Recommendations for Wind FIT Review

The Feed In Tariff (FIT) review has asked for input on both price and policies with respect to wind energy. Where should the government and OPA head with wind energy?

Wind has been contributing an increasing portion to Ontario’s electricity supply. Wind is frequently contributing more electricity than coal, reducing sickness and deaths from coal’s smog, acid rain, and climate gases. In addition, there are a number of contracts in the pipeline that will increase that contribution by up to a factor of 3. Wind will contribute up to 9% of Ontario’s electricity as this capacity comes on line. Of course, there is always some attrition on projects, as there is with any technology – not everything contracted will be built for a variety of permitting, transmission, and financing reasons.

The key question is how to balance the interests of ratepayers, with the jobs and investment that wind brings. The number one thing the OPA should do is go to a system of Advanced Renewable Tariffs, as suggested by Paul Gipe, Bernard Chabot, OSEA and others in the original consultations. More electricity is generated in windy areas by a wind turbine, than in less windy areas. And the difference in output is extreme. Wind output varies with the cube of the wind speed. Twice as much wind generated 8 times as much power. 10% more wind generates 30% more power. Because most of the cost of generating power from wind comes from the original capital investment, the cost to produce in windy areas is less than other areas – more output for the same capital investment. Our current “one price fits all” system ensures that there will be windfall profits accrue to developers who can find windier areas. Or alternatively, the price will be set at a low level that will make it unprofitable to build anywhere but in the highest wind areas.

What Advanced Renewable Tariffs effectively do is pay a lower price for windy areas, while still allowing the developer in windy areas to earn a higher return than a developer in a less windy area. This still creates an incentive to find the best wind sites. Some tariff programs pay a high price for the first number of kWh produced, followed by a lower price. The OPA rejected the concept of advanced renewable tariffs in the first consultation as “too complicated”. It is not clear to me that if the Germans, French, and others can figure it out, that we can’t. It is also not clear that if we can manage contracts that compensate for fuel (gas), capacity, for cost overruns (nuclear), pay for congestion, voltage regulation, black start capability, standby power and load, spinning reserve, and peak power that we can’t figure out Advanced Renewable Tariffs. We know how to handle complexity. And in this case, complexity preserves the jobs and investment, with minimal cost to ratepayers. And isn’t that the idea of the review?

The cost of wind energy has been declining. Manufacturers are making new investments in Ontario for factories to make wind turbine components. This is part of the 50% local content requirements that will ensure that jobs will be created. New factories take some time to pay off, so the cost of wind energy is somewhat higher than it would be in other jurisdictions. On the other hand, once the factories are established, and this is happening now, it will act to reduce costs in Ontario, as transportation costs will be lower than imported materials. The main thing driving lower costs is the development of turbines with longer blades on taller towers. The longer blades sweeps more area, increasing the energy capture, and the taller towers tap stronger winds. The result is that capacity factors in Ontario, and elsewhere, are going up. A Vestas V100 1.8 MW will produce at a 39% capacity factor, whereas the V90 2.0 MW will produce at 31% of its rated capacity. This has reduced the cost of wind energy by as much as 5-10%, a cost reduction that can be captured in the FIT review.

Transmission is the biggest single challenge to the development of renewables today. Hydro One has put in place arbitrary rules about use of the system, that do not have any technical basis. These rules include allowing the use only one transformer in two transformer substations, an arbitrary limit on the loading of transformers, conservative approaches to use of transmission limiting the capability of existing transmission, and reservations of capacity that may never be used. Similar arbitrary rules have affected microFIT installations as well. Hydro One should be directed to improve access to their existing system. It would reduce the need for further investment in the system (although that is needed as well), while allowing more renewables in the system. Senior officials of Hydro One should be fired if they can’t solve the problem.

Shift to Advanced Renewable Tariffs, and make smarter use of the grid. It will save ratepayers, while continuing to foster the development of the jobs and investment that the wind industry offers.

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