Ontario’s Proposed Energy Strategy
Excerpts from the Ontario Clean Air Alliance Report, Rolling the Dice: A Review of the Ontario Power Authority’s High-Risk Strategy to Meet Our Electricity Needs, February 9, 2007
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Ontario Power Authority Energy Supply Strategy
Misses The Mark
In a series of discussion papers and reports, the Ontario Power Authority (OPA)
has outlined its draft strategy (Integrated Power System Plan) to meet Ontario’s electricity needs over the next 20 years.
According to the OPA, its proposed strategy is a low-cost, low-risk strategy to phase-out coal, reduce our greenhouse gas emissions and meet Ontario’s electricity needs. But a close review of the actual details of the OPA’s proposed approach reveals a high-risk, high-cost strategy based on overly optimistic assumptions about the cost, performance and reliability of nuclear power and the ability of Hydro One to get regulatory and political approval to build the proposed Bruce Nuclear and East Toronto Transmission Lines.
In addition, the OPA’s strategy fails to aggressively pursue the provincially mandated coal phase-out, as well as lower-cost, lower-risk energy conservation and efficiency, renewable, and combined heat and power options.
Electricity ConsumptionGrowth
Figure 5 shows Ontario’s annual rates of electricity demand growth (kWh) from
1960 to 2006 and the OPA’s forecast of electricity demand growth from 2006 to
2025.16
As Figure 5 reveals Ontario’s actual electricity demand growth rates have fallen from 7.1% per year in the 1960s to 0.5% per year between 2000 and 2006.
Nevertheless, despite this steady decline in Ontario’s electricity growth rates, the
OPA’s analysis assumes that Ontario’s rate of electricity growth between 2006
and 2025 (1.2% per year) will be more than double its actual rate of growth between 2000 and 2006 (0.5% per year).
A Needlessly Risky Plan
According to the OPA, its proposed plan is the lowest-cost, practical strategy to
phase-out coal, reduce Ontario’s greenhouse gas emissions and keep the lights on.
In our view, the OPA’s strategy:
1. is based on overly optimistic assumptions with respect to the capital costs,
financing costs, performance and reliability of rebuilt or new nuclear power
plants;
2. is based on overly optimistic assumptions with respect to Hydro One’s ability
to get regulatory and political approval to build the proposed Bruce Nuclear
and East Toronto Transmission Lines; and.....
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3.does not aggressively promote the coal phase-out and lower-risk, lower-cost options to meet our electricity needs, namely, demand response, energy efficiency, renewable energy, fuel switching and combined heat and power.
The result is that the OPA is proposing an unnecessarily high-risk, high-cost strategy to meet our electricity needs.
Optimistic Nuclear Assumptions
Nuclear Capital Costs
The OPA’s analysis assumes that the capital cost of a new CANDU 6 nuclear reactor, $2,845/kW (2005 $),17 will be 30% less than the actual historic capital cost, $4,085/kW (1993 $), of the last nuclear power plant, the Darlington Nuclear Station, built in Ontario.18
Actual Ontario Nuclear Capital Costs Are Always Greater Than Forecast
The OPA’s assumption that the cost per kW of a new nuclear reactor will be 30%
less than the actual historic cost of Darlington is very problematic for at least two
reasons. First, in general, inflation has raised prices by 25% since 1993.19
Second, in Ontario, the actual capital cost of building or retrofitting nuclear reactors has always been much greater than forecast.
• In 1983, Ontario Hydro estimated that the total capital cost of Darlington
would be $4 billion. Its actual total cost was 3.6 times greater, at $14.3 billion.20
• In 1999, Ontario Power Generation (OPG) estimated that the total cost of re-
turning Pickering A Unit 4 to service would be $457 million. Its actual cost
was 2.7 times greater, at $1.25 billion.21
• In 1999, OPG estimated that the total cost of returning Pickering A Unit 1 to
service would be $213 million. Its actual cost was 4.8 times greater at $1.016
billion.22
• Bruce Power estimated that the total cost of returning Bruce A Units 3 and 4
to service would be $375 million. 23 Its actual cost was 2 times greater, at $750
million.24
Failure to Aggressively Promote Alternative Options
Demand Response
Ontario’s annual electricity system peak demands occur on the hottest days in the
summer. There are four key characteristics of Ontario’s peak day electricity demands.
1. The maximum peak day demands last for only very short time periods. For
example, while Ontario’s peak day demand in 2005 was 26,160 megawatts
(MW), our electricity demand exceeded:
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a)26,000 MW for only 4 hours in 2005 (0.046% of the time);
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b)25,000 MW for only 53 hours in 2005 (0.6% of the time); and
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c)23,544 MW for only 226 hours in 2005 (2.58% of the time).36
2. At the time of annual system peak, 38% of Ontario’s electricity is being used
for residential, commercial and institutional air-conditioning.37
3. The cost of supplying electricity on peak demand days is very high. Specifically,
the cost of supplying electricity during the 90 hours of maximum annual demand (1% of the time) is greater than or equal to $1.36 per kWh. See Appendix A for a detailed break-out of these costs.
4. The cost of supplying electricity on peak demand days is dramatically higher
than the price of electricity. For example, the cost of supplying peak day elec-
tricity is 14 times greater than the price of electricity for a Toronto Hydro resi-
dential consumer.38
Demand response programmes pay customers to shift some of their electrictiy con-
sumption from peak to off-peak periods on peak demand days. According to a re-
port commissioned by the OPA:
“Demand response programs are a key way for all markets to reduce demand at crucial periods by providing economic incentives to consumers. Demand response has proved to be effective at addressing reliability issues as well as providing an economic way to avoid building additional capacity to address peak needs. Demand response can be a cost-effective policy tool, as illustrated by the high ratio of benefits to costs as measured by the NYPSC [New York State Public Service Commission].
Indeed, on a per kW basis, demand response is much cheaper than installing new peaking facilities.
Even in the most active jurisdictions, demand response programs have only
scratched the surface of what is possible; most customers are unaware of how
they could participate or how they could reconfigure their operations to benefit.”39
The OPA can cost-effectively reduce peak day demands by:
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a)paying our municipal electric utilities and Hydro One to cycle residential and small commercial central air-conditioners on and off during peak demand periods; and b) paying large volume commercial, institutional and industrial consumers on peak days, the same price to shift some of their consumption from peak to off-peak periods that it is willing to pay for peak day electricity supplies (i.e., at least $1.36 per kWh).
In 2006, Toronto Hydro introduced demandresponse programs to reduce its
customers’ peak day demands. Its Peaksaver program used radio signals to cycle
residential and small commercial central air conditioners off for 15 out of every
30 minutes during peak demand periods. Most customers did not even notice a
difference since their air conditioner fans continued to operate.
In addition, Toronto Hydro paid its large volume commercial and institutional customers to shift some of their electricity consumption from peak to off-peak periods. As a result of these demand response programs, Toronto’s peak day electricity demand in 2006 declined relative to 2005. Moreover, in 2006, Toronto bucked a province-wide increase in peak day demand. Specifically, on Ontario’s peak demand day (August 1, 2006), while Ontario’s province-wide peak demand increased by 4% or 845 MW relative to 2005, Toronto’s peak demand fell by 5 MW.40
Unfortunately, the OPA is unwilling to aggressively promote demand response. As
a consequence, its proposed demand response programs will not reduce Ontario’s
peak day demands. Specifically, according to the OPA’s forecast, Ontario’s peak
day demands will increase by 21% by 2025.41
To obtain all of Ontario’s cost-effective demand response potential, the OPA should pay consumers the same price, to reduce their demands on peak days, that it is willing to pay for peak day electricity supplies.
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