(December 22, 2011) Did Ontario save $3.8 billion in avoided  electricity supply costs or is the province caught up in a shell game perpetrated by the governing Liberal Party?

Back on April 19, 2004, Ontario Premier Dalton McGuinty delivered an impassioned speech to the Ontario Legislature entitled “Building a Culture of Conservation,” and said, “That’s why our government is committed to replacing the dirty coal plants that are polluting our air and damaging our health,” and, “Our government will make it possible for Ontarians in every home, business and government office to save energy, save their hard-earned money and save our environment … Smart meters, together with more flexible pricing, would allow Ontarians to save money if they run appliances in off-peak hours.”

So 7 years later 4.3 million smart meters have been installed at a cost in excess of $2 billion, time-of-use pricing has been extended to most households in Ontario and the Ontario Power Authority claim that “peak demand” has fallen by 1,751 MW since 2005 due to conservation.

The foregoing claim found it’s way to the Environment Commissioner’s report released December 8, 2011 and while the 2,700 MW conservation target wasn’t met the Environment Commissioner still applauded the effort as noted in his comment here: “Despite not reaching the 2010 target, Ontario’s conservation efforts delivered positive benefits by reducing the need for new generation and saving electricity ratepayers money. The reduction in peak demand is approximately equivalent to the capacity of three natural gas peaking power plants. By investing about $1.7 billion in conservation programs from 2006 to 2010, Ontario saved electricity ratepayers $3.8 billion in avoided electricity supply costs.”

Ontario’s ratepayers have spent $1.7 billion to achieve a reduction of 1,751 MW making the cost about $1 million per MW saved.  As a co-incidence this is approximately the cost per MW to construct and operate a gas plant so if true is a worthwhile investment. There are other co-incidences with these figures as well. We end 2011 with 1700MW of wind turbine capacity, and the plausible estimated combined cancellation costs of contracted natural gas generating plants in Mississauga and Oakville is in the $1.7 billion range.

Look further into the claim and the discovery is made the ”conservation” claim ignores certain facts.  The Independent System Electricity Operator (IESO) issued its 18 month forecast dated November 24, 2011 and it contains past history as well as commentary on the adequacy of the system for the next 18 months.  One of the graphs on the forecast, tracks wholesale customers “Peak” and “Average Hourly Consumption” and it clearly shows the former and the latter have dropped by about 1000 MW since 2005. It’s difficult to replicate the OPA and Environmental Commissioner figures, which adjust for factors such as weather, but graphing unadjusted data demonstrate that the drop in peak and average consumption by wholesale users (5,000 kWh per month) represents about 60% of the claimed conservation drop, despite wholesale customers comprising under 12% of the total market.

The drop in overall consumption is a reflection of the 300,000 manufacturing jobs that the Province has lost since 2003. Many of these jobs were lost due to Ontario having one of the highest wholesale electricity prices in North America according to the Association of Major Power Consumers of Ontario (AMPCO). So 1000 MW of the conservation the OPA claim has occurred was due to an erosion of our manufacturing base. If the cost per MW is adjusted for those 1000 MW the remaining 751 MW saved  by conservation would have cost ratepayers $2.2 million per MW which co-incidentally is the current average LUEC (levelized unit energy cost) per MW of industrial wind turbines.  Wind turbines produce power at 27% of their rated capacity and must be backed up by new gas plants.  Put another way if some of those jobs came back to Ontario it would take $8 million to replace each MW of power if wind turbines were chosen as our generation source ($8 billion to replace the 1000 MW) and due to their intermittency they would need back up from another generation source like gas with another cost of over $1 billion.  At that level, with the back up required, transmission expenses and a lifespan of 20 years or less nuclear power looks cheap.

The decline in peak demand is even more disproportionately attributable to declining wholesale peak demand.  The Liberal government altered the murky Global Adjustment mechanism for Ontario’s largest consumers of electricity shortly after Premier McGuinty penned an article where he noted; “The previous government’s plan was to use emergency diesel generators — again, a stopgap, dirty air solution.“ These very large customers are now charged a share of the Global Adjustment based on their share of usage only during a limited number of peak hours.  It has been estimated that these large wholesale customers can save $250,000 for every MW not consumed off of the grid during only 5 peak hours.  For large electricity users with standby diesel generators the functional message is clear: “Smoke ’em if you got ’em”

The culture of conservation touted by the Liberals is costing the ratepayers of the Province; the conservation spending, ($1.7 billion to the end of 2010)  the cost of  backup gas plants ($1.7 billion+) , the cost of the intermittent supply of those industrial wind turbines ($8 billion), the cost of cancelling two gas plants ($1.7 billion) and of course the cost of those smart meters ($2 billion).

According to the Auditor General’s report wind turbines produce power 86 % of the time when Ontario was already exporting surplus electricity.

It sure doesn’t look like “Ontario saved $3.8 billion in avoided  electricity supply costs,” and are instead caught up in a shell game perpetrated by the governing Liberal Party!