Thursday, June 20, 2013

Ontario Government Reduces commitment to Renewable Energy Supplier

The "Samsung deal" has been significantly rolled back!

The Ontario government is supporting job creation and protecting ratepayers by updating the province's Green Energy Investment Agreement (GEIA) with the Korean Consortium, which includes Samsung C&T Corporation.
... the revised agreement will increase local control over renewable energy projects, create jobs and protect ratepayers by:
  • Extending job commitments from 2015 to 2016. In addition, Samsung will build a fourth manufacturing facility in London by the end of this year, which is expected to create up to 200 additional manufacturing, and research and development jobs.
  • Reducing the total commitment for renewable energy projects from 2,500 megawatts (MW) to 1,369 MW. This represents an estimated $3.7 billion reduction in contract cost, or about $24 per year for the average residential consumer. 
  • Increasing local engagement for all future renewable energy projects under the revised agreement. The Korean Consortium will be required to obtain municipal council support resolutions for new renewable energy projects.
 Read the entire Government of Ontario News Release
Think about the government of Ontario News Release

The original deal was reportedly for 2500MW, which was thought to be 2,000MW of industrial wind turbine capacity and 500MW of solar capacity.
According to the Ontario Power Authority (OPA), in their 2012 Q4 quarterly update, 870MW of wind and 200 MW of solar is the amount of firm project contracts, so the revised contract looks likely to be the remaining 300MW of solar capacity - with industrial wind abandoned.

I won't go through all the math, but the news release includes a reference to spending whatever savings may be recognized by Ontario's ratepayers as is not spending the money created the money; " the province will consider how to best use those savings..."   

My friend Parker calls this "Lucy" math - the mainstream media allows the government to use it often.

My math: When this deal was announced, it looked like it would cost ~$1 billion a year, but over the 4 interim years, that amount looked likely to shrink.  The wind that appears to be abandoned would have cost ratepayers ~$350 million a year  - which for 20 years is considerably more than the $3.7 billion in the press release, but $3.7 billion would be ambitious as a net present value of $7 billion over 20 years.
There may also be savings on the solar side - it's hard to say as the contracts would be private, but I think it's clear over the past 4 years both the pricing for utility-scale solar projects, and the value of those projects, has come down significantly.  The government should be conscious contracts signed now should be less than half the price per MW of those signed in 2010.
If the next 300MW of solar was half the price, the total contract value would be reduced to ~$500million a year from $1 billion a year.

I offer accolades to the government on this action.  I argued for the cancellation of the now cancelled FIT program (obit here) shortly after noting the Korean Syndicate was not investing as promised in Ontario in a March post

Samsung Reduces Ontario Renewable-Energy Pledge by $1.9 Billion | Bloomberg Business Week
Samsung C&T Corp. (000830), South Korea’s second-biggest construction company, reduced by C$2 billion ($1.9 billion) a planned investment in Canada’s renewable-energy industry.
Samsung is leading a group that will invest C$5 billion to develop 1,369 megawatts of renewable-energy capacity in the province by 2016, it said today in a statement. The Seoul-based company pledged in 2010 to spend C$7 billion to develop 2,500 megawatts of wind and solar projects.
Marcus Staviss, a Samsung spokesman, and Ontario Energy Ministry spokeswoman Beckie Codd-Downey declined to give a reason in phone interviews today.
Continue reading at Bloomberg Business Week

The Canadian Press reports future solar will be at 29.5 cents/kWh (I'd have thought it would be under 20)

The "savings" noted by the government assume the potential generation would have displaced other generation and therefore saved a cost they seem to estimate around the average cost to today's consumers - that's not exactly true, but discrepancies between the pricing of the Samsung contract and the saving to Ontarians should exist (but are difficult to quantify).

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