive problem with increased wind generation. At the moment, more wind power means more gas-fired power.

Because wind power is variable, it has to be backed up by natural gas-fired generators, kept idling to be switched in if the wind dips.

The reserve generators also have to be paid for, and they boost carbon emissions that wind power is supposed to prevent.

Bruce Campbell, vice president of the IESO, is working on the issues raised by the wind power increase.

Part of the solution: Start treating wind like other generators and shut them out of the system if their power isn’t needed, and call them in when it is.

Energy bureaucrats, who never use a straightforward word when they can invent a technical term, call that “dispatching” power.

At the moment, all wind power automatically flows into the system. Rules may be needed to limit the flow when there’s too much.

“We need to integrate the wind generation,” says Campbell. “We want to be able to dispatch wind just as we do other generation.”

Potentially, that means having to tell a wind farm operator that we only need two-thirds of the power it is likely to produce today or tomorrow.

One of the issues Campbell is now discussing with the power industry is how to do that. If someone gets shut out, who is it to be, and what, if anything, should they get paid?

That’s a crucial question for wind farms, says Robert Hornung, president of the Canadian Wind Energy Association (CanWEA).

Hornung acknowledges that as wind power increases, the rules will change.

“There’s always been a strong desire among system operators to ensure that wind ultimately will be treated like other forms of generation.”

But he says his members have to know what the new rules are if their output is put on hold.

“Is there any compensation? If there is, what formula is that based on? Those details really matter,” he said.

Better weather forecasting is also essential to better wind management, says Campbell. The more lead time the system has to anticipate wind quantities, the better, and the IESO is looking for ways to get precise forecasting.

When wind is going to be strong, it may be a good time for a nuclear plant to schedule some short-term maintenance work, or for water-powered generators to collect water behind dams for use when the wind slackens, he says.

In addition, power users can be invited to take advantage of markets when demand is slack. Some industries can plan a short-term production speed-up if they know there’s going to be lots of power and low prices the next day.

Better forecasting should also decrease the need for keeping back-up generation running, says Campbell.

But the details of who gets to produce, and how much they’ll be paid, when there’s a power surplus, remain to be decided. The IESO is now gathering opinions.

Hornung says CanWEA has yet to make its submission, but will do so.

“It’s a discussion we all need to have.”

Ontario’s new dilemma: Too much power - thestar.com