On Electricity Pricing

Our electricity generating plants are old. The coal and nuclear plants were built between the late 60’s and the 1980’s. Some of them need replacing, as the cost to keep them operating is becoming too high.

So, what are our options to replace old plants? The Ontario Power Authority (OPA) provides contracts to build new or refurbish old generating plants.

Natural gas is cheap today at $4.60/mmBTU, but as recently as 2 years ago it was over $15. It is a depleting resource. And while quite clean, it contributes to carbon emissions. The contracts to buy electricity from natural gas plants includes a basic price, a price per kWh to cover maintenance, and a price based on the price of natural gas. Electricity buyers (us) will pay more if the price of natural gas goes up. Or when there is a price on carbon.

Coal is dirty, releasing twice as much carbon as natural gas, and has serious health impacts. It is not an option.

The last nuclear refurbishments at the Bruce plant are underway. The OPA contracts pass on increases in the cost of fuel, as well as a portion of the already present cost overruns. The OPA was ready to buy new nuclear, but decided against it when price quotes came in at over 3 times what had been estimated.

Some waterpower resources are under development, including a new tunnel at Niagara Falls, and the Moose River. But additional resources are limited.

We have solar, which is costly, but does a nice job on summer peak demand.

And we have wind. Wind can be built faster than any of the other technologies except solar. The contracts offered are 13.5 cents/kWh, but increase at only 20% of the rate of increase in CPI over 20 years. There is no increase for cost overruns, and no increase for fuel price changes.

You can’t compare contracts for new power with the current price we pay. When you compare the 13.5 cents/kWh with other new technologies, wind is very competitive. It is cheaper than new nuclear. It is more money than gas today, but over the course of 20 years, provides a valuable diversification of supply. The wind contracts will be looking pretty good in 10 years, with even small changes in fuel prices, or in the cost of carbon.

The electricity price we pay is much less than the cost of new generation of any kind. This is because it is a blend of new expensive resources, with old low cost ones. You can’t produce power cheaper than Niagara Falls, a plant long since depreciated.

Wind, subsidized? Think again.

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