Sunday, July 29, 2007

Rate debate: will Ontario re-regulate electricity?
Last week, CIBC World Markets predicted that closing Ontario’s coal plants would result in electricity price hikes of 60 to 70 percent. This is based on a CIBC economist’s assumption that coal’s main replacement would be natural gas.

The assumption is correct, but only if you believe the Liberal government’s pledge that it won’t increase the proportion of nuclear power in the electricity generation mix beyond the current 50 to 55 percent. If the Liberals hold to this pledge, only gas could replace coal. And gas prices have been rising, sometimes in dramatic spikes, since 2003.

Ontarians have the electoral cycle to thank for the fact that the CIBC’s scary future is not today’s reality. A concerted effort to replace coal with gas would have been economically feasible prior to the 2003 provincial election. Up to then, the cost of generating power with gas was only slightly higher than it was with coal. Gas was touted as the best alternative to coal because of its lower combustion emissions per kilowatt-hour. Hence, deregulation of the power generation markets in some parts of the U.S. led to a dramatic expansion of gas-fired capacity. This happened concurrently with the high-tech boom; the zombie capital mentality didn’t affect only the techies.

But because of the subsequent jumps in gas prices, power prices in the deregulated Northeast are now among the highest in the continental U.S.—so high that they have become a political issue.

A similar scenario is playing out in other deregulated areas, such as Illinois and Virginia, where governments tried, a decade ago, to minimize the shock of the transition to market pricing by imposing power price caps. These came off recently, spurring rumblings among politicians about re-regulating.

And here we are in Ontario, where the government has also tried to prepare rate payers by increasing the capped retail price of power.

The re-regulation debate, if you can call it that, is beside the point. Power prices have been rising in regulated areas too. This is in large part because of the increase in gas-fired generation.

As was the case elsewhere, the interest in gas in Ontario was partly because of its lower emission intensity. But it is the system’s emission intensity that is the critical factor. As I have pointed out, Ontario’s overall system emission intensity has dropped since the Pickering and Bruce nuclear reactors began returning to service after 2003. Gas’s is roughly 550 grams per kilowatt-hour. The system’s was 302 in 2003, and 200 last year. The drop in intensity translated into emissions that were 15 million tonnes less in 2006 than in 2003.

In 1994, all 20 units in Ontario’s nuclear fleet were running at high capacity. The power system’s emission intensity was an incredible 104 grams per kilowatt hour. Power sector emissions were 15.8 million tonnes in that year—almost half what they were last year.

Ontario doesn’t need large scale gas to reduce power-sector emissions. We just need to shift more baseload generation away from coal and toward nuclear.

Sunday, July 22, 2007

Coal-fired power and premature death: another wave of pseudo-statistics from the natural gas lobby
Last week, the Ontario Clean Air Alliance and Toronto Environmental Alliance demanded that Ontario stop exporting coal-fired power to the U.S. Ontario Premier Dalton McGuinty “knows that the pollution from coal-fired electricity kills Ontarians,” said the TEA’s Franz Hartmann.

Hartmann’s death-by-coal claim is based on a series of reports from a few years ago, which estimated that noxious emissions from Ontario’s coal plants kill hundreds of Ontarians every year. The basis for that estimate is the astounding discovery of statistical significance between smog levels and numbers of premature deaths.

Statistical significance. Wow. It sounds so credible, unless you’ve taken an introductory course in statistics. Every elementary textbook on the subject makes plain that statistical significance equals neither causality, nor direction of influence. All it tells you is that you probably can’t argue that there is no statistical relationship between two variables.

Any first-year stats student will tell you, after his or her first run-in with SPSS, that statistical significance is a depressingly common occurrence, especially when you are dealing with large samples.

So take the death-by-coal reports with a large grain of salt.

In spite of this, death-by-coal has underpinned some pretty important electricity investment policy in this province. Natural gas distributors, drooling over the potential billion-dollar sales of their product if the government really does ban coal-fired power generation, latched onto death-by-coal as a way of guilting the province into outlawing the competition. Their principal lobby group, the astro-turf OCAA, has been harping on that theme for ten years now.

When McGuinty & co. were back in opposition, they thought that the green lobby was an untapped source of political support. So they set about winning the greens over. They promised to close the coal plants, and in their first year in government they regurgitated the OCAA’s anti-coal nonsense almost verbatim.

Then the OCAA’s strategy started to unravel. The McGuinty Liberals did what they could to support the construction of more gas-fired plants. The problem is, with natural gas prices spiking since 2003 the only profitable way to sell gas-fired power is to sell it as peaking power or blackstart capacity. Gas-fired power could never survive in the market for baseload, which means that to replace coal the government would have to either underwrite new gas plants, or guarantee the price.

Underwriting plants was a non-starter: in a supposedly de-regulated wholesale market, new gas generators would have to sink or swim. And though guaranteeing a certain price might be reasonable for intermediate or peaking power, it would be hard to justify in the case of baseload. Either way, the price of power would go up, creating a real political problem for the government. Was there an alternative to gas or coal for baseload? Of course there was: nuclear power.

The OCAA thought it had the anti-nuclear base covered, through its alliance with Greenpeace and other fanatics whose antipathy for the atom overrides their alleged concerns about climate change. But after governing for a while the Liberals realized that wiping out a quarter of an electricity system’s generating capacity in order to please a corporate lobby on one hand and a gang of Monty Python fanatics on the other isn’t responsible policy.

So, rather than shifting baseload generation to gas, the government decided to restart the Pickering unit 1 nuclear reactor. Together with concurrent restart projects involving other laid up reactors at the Pickering and Bruce plants, this would prove hugely successful—not only in keeping the lights on, but also in chopping power-sector emissions on a grand scale.

Now we have a power sector whose emissions were 15 million tonnes lower in 2006 than in 2003. Regardless, the anti-coal, anti-nuke crowd still sucks and blows. Some things never change.

Tuesday, July 17, 2007

Nuclear opponents score quiet but huge victory
Last week I mentioned the almost laughable flimsiness of anti-nuclear arguments. I also pointed out that this weakness is largely irrelevant (or at least has been irrelevant so far). The anti-nuclear movement is alive and well, and still a powerful threat.

Witness the quiet victory for the U.S. movement back in June. The U.S. House Appropriations Committee voted to remove nuclear projects from the list of those eligible for loan guarantees under the 2005 Energy Policy Act (EPAct). As I pointed out on May 14
, the so-called nuclear renaissance could be stillborn if the critical players—like prospective financiers of new build projects—aren’t assured that at the very least they won’t lose their shirts if they finance a project. The loan guarantees were written into the EPAct to provide exactly this assurance. And taken out precisely to thwart that purpose.

The White House said President Bush would veto the House bill, but that is little comfort for prospective financiers. Bush won’t even be president after next year. Who knows what his successor’s position will be. And who knows what the congress will look like after the 2008 election. So the bottom line is, the EPAct loan guarantees aren’t really guarantees.

All this points to a basic frame through which the Appropriations Committee lawmakers view the nuclear issue. Nuclear is a money hog, which sucks dollars away from wind, solar, biomass, and all the other alternative forms of energy. Politics is about who gets what. Alternative energy needs and deserves federal support; the atom doesn’t.

It seems amazing that the congressmen really see things this way. But they do. How to deal with this?

By making the case that nuclear is the only viable way to deliver massive amounts of carbon-free electricity. And proving the case.

Sunday, July 08, 2007

The nuclear renaissance: the way forward is through Ontario
Ontario has achieved stunning emission reductions since 2003. The chart shows that this was due almost solely to the return of the Pickering and Bruce nuclear generators that were mothballed in the mid- and late 1990s. (Click on the image to enlarge it.)
As you can see, when the Darlington nuclear units came on line in the early ’90s, coal declined. When the Pickering and Bruce nuclear unts were taken off line in the mid-’90s, coal shot up. When the Pickering and Bruce units began returning to service in 2003, coal dropped. Hydro power, the other major contributor to Ontario’s system, stayed more or less constant over the 16 year period. It is nuclear, and nothing else, that has displaced coal generation since 2003. And the emission reductions have been massive: 15 million tonnes less in 2006 than in 2003.

Anti-nuke activists don’t like to hear this. When I mentioned it on The Agenda back on March 15, the two anti-nuke people on the panel wasted no time trotting out the tired old “lifecycle” nag, claiming there are “huge” emissions associated with uranium mining. When they said this, the other pro-nuclear person, Bruce Power’s Duncan Hawthorne, rolled his eyes and shook his head. The lifecycle claim is preposterous, and the anti-nuke people know it.

Still, advocacy campaigns based on even flimsier arguments have succeeded. Greenpeace specializes in these kinds of campaigns. So nobody should assume superior argumentation will win the day.

What will win it? I’ll take this up in upcoming posts. Stay tuned.

Tuesday, July 03, 2007

How to verify international carbon reductions: GNEP, CDM, and other acronyms
There’s been a lot of talk lately about the gaping holes in the international carbon market, and in the European scheme that has spurred it, the EU ETS. Financial writers are, rightly, pointing out that it’s difficult to verify that, say, an airline selling carbon permits isn’t selling the same tonne of carbon to multiple buyers.

Faith in this exploding new system diminishes further when you consider that it’s the United Nations that’s running it. Anybody who trusts UN verification should read up on the famous oil-for-food program.

And faith disappears altogether when you consider that nuclear energy projects are not eligible for credits under the Clean Development Mechanism (CDM), the principal arrangement through which Kyoto signatory countries can finance carbon-reduction projects in developing countries. The atom might have been eligible under the CDM, but anti-nuke activists mounted a successful campaign to remove it during the 2001 Bonn conference. The no-nuke edict puts most current CDM projects squarely into the rinky-dink column, especially when it comes to power generation. Power-starved India realizes this, which is why the Indian prime minister and U.S. president discussed the CDM soon after the G-8 summit in early June.

The sad thing is, we could have an international carbon market that does result in massive, economy-friendly emission reductions, and that is totally verifiable. That is by participating in the Global Nuclear Energy Partnership (GNEP). Strict verifiability is what underpins the GNEP. The inspectors who oversee the transfer of plutonium and/or spent uranium fuel from a moderated reactor could be the same people who verify that that reactor’s output has displaced coal-fired power.

Unlike the current free-for-all, investors could safely bank on these reductions. And the reductions would be massive. As I have pointed out (see article), Ontario’s shift from coal to nuclear reduced annual power sector carbon emissions by 15 million tonnes since 2003. If carbon were $15 per tonne, Ontario Power Generation and Bruce Power (the two nuclear operators in the province) would have earned $225 million between them.

This could spur peaceful nuclear development in countries like India and China, the latter of which added 100,000 megawatts of coal-fired generating capacity in 2006.

The atom should go back into the CDM.