Fraser Institute On Ontario Electricity Prices: Secret Deals, Conspiracy Theories

Ross McKitrick and Tom Adams have authored What Goes Up…Ontario’s Soaring Electricity Prices and How to Get Them Down for The Fraser Institute.  It purports to be an analysis of the effect government contracts with electricity producers have had on Ontario's power bills.  According to McKitrick and Adams, a large portion of the increase in these bills is due to the Green Energy Act, and in particular to the installation of wind farms that the act encouraged.  Response to the study has been limited, but  typically uncritical .    The Canadian Wind Energy Association has promised a rebuttal, but until that happens I thought I would offer a few thoughts of my own.

The study offers an econometric model designed to explain  the "Global Adjustment", which is a monthly charge added to Ontario power bills to pay for the cost for providing both adequate generating capacity and conservation programs.  The GA has been rising over the past decade or so, even as the market driven portion of the bill, the Hourly Ontario Energy Price or HOEP, has fallen.  At the same time, the installed capacity of wind and has also risen and so, naturally enough, has been the urge to link these facts together.

Now, without getting too deep into the weeds, the companies that contract with the Ontario government to provide the province its electricity can get paid for their actual generation of energy, or for that plus their capacity to generate energy.  From the report:

Note that, according to this, gas plants get paid for their on-hand capacity, but solar and wind generators do not...

Or do they?

Adams and McKitrick fire up their econometric model and use it to crank out a couple of tables. This fellow thinks they contain an error or two,  but for my purposes such details aren't really that important.  Their first attempt at running the model is represented by Table 3 in the report.

You can read what they say about Table 3 through the link, but the bottom line is that they don't like the result it gives them for wind energy; it is not sufficiently alarming.

So Adams and McKtrick decide to give  their model a tweak, which they justify as follows: even though wind generators don't officially get paid for capacity, the global adjustment "behaves" as though they did.  They then provide the following scatterplot as supplying "correlational evidence" for this argument:

What this purports to show us is that where we have greater wind capacity, we have a higher Global Adjustment.

But of course we already know this because, as I noted above, we already know during the last decade or so both installed wind capacity and the GA have increased concurrently. And if you look at the data from whence the chart was derived--this for the GA, and this for wind capacity--it's just basic time-series stuff.  What the GA was at a certain date; how much wind capacity was installed at a specific date. And so if you graphically represented this information as a time-series chart rather than a scattergram you would get a graph with two lines on it, one representing the GA and one wind capacity.  They would both start low on the y axis at earlier dates and rise gradually as you moved date by date along the x axis, closer and closer to the present.  Which, again, we knew already.

But does this mean that the installed capacity of wind was responsible for the increase in the GA?  Well, no: correlation is not causation, as they say.  Furthermore, according to earlier statements by one of the report authors, the price increases in electricity previous to 2013-2014 cannot be put at the feet of wind energy:

[Tom] Adams said the real effect of the wind and solar investments on bills has yet to sting ratepayers but will drive up prices over the next few years.

So it is difficult for me to see why he would change his tune based on a single graph containing no new information.

But onward and upward!  Tom and Ross adjust their model for the assumption that wind generators also get paid for capacity.  And hey presto! we get Table 4!   Suddenly wind-power is driving the increase in the GA.

But there is a problem with this reasoning.  Though the model assumes that wind generators get  paid both for capacity and generation, there are no contracts out there with this in their terms.  Therefore   Adams and McKitrick have to postulate a series of  secret contracts, side deals,  off-the-books stuff. 

So wind drives the GA only if a conspiracy theory they are offering turns out to be true; that is, if the Ontario government has made undisclosed arrangements with the wind companies which, if brought to light, would make up the difference between Table 3 and Table 4.  Not that they offer any evidence of such deals in their report (though I should say that Tom has made a few arm-wavy gestures on twitter:

@Bigcitylib2 e.g. Samsung securing transmission access directives + adders for wind/solar before even being on the Lobbyist Registry
— Tom Adams (@tomadamsenergy) October 30, 2014 

).

And I suppose further investigation might turn up such evidence.  But at the moment the McKitrick/Adams conspiracy theory is just an unsupported assumption needed to justify the result they would prefer their model gave them.

Tom Adams, Jack Mintz, and Me On The Price Of Wind In Ontario

Tom Adams gets a lot of play as an expert on Ontario's energy system.  The fact that he is or was once associated with Lawrence Solomon's  group Energy Probe does not seem to put as many people off as I think it should.  For example, the well-known economist Dr. Jack Mintz has a number of ideas that he thinks would put Ontario back on track fiscally.  Cancelling the Feed In Tariffs (FIT) for wind and solar is one of them.  When I asked him why he favored this particular policy, he deferred to Tom Adams:

@Bigcitylib2 according to Tom Adams who is on top of these things, subsidies have created high energy prices. #onpoli @tomadamsenergy
— Dr. Jack Mintz (@jackmintz) April 8, 2014

Now, I've been engaged in an extended argument with Tom about whether subsidies to wind/solar projects in Ontario have indeed "created high energy prices".  I've argued previously that his own statements cast doubt on this contention and, earlier in the week, perhaps in response to my persistent nagging, he restated his position:

 ....While it is true that direct wind and solar costs are today small relative to the amount of the total bill, the energy contribution of wind and solar together is much smaller still. In addition, wind and solar will rapidly grow in the near term, thereby directly driving rates.... 

 Based on data from the IESO on energy production in 2013 and from the OPA on costs contained here (at slide 48), in 2013 wind and solar generation provided 4.15% of Ontario’s total power generation but accounted for 10.65% of total generation cost (not including non-energy charges such as distribution and transmission) or about 6.7% of the total bill. The implications for consumers of this unfavourable ratio are exacerbated by the problem that almost none of the output from wind and solar is delivered during periods of peak usage. In the years 2014 and 2015, the OPA forecasts that wind and solar costs will increase by 130% to constitute 14% of the bill. No other bill component is rising so fast. 

OK.  So, without being too smirky about it, I was right.  The costs today are "small relative to the amount of the total bill".  Whatever you may want to say about the future (and I will get to that momentarily) subsidies to wind have not "created high energy prices" in Ontario.  So when Tom says otherwise, he is conflating the present costs of renewables with what he thinks future costs will be.  And, as for Jack Mintz, we can argue about the pros and cons of the FIT program for wind and solar all we want,  but we should be able to agree at this point that the amount of money saved by its elimination today would be tiny in the grand scheme.  So if Mr. Mintz is really concerned about policies which might get Ontario moving again, I would submit that he's fixated on the wrong target.

Now, lets talk about the future.  Its true that costs for wind and solar will more than double over the next couple of years (divide the generation cost for them on slide 48 of this into the total costs line on slide 47 and you get roughly a 130% increase by 2015, as Tom claims).

But how scandalous is this fact?  According to this chart, from slide 43 here, installed capacity for both energy sources will more than double during the same time period.

So that they should become a correspondingly larger proportion of the energy bill seems inevitable.
Once again, I'm not seeing a fiscal disaster of unmitigated proportions brought about by renewables's assuming a greater share of the province's energy mix.  If you buy twice as much as something, the bill should probably be about twice as much.

Indeed, catch Tom on the right day and he will admit this:

@Bigcitylib2 Agreed, no surprise. Also, wind's $$$ hit in '14-16 less than forecast in 2010 http://t.co/ouUPFNQTxz @RJMcClelland @jackmintz
— Tom Adams (@tomadamsenergy) April 12, 2014

So where does that leave us?  Unless Tom wants to argue that the capacity to be made up by renewables over the next couple of years can go unfilled, abandoning them doesn't mean saving that portion of money going to pay for wind and solar, just whatever might be left over when you've filled the space left open by cancelling wind/solar projects with some other energy source with its own set of positive and negative qualities.  Plus whatever legal bills you incur.  Maybe a case can be made for doing that, and maybe not, but it certainly hasn't been made yet.  And, if I am reading slide 10 from here correctly...

...which is accompanied by this table:

...it looks like over the next couple of years cost per unit of power generated for wind is going up a wee bit, cost for solar is going down a bit more quickly, after which time they both start going down at various speeds.

 Nothing here suggests that out-of-control hydro bill increases will be driven by either component.

Tim Hudak's Energy Policy, Such As It Is

Tom Adams, who occasionally achieves sanity when writing about energy issues, gets about half-way there in his piece yesterday, in particular when he touches on the pumped-storage project up in Marmora:

[PCPO MPP Todd ] Smith has ...hounded the Minister of Energy over why he has “delayed in arriving at a contract to produce power” for the pumped energy storage project in the Municipality of Marmora and Lake. Proposed by Toronto-based Northland Power, the project is designed to counter the grid problems caused by fickle wind and solar output – which Northland also develops...

After having visited the site for that pumped storage proposal in January, Mr. [Tim] Hudak labelled it “environmentally friendly” and complained that the Liberal government was “dragging its heels” on the project. Without the benefit of any publicly disclosed cost/benefit studies or public consultations with anyone other than proponents, he declared that the project “makes sense.”

Here's the kicker.  Progressive Conservative leader Tim Hudak's energy plan would kill Ontario's green energy sector, but go forward with an expensive ancillary project explicitly designed to store green energy.  That is very much like keeping your car battery manufacturer running after you've closed the auto-plant.

And this is regardless of whether Hudak's plan will break existing contracts, costing the province bazillions, as argued here, or not. He has said on a number of occasions that projects far enough down the pipeline will be allowed to go through; some of his MPPS have claimed a PCPO government will shut done everything, no matter what the cost.

Tom Adams In Sun: Mostly Sane

There are bits of it I don't agree with.  For instance, any fair reading of Ontario history would show that the province's dalliance with gas power predates the Green Energy Act, and wasn't  a conspiracy to cover-up (or "backstop") the poor performance of its wind farms.

But most of it (meaning over half) is OK, even relatively informative.  There are several bits that are particularly interesting, because they undermine the arguments anti-wind types, Adams among them, have made on previous occasions.  For instance this:

Adams said the real effect of the wind and solar investments on bills has yet to sting ratepayers but will drive up prices over the next few years.

...which is to say that, Vic Fedeli aside, you can't really lay any serious portion of the recent increases to your power bill  at the feet of wind energy (well, a little bit--wind & solar account for about three per cent of your total bill though that, as everyone admits, will rise in time).

And then there's this bit:

Ontario hydro ratepayers pay Bruce nuclear and solar and wind generators even if the power isn’t needed or used, he said.

Gas plants are a guaranteed a rate of return through a monthly stipend — even at times when the power they generate is not needed, he said.

Which is to say that the kind of deal arrangement that critics of wind power complain about (ie wind farms are paid to produce unneeded power) also exist between the government and all the province's other electricity producers.  So why single out wind for special approbation?