Nuclear plant delays expected to jolt pricing

Paul Vieira
National Post
May 27, 2002

The delay in Ontario Power Generation Inc.’s efforts to bring its troubled Pickering A nuclear plant back into production could have an impact on the supply, reliability and price of hydro in the province, industry watchers say.

“The delay in returning Pickering A to service, combined with the [Hydro One uncertainty] and slowdown in private-sector investment, is substantially increasing the risk of big price swings and big price spikes,” said Tom Adams, executive director of Energy Probe. “When you combine all these factors together, the consequence for Ontario’s power outlook is profoundly unfavourable.”

The uncertainty surrounding Pickering A, Mr. Adams and others say, has forced electricity producers to rethink their investment in Ontario, largely because they can’t get a grip on where electricity prices are headed.

At full capacity, the nuclear plant, located east of Toronto, can produce 2,000 megawatts of power – or enough for a city of two million.

“Pickering A has certainly been a factor in evaluating where prices will be,” said Duane Cramer, vice-president of development for Sithe Energies Inc., a New York-based power utility that has two projects under way in suburban Toronto. “We see Pickering A more as a spectre than an operating unit – and as long as it is out there, there will be a depressing view on the power price.”

Prices have been stable since Ontario’s $10-billion market opened its doors to competition on May 1. Under the new regime, utilities can build generation plants in the province and sell the power into the market. That, in turn, is supposed to create competitive electricity pricing. However, two key elements in Ontario’s reforms remain unresolved.

First, a court ruling blocked the privatization of Hydro One, the Crown-owned transmitter. The sale through an initial public offering is in question as the province re-evaluates the strategy.

But more recently, OPG, the Crown-owned generator, announced another delay in the startup of its Pickering A nuclear generator.

Pickering A was shut down in December, 1997, due to safety concerns. OPG had planned to get the first of four units at Pickering A back into service in early 2001, and forecasts developed by Ontario’s Independent Electricity Market Operator – which runs the province’s wholesale power market – assumed that when it suggested the province had an ample supply of power.

But structural and engineering problems have delayed Pickering A’s restart – with the latest setting back generation until late this year or early 2003. The cost has ballooned as well, from an original estimate of $800-million to the most recent estimate of up to $2.2-billion.

John Earl, a spokesman for OPG, said getting Pickering started is in the company’s, and public’s, best interest. “OPG, as commercial venture, is returning Pickering A to service based on what we believe to be the best advantage for the customer and for ourselves as a corporation,” he said.

Mr. Adams said Pickering is hanging over the industry like a dark cloud. “What the Pickering restart has done is to scare away a tremendous amount of investment in alternative generation,” he said. “And now the absence of Pickering – since its driven away alternatives to Pickering – leaves Ontario with a big hole in its power system.”

In an October, 2000, hearing before the Ontario Energy Board, an executive with Union Gas Ltd. said forecasts for natural gas demand indicated a downward turn because utilities looking to build gas-fired plants had scrapped or delayed plans because of the Pickering A restart. “[If] the Pickering plant comes back into play, the marginal cost of electricity coming out of that facility will make it very difficult for a startup operation to be able to compete with [OPG],” said Rick Birmingham, Union Gas’s vice-president of finance and business development.

While a number of companies, such as Sithe and Montreal’s Boralex Inc., say they have plans to build generation facilities in Ontario, “they are no where to be seen and way behind schedule,” Mr. Adams added.

But one industry insider disagreed, saying utilities are cautious because of soft electricity prices. “Low prices are fine for consumers and the government, but not for generators,” the insider said. “The prices are just too low. It makes the game a little more confusing.”

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