Chapter 3.5.3: The Cost of Wind

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If you are not sitting, do so.  If you don’t have nose tissue, get some.  This chapter is going to be a ride of disbelief.

The Ontario Government has created the most complex, convoluted pricing system in the world.  The effects of this pricing system means that producers get paid to not produce power.  And it also means that when demand is low but output is in excess to that demand, that the rest is dumped to the US, which ratepayers here in Ontario pay for.  This is correct, because demand is low in Ontario since 2005, all excess power from the loss of demand is sent to the US which we subsidize with our rates.

Wind turbine companies are paid a fixed price for wind, somewhere between $90/mWh and $140/mWh regardless of what the spot price is on an hourly basis.  It appears various projects got a different price guarantee at different times.  The controversial Samsung deal got 14c/kWh or $140/mWh.   Until that differing pricing structure is obtained, this chapter will use $120/mWh for the calculations below, subject to change once the actual numbers arrive.  But the $120 will be close enough for now for you to get a picture of what’s going on.

The Hourly Ontario Energy Price (HOEP) is monitored by the IESO and published hourly on their site.   For example, this is for yesterday, Oct 5, 2010 (http://reports.ieso.ca/public/DispUnconsHOEP/PUB_DispUnconsHOEP_20101005_v24.xml):

Hour HOEP Price Data Source
1 19.80 DSO-RD
2 25.80 DSO-RD
3 14.72 DSO-RD
4 25.58 DSO-RD
5 26.69 DSO-RD
6 39.76 DSO-RD
7 57.44 DSO-RD
8 34.28 DSO-RD
9 34.95 DSO-RD
10 66.08 DSO-RD
11 35.06 DSO-RD
12 34.61 DSO-RD
13 32.04 DSO-RD
14 31.45 DSO-RD
15 31.51 DSO-RD
16 31.25 DSO-RD
17 31.41 DSO-RD
18 33.96 DSO-RD
19 31.66 DSO-RD
20 31.01 DSO-RD
21 30.22 DSO-RD
22 20.74 DSO-RD
23 15.58 DSO-RD
24 30.52 DSO-RD

But since the wind industry is guaranteed $120/mWh, something must make up the difference when the spot price is below that value.  They get only the $120 when the spot price is higher.   But this occurred only 2000 hours over a 5 year period, basically nothing.

That difference between the guaranteed price and the spot price is made up with the Global Adjustment (GA), which appears on some people’s utility bill as the Provincial benefit.  See details here on what the definition of the GA is along with the values.   The Provincial Benefit (PB) rate for those who have it can see the monthly rate here

If the PB is negative then the spot price is high and you are a net beneficiary.  However, when the PB is positive, then you are paying more for power.  The PB goes positive when demand is low and excess power is being generated.  That is, this is the compensation to producers for there not being enough demand for their product.

This is what the PB has done since 2005, right when demand started to drop:

It’s worth explaining what this Global Adjustment means with an analogy.

Assume you travel every saturday morning for a few hours to go visit your elderly parents.   Each Saturday morning on the way out you fill the tank at the station on the corner putting in $100.   You’ve done this for years.  But now that we are in a recession and budgets are squeezed, you decided to go only once every two weeks. Demand hence drops.

Now that poor station owner up the corner only gets half the profit from you as before.  So the government steps in an passes a law so that the station owner gets a guaranteed price for the fuel sold.  Should the demand drop, a “Global Adjustment” is added to top up the revenue. 

So when you visit every other saturday, you fill up, but your bill is double with an added line item “Global Adjustment – $100.”  So now you pay $200 to fill the tank for half the time you travel.

This is exactly what the Global Adjustment does for all power producers, not just wind operators.  Understand also that when you attempt to conserve, you are lowing demand, which is lost revenue for the producers, which increases the Global Adjustment, which is added to your bills so you end up paying more for conserving.

Remember Max in the movie Grumpier Old Men, when he said “Holly Molly!” at things that surprised him.   Well, this is apropos for the following.

This is the money paid out until the end of Aug 2010 for wind in Ontario:

Spot Payment
  2006 2007 2008 2009 2010
AM. $5,213,322 $8,960,165 $10,805,628 $12,424,685 $9,648,662
KNG. $3,306,919 $5,657,928 $5,362,930 $2,991,796 $1,930,743
P.A.     $5,598,410 $9,273,847 $6,603,625
P.B. $5,323,486 $11,753,354 $12,052,669 $6,895,682 $4,726,549
PF. $4,409,411 $22,815,506 $21,033,603 $11,959,893 $8,997,747
R.S.   $661,426 $10,062,449 $5,570,975 $3,765,205
UW.     $1,146,744 $11,064,000 $8,771,951
W.I.       $5,869,805 $9,742,936
Total: $18,253,137 $49,848,379 $66,062,432 $66,050,682 $54,187,417

Global Adjustment Payments

  2006 2007 2008 2009 2010
AM. $9,330,318 $13,541,275 $18,094,212 $40,162,195 $23,086,738
KNG. $5,800,241 $8,627,712 $8,805,590 $9,340,245 $4,831,257
P.A.     $8,829,071 $28,174,313 $16,039,535
P.B. $9,584,474 $17,589,406 $19,203,011 $21,058,678 $11,273,051
PF. $7,680,229 $34,883,494 $34,613,157 $39,996,147 $21,331,413
R.S.   $1,171,214 $16,331,071 $17,035,105 $9,272,795
UW.     $2,171,376 $36,881,280 $21,675,529
W.I.       $20,119,555 $23,187,104
Total: $32,395,263 $75,813,101 $108,047,488 $212,767,518 $130,697,423
AM. $47,052,463 $104,214,737 $151,267,200
KNG. $19,250,315 $37,405,045 $56,655,360
P.A. $21,475,881 $53,042,919 $74,518,800
P.B. $40,751,739 $78,708,621 $119,460,360
PF. $69,216,160 $138,504,440 $207,720,600
R.S. $20,060,054 $43,810,186 $63,870,240
UW. $20,982,695 $60,728,185 $81,710,880
W.I. $15,612,741 $43,306,659 $58,919,400
  $254,402,047 $559,720,793 $814,122,840
        Payback years @
  Turbines Total Per turbine  $  3,000,000 GA Percent
AM. 133 $151,267,200 $1,137,347               9.7 69%
KNG. 22 $56,655,360 $2,575,244               5.8 66%
P.A. 44 $74,518,800 $1,693,609               4.5 71%
P.B. 66 $119,460,360 $1,810,005               7.8 66%
PF. 126 $207,720,600 $1,648,576               8.3 67%
R.S. 38 $63,870,240 $1,680,796               6.2 69%
UW. 110 $81,710,880 $742,826               8.2 74%
W.I. 86 $58,919,400 $685,109               9.7 74%

Glad you were sitting down?  This is correct, $814 MILLION, give or take a few tens of millions,  paid since 2006 for wind power in the province.  Every dime from your bills.

Yearly totals for spot price and Global Adjustments looks like this:

Clearly the Global Adjustment has been the biggest increase in revenue for wind producers.  2010 is projected from the end of Aug into a full year.  As of Aug 2010, wind production has significantly dropped off as wind in this year was lower than the previous 4 years.

This is how the accumulative costs for wind has been rising:

So far the 5 years has been increasing close to a power curve (red dashed line).  A linear line has also been projected for the next 5 years (black dashed line).  The future will likely be between the two closer to the power curve.  Though this does not include many more wind projects are in the pipe, so depending what happens in that regard for the next five years, the future accumulative cost curve could be a higher power curve.

Power curves, growth curves, are unsustainable.  They have a doubling period such that each new double period is the same value as all previous doubled periods combined.  You can see this with the red projection.   That’s what growth is.  The current $824Million balloons to just over $3BILLION.   For this year alone, growth in the accumulated costs is 44% from 2009, though down from previous years of 80-100% per year.  

These costs for wind have a great potential, or threat, of swamping the pricing system into bankruptcy (if it already isn’t.).  

Now we are told by the government that the costs will come down as more wind projects are built.  Back in the 1960’s we were assured that nuke plants would make power too cheap to meter.

If not already, you can start crying.

Note, for those who want to make sure the calculation is correct, the spot price formula is:

SpotPayment: [Output]*IIF([HOEP]>120,120,[HOEP])

Where as the Global Adjustment Payment formula is:

GAPayment: [Output]*IIF([HOEP]<120,120-[HOEP],120)

Then each of those records was added together for each year and each farm.

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7 Responses to Chapter 3.5.3: The Cost of Wind

  1. OH! But I’m just a NIMBY that doesn’t understand climate change and the need to ensure that we break the economy of Ontario so that we can join together with other bankrupt economies as we all understand that misery loves company! It even gets worse as our school children have been infiltrated by the greenwash spin paid for with our taxes. Now the common sense people have become “Enemies of the majority of People” from municipal government though provincial government up to and including federal government. Is a global revolt in a Martin Luther King or Mohandas K Ghandi style of peaceful civil disobedience our only recourse to stop this madness?

  2. Quixote says:

    Thank you for this post!….I will be handing out copies to the voters in our Municipal Election …….this will explain clearly to them why they can’t afford to live in their homes anymore!

    It will also go a long way in explaining to folks in Small Businesses why people are leaving this Province instead of moving into it!

  3. […] Ontario Wind Performance is back with a stunner – Chapter 3.5.3: The Cost of Wind […]

  4. I live in Manvers the City of Kawartha Lakes near Pontypool and Bethany .I’m appauled how this WPD Company {wind turbins} come to our school and inform the public on how safe and profitible their turbines are and how the comunity will love the wind.The only people who love the wind are those getting judas money or eat bushes beans .They say they will use local people to do work the open house there were no job applications for locals,they say one turbine takes up only 3 acres of land well that land could be used to grow corn or grain to feed people or animals, one neighbour had to fence her field from her cows because the authorities in high places, wouldn’t let them feed on special sacred grasses but the neighbour with the same grasses can have alease for a turbine .They say they have done a completed archeological study completed Sept. 10 but they have not spoken to a very learned lady in the Historical Society of Manvers Township she knows more about this area than any university grad from this company where most live in Toronto.So how do they know about our area without consulting her and they say they will hire local people to work for their company why not a historian from the ares why not an engineer from the area why not land surveyors from the area.One from our group knows the oak ridges moraine the map they had of our area was wrong our retired enginer member know more about the tubine and tranmissions line etc than their recently barely out of diapers university grad!How can these projects go on when they do not know anything about the area or their product. I think these companies are owned by german cmpanies Germay is entirely different country weather wise than Canada. Icould go on but I’m especially angry my cat Bandit gets accused of killing more birds than turbines all cats should get a lawyer and sue for lies against them my Basndit has not taken down an eagle or an ofsprey or blue heron or even a canada goose.I cooould rant forever Im angry at the treatment these snakes sales men and women treat us at their open houses, they think where just hicks from dogpatch so we don’t have any brains looks lke the other way around to me! ! Must go now to work on my next batch of liquer and wrestle a condor from Kitty’s mouth! Kat E

  5. Rural Grubby says:

    I have receive a newsletter from Brookfield power which indicates that wind power helps reduce electricity prices. According to the CEO of Garrard Hassan, wind generated electricity is as cheap on wind days as coal-generated electricity, which drives down power prices. He added that in parts of Texas, some utilities are using wind power because it’s the cheapest type of energy. According to Iowa Policy Project report, wind power in Iowa has produced enough energy to satisfy 17% to 20% of the state’s electricity needs and contributed to electricity prices increasing at a slower rate than the national average. Any comment on this kind of misleading info? I like how they specify that wind is as cheap as coal only on windy days, wind providing only 25% of it’s nameplate capacity over the year. I am interested in knowing if wind energy has an influence on the GA price. By Brookfield’s propaganda it appears to be the case.

    • jrwakefield says:

      The only way to know for sure is to get the numbers and check. That may be difficult if the company is private, they may not be willing to post the raw data. Until then I don’t believe a word the wind industry says.

  6. God bless you Google, for finding this post 🙂

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