Ontario power generators shell out $35M to get rid of surplus juice

OTTAWA — Ontario’s electricity generators have shelled out $35 million this year to get neighbouring jurisdictions to take surplus power off their hands and are helping to drive up the cost of power to consumers in the process.

According to the province’s Independent Electrical System Operator (IESO), electricity prices were negative — meaning sellers had to pay buyers in the U.S. or Quebec to take surplus electricity — a total of 95 hours in the first six months of this year.

That’s up sharply from the same period in 2010, when there were only 10 hours of negative prices at a cost of $4.2 million. However, it’s down from 2009, when there were 280 hours of negative prices in the first six months, and 351 for the year as a whole.

The number of negative hours spiked in 2009 because the economic recession and mild weather depressed demand while abnormally high water levels increased output at hydro plants, an IESO spokesperson said.

Now a new report by the C.D. Howe Institute is proposing a solution it says will save the system money: paying generators who operate under fixed-priced contracts to produce less power.

Set by supply and demand, wholesale prices in Ontario’s electricity market are updated every five minutes. In a normal market, suppliers would not produce power at low or negative prices, notes the C.D. Howe report.

But the one-time stick of negative pricing is now ineffective because so many Ontario generators are guaranteed fixed payments under long-term contracts, says the report. Until those contracts are renegotiated, generators should be paid to reduce their output if doing so would save money for the system as a whole.

“We need to go from the stick to the carrot,” said Benjamin Dachis, one of the report’s co-authors.

While negative prices were rare until recent years, they will become much more common as more wind and solar projects and two refurbished Bruce nuclear units come on line.

That will result in “periodic gluts of electricity over the coming years and higher costs for Ontario consumers,” warns the C.D. Howe report. In its latest 18-month outlook report in June, the IESO acknowledged that surplus baseload generation “remains an ongoing concern.”

“Next year is when it’s going to get really bad,” Dachis said. “The IESO is forecasting that the minimum daily demand is going to be below the baseline generation pretty much every week next spring and summer.”

Origin
Source: Ottawa Citizen