Ontario Power Generation (OPG) is the province’s premier electricity power generating firm, a government-owned utility whose future has long been hooked to government policy. Today, in the green hands of the Dalton McGuinty’s Liberal government, OPG appears to be in decline. That decline was confirmed a few days ago when the company issued its 2011 annual financial results. It’s a decline that is likely to continue even if, as expected, the government changes its green-energy regime next week.
First, the company reported declining revenue, down 5.7% to $5-billion. Profits fell 35.9% to $416-million. The company produced less electricity: 84.7 terawatt hours (Twh), down 3.9 Twh or 4.4%. OPG’s share of the province’s electricity market is now less than 60%, off from 72% in 2003.
The decline in the company’s output and share of market since 2003, when it produced 109.1 Twh of electricity, tells the story. Under government directive, the company has been forced to shut down its coal plants. Fossil fuel production was 3.7 TWh versus the 39 TWh produced in 2003 for a 95% reduction. The reduction in coal was offset by increased nuclear and natural gas-fired generation and a drop in overall demand.
If OPG is producing less electricity, somebody else is producing more. That would be wind power, produced by scores of wind operators that have popped up around the province under the McGuinty government’s green-energy plan. In fact, OPG’s production decline of 3.9 Twh for 2011 was offset by 3.9 Twh of wind production.
If OPG had lost that market share in a competitive market, so much the better. It would have been a sign that it did not deserve to be producing electricity if it could not match the prices and supply levels of alternative sources of power. But that is not the case.
Wind’s cost to ratepayers is $135-million per Twh, or about $526-million for the 3.9 Twh wind delivered to Ontario in 2011. According to OPG’s annual statement, it sells nuclear power into the market at $55-million per Twh and unregulated hydro power from places like Niagara Falls for $32-million per Twh. The math is simple: Had OPG used its hydro facilities to deliver the same amount of power supplied by wind, the cost savings to Ontario’s ratepayers would have been the difference between the $32-million per TWh hydro price and the $135-million paid for wind. The 3.9 Twh of wind power that cost Ontario ratepayers $526-million last year could have been bought from OPG for $125million – a potential saving of $400-million and delivered $125 million in additional revenue for OPG.
What’s going on here should be obvious. Under government regulation, expensive wind power is being forced down the system, displacing inexpensive hydro power. As a result, unregulated hydro power is operating at ever lower levels below capacity. Since the advent of wind power, hydro’s operating rate has declined from about 45% of capacity to 36% in 2010.
Since wind first presented itself in Ontario it has generated in excess of $1.3-billion dollars for wind developers (principally out-of-province corporations) while costing ratepayers approximately $900million more than they would have paid for unregulated hydro. At the same time it has had the undesired effect of reducing OPG’s revenues by $400-million. That money could have either reduced the stranded debt or gone to reduce taxpayers’ liabilities.
As wind’s capacity levels increase (beyond the current 1,800 megawatts) to the 8,400 MW contemplated in the Long Term Energy Plan, the cost to ratepayers will climb and revenue and profit at the taxpayer-owned OPG will fall further, reducing its value and extending repayment of the stranded debt. All this will be happening while OPG absorbs the costs of its $1.6-billion Big Becky expansion at Niagara Falls, its $2.6-billion Mattagami hydro project and the yet unknown costs of the Darlington refurbishment. Those costs will find their way to ratepayers’ bills.
Wind has other costs. Wind power is now being exported out of Ontario at below-cost prices, which means that Ontario ratepayers are paying U.S. states to take surplus wind – which blows when no power is needed – out of Ontario.
Some costs are non-financial. Many people claim significant health effects of these industrial wind behemoths. Some people have been forced to abandon their homes and farms. The effects have been felt throughout rural Ontario, causing a myriad of other problems. Wildlife impacts certainly exist, as 40-to 50-storey turbines have been placed in the path of migratory birds.
The McGuinty government is expected to alter some elements of its green energy program, primarily by reducing the high price it forces consumers to pay for wind and solar power. But how much of the program will be grandfathered to become a permanent feature of a power system that is undermining the government-owned OPG at the cost of billions of dollars to taxpayers and ratepayers?
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