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.


Blogger Randal Leavitt said...

I guess I see the issue differently - I think the Ontario public is refusing to let the government build new reactors. If the public were onside this Liberal government would not hesitate to build these plants. So who's job is it to change the public's opinion? The nuclear power industry seems only half interested in this challenge - why rock the boat they say. AECL is content with things as they are. Provincial parties see no gain in taking on this problem. Perhaps the public will have to grow up, take the time to learn the truth about nuclear, and change its own mind. I just don't see the Liberal government holding back progress - poorly informed Joe Citizen is holding himself back.

12:17 AM  
Blogger Steve Aplin said...

I agree with you Randal, but only up to a point. This is a classic case where the “public” is interest groups. There’s the big bad industry on one side, and a collection of seemingly high-minded idealists on the other (including the gas industry-funded, stridently anti-nuclear OCAA). Beyond a few critical electoral districts, nuclear power and electricity in general isn’t a poll-able issue: too complicated. So Greenpeace, FOE, Environmental Defense, Sierra, etc. only need to focus on a few strategic urban ridings. Most reporters (another critical part of public opinion) are at least marginally sympathetic to the anti-nuke side – like I said, it’s poor idealistic David versus rich Goliath. That’s enough to make McGuinty walk on eggshells.

8:21 AM  

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