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Ontario Power Trip: Today's forecast — higher power prices

The Independent Electricity System Operator (IESO), who is responsible for managing the electricity grid in Ontario, in December 2010 published “design principles” for integrating renewables into the grid. The primary purpose of this “Renewable Integration,” labeled SE-91 www.ieso.ca/imoweb/pubs/consult/se91/se91-20101216-Minutes.pdf, was to ensure stability to the grid by including the impact on surplus baseload generation of those renewables. This is meant to ensure no blackout or brownouts. IESO has predicted that with the additional 3000 MW of Feed-in Tariff (FIT) projects installed and operating, the Ontario grid would experience surplus conditions roughly 9% of the time based on average wind output.

The proposal put out to stakeholders was to basically determine the viability of forecasting production of electricity (principally wind), determine who should pay for that forecasting and to constrain or shut down the supply of power when it wasn’t needed and, in the event of the latter, how to honour the Ontario Power Authority’s feed-in-tariff contracts that guaranteed payment to the renewable operators. Logically these issues should have been considered and taken into account when the Green Energy Act was passed and the Energy Minister issued directives to the OPA for implementation of the FIT program!

Objections from stakeholders were filed in respect to the SE-91 initiative and as expected the principal objections were from the industrial wind turbine developers. They wanted full compensation when they constrained their production and they didn’t want to pay for the weather forecasting equipment.

IESO released its “Final Design Principles” www.ieso.ca/imoweb/pubs/consult/se91/se91-20110302-Responses.pdf March 8, 2011 and will now develop the final market rules governing those design principles.

The rules will require the renewable operators to forecast wind production, which means they will need to add meteorological forecasting to their industrial wind developments at a estimated cost of $300-million. Those costs will be “recovered from consumers,” according to the Final Design Principles.

Principle 9 of the Design Principles states; “Variable generators will be entitled to Congestion Management Settlement Credit (CMSC) payments.” This simple principle is stating that wind developers will be paid for power that is not delivered to the grid and the payments will be at the OPA contracted rates of $135 per MWh (13.5 cents per kWh) for wind and $713 per Mwh (71.3 cents per kWh) for solar. In the event the wholesale price is reasonable, however, IESO will have the ability to call for the almost immediate delivery of the power to the grid which will marginally reduce the costs to the ratepayers.

So the integration of renewables to the grid under the IESO design principles will cost ratepayers; firstly for forecasting the power that won’t be delivered to the grid 9% of the time and secondly for constrained power. That 9% of constrained power by 2012 with 4400 MW of installed capacity will cost Ontario ratepayers over $125-million annually for power that won’t be delivered to the grid or power even one 40-watt light bulb.

Some plan, some principles!

Parker Gallant is a former Canadian banker who didn’t like what he was seeing in his Ontario electricity bills.