CDM mandate survives Green Energy Repeal Act

Traditional math of proven paybacks could appeal to the Ontario government
Thursday, September 27, 2018
By Barbara Carss

The mandate for some of Ontario’s key energy and water conservation programs will remain enshrined in provincial legislation despite the dismantling of the Green Energy Act, which formally began last week. Selected provisions of the former Liberal government’s legacy will be transferred to the Electricity Act.

This will leave energy efficiency standards for equipment and appliances intact, and uphold requirements for reporting buildings’ energy and water use. The Ontario government will also retain regulatory authority to promote conservation, demand management and renewable energy, even if further investment in generation projects is unlikely to be on its agenda any time soon.

“Well-connected energy insiders made fortunes putting up wind farms and solar panels that gouge hydro consumers in order to generate electricity that Ontario doesn’t need. Today, we are proud to say that the party with taxpayers’ money is over,” Minister of Infrastructure Monte McNaughton pronounced, as Bill 34, the Green Energy Repeal Act, was introduced in the Ontario legislature.

The legislation is no surprise. It was sketched out during the provincial election campaign last spring and follows the July cancellation of 758 renewable energy contracts the former government had awarded. Now, electricity customers are watching to see how the new Progressive Conservative government will deliver on its oft-repeated promise to cut hydro rates by 12 per cent.

Part of the strategy unveiled during the election campaign involves transferring the funding mechanism for conservation and demand management (CDM) programs from the electricity rate structure to the general tax base. This was promoted as a potential $43 annual saving on electricity for the average residential household, but that figure has been questioned. Based on current yearly province-wide program costs of about $400 million, the average household consuming 750 kilowatt-hours of electricity monthly would save less than $28 over the course of a year if CDM costs were removed from hydro bills.

“For almost a decade, conservation has been effectively invested at a rate of 2 to 4 cents per kilowatt-hour (kWh). That’s by far the lowest-cost energy in Ontario,” says Andrew Pride, an engineer and energy management specialist who consults on strategic conservation planning and sustainability.

Deciphering the Global Adjustment

The opaqueness of the Global Adjustment (GA) — the bucket of various contracted, program and capital costs that now account for 80 to 90 per cent of the commodity price of electricity — perhaps contributes to less-than-precise interpretations of each component’s share of the total cost. The Independent Electricity System Operator (IESO) breaks the GA down to three somewhat hazy line items, each with its own contributing elements.

Notably, the cost of nuclear power shows up in two GA line items with the Darlington and Pickering generating facilities allocated to Ontario Power Generation (OPG), and Bruce Power allocated to other contracts approved through the former Ontario Power Authority (now merged with the IESO). The latter blanket category also encompasses: renewable generation; natural gas-fired generation; energy from waste and biomass; the ongoing costs of an unfolding multi-year nuclear refurbishment program; and CDM programs.

In total, the GA amounted to about $876 million in August, and has ranged from a low of $787 million in January to a high of $1.15 billion in June thus far this year. The big numbers and broad categories inspire assorted opinions about what’s driving costs.

Assigning costs, debating triggers

In a September 20 condemnation of what it terms “the disastrous feed-in-tariff program” and “wasteful energy projects”, the Ontario government reports: “Wind and solar represent just 11 per cent of total generation in Ontario, but reflect 30 per cent of Global Adjustment costs that are borne by electricity customers.”

A spokesperson for the Ministry of Energy, Northern Development and Mines points to an Ontario Energy Board (OEB) document as the source of that information. It presents six contributors to the supply mix — nuclear, hydroelectric, gas, wind, solar and bioenergy — in chart form, showing their proportion of total supply and the total GA. Separating wind from solar, the OEB document shows that wind power, at 9 per cent of supply and 15 per cent of the GA, performs somewhat similarly to gas-fired generation, at 8 per cent of the total supply and 14 per cent of the GA — except, of course, in greenhouse gas output. Meanwhile, CDM’s share of the GA is excluded from the tabulation.

Another government assertion — “In 2017, 26 per cent of electricity generated from wind and solar was curtailed, or wasted. This is electricity that Ontarians paid for, but didn’t need or use” — doesn’t fully explain the IESO’s economic and logistical rationale for choosing this option. Ultimately, the system needs the capacity for higher levels of consumption at certain times of the day and/or during heat waves and cold snaps when demand can soar, as well as manoeuvrability for the periods when demand drops.

“At off-peak, they keep nuclear running and pay others to curtail more flexible sources of generation because it would be untenable to shut down nuclear operations and then risk blackouts later while waiting for it to restart,” Pride observes. “So, there’s a good argument that curtailment costs should be attributed to the nuclear baseload, not renewable power.”

Regardless, GA costs related to nuclear power are destined to rise as the province embarks on a projected $25-billion refurbishment — if it stays on budget — of 16 of 18 existing nuclear reactors. Nor is curtailment the only liability that’s obscured through reassignment.

“The GA does not capture the full costs of waste fuel decommissioning, where the Province gives an unconditional guarantee to cover all costs if Ontario Power Generation’s funds turn out to be inadequate, or insurance risks, which are capped federally,” explains Mark Winfield, a professor in York University’s Faculty of Environmental Studies and co-chair of its Sustainable Energy Initiative.

Making the case for conservation

Although disappointed, green energy advocates are now turning from a debate that’s over, at least for awhile, to the one they can still sway. “We need to work with the government and try to make sure they understand the need to continue CDM, and the beneficial impact it has on commercial real estate and the economy,” reiterates Bala Gnanam, vice president, energy, environment and strategic partnerships, with the Building Owners and Managers Association (BOMA) of Greater Toronto.

Uncertainty elsewhere may actually position energy efficiency’s proven paybacks as the safest bet. “Premier Ford’s move to rescind the Green Energy Act signals investors: Don’t invest in Ontario. Contracts aren’t worth the paper they are printed on,” submits Marion Fraser, a consultant with 40 years experience working in Ontario’s energy sector.

“Ontario is spending billions on generation, while the money we’re spending on conservation is really measured in the millions,” muses Scott Rouse, managing partner with consulting firm, Energy@Work. “Yet, for every $1 million we spend on conservation, the impact on Ontario revenue in terms of averted spending is at least two to one.”

Barbara Carss is editor-in-chief of Canadian Property Management.

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