Archive for November, 2008

Right to Connect

Friday, November 21st, 2008

Germany’s EEG, commonly known as the Feed Law, has been responsible for the German success in building new renewable energy capacity.  The key elements of the EEG are:  Fixed price for power based on the cost of production, and renewable energy sources have the right to connect to the electricity system.  If a developer can build a project, the utility will buy the power, and connect the project.  The biggest problem with Ontario today is transmission and distribution connection rules, that prevent many projects from even being considered, much less built.  Note that I didn’t say we are short of capacity on the wires.  Instead, we have rules that prevent the capacity from being used. 


We have billions of dollars of investment in wires, transformers, poles, and towers that we are not using to deploy renewable energy.  Simply because of our rules.


Airlines long ago figured out to use their equipment better.  They routinely overbook flights.  Most of the time, enough of the customers don’t show up, so they fly a full plane.  But sometimes they need to offer compensation to encourage a customer to take another flight.  Imagine what the cost of flying would be if the airlines were only 40% full, instead of 80%!  Simply because they reserved space for no shows.  The airfares would be double.  Yet somehow this situation is tolerated in our transmission and distribution system.


For distribution lines, we have a reservation system.  A developer asks the utility if they can be connected, by asking for a Customer Impact Assessment (CIA), and paying the fee – usually $5-15,000.  This takes many months, and when the study is complete, the developer has one year to turn the CIA into a Customer Cost Recovery Agreement (CCRA), and paying a hefty fee, which is whatever the utility says they need to spend to upgrade their system to accomodate the project.  Once the CCRA is signed and fee paid, the position is reserved forever, whether or not a project is built.  Of course the high price of a CCRA deters people from making the permanent reservation.  But the wires are still reserved during the time the CIA is being completed, and for a year after that.


Today, many substations have the dreaded “red line”.  Above the line are projects that are approved for connection, or under study.  Below are the standby passengers, who may or may not be allowed to connect. 


Developers need the certainty that if they build a project, they can be connected.  Without this certainty, they won’t invest in studying winds, zoning applications, enviromental assessments, sound studies, wind studies, permits, land assemby etc.  So projects below the red line typically don’t have much investment in pre-development work.  


But some of the projects above the red line will never be built.  They are the “no shows”.  They may not have the wind resource.  They may not have the land.  They may not be able to obtain the municipal permits.  They may not be able to obtain financing.  The list of legitimate reasons for a project not being built is long, and there is no firm that can claim 100% certainty on their projects.  Seats are reserved on the plane, keeping other passengers from getting on the flight.  We are flying the plane half full, and spending a lot more per passenger than we have to. 


People are legitimately afraid of giving developers a right to connect.  How much will it cost to get developers connected, and who will pay this?  Is it a blank cheque?  But I think the current system, that leaves much of our available capacity reserved may actually cost us far more.  If a project below the red line is ready to construct, then they should proceed, and the utility would simply have an obligation to connect the project above the red line when and if it is ready.  With a right to connect, there is no red line.  All projects that can be built will be connected, and the utility, which is in the best position to know how to build new infrastructure efficiently, would be obligated to connect them.


The transmission system suffers from the same reservation philosophy that ensures underutilization.  The Orange Zone that encompasses most of Lake Huron, and inland as far as Orangeville, and north to Meaford is off limits for renewable energy projects.  Not because there isn’t capacity.  There is.  But because that capacity is reserved for the refurbishment of the Bruce Nuclear plant.  The refurbishment of the first reactor is already a year behind schedule, and so it won’t be completed until 2010 in all likelihood.  The second reactor is not likely to be done until 2011.  And there is a new transmission line due to be completed by 2011, that will be able to carry the full output of the plant, plus a lot of other power.  We are reserving 1600 MW of capacity for projects that will be no shows for at least a year.  Further, the capacity has been reserved for two wind projects – Grey Highlands, and Kingsbridge II, both of which have announced that they will never be built.  Finally, the capacity estimates are based on the nuclear units all operating all of the time.  But they don’t.  Nuke units are no shows for much of the year, and the odds of at least one no show out of 8 units is very high. 


Of course you can put a number of rules in place that will limit the obligation to connect.  For example, the obligation could allow a certain time frame from notice of construction - perhaps 12 months, to allow the utility time to build new infrastructure.  You could put longer time frames in certain areas, such as Manitoulin, where the obligation to connect would only apply once an enabler line was completed, or only on the eastern part of the island.  You could limit the obligation to a certain dollar value per installed capacity – if the cost of upgrading the wires is over a certain amount, the developer would have a choice of paying the extra, or not proceeding with the project.  You could make parts of the province out of bounds.  Nobody would expect a utility to be required to build lines to service remote parts of Northwestern Ontario.  You could make the right to connect contingent on completion of certain transmission builds. 


But we need the right connect.  It will free up billions of dollars worth of investment that we have already made in the wires.  It will give developers the needed certainty that if they invest in pre-development, and can establish a project, they will be connected.


The current reservation system has to go.  Right to connect must be examined as the best alternative to build renewable energy on a scale that matters.