Thursday, December 15, 2011

Ontario's Green Plan: Cut, Measure, Repeat

The recent Auditor General's Report on Ontario's Electricity Sector - Renewable Energy Initiatives highlights trends where the McGuinty government failed to adequately assess, plan or analyze their renewable energy plans. Perhaps it should have been taken as a bad omen when, in explaining the objective and scope of the audit, the report states:
We did not rely on the Ministry’s internal audit service team to reduce the extent of our audit work because it had not recently conducted any audit work on renewable energy initiatives.
In their summary, the auditor-general stated that
...no comprehensive business-case evaluation was done to objectively evaluate the impacts of the billion-dollar commitment. Such an evaluation would typically include assessing the prospective economic and environmental effects of such a massive investment in renewable energy on future electricity prices, direct and indirect job creation or losses, greenhouse gas emissions, and other variables.
The Auditor General did not mention the natural gas fired power plant in Mississauga that was supposedly cancelled (construction appeared to be ongoing last I checked) part way through construction. But this plays to the theme of the government making commitments for political purposes.

Concerning the Samsung deal, the auditor-general found that
...no economic analysis or business case was done to determine whether the agreement with the consortium was economically prudent and cost-effective, and neither the OEB nor the OPA was consulted about the agreement. 
I find it hard to believe that neither the OEB nor the OPA were even consulted about the agreement. If this is true, then have we truly reached a point where politicians don't even bother asking the experts for their opinions before going ahead with a plan?

Concerning the FIT prices, the report states that
There was minimal documentation to support how FIT prices were calculated to achieve the targeted return on equity
Which explains why they accidentally started giving out 20%+ rates of return for some solar projects.

To justify themselves, the government repeats ad nauseum about a study back in 2005 that claimed there were $4.4 billion in savings to be had by closing the coal fired power plants.  The study I believe they are quoting did not show that there were $4.4 billion in savings to be had by closing coal fired power plants and replacing them with natural gas (which is what the government is actually doing), it actually showed that there was less than $2 billion in savings.  That report also did not analyze the impact of trying to replace coal and nuclear with a mixture of natural gas and solar/wind backed by natural gas fired power plants running on standby.  Ironically, that very same report recommended instead that additional nuclear power would provide the greatest health benefits and lowest costs. The study also examined the effect of applying more stringent controls and the best available technology at the time to coal fired power plants and found that the net cost would be similar to that of natural gas. Moreover, the study performed in 2005 used the best knowledge at the time of the projected energy demand, which has substantially changed since the recession.

The Auditor General highlights this tangentially when he reports that
Although gas-fired plants emit fewer greenhouse gases than coal-fired plants, they still contribute to greenhouse gas emissions. Our review of experiences in other jurisdictions showed that the original estimated reduction in greenhouse gases had not been reduced to take into account the continuing need to run fossil-fuel backup power generating facilities.

Which also highlights that the government is not being fully upfront about how much greenhouse gas emissions will be reduced because of the practical limitations of solar and wind.  Without any practical way to handle the variability of wind/solar, natural gas fired power plants will be required to run in 'standby' just in case they are needed.  According to the Auditor General
The only analysis on backup power that the Ministry cited was a study done by a third party engaged by the OPA as part of its 2007 IPSP development. The study noted that 10,000 MW of wind would require an extra 47% of non-wind sources to handle extreme drops in wind. We noted that the third party who carried out this study also operated an Ontario wind farm, raising questions about the study’s objectivity.
The Auditor General, in examining other jurisdictions warned that
A 2008 study in the United Kingdom found that power swings from intermittent wind generation need to be compensated for by natural-gas generation, which has meant less of a reduction in greenhouse gases than originally expected.
and
A 2009 study in Denmark noted that although the country is the world’s biggest user of wind
energy, it has had to keep its coal-fired plants running to maintain system stability
and also that
The German government also had to build new coal-fired plants and refurbish old ones to cover electricity requirements that could not be met through intermittent wind generation.
I am willing to accept that the government may act on priorities that I do not believe are important (ie increasing mandatory minimum sentences) or in choosing policies may decide to focus on one kind of benefit (ie health, environment) over another (ie cost). But when it does so, it needs to be upfront and honest with the people it was elected to govern about the cost, and should at least be able to show that their plans will lead to the benefits they promise.  The Ontario government, in developing and implementing their Green Energy Plan has repeatedly failed to do so. But that's just my opinion.

References:

"Cost Benefit Analysis: Replacing Ontario's Coal Fired Generation", Ministry of Energy, April 2005 [link]

"Electricity Sector - Renewable Energy Intiatives", Ontario Auditor General's Report, 2011 [link]


Wednesday, December 7, 2011

Ontario's Green Energy Bill

To fully cover what's in the Auditor General's report, I'm going to try to explain the main points in a few postings. So please bear with me as I try to explain how the Auditor General came up with some startling facts on how much McGuinty's Green Energy plans will cost you.

According to the Auditor General's report on Ontario's renewable energy plans, only 14% of Ontarians know that renewable energy like wind and solar costs more than conventional sources like gas, coal and nuclear. I can hardly blame them, with the McGuinty government introducing things like the "Clean Energy Benefit" to reduce the electricity bills of Ontarians, it makes it seem as if renewable energies are cheap. Unfortunately, McGuinty's government has a reality problem, solar and wind are tremendously more expensive than the alternatives.

Per the Auditor General's report, the Feed-In Tariff (FIT) program and microFIT program provide a guaranteed rate to solar power of between 44.30 and 80.20 cents per kWh. Wind power has a guaranteed rate of between 13.50 and 19.00 cents per kWh. By comparison, the average price of electricity in Ontario in 2006 was slightly more than 5 cents per kWh. By the way, that is the price that was being paid on average to the generators, not necessarily the price you see.

The price of Ontario's electricity is divided into two relevant parts, the Hourly Ontario Electricity Price (HOEP) which is determined through free market bidding by generators and the Global Adjustment (GA) which is determined through the cost of government mandated programs and special deals to certain generators to guarantee backup generation is available in an emergency or for baseload electricity. In 2006, the GA cost the Ontario ratepayers about $700 million per year (a lot of that likely went to nuclear power plants but the Auditor General doesn't provide a breakdown) making up less than 10% of the combined HOEP and GA cost. By 2014, the GA will surge to over $8 billion per year and make up 66% of the combined HOEP and GA cost. The HOEP will actually fall from almost 5 cents per kWh to about 3.5 cents per kWh, but the GA will increase from almost nothing to over 6 cents per kWh.

In simple terms, the cost of electricity in Ontario is going to go up by over $700 per person, the average price nearly doubling.

The Auditor General asked the government to provide a breakdown of how much their renewable energy plans would cost the average Ontarian and received an answer that by 2018 it would cost approximately $400 per year per household. But the costs to businesses (which will inevitably be passed down) will be much more; $6000 per year per small business, $60000 per year for a medium business and $28.8 million per year per factory. Not mentioned is the effect that this increase in electricity costs will have on employment.

But it didn't have to be this bad.

In 2009, the Ontario Power Authority warned the Ontario government that it was overpaying for solar power installed on the ground since the installation costs for ground based solar is far less than roof based solar. They told the Ontario government that reducing the guaranteed rate to something more comparable to other jurisdictions would save the ratepayers an additional $2.6 billion; the Ontario government ignored the advice.

In 2010, the Ontario Power Authority again warned the Ontario government that it was overpaying for solar power installed on the ground, telling them that they were giving investors a 24% rate of return. The Ontario government waited five months and accepted 11000 more applications from investors before closing the loophole, costing the ratepayers over $1 billion. Raise your hand if you're getting a 20% rate of return on your savings or retirement fund...

Also in 2010, the Ontario Power Authority informed the government that the estimated costs for a proposed hydro project had increased from $1.5 billion to $2.6 billion. The Ontario Power Authority questioned whether the project was in the financial best interests of the Ontario ratepayers and requested that the government provide a direction instructing it to continue. The government did so saying that the project was in line with the government priorities despite the cost overrun. Does that sound like the OPA requested the direction as a precaution or that the OPA insisted they wouldn't continue unless the government ordered it to - the Auditor General's report didn't clarify which it was.

But its a worthwhile investment, right? We're creating lots of jobs, saving the environment and will save on health costs from closing all those coal fired power plants, right?

According to the Auditor General, the answer is not necessarily, but that's a subject for another day.

NOTE: All facts are from the Auditor General's report on Renewable Energy. Everything else is just my opinion.

Monday, December 5, 2011

Ontario Green Energy Plan: Big Surprise Revealed

I'm feeling quite sarcastic today after reading about the Auditor General's report on the Ontario Liberals' green energy plans.

Who would have thought that rapidly giving out billions of dollars to projects that generate electricity at significantly higher cost than other sources would result in increased costs to the consumer. The only thing new, perhaps, is the exact cost which the Auditor General pegs at $220 million per year for the Feed In Tariff (FIT) program and $110 million per year for the Samsung deal.

There's more to it than just the dollars and cents though. Projects were approved without any cost-benefit analysis being performed, without business cases, due diligence or pretty much anything else. The OPA and OEB were not even consulted about certain plans. The promised jobs are not going to show up or are going to disappear soon.

A representative of the solar industry attempted to justify some of this claiming that their industry was saving lives through the closing of coal fired power plants. This is baloney. Not one coal fired power plant has been closed as a result of the wind and solar industry, they have been closed because of increases in natural gas fired power plants. According to the IESO, since 2003 there has been a decrease of over 3000MW in generating capacity by coal fired power plants (and the remaining 4000MW is used less and less), increases in nuclear generating capacity amount to over 2500MW, increases in generating capacity from natural gas fired power plants is over 5000MW. Increases in wind power amount to less than 1500MW (which only operates on a 33% capacity factor so its actually about 500MW) and "others" which include biogas and wood wastes only makes up 122 MW generating capacity in total.

But his response is telling at least; the solar industry is not a business. It exists solely because of government largess, whether it is here or in China. Which is why I'm proud of Oliver for standing up to the solar lobby and telling them that they need to start acting like businesses if they want to survive.

There's more in the Auditor General's report though, stay tuned.

Thursday, December 1, 2011

Acts of Sabotage

Climate groups and others are advocating that Canada stay home from Durban since they are not willing to commit to Kyoto. Some see this as transference, an attempt to avoid criticism of the real problems (ie the USA and China) and find a scapegoat. What I think they are really concerned about is that Canada and its representatives will act as saboteurs at the conference, stalling or slowing progress on a deal in order to avoid making any commitments themselves. They know first hand how successful such behaviour can be because the environmental movement routinely engages in it themselves.

At the Darlington New Build (new nuclear power plant) hearings, Greenpeace and other environmental groups became involved in the public hearings and the environmental assessment process, not with the intention of improving the safety of the eventual plant, but with the intention of raising every trivial concern they could imagine (ie completing a full life cycle assessment of all greenhouse gases produced by the project) and using every trick (chaining themselves to a portable table during the hearings) they could think of to delay and increase the cost of the project. Eventually, they hope, if they can make the project too expensive or too uncertain of approval, backers will give up and look elsewhere. Among Greenpeace's other recommendations included one preventing any time restrictions on oral presentations at the public hearings. (Filibuster anyone?)

This is not to say that every single concern they raise is invalid. But its hard to take their concerns seriously when its well known that the only result they are interested in is one where the nuclear power plant isn't constructed.

(Although I have less knowledge of the situation facing the Pacific Gateway pipeline, I'm willing to bet that it is not dissimilar.)

As it pertains to Canada at Durban, I think Canada is the least of the environmental movements' concerns if what they are looking for is a real cap on carbon dioxide emissions. Asking the developed world to pony up $100 billion in indulgences (in addition to all the subsidies for green power and other domestic environmental projects) for the fast growing economies of China and Brazil while they run roughshod over the environment and while Europe's economy is imploding may be of greater importance than any obstructionism Canada can muster.

But that's just my opinion.