(March 28, 2017) The economic argument to keep Pickering open past 2020 relies on an analysis that requires some far apart stars to align. Brady Yauch for Consumer Policy Institute.
Brady Yauch, Special to Financial Post | March 28, 2017
Queen’s Park has been busy looking for ways to lower hydro bills for irate ratepayers, but it has missed the elephant in the room — the Pickering nuclear plant.
Pickering was initially planned to close in 2020, but Ontario Power Generation (OPG) — the provincially owned generation company — is now proposing to spend more than $300 million to keep four of plant’s units running until 2024 and two until 2022. While OPG and the province’s energy planning agency say that keeping the reactors running for four more years will be a net benefit to ratepayers, those “benefits” are built on sand. Feeding this white elephant could easily cost ratepayers more than half a billion dollars.
First, there’s the simple fact that, according to OPG’s own study comparing the performance of its nuclear reactors to others in North America, Pickering is a worst-in-class generator. When benchmarked against other nuclear facilities, Pickering’s six reactors consistently come in dead last or near the bottom of the pack in terms of reliability and cost.
Two of Pickering’s six reactors rank dead last on a key performance measure known as the “unit capability factor,” which measures the amount of power a generator produces compared to its nameplate generation. None of Pickering’s other four reactors land in the top half of the table. OPG even admits that, given Pickering’s design, it will never be anything more than a laggard in terms of performance when compared to other nuclear plants.
Not only do Pickering’s nuclear reactors perform poorly, but they do so at high cost
Pickering also rarely meets its generation targets. In OPG’s recently released 2016 annual report, Pickering’s time spent offline was higher than originally forecast.
Not only do Pickering’s nuclear reactors perform poorly, but they do so at high cost. According to OPG’s benchmarking study, the average all-in cost for each unit of power from Pickering is more than 70 per cent higher than power produced at the top performing nuclear plants across North America and more than 50 per cent higher than the median cost. Pickering’s power is also 50 per cent more costly than generation at OPG’s other nuclear plant, Darlington.
Yet, OPG maintains Ontario ratepayers would benefit by keeping the poor-performing, high-cost Pickering units open for longer.
The main justification to do so is largely based on a cost-benefit analysis done by the province’s energy planning agency, the Independent Electricity System Operator (IESO). IESO’s analysis is larded with a number of assumptions that, just a year and a half later, look optimistic and tilted in Pickering’s favour.
For example, the analysis compares the cost of power from Pickering to natural gas generators based on a gas price that — using current market expectations on future prices — is far too high. Still, even with those aggressive assumptions on future gas prices (and excluding cap and trade costs), at the time the analysis was completed in 2015 IESO concluded there was a 70 per cent chance that extending the life of Pickering would impose a net cost, rather than an economic benefit, on ratepayers. If IESO were to re-run the model using the market’s current forecast for gas prices, the probability that Pickering would be a drain on ratepayers would be even higher and could wind up imposing a net cost exceeding $550 million.
If a number of other optimistic assumptions in the analysis — regarding operating and capital costs, as well as performance metrics that ignore Pickering’s dismal track record on meeting its own production forecasts — were updated, they would also show that Pickering is more likely to be a drain on ratepayers. Yet, neither OPG or the Ontario Energy Board, the provincial rate regulator, has asked that the planning agency rerun the model in an effort to see if extending the life of Pickering still makes economic sense. Instead, the power system will be spending hundreds of millions of dollars in the next few years on necessary upgrades to keep it running.
Furthermore, IESO admits that generation from Pickering would only be needed during a few hours of “peak” demand each year. Yet, due to the nature of nuclear technology that makes it difficult to turn on and off, the reactors would produce unneeded power throughout the year and contribute to Ontario’s ongoing power surplus.
The economic argument to keep Pickering open past 2020 relies on an analysis that requires all of the stars to align. Unfortunately for ratepayers, since that analysis was completed, the stars have moved further apart. If the province wants to find ways to legitimately reduce costs in the province’s electricity sector, it could start by dumping Pickering.
Brady Yauch is an economist and executive director at the Consumer Policy Institute.