Parker Gallant and Scott Luft: Polar Vortex almost generates a profit for electricity exports from Ontario

(January 20, 2014) The first seven days of 2014 ended with an average market price higher than it had been in years. On January 2, prices were sent upwards when neighbouring Quebec appealed for conservation during a bitter cold which had driven demand to near record levels.

When “total” demand (Ontario demand plus exports) peaked at 25,980 MW at 7 p.m. on the 7th day, Ontario’s system operator indicated generation on it’s grid was greater than it had ever been; strong nuclear, hydro and wind output was supplemented by record output from Ontario’s natural gas generators.

The Hourly Ontario Energy Price (HOEP) was a high $288.10/MWh, but it wasn’t due to Ontario’s demand stressing supply. The key price drivers were coming from the grids connected to Ontario’s.

As demand peaked on the 7th, exports averaged 3,181MW, with multiple U.S. jurisdictions hitting winter demand records due to the cold impact of what is being called a polar vortex. This made January 7, 2014, the second highest day for revenue on exports (at $8.6 million, July 8, 2008, holds the record), with 76 GWh valued at $8.5 million dollars ($111.41/MWh).

imageNB: The chart above shows wind generation growth versus net export growth in terawatts.

How profitable those exports were for Ontario entities is a matter of opinion. The same day saw record production of over 44 GWh from industrial wind turbines in Ontario. That production, even when fetching an average price of $111.41/MWh, wouldn’t make any profit.

However, export customers were buying whatever kilowatts (kWh) were available on the 7th. Those kWh were not coming from the “must take” producers (primarily nuclear, wind and solar), but generators which exist because every month each Ontario ratepayer finances the Net Revenue Requirement (NRR) contracts required to keep their capacity available. The incremental cost of this supply, (the fuel cost) was likely close to $40/MWh on the 7th, making exporting profitable.

Profiting on exports is a welcome change for the province, which, by one accounting, lost more than $1 billion on exports in 2013. The 18.3 TWh (18.3 million MWh) exported in 2013 were supplemented by the 4.5 million or so Class “B” ratepayers at $59/MWh, at a cost in excess of $1 billion.

A couple of million dollars profit on a day of unusual high demand is not significant compared to the capital and operational cost Ontarians pay due to NRR contracts, including OPG’s Lennox Generating Station, Ontario has contracts for approximately 6,700 MW of gas/oil fired generating capacity with a base cost of around $1 billion a year.  A couple of million dollars from exports on an exceptional demand day does not go very far to paying for this capacity.

Ontarians have reason to be concerned about subsidizing gas and oil fueled generation for export when it may be caused by wind generation that has special status (first to the grid rights) in Ontario.

The day after Ontario had record wind production and revenue on net exports, its government issued yet another news release on ending coalfired generation in the province, promising “a significant reduction in harmful emissions, cleaner air and a healthier environment.” While the goals are noble, treating coal as bad and gas as clean is extraordinarily simplistic.  Consecutive Premiers (McGuinty and Wynne) of the province have tacitly acknowledged this in submitting to worries of residents in Mississauga, and Oakville, and cancelling contracted generation in that fragile region of Ontario’s grid at a cost of over $1 billion.

It may perplex residents near the Halton Hills Plant in Milton, Brampton’s Goreway, and Toronto’s Portland power stations that their local generators run any time a nickel can be made on exports, while the Liberal Premiers were certain Oakville and Mississauga are definitely the wrong place, at any price, for electricity to be generated from burning natural gas.

Ratepayers throughout the province should question why, following a day of record generation exported far and wide, Ontario is set to add 3,300MW of intermittent wind and solar generation during the next 18 months, all of it contracted at rates higher than we averaged on the most profitable day in the market’s history.

Ontario can’t count on a daily 20 year weather event such as a “polar vortex” to generate profits on exports that might help to mitigate the continuing price increases in their electricity bills.

Parker Gallant is a retired bank executive and a former director of Energy Probe Research Foundation. Scott Luft is a former retailer with a statistical interest in Ontario electricity data.

As with all independent bloggers on this site, the views of the authors do not necessarily reflect those of Energy Probe.

This entry was posted in Utility Reform. Bookmark the permalink.

1 Response to Parker Gallant and Scott Luft: Polar Vortex almost generates a profit for electricity exports from Ontario

  1. Barbara says:

    Any comments on the Nanticoke-PJM Interconnect deal to supply Ontario electricity to the U.S. grid?

    According to U.S. information including Congressional testmony, the PJM grid almost failed on Jan.7, 2014.

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