Wind driving extreme pricing in Ontario's electricity market

"There were wind shortfalls in all but one of the 28 High HOEPs during the Current Reporting Period"

Industrial wind turbines are driving extreme prices in the Ontario market according to the latest report from The Ontario Energy Board (OEB) Market Surveillance Panel (MSP).

And the past week's market performance.

• On Sunday May 22, during hour 8, the system operator's (IESO) 5 minute Market Control Price (MCP) bottomed out at it's minimum of -$2,000 per megawatt-hour (MWh)
• On Tuesday May 24, during hour 20, the 5 minute MCP hit the maximum $2000/MWh

Both spikes appeared to be due to renewable and demand forecasts being poor predictors of actual market conditions. The OEB's new report is therefore very relevant today, despite being for the period from November 1, 2014 to April 30, 2015.

In the Current Reporting Period there were 28 hours in which the HOEP exceeded $200/MWh (High HOEPs). This Period also had the highest HOEP since market opening, reaching $1402/MWh in hour ending 8 on February 20, 2015. The High HOEPs were primarily caused by under-forecasts of demand and short-notice losses of supply (curtailing of imports and under-generation of wind facilities relative to their forecast production).

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Relevance: 

Identifying the factors that lead to deviations between the PD-1 MCP and the HOEP provides insight into the root causes of price risks that participants, particularly importers and exporters, face as they enter offers and bids into the market.

This is the complicated data explanation of the simple mechanism through which forecasts can cause price spikes (for the reported period almost the exclusive cause of high priced hours). "Demand" to the MSP is demand from  IESO grid-connected generators. If the forecast for wind, and solar, is light the demand for grid-connected supply would be greater as embedded wind, and/or solar, would be less productive than expected too.

2.1.2  Wind Shortfalls, Demand Under-forecasting and High HOEPs 

A ‘wind shortfall’ occurs when real-time wind output is less than the hour-ahead (PD-1) forecast. Conversely, under-forecasting of demand occurs when real-time demand is greater than the PD- 1 forecast. Both of these conditions result in a greater need for supply in real-time than was contemplated in PD-1. There were wind shortfalls in all but one of the 28 High HOEPs during the Current Reporting Period, and an under-forecasting of demand in 22 of the 28 High HOEPs. Figure 2-3 maps the HOEP against wind and demand forecasts, and shows a data point for each hour during the Current Reporting Period. The coordinates represent the degree of demand forecast error (on the y-axis) and wind forecast error (on the x-axis). If a data point lies above the x-axis, then real-time demand was higher than forecast (the forecast underestimated real-time demand). If a data point lies to the right of the y-axis, then real-time wind production was less than was expected in the PD-1 timeframe (real-time wind production fell short of expectations). 

Figure 2-3: HOEP Map Against Ontario Demand Under-Forecasting and Wind Shortfall November 2014 – April 2015 (MW)

California cap-and-trade auction predictably fails.

An article in the Los Angeles Times notes the poor results of California's latest auction of greenhouse gas credits.

Buyers at the auction took just 785,000 of the 43 million allowances offered, each of which allow the emission of one metric ton of carbon dioxide. All the permits were bought at the floor price of $12.73.
But there is a secondary market, where the private parties who own the credits trade them daily. Those credits were recently priced at $12.34, well below the state floor in the auctions. It means that any company needing a credit could buy it more cheaply on the secondary market than in the auction.

There are a lot of very poor, and mainstream, economists who have a great zeal for pricing carbon and no interest in attending to detail.  Most are professors. They are represented in the article by:

...a serious possibility is that emitters of carbon dioxide are making better-than-expected progress at cutting their gas output. That would mean the program is more successful than expected...

Another serious possibility is there is a flood of credits on a secondary market - credits  attained without any real reduction in emissions, which I've learned from following Aldyen Donnelly are known as "hot air" credits.
These are the credits that depress the carbon price. My province of Ontario may have chosen to join California in cap-and-trade precisely because it will be cheaper to purchase "hot air" credits from California than to attain actual carbon reductions at home.

From Twitter:

NRDC/EPA Clean Power Plan retiring Nebraska nuclear power plant

Omaha Public Power District's chief executive has recommended closing the Fort Calhoun nuclear power plant.

OPPD President Tim Burke looked distressed in the television report the begins stating the utility is crunching the numbers on complying with the Clean Power Plan.

OPPD's Fort Calhoun nuclear plant has become too expensive to run, company says:

In an interview, Burke told The World-Herald on Wednesday that regulatory pressure to reduce carbon emissions, a goal to make rates more competitive and depressed prices on the wholesale electricity market influenced management’s recommendation to shut down the plant.

That's not entirely honest. As a smaller unit, the 478 megawatt Fort Calhoun is more expensive, per megawatt-hour than much larger nuclear power plants, and it's correct to note downward market price pressures due to cheap gas and heavily subsidized wind, but for Nebraska the challenge of meeting the Clean Power Plan's targets is entirely detached from a goal of reducing emissions.

Net job impacts of expensive spasmodic electricity procurement

I continue to hear silly claims about employment benefits from paying extraordinary amounts for power in Ontario, inspiring me to post some references I collected years ago.

The Auditor General of Ontario 2011 Annual report included:

...no comprehensive evaluation was done on the impact of the billion-dollar commitment to renewable energy on such things as future electricity prices, net job creation or losses across the province, and greenhouse gas emissions.
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The [report by the Task Force on Competitiveness, Productivity and Economic Progress of the Rotman School of Management at the University of Toronto] further noted that even if 50,000 new jobs were created, the higher energy costs attributable to renewable energy might result in job losses elsewhere in the economy, particularly in industries that use large quantities of energy.

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Studies

Worth the Candle? The Economic Impact of Renewable Energy Policy in Scotland and the UK

Verso Economics, March 2011

The report’s key finding is that for every job created in the UK in renewable energy, 3.7 jobs are lost. In Scotland there is no net benefit from government support for the sector, and probably a small net loss of jobs.

Are Green Jobs Real Jobs: The Case of Italy

Luciano Lavecchia and Carlo Stagnaro, Istituto Bruno Leoni, May 2010