November 3, 2014
Ontario & Power: How to spend billions of dollars
Billions of dollars worth of energy proposals are vying for attention in the province.
A billion here, ten billion there.
There’s no shortage of proposals to spend plenty of money on energy projects in Ontario. Three proponents were pushing major projects last week, and in some cases were also criticizing rivals. They have one thing in common. Although the price range in wide, none is cheap.
The Darlington nuclear station is middle-aged. Ontario Power Generation proposes to spend about $10 billion in 2013 dollars to keep the big plant producing until 2055. A firm budget estimate is promised for 2015. (Including interest and contingencies, the total climbs to $12.9 billion.)
It’s not only the financial stakes that are high. Darlington alone produced better than one in every six kilowatt hours of electricity used in Ontario in the first half of this year. Losing it would mean replacing the plant with something else. And despite the price tag for refurbishment, energy minister Bob Chiarelli says the alternatives don’t look attractive.
Output from a new nuclear plant would be even more expensive than an overhauled Darlington, he said after touring the plant last week.
But Chiarelli’s arguments rest on the assumption that Darlington will be delivered on budget — whatever that is.
Former TD Bank chief Ed Clark, who heads a panel advising the province on how to wring the best return from its assets, sounded nervous about the prospects in a speechlast week.
“This is a project which carries enormous risks,” he warned. “Cost overruns can dwarf any savings which can be had elsewhere in the system.”
And cost overruns have been huge on OPG’s previous overhauls, Pickering A and Bruce Power’s Bruce A nuclear stations.
If not a nuclear refurbishment, then what?
The Ontario Clean Air Alliance has long campaigned for Ontario to replace nuclear energy with hydro-electric power imported from Quebec and Manitoba.
The idea seemed to get a push when Ontario Premier Kathleen Wynne and her Quebec counterpart Philippe Couillard recently discussed closer energy co-operation, as they have previously.
While the politicians talk co-operation, however, Ontario’s Independent Electricity System Operator is skeptical.
It issued a report a week ago cautioning that boosting trade in electricity would require investing up to $2 billion in new transmission lines.
It also warned of market issues. “Ontario is not the only jurisdiction currently looking to purchase Quebec power,” the report said. “While there have been recent discussions around obtaining a firm contract, they have not resulted in a price that would provide value to Ontario, largely due to the fact that power from Quebec is currently being sold in other markets at higher prices.
“This competition for Quebec’s power could have upward pressure on the potential price at which Quebec would be willing to sell power to Ontario.”
Chiarelli said on Thursday that he shares some of the IESO’s reservations.
“The price that Quebec charges the states in the northern United States is more than the cost at which we can generate in Ontario,” he said.
“Importing power will not be a solution cost-wise or from an economic point of view to the extent it would be required to replace the units we would have to shut down because they’ve reached their (maximum) age.”
He didn’t close the door to co-operation, noting that Ontario’s peak demand occurs in summer, when Quebec has surplus power to sell.
Jack Gibbons of the clean air alliance said the IESO report is “misleading and unhelpful.”
The report says an investment of $500 million in new transmission capacity would allow Ontario to import an extra 1,800 megawatts from Quebec.
But Gibbons says the existing lines should be able to handle as much as 2,788 megawatts with the $500 million upgrade. The IESO didn’t explore that possibility, he said.
A further investment should be able to add another 1,500 megawatts of imports, he said. The IESO says that would cost $1.4 billion for a new interconnection.
Gibbons disputes the figure, since he says it includes a new transmission line that wouldn’t be needed if Darlington goes out of service. But even if it drives the total close to $2 billion, Gibbons says, it’s a far cry from the cost of a Darlington overhaul.
The only policy rationale is “to maintain Ontario’s 100-year policy of electricity separatism,” he said.
Gibbons also disagrees with the IESO’s assumption that Quebec power would be expensive, arguing that Quebec currently exports to Vermont at a price below the cost of power from a refurbished Darlington.
Meanwhile, the Fraser Institute published a report last week arguing that Ontario should curb hydro rates by cutting back on renewable power, importing from Quebec — and re-opening some coal plants.
Since the Dalton McGuinty Liberals trumpeted closing the coal plants as one of their signature achievements, it’s unlikely the current Liberal government will jump on that solution.
While some debated electricity issues, natural gas lobbyists were stalking the halls of Queen’s Park on Wednesday with big plans of their own.
The lobbying blitz, organized by Enbridge Gas Distribution and Union Gas, argued that Ontario should take more advantage of cheap natural gas.
One idea: Pushing natural gas service into the countryside, where farmers need energy to heat barns, warm greenhouses and dry grain.
No one pretends it would happen overnight.
The Ontario Federation of Agriculture, which joined the lobby effort, has proposed a two-stage campaign, starting in more densely settled rural areas, then spreading out.
The price tag for both phases: $4.1 billion.
While private companies would build the gas lines and charge the costs back to customers, the OFA wants provincial loan and grant programs to ease the financial load.
The OFA argues that the effort would make sense.
“We’re spending well over $800 million a year more than we need to,” OFA president Mark Wales said.
Farmers would put that money into the Ontario economy if their energy bills shrank, he said.