Need a Real ‘Global Adjustment’

The Ontario government was severely criticized by the Auditor General for what has been described in the press lately as a “deeply flawed attempt to promote green energy.”

I’m skeptical of the repeated narrative to blame higher electric prices on efforts to enlarge the renewable energy sector. The website of the Independent Electric System Operator (IESO) provides extensive information on current and historical electricity pricing. Aside from Time-of-Use (TOU) rates (winter: 8.3¢ to 17.5¢), the factor that roughly doubles a householder’s bill is the little understood “Global Adjustment” (GA).

According to the IESO, “the GA is calculated based on the difference between the Hourly Ontario Electricity Price (HOEP) and:

  • Regulated rates to Ontario Power Generation nuclear and base-load hydroelectric generating stations
  • Contracts with the Ontario Power Authority such as new gas-fired facilities, renewable facilities, and nuclear refurbishments
  • Contracted rates administered by the Ontario Electricity Financial Corporation paid to existing generators.

The Global Adjustment factor for October was 7.54¢/kwh. Add that to the TOU rates above and electricity ranges between 15.8¢ and 25¢ per kilowatt-hour depending on time and day. 

According to IESO data, the average Global Adjustment was a negative amount for 7 of the 12 months in 2005 and averaged -7.59¢/kwh that year. So what caused it to swing 14¢ in the other direction in 10 years?

According to IESO, electricity from:

  • coal declined from 23 Twh in 2005 to 0.1 in 2014.
  • Nuclear power increased by 10.5 Twh
  • wind power increased by 5.4 Twh
  • gas/oil generation increased by 3.8 Twh
  • Solar power is so meager in Ontario it hardly registers in IESO statistics

A letter written by a professor and co-chair of Sustainable Energy Initiative, Faulty of Environmental Studies at York University caught my attention:

The Auditor’s report “gives extensive attention to the impact of new renewable energy sources on electricity costs, but completely ignores the single largest driver of the Global Adjustment to electricity costs — the refurbishment of the province’s aging fleet of nuclear power plants.”
(The AGs troubling report on hydro, Mark Winfield, Toronto Star, Dec 7)

Bruce Power will begin refurbishing 6 of 8 nuclear reactors at an estimated cost of 13 billion dollars beginning in 2020 – postponed from 2016 “because the company has determined there is additional life in the reactors, the oldest of which were built in the 1970s.”

We’re told that no public money will be used for this project. The province will only pay for the resulting electricity at a contracted price. Bruce Power will assume the cost and risk associated with the refurbishment project. But obviously, the estimated $13 billion cost, plus a return on investment, figures into that contract price of electricity.

Meanwhile, Ontario’s Feed-In Tariff (microFIT, rooftop, <10 Kw) for solar power is reviewed annually and has declined steadily. The 2016 rate, which takes effect on January 1, is 29.4¢/kWh down from 38.4¢ in 2015. (Ground mounted solar is 22.5¢, onshore wind 12.8¢) The tariff is criticized for being higher than in other jurisdictions such as the US. However, this is explained in part by higher costs and exchange rates for imported parts, and by the lower incidence of solar energy in more northern locations.

In the UK, a similar guaranteed contract subsidy is being eliminated and solar components are being slapped with a 20% value added tax (VAT). Critics claim this will bring renewable energy projects to a halt and protect gas and nuclear projects instead.

As Professor Winfield pointed out, the Auditor’s report “ignores the larger sustainability questions around the future direction of the province’s electricity system. These include the short and long-term environmental impacts and risks, including risks of catastrophic events, and the ability of the system, whose character carries with it very high risks of technological lock-in, to adapt to changing economic, environmental and technical circumstances.”

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