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INTERRUPTIBLE ELECTRICITY:
WASTE AND FINANCIAL RIPOFF

This web page presents two papers. The first paper titled "Renewable Energy is Wasted in Ontario" is intended for the general public. The second paper titled "Interruptible Electricity Financial Ripoff" is intended for readers who have some understanding of electricity system matters.
The authors Charles Rhodes, Robert Borlick and Paul Acchione are all senior professional engineers.
 

RENEWABLE ENERGY IS WASTED IN ONTARIO
By Charles Rhodes with input from Robert L. Borlick

As a result of poor Ontario government policy each year the province of Ontario wastes at least $1 billion in economic benefits by either discarding surplus intermittently available renewable electricity (interruptible electricity) or by exporting this surplus renewable electricity at bargain basement prices. This surplus renewable electricity should instead be used to displace fossil fuels that are currently used for heating and hydrogen production in Ontario. Doing so would substantially reduce both costs and CO2 emissions. The simplest way to capture these benefits is to change the way electricity is priced to retail electricity customers and to simultaneously give retail electricity customers access to the intermittently available (interruptible) renewable electricity for fossil fuel displacement. The interruptible electrical energy should be priced at about $0.02 / kWh, slightly above its average export market value but below the marginal cost of natural gas. The electricity system gross revenue requirement should be primarily met by using smart electricity meter data to charge retail electricity customers for their calculated monthly peak kW demands.
 

Ontario’s Electricity System Design

The Ontario electricity system is designed to have sufficient generation and transmission capacity to meet the Ontario’s yearly peak electricity demand with sufficient reserve capacity to ensure that the total customer demand for electricity will almost always be met despite unplanned equipment outages.

Prior to 2007 most of the reserve generation capacity was provided by coal-fired power plants. One consequence of replacing the coal-fired generation with non-fossil nuclear, hydro, wind and solar generation is that this non-fossil generation can be used to supply low-cost interruptible electricity for fossil fuel displacement in stationary heating systems. This interruptible electricity is almost free because providing it requires little or no extra fuel or equipment. Hence the incremental cost of producing and delivering this interruptible electricity to customers is virtually zero.

Interruptible electricity loads are enabled or disabled by the IESO (Independent Electricity System Operator) to keep the total electricity load equal the available non-fossil generation. Interruptible electricity loads are all disabled when fossil fuel generation is operating.

The available interruptible electricity can be used to displace fuel oil, propane and natural gas in stationary hybrid heating systems and can be used for producing hydrogen gas through electrolysis. There may be other uses for the interruptible electricity which are not obvious today but which may emerge when the interruptible electricity is made available to Ontario customers at a low price per kWh.

The Ontario Society of Professional Engineers (OSPE) has estimated the amount of interruptible electrical energy available in Ontario in 2017 to be about 20 TWh, i.e., about one-seventh of total Ontario’s total electricity production. Furthermore, this amount will increase in future years as additional non-fossil generation enters service.

The amount of idle equipment capacity presently available to produce interruptible electric power in Ontario varies over time, ranging from zero to about 6,000 megawatts (see figure below), depending on the time-of-day and season.

Some of the interruptible electricity comes from intermittent wind and solar resources and some from reliable hydro and nuclear resources. During the night the available interruptible power is the difference between the night-time available generating capacity (upper line) and the night-time load (lower line).


Source: OSPE Energy Task Force, April 2017.
 

Potential Economic and Environmental Benefits

Ontario’s present retail electricity price structure does not allow efficient use of the province’s available interruptible electricity. Instead of making this interruptible electricity available to Ontario electricity customers present Ontario legislation causes this electricity to be either discarded or to be exported at a very low price (~ $0.02 / kWh). Why not sell this interruptible energy to Ontario customers at the same low price?

By suitably changing the electricity rate structure it is easy to prevent electricity consumers from using inexpensive interruptible electricity to displace more expensive uninterruptible electricity.

In rural Ontario, where natural gas service is unavailable, interruptible electrical energy could partially displace furnace oil and thereby have a potential value exceeding 12.47 cents per kWh. Hence, if rural Ontario residents used all of the available interruptible electricity to displace furnace oil their net economic benefit would be about $2 billion per year.

(20 TWh / yr.) x (10^9 kWh / TWh) x ($.12472 - $0.02) / kWh = $2.094 billion / yr.

In practice some of the interruptible electricity might displace propane or natural gas instead of oil, so the net economic benefit might be only $1 billion/year, assuming that natural gas prices remain low. Still, that is a formidable benefit that is currently being foregone.

There is another benefit being foregone – the reduction in CO2 emissions that would result from the displacement of fossil fuel consumption by non-fossil electricity. Thus Ontario’s current electricty price structure is resulting in not only a loss of economic benefits but a loss of environmental benefits as well.
 

Source of the Problem

The root source of this problem, which is enshrined in Ontario legislation, is that the cost of electricity is recovered from retail customers based on the number of kWh the customer absorbs. Such a rate design is flawed for any power system but is particularly inefficient for one that does not produce energy with fossil fuels. The cost of electricity in Ontario is almost entirely determined by the recovery of capital investment and fixed operating costs of its generators, transmission and distribution systems.

The owners of generation, transmission and distribution assets are mainly compensated through capacity payments ($/kW) rather than energy payments ($/kWh). Thus, it logically follows that each retail customer should be charged a monthly amount for grid access based that customer’s monthly peak electricity demand (measured in kW, not kWh), particularly during the hours of the power system’s peak demands. Smart meters provide the data needed to calculate the demand charges.

However, there would still be a need for charging a marginal energy price ($/kWh) for fair allocation of the finite amount of available non-fossil energy amongst electricity consumers. In order to provide local distribution companies with a modest price markup it will be necessary to index the retail energy price to the wholesale energy price. The revenues raised by the energy prices could then be used to reduce the monthly peak demand charges.

The current retail price structure charges consumers a high price per kWh, which serves as a disincentive for consumers to substitute electric heating for fossil fuel heating even when available interruptible electricity is being discarded or exported at bargain basement prices. This policy is causing a massive loss in economic benefit and is causing unnecessary fossil fuel consumption with corresponding provincial CO2 emissions.
 

Who Wins? Who Loses?

Under the existing retail electricity rate structure the big winner is the fossil fuel industry, which sells more than $1 billion per year of otherwise unnecessary fossil fuel for stationary heating in Ontario. The other winners are out-of-province parties that get to purchase Ontario’s surplus interruptible energy at bargain prices. One can expect these financial beneficiaries to oppose any changes to the current electricity rate structure.

The big losers are Ontario’s electricity rate payers. Other losers are the province’s taxpayers who are financially responsible for paying a federal fossil carbon tax on the resulting excess CO2 emissions. And ultimately we all lose because of the foregone CO2 emission reduction.

Another loser is the rural Ontario work force. Primary industries that require electricity 24/7 for mineral extraction, base metal refining and paper production need a low blended electricity price per kWh to be internationally competitive. The present high blended price per kWh for 24/7 loads has driven many of these primary industries out of Ontario.

Another significant loser is the Ontario public housing sector. The gradual change in electricity rate structure during the last 36 years has disproportionately raised the cost of operating public housing so much that organizations such as the Toronto Community Housing Corporation (TCHC) do not have the financial resources required to maintain the public housing stock.
 

The Solution

To fix this situation Ontario provincial legislation must be changed to allow a new retail rate structure for recovering the cost of electricity generation, transmission, distribution and regulation based on the principles described herein. It is essential that all of the non-fossil electricity that is available in Ontario be effectively used in Ontario, not discarded or exported. Making this energy available to Ontario consumers will reduce the average blended cost per kWh of electricity without reducing the gross electricity revenue.

Until the marginal energy ($/kwh) charges are substantially reduced electricity consumers will have no incentive to displace fossil fuels supplied from outside Ontario with available surplus non-fossil electricity generated within Ontario. Absent this electricity rate structure change most of Ontario's wind and solar electricity generation and part of its hydro and nuclear generation will continue to be wasted.

For the sake of its own citizens, Ontario’s legislated retail electricity rate structure must change.
 
 
 

 

INTERRUPTIBLE ELECTRICITY FINANCIAL RIPOFF
By Charles Rhodes

The interruptible electricity financial ripoff is an ongoing forced transfer of wealth from Ontario electricity ratepayers to fossil fuel suppliers. This wealth transfer is a direct result of Ontario government legislation that prevents Ontario electricity ratepayers from using low market value non-fossil interruptible electricity for economic fossil fuel displacement. The interruptible electricity is presently either curtailed (discarded) or is exported at a very low price, typically less than $0.02 / kWh. This price occassionally rises to $0.03 / kWh due to intertie congestion, but the average recovery per interruptible kWh curtailed or exported is less than $0.02 / kWh.

Simultaneously the ratepayers are forced to spend in excess of $1 billion per year replacing the thermal energy content of the discarded low market value interruptible electricity ($0.02 / kWh) with much more expensive thermal energy (~ $0.1247 / kWh) obtained by combustion of furnace oil and other fossil fuels.

This author believes that this ongoing forced wealth transfer is a result of a very sophisticated fossil fuel lobby in combination with an incompetent and corrupt government and doubts that there will be any electricity ratepayer relief until this matter becomes an Ontario provincial election issue. There must be fundamental changes to Ontario's Long Term Energy Plan.
 

Interruptible Power And Energy

The Ontario electricity system has sufficient generation and transmission capacity to meet the yearly peak Ontario uninterruptible electricity load plus reserve. The reserve capacity exists to ensure that the uninterruptible electricity load will always be met in spite of unplanned equipment outages. Prior to 2007 most of the available reserve capacity was coal fired electricity generation so at that time there was relatively little available interruptible power.

A consequence of replacing coal fired electricity generation with non-fossil (nuclear, hydro, wind and solar) electricity generation was creation of non-fossil reserve generation capacity which can be used to supply low cost interruptible power. Interruptible power feeds loads under IESO (Independent Electricity System Operator) dispatch control that can be enabled or diabled at any time by the IESO to maintain balance between total generation and total load.

Interruptible energy is the time integral of interruptible power. Generation and transmission of interruptible energy requires negligible extra fuel and no extra equipment. Hence the cost of marginal interruptible energy is very low. The main applications of interruptible energy are for displacement of furnace oil, propane and natural gas in hybrid stationary heating systems and for production of electrolytic hydrogen to displace natural gas used for hydrogen production in refinery operations. Interruptible electricity has very limited value in most other applications because it is inherently intermittent.

The interruptible power as a function of time that is presently available in Ontario has been quantified by the Ontario Society of Professional Engineers (OSPE) in a 2017 presentation document titled Ontario's Energy Dilema. In 2017 the amount of available low cost non-fossil interruptible energy in Ontario is about (1 / 7) of total Ontario electricity generation or about 20 TWh / year. This annual amount is projected to decrease during nuclear refurbishment but then increase during subsequent years due to commissioning of additional non-fossil electricity generation.

The uninterruptible electricity rate will sharply increase after 2021 when the "Fair Hydro Rate Plan" discounts expire. The consequent electricity rate increases will likely motivate additional consumer cost cutting via use of interruptible energy. An issue which remains uncertain is the future rate of growth of the Ontario electric vehicle fleet and the impacts of that fleet on peak grid demand, the uninterruptible energy supply and the interruptible energy reserve.


Graph generated by OSPE showing the amount of interruptible power available as a function of time at night during 2016. The available interruptible power is the difference between the green upper line and the purple lower line. The area under the purple line is high value uninterruptible electrical energy. The area between the green line and the purple line is available low cost interruptible electrical energy.

Note that the amount of available interruptible power in Ontario varies over time from zero to about 6000 megawatts. Part of the interruptible power comes from intermittent wind and solar electricity generation and part comes from reliable nuclear and hydraulic generation. Note the decrease in available non-fossil power in May when nuclear reactors are shut down for scheduled maintenance.
 

Potential Cost Savings

The present misguided Ontario government electricity rate policy prevents use of interruptible power in Ontario. Interruptible power is presently curtailed (discarded) or the corresponding energy is exported at a very low price (~ $0.02 / kWh). In rural Ontario where there is no natural gas service the potential value of interruptible electrical energy for displacement of furnace oil exceeds $.1247 / kWh. Hence from the perspective of rural Ontario residents the cost of the present ongoing waste of interruptible energy is:

(20 TWh / year) X ($.1247 - $0.02) / kWh X (10^9 kWh / TWh) = $2.094 billion / year

There is an additional potential cost to Ontario taxpayers related to the provincial or federal fossil carbon tax/price on the resulting excess CO2 emissions.

In practical implementation part of the interruptible energy might be used to displace lower cost natural gas instead of higher cost furnace oil, so that the net energy cost savings actually realized might be only $1 billion / year.
 

Legislative Problem

At the heart of the ratepayer ripoff is a faulty implicit assumption, presently enshrined in Ontario legislation, that the cost of delivered electricity should be allocated to electricity consumers in proportion to the number of kWh consumed. For a non-fossil electricity system that assumption is completely wrong. Reliable non-fossil generators and transmitters in Ontario are primarily paid for capacity (kW), not energy (kWh). The cost of reliable non-fossil electricity is proportional to annual peak demand measured in kW, not the energy generated measured in kWh. Each consumer's peak demand in kW can be determined by analysis of that consumer's smart electricity meter data.

The effect of charging a high price per marginal electricity kWh is to cause consumers to use fossil fuel heating instead of electric heating, even at times when surplus electricity is being discarded by the electricity system. This issue causes massive unnecessary fossil fuel consumption in Ontario and causes corresponding unnecessary provincial CO2 emissions.
 

Who Wins?

Under the existing electricity rate structure the big financial winner is the fossil fuel industry which sells over $1 billion per year of otherwise unnecessary fossil fuel for stationary heating and hydrogen production. Secondary financial winners are out-of-province parties that obtain non-fossil electricity generated in Ontario at a bargain price of ~ $0.02 / kWh and which use that non-fossil electricity to displace more expensive fossil fuels in their own jurisdictions. Both of these financial winners will try to delay implementation of any change in the Ontario electricity rate structure.

Under the existing electricity rate other winners are low load factor electricity customers such as office buildings which have their electricity rates artificially subsidized by higher load factor customers such as high rise residential buildings and 24 hour industries.
 

Who Loses?

Under the existing electricity rate structure the big financial losers are the Ontario electricity rate payers. Other potential losers are Ontario tax payers who may become financially responsible for paying a federal or provincial fossil carbon tax/price on the resulting excess CO2 emissions.

Under the existing electricity rate other losers are high load factor electricity customers such as high rise residential buildings and 24 hour industries that artificially subsidize the electricity costs of lower load factor customers such as office buildings. This unfair electricity rate burden has had an enormous cumulative financial impact on public housing in Ontario such as the 60,000 suites in Toronto operated by the Toronto Community Housing Corporation.
 

Electricity Rate Structure Fix

To fix this situation Ontario provincial legislation must be changed so that the electricity global adjustment, transmission, distribution and regulatory costs are all allocated to electricity consumers in proportion to calculated peak demand (kW) instead of in proportion to energy consumption (kWh). The consumers should be charged about $70.00 / (kW – month) for peak monthly demand calculated over a sliding time window at times when they are not receiving interruptible power and should be charged $0.02 / kWh for both interruptible and non-interruptible electrical energy. At times when interruptible power is being supplied the consumer's peak demand calculation should be automatically bypassed. There should be a five year transition period for adoption of the new electricity rate structure. During the initial years adoption of the new electricity rate should be voluntary.

Until electricity rates in Ontario are made primarily proportional to calculated peak demand instead of being primarily proportional to energy consumption it will be financially impossible for electricity consumers to displace fossil fuels with surplus grid supplied non-fossil electricity or to build behind the meter energy storage. Absent this electricity rate structure change most of Ontario's intermittent wind and solar electricity generation will simply go to waste.

The 2017 Ontario Long Term Energy Plan does not contemplate suitably changing the electricity rate structure. The present Liberal government prefers to continue giving the fossil fuel industry an ongoing $1 billion per year benefit at the expense of the Ontario electricity rate payers. The consequent excess CO2 emissions are concealed by the Liberal government's "Cap and Trade Plan". It is essential that the legislated retail electricity rate structure and the Long Term Energy Plan be fixed at the earliest possible date.
 

This web page last updated November 17, 2017.

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