Wednesday, July 20, 2011

Switching Off The Power Glut

Switching off the power glut -
After years of concern that Ontario would not have enough electricity, the province has increased generation capacity and now has the problem of periodically having too much electricity. The best way to solve this problem is, perhaps counterintuitively, to pay producers to stop generating.

This begins an ambitious article that recognizes Ontario's current supply situation and proposes a possible short-term measure to lessen our losses while we deal with the longer term systemic issues. The authors of the article, Benjamin Dacchis and Don Dewees, also released a more comprehensive report this week, through the C.D. Howe Institute. "Plugging into Savings: A New Incentive-Based Market Can Address Ontario’s Power-Surplus Problem"

I've been preoccupied this week, so I won't address the market mechanisms they suggest to contain Ontario's escalating electricity costs, but I'm delighted that they are inviting the conversation to take place. I have blogged on how the IESO has been taking action on excess supply periods, and I gained a respect for their ability to manage the surplus baseload situations in dealing with that, so I hope they are receptive to options to diminish the cost for the end consumer.

The first step is to identify the situation, and the last step is to fix it (by having suppliers that respond to the most basic market signal there is - cheaper price means less supply, and higher price means more), the journey in between is important - given the expected large surpluses through 2015, perhaps it is urgently important. As the article in The Star concludes:

"While having too much electricity may seem a less urgent problem than too little, the result is higher costs for Ontario consumers because of the pricey contracts current and past governments have signed with electricity producers. Like a general manager rebuilding a sports team, it is time to find ways to reduce our losses on these deals."

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