Natural gas prices go lower and Ontario electricity prices go higher – 2012 April

I haven’t noticed the price of Ontario’s electricity dropping over the past few years despite the lowest ever natural gas prices. Blame the Ontario government’s misguided policy of promoting more and more wind generation on the grid under the protection of the Green Energy Act. Unreliable wind skews the market leading to high take-or-pay payments instead of low market prices going to the gas-fired generators and the need to export electricity at subsidized give away prices. No one would build merchant gas-fired generators in Ontario since they would be operating at low capacity factors and would price themselves out of the market. Nuclear electricity provides around 60 percent of Ontario demand and hydro about 20 percent leaving 20 percent or so for the rest, that is, natural gas and unreliable wind under Ontario Power Authority contracts, with coal coming in at peak loads. Without wind on the grid gas would have a better chance of supplying all the intermediate and peaking load and see more and steady operating hours giving lower generation prices. Of course the present low Ontario demand leading to frequent periods of surplus baseload generation, that are exacerbated by wind, also contributes to the mess the electricity market is in.
Since 2009 October Ontario has had feed-in-tariff (FIT) contracts for wind (and wind is mandated to grow from the present 1,700 nameplate MW to well over 8,000 MW by 2018 or sooner) and for the small amount of solar and other renewables. As well as natural gas and most of Bruce nuclear output being under various kinds of contracts, regulated rates are paid to Ontario Power Generation’s (OPG’s) nuclear and baseload hydro facilities all of which results in the so called Global Adjustment (to account for the difference between the market or spot price and the rates paid to contracted and regulated suppliers) becoming very much the major part of our electricity cost.
Most, if not all, the present 1,700 MW of wind is under pre-2009 rules and has priority on the grid. It cannot be dispatched off for economic reasons and there are no financial incentives for wind generators to do so. It can only be dispatched off for grid reliability reasons so periods of surplus baseload generation result in water being spilled at the baseload hydro stations like Niagara Falls and power being reduced, or even units shutdown, at the Bruce B nuclear station. I know, it makes no environmental, economic or technical sense. The grid operator, the IESO, has proposed new market rules making all wind subject to economic dispatch with payment for deemed generation – so much for economic dispatch! Until this happens any wind generators under FIT rules and privately operated Bruce B, get paid for deemed generation as at present when requested to reduce power or shutdown although this does not apply to the provincially owned OPG which loses money when baseload water is spilled and is maybe part of the reason why it is not keen to manoeuvre it’s Darlington nuclear units, like Bruce B does, to integrate wind.
These new IESO rules will dispatch wind and baseload hydro before nuclear and this will reduce, but not eliminate, the amount of nuclear manoeuvring now taking place. However the root cause of our dysfunctional grid still remains, large amounts of expensive unreliable wind that not only result in us not being able to take advantage of the existing very low natural gas prices but is resulting in steadily increasing electricity prices. Transmission infrastructure and the so called smart grid needed to incorporate the totally unnecessary wind are also part of the increasing costs. Things can only get worse. Anyway, I am not an energy market analyst but that’s how I see it.
Don Jones, P.Eng.
Retired nuclear industry engineer

3 Responses to Natural gas prices go lower and Ontario electricity prices go higher – 2012 April

  1. […] Retired nuclear engineer Donald Jones adds to the explanations of why cheap natural gas benefits much of North America, but Ontarians aren’t seeing the benefits:  “Natural gas prices go lower and Ontario electricity prices go higher“ […]

  2. […] “Natural gas prices go lower and Ontario’s electricity prices go higher” Note: Articles 1, 3, 4, 7, 8, 10, 12, and 13  also appeared in the Canadian Nuclear Society’s BULLETIN quarterly journal. The BULLETIN also has more articles, written by Donald Jones, that were not on the internet.  They are: Share this:TwitterFacebookLike this:LikeBe the first to like this post. Tags canadian nuclear society, environment, greenhouse gas emissions, wind turbine power Categories Uncategorized […]

  3. […] engineer. An earlier version of this article, posted under a different title by Scott Luft, appears here. Blog this! Bookmark on Delicious Digg this post Recommend on Facebook Share on Linkedin share via […]

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