base load to base cost - and back again?

This week the government of my province, Ontario, released its latest Long-Term Energy Plan. There's not much in it that I haven't commented on before, rather specifically, so in this post I'll discuss some international energy events of the past month to try and put Ontario's decisions in a broader context - not for the benefit on Ontario, but for the jurisdictions copying mistakes made in the past decade around the world.

The Cost of Energy Review produced by Dieter Helm notes the 2008 CCA "commits the UK to reduce emissions by at least 80% by 2050."

The review will provide recommendations as to how best to minimise the costs of energy consistent with the overarching objectives, taking account of the costs and benefits of the recommendations. It will set out options for developing and enhancing energy policy.

The very meaty meat of the lengthy report's digestible Executive Summary:

The measures necessary to reduce the costs include: the unification of the capacity and FiTs [feed-in tariffs] and CfDs [contract for difference] auctions on the basis of equivalent firm power (EFP); the gradual reforms of the structure of FiTs and CfDs in the transition to their eventual abolition; and further enhancements to competition in the wholesale and balancing markets. There should be significant reforms of the regulation of transmission and distribution focused on the role of system operators at the national and local levels, and the replacement of the specific licences for distribution, supply and decentralised generation with a general licence. A default supply tariff should be required and the margins published. Finally, carbon prices and energy taxes should be harmonised. 

19. This package of measures is a major shift from the original market design and regulation model at privatisation, and moves on from EMR. It would create a simpler, more competitive structure fit for the new purposes. Instead of low-carbon technologies being grafted onto the fossil fuel-based system, the new world is radically different, backed up by new smart technologies, data and smart energy networks and services. A common carbon price would significantly lower the cost of decarbonisation and greatly enhance incentives.

The bombshell there is "equivalent firm power" being valued.

News from Ontario's electricity bureaucracies, and more

A news day at Ontario's Electricity System Operator (IESO) and its nominal sector regulator, the Ontario Energy Board (OEB). 

The most anticipated news came from the OEB's announcement of rates to be introduced for May 1st. From the Regulated Price Plan Price Report | May 1, 2017 to April 30, 2018

...the OEB has historically included a portion of significant price changes that may occur in the forecast period because of the smoothing benefits for customers. [emphasis added]

In keeping with this practice, the OEB has considered it appropriate in this price setting to take into account a portion of the estimated impact of the government’s proposed Fair Hydro Plan. The OEB has done this by way of a reduction in the forecast amount of the Global Adjustment of approximately $1B, which represents 50% of RPP consumers’ estimated portion of the proposed refinancing of the Global Adjustment.

There's a lot of questionable assumption, some conflicting with other OEB practices, in this paragraph - but jumping to what will be of immediate concern to those only interested in immediate concerns...

The forecast average price prior to the OEB considering new government interference is $114.90 per megawatt-hour (MWh), or 11.49 cents per kilowatt-hour (kWh), which is up about 3% from a year earlier (roughly the inflation rate). For sketchy reasons the OEB has reduced that average rate to $97.62/MWh (15%), reflecting their anticipation of what could comprise the government's boot the cost down the road (BCDR) plan  - also known by the government's spin as the Fair Hydro Plan.

The 1.7 cent/kWh reduction the OEB is making is half the cut in bill mock-ups by big new local distribution company Alectra from the very day the government announced the BCDR policy. It was as if they knew what was coming. Coincidentally the IESO today announced Peter Gregg as its new President and Chief Executive Officer, noting "recently he was President of Alectra Energy Solutions."

Renewables and gas and Hinkley Point

I'd been thinking the discussion around the new May government's delay of a decision on EPR reactors at Hinkley Point was featuring well known voices tossing off half-cooked ideas as alternatives to the project, and am now inspired to say so by...

Turns out wind and solar have a secret friend: Natural gas | Chris Mooney | The Washington Post:

“All other things equal, a 1% percent increase in the share of fast reacting fossil technologies is associated with a 0.88% percent increase in renewable generation capacity in the long term,” the study reports. Again, this is over 26 separate countries, and more than two decades.“Our paper calls attention to the fact that renewables and fast-reacting fossil technologies appear as highly complementary and that they should be jointly installed to meet the goals of cutting emissions and ensuring a stable supply,” the paper adds.
...
“When people assume that we can switch from fossil fuels to renewables they assume we can completely switch out of one path, to another path,” says Verdolini. But, she adds, the study suggests otherwise.
Verdolini emphasized this merely describes the past — not necessarily the future. That’s a critical distinction, because the study also notes that if we reach a time when fast-responding energy storage is prevalent — when, say, large-scale grid batteries store solar or wind-generated energy and can discharge it instantaneously when there’s a need — then the reliance on gas may no longer be so prevalent.

Ah the future - a country unknown to all but zealots.

The study seems to find what I'd expect. Renewables in much of the world (certainly Ontario) lack meaningful capacity value, so they are always additional generation. They do not replace other generators.
Thinking through the eternal promise of storage, I argue wind and solar should be viewed as fuels for the batteries (or other storage) which would be the generators.

It seems to me these issues have been around long enough, they should be obvious, and yet it remains common to see renewables presented as alternatives to actual generators - such as the proposed Hinkley C.

Killing Nuclear, ignoring emissions and avoiding carbon pricing

In Germany, where renewables have mostly replaced nuclear power, carbon emissions are rising, even as Germans pay the most expensive electricity rates in Europe. In South Australia, the all-wind strategy is taking its toll. And in California, the costs of renewables are also apparent. - Eduardo Porter - New York Times

Recently a multitude of exceptional articles have been written on the challenges facing nuclear power plants in the United States, mostly without mentioning an alternative to competing subsidies.

• A $30/tonne CO2 equivalent price would equate to adding $12-$15 per megawatt-hour on the most efficient natural gas-fired generators. $30 is a familiar figure thrown about in Canada.
• The United States Government's Interagency Working Group on Social Cost of Carbon has a complex methodology of working out values: using a 4% discount rate they provide a 2016 value of $38/metric ton CO2, but that's in 2007 dollars - it's about $44/t CO2e in 2016 dollars, putting the social cost  per megawatt-hour of natural gas-fired generation at $17.5-$22.5/megawatt hour.

now... to the news

A very educational read is Will Boisvert's Renewables Subsidies Are Killing Nuclear and Threatening Climate Progress, Bloomberg New Energy Finance Study Shows:

Why are nuclear plants going broke? The immediate reason is cheap gas. The plunge in natural gas prices caused a collapse in the price of natural gas-fueled electricity, which has slumped below the production costs of nuclear plants. Bloomberg predicts that in the sprawling PJM grid wholesale prices will be $28.50 per megawatt-hour in 2017, lower than average nuclear production costs of $35.50 per megawatt-hour. Facing losses like that, nuclear utilities are closing up shop.
But the impact of market forces has been worsened by public policy that neglects nuclear power and adds to the pressure it faces. Federal, state and local governments have massively intervened in energy markets to support renewable power with subsidies and mandates, but given virtually no support to existing nuclear plants. These biases tilt the playing field for commercial competitors of nuclear plants.
The $23 per megawatt-hour federal Production Tax Credit for wind farms, for example, can be larger than the total wholesale price nuclear plants get for their power in some regions, according to Bloomberg data. (It’s also larger than the $5-15 per megawatt-hour subsidies Bloomberg reckons nuclear plants need to break even.)

I'll read most anything by Will Boisvert -in English- but I don't see a link to the Bloomberg New Energy Finance Study (nor could I locate it), and there's no mention of carbon pricing.

New York bringing hope back to US nuclear operator

New York state is acting to keep existing nuclear generators operational in an important power play that's interesting for a number of reasons.

July 8th (Friday afternoon, as policy announced) NY regulators propose generous Upstate nuclear subsidies | Syracuse.com

SYRACUSE, N.Y. – State utility regulators today released a proposal to subsidize Upstate nuclear plants with annual payments totaling an estimated $482 million a year.
The proposal from the Public Service Commission staff seems likely to please nuclear plant operators, who say their facilities deserve subsidies for providing carbon-free power, and to infuriate anti-nuclear advocates who want more resources devoted to wind and solar.

The public has a brief opportunity to comment -- until July 18 – an indication that the PSC is likely to rule on the proposal at its Aug. 1 meeting.
Exelon Corp., which owns three of the four Upstate nuclear reactors, recently told the commission that the oldest two facilities might close unless subsidies were approved by September.

Exelon had said similar things about a proposal put to the Illinois legislature to incent existing nuclear units there by guaranteeing a $42/MWh rate for the generators. Illinois' legislature didn't act, and Exelon announced the closure of Illinois units.

The initial Syracuse.com story embedded Public Service Commission staff's recommendation - knows at POLITICO as Cuomo's nuclear subsidy plan. From the recommendation:

Replacement of the zero-emission attributes with equivalent amounts of fossil-fueled attributes would result in an increase of approximately 31 million metric tons of CO2 emitted into the atmosphere over the next two years, according to a report issued by The Brattle Group.
...
Staff is proposing to subsidize zero-emissions attributes from Zero Carbon Electric Generating Facilities when there is a public necessity to encourage their preservation. Payments for zero-emissions attributes would be based upon the U.S. Interagency Working Group’s (USIWG) projected social cost of carbon (SCC). This approach is consistent with the Commission’s approach in setting guidelines for Benefit-Cost Analysis. 

This may be the first payment scheme designed to price energy by the social cost of carbon. The formula is:

RGGI is the Regional Greenhouse Gas Initiative - so if it was trading carbon at what the USIWG considers the social cost of carbon the ZEC would be zero. If the combination of the RGGI credit costs, expected market pricing and capacity payments (in the "rest of state", or ROS zone) was equal to, or greater than, the USIWG's social cost of carbon, the price would be zero.

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).

...
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)

David Keith on cheap solar - and other notable stories of the past week

I suspect this will be the hot energy post of the coming days.

blog post on cheap solar power, why it matters, where are the limits, and why i need to eat crow: https://t.co/BRmV5CfDgt @ENGSCI137x

— David Keith (@DKeithClimate) April 24, 2016

An "only Nixon can go to China" moment could come from Keith's Cheap Solar Power:

..one can now build systems in the world’s sunny locations and get very cheap power.  

Implication 

What does this mean? 

Implication #1: In sunny places, solar will reshape commodity power markets.
Examples

• Power prices will have a mid-day low. This is already happening in California, where it’s called the “duck curve.” It will soon be the norm in other high-sun demand centers, and the changing power price structure will shake utilities and industrial customers.

• Wind suddenly looks less interesting. The capacity factors, global build rate, and costs for wind power have been nearly flat for five years.

• Nuclear and CCS will have a harder time competing. For example, there are nuclear builds in the middle-east (e.g., UAE building Korean reactors), but with cheap solar it will be hard to compete against solar with gas backup.

• Gas for load following and low-capex peaking looks ever more important. 

Implication #2: There will be opportunities to bring electrical demand to where power is cheap. 

One option is look for products that have very high energy cost and are easily transportable, and build solar farms and production together in high-insolation sites.
Four options are aluminum, ammonia, desalination, and transportation fuels.

Read the entire post at The Keith Group

Not sure northern, nighttime demand peak climates should rejoice over the implication power intensive industry should look for sunnier climates.

Blogs, solar, beef and social media

I used to blog here frequently.

I'm going to post some content tonight, but first I want to explain the lack of productivity on this blog which will also put this blog in the context of all the web avenues I am now communicating on.

When I started Cold Air Currents it was to post articles of interest that I didn't write. One early example of content was Donald Jones' More wind means more risk to the Ontario Electricity Grid. This proved to be a step on the path to the Donald Jones Articles site. Other prominent examples of posts that I did not write are Parker Gallant articles on the financing of MaRS Discovery District, which seemed out of place but needed a home - 2 years prior to the news entering the popular press.

As I became more knowledgeable on energy and tangentially related issues, I tried to add context to the articles I was citing here. This sometimes made it difficult to choose posting on my original Cold Air content blog, or this site.

Citations, without adding context, I have been actively doing on Twitter for some time, and more frequently on Facebook. For many, social media replaces blogging, but I find the experiences very different. Both Facebook and Twitter are social - which it took me quite some time to figure out.  On Facebook my crowd is probably more the anti-wind tribe, and on Twitter likely a little more pro-nuclear. A lot of what interests me doesn't necessarily fit those crowds, but often I don't have the time, or inclination, to put things in the context my tribes already know.

Which brings me to my latest use of social media - the little used Google Plus. I've started to use it as I first used this blog - to hold articles of interest that may end up on this site once I have time to collect a few related articles and create a context/narrative to present them together. If you followed this blog in the hopes of spotting interesting articles, and not for my insights into them, those are most likely to pop up on Twitter amidst a bunch of banter with others, and on Google Plus relatively uncluttered.

Relatively because I have other blogs, and new platforms.

One blog platform I find halfway between blogging and social media is tumblr - which I find particularly easy to create for from my laptop. It could be me ranting, or it could be one graph I've created I think deserves a quick commentary.

I was advised some time ago, to a person near and dear to me, that I am not funny on my blogs - but assured I am a funny guy. I said that was because I have a mean sense of humour and that would detract from my messaging - the unimpressed response was "yeah, well, you're not funny online." So I created a Wordpress blog to stay familiar with that platform (which is more social than Blogger, and the one I recommend for those entering the online content creation world). It is where I intend to be edgier. Having said that, a lot of my best original work has probably been there, on topics I felt hesitant to bring to the Cold Air site that is now associated with "energy blogging" distinct with a heavy data analysis emphasis.

That's most of what I do. If you care to keep track, I always hope I'll do more with luftonline.net but it now exists and points to all these different vehicles.

On to some of the topics in articles I pasted into Google Plus recently...

Ontario's Regulator exploring charges on behind-the-meter generation

Two of the best Ontario electricity commentators have written on an Ontario Energy Board (OEB) notice that it is is:

"initiating a policy review to address the question of how a commercial and industrial customer should be billed when they have a Load Displacement Generator (LDG) behind the meter."

It's an important, but obscure issue I feel best explained by looking at the situation in Germany - but let's start with Tom Adams' Selfie Power (With and Without Transmission Charges):

March 31 tweet on tour of, presumably, preferred consumer CHP site

The Ontario government has identified load-displacement generation as “conservation” and provided big businesses with massive incentives and even direct subsidies to expand investment in this type of behind-the-fence generation. A little brew-your-own power is looking like a lifeline for your business. Right?
Not so fast.
The Ontario government is instituting a rate change designed to punish those with behind-the-fence generators...
The rate change seeking to wipe out the incentive to invest in load-displacement generation but will only apply to non-preferred smaller customers.

Bruce Sharp's Linkedin post on the letter is Ontario CHP (Combined Heat and Power) at Risk ?

The primary purpose of the letter is to discuss the retail transmission treatment for CHP, with the possibility of aligning the treatment of LDC-served customers with transmission-connected customers or perhaps leaving LDC-served customers slightly worse off.
Much more ominous is the reference to the Global Adjustment (GA).
GA Class B customers with or contemplating CHP depend on avoiding this charge when they generate. Recently, the GA Class B charge has been near-stratospheric, clocking in at a simple average of $ 95/MWh for the period of Dec15 – Feb16. Meanwhile, the total net benefit of a base-loaded CHP (including the avoided GA Class B charge) ranges from approximately $ 70 - $ 85/MWh.

So, if all of a sudden the GA Class B is charged on a gross load (total load, i.e. net load + generated power) versus net load basis, CHP economics go poof. CHP as a Conservation and Demand Management (“CDM”) measure would be dead in the water

Most of the commodity charge for electricity in Ontario is now in the Global Adjustment charge.

Weekly roundup:ISO's, CSP, nuclear, at the Post,

Solar thermal troubles, no plans for new nuclear, big overbuild due to variable renewable electricity sources (vRES)...

Things from around the web that caught my attention this week included the article I co-wrote with Tom Adams being the first story at the top of the National Post home page for a couple of hours Thursday.

There's a lot I could ramble on about connected to the article, but the one I'll pick to emphasize is communication. It was terrific to collaborate with Tom Adams. Our histories are different, with me being perceived as pro-nuclear, and Tom not so much. My favourite comment received regarding this week's column was "Never thought I would "like" an article (co-)authored by Adams."

Well, there's reason to like most of the posts at tomadamsenergy.com

On the nuclear topic...

Dylan and the law and electricity and carbon pricing - in Ontario

Today Ontario is announcing its carbon pricing scheme.
Newspapers are writing on it.
Natural gas utilities have some relevant numbers on it.

Also, there is a new report out on electricity in Ontario from Energy Probe and the Consumer Policy Institute, and another from the C.D. Howe Institute.

I want to note the error being broadcast about Ontario protecting electricity consumers from price exempts in effectively exempting the sector from paying for CO2 emissions, and I want to write on less specific issues with Ontario's electricity sector culture.

Two days ago the New York Times wrote on the Supreme Court and Bob Dylan, featuring in the article:

“‘When you got nothing, you got nothing to lose.’ Bob Dylan, Like a Rolling Stone, on Highway 61 Revisited (Columbia Records 1965).”

 The quote was introduced on the topic of "standing" - but it's relevant to Ontario's low emissions electricity sector too. Here's how Union Gas presented the impact of a $100/tonne carbon price:

Ontario's electricity sector doesn't emit much CO2, so there would be little lost in charging for what there is.

$42/year at $100/tonne said Union Gas - in 2025. Many Ontarians, using electricity for heat, will see increases of more than $42 in February 2016 over February 2015.

Keeping in mind $100/tonne would cost $42/year, and that's a dreamy /tCO2e figure given all current price schemes world-wide, here's how the Globe and Mail's Shawn McCarthy reported on news the electricity sector would be excluded:

The electricity sector will also be covered, though its allowances will be free and it will not face a declining cap in recognition of the huge costs to consumers from previous emissions-reduction policies.   -see addendum at bottom for clarification/correction

Not to imply Mr. McCarthy is responsible for misleading people, he's just sucked in on the disinformation campaign of Ontario's Premier. From Global news:

[Premier Kathleen Wynne] revealed economic impacts Wednesday, a day before her government introduces its budget, which is expected to include more details about carbon pricing.
However, revenue from the cap-and-trade auction set for next year will be used to “protect” consumers from an electricity rate hike and could even lead to rates going down, Wynne said.

All total nonsense, but the issues seem too confusing for the broad public.

Too much, or not too much

Too much, or not too much, that is a question for electricity system operators leading to other question

2 stories on electricity generation capacity, both from February 11th:
NY faces power shortage, but not enough to save FitzPatrick nuclear plant

SCRIBA, N.Y. – New York power grid operators say there will be a 325-megawatt shortage of generating capacity after theFitzPatrick nuclear plant and seven other major power plants close. But the report offers no grounds for state regulators to require FitzPatrick to stay open.
Instead, the New York Independent System Operator announced it will solicit proposals for projects to fill the anticipated 325-megawatt gap. Solutions could include new power plants, transmission upgrades or demand reduction programs. The new capacity needs to be in place by 2019, the NYISO said in a report released today.

SO-NE Capacity Auction Secures Sufficient Power System Resources, At a Lower Price, for Grid Reliability in 2019-2020:

Holyoke, MA—February 11, 2016—New England’s annual capacity auction concluded Monday with sufficient resources to meet demand in 2019-2020, at a lower price, and with more than 1,400 megawatts (MW) of new generating capacity that will help replace recently retired and retiring generators. The auction is run by ISO New England Inc. to procure the resources that will be needed to meet projected demand three years in the future.
... “Developers were drawn to the New England marketplace because the price of capacity supports construction of new resources,” continued van Welie. “It’s important to have a capacity market that places an appropriate value on the product to maintain an adequate supply. This auction procured the resources needed to keep the lights on in New England at a price lower than last year’s auction and, in fact, lower than the estimated cost of building a new power plant. More than 850 megawatts of new generating capacity cleared in the Greater Boston, Southeast Massachusetts and Rhode Island zone where the resources are needed most.”
...
1,450 MW of imports from New York and Canada
•The auction closed for resources within New England after four rounds of competitive bidding at $7.03/kWmonth, at the point on the demand curve where there were still sufficient resources to meet demand. The clearing price will be paid to all resources in both capacity zones in the region. [Clarification] Imports from Quebec over Phase II and Highgate also cleared at $7.03/kW-month.
...
• The auction continued for a fifth round for 181 MW of New Brunswick imports, which will receive $4.00/kWmonth. New York imports totaling 1,044 MW, which cleared in the fourth round, will receive a price of $6.26/kW-month.

sooo... 72% of the “1,450 MW of imports from New York and Canada” were bid in from New York, at a price I believe is about 1/2 the non-fuel cost of a simple cycle gas generation plant - and is clearly less than other capacity resources bid into the New England market - yet New York state is looking around for resources for the same period.

How is Ontario not in this game?