Windsor-Essex Regional Energy Paper

Windsor-Essex Regional Energy Paper Windsor-Essex Regional Chamber of Commerce Environment and Energy Committee Committee Members: David Diemer - Chair, Dillon Consulting Limited Natalie Byczynski Vice Chair, Chrysler Canada Donald Bauder, West Windsor Power Frank Belanger, Union Gas Teresa Czerwinski, BASF Canada Mark E. Emmanuel, Union Gas Phil Janisse, RWDI Saad Jasim, International Joint Commission Michael Mastronardi, Stantec Consulting Ltd. Stan Taylor, Essex Region Conservation Authority Radwan Tamr, Genivar Inc. Windsor-Essex Regional Chamber of Commerce March 2013

Table of Contents EXECUTIVE SUMMARY... 2 INTRODUCTION... 6 Chamber s Business Priorities... 6 THE ONTARIO ENERGY SYSTEM... 7 Organizational Framework of the Ontario Energy System... 8 Legislative Acts and Planning... 9 The Green Energy Act... 9 Ontario's Long-Term Energy Plan (LTEP)... 10 Concerns about Ontario s Planning Policies and Current Legislation... 11 Chamber s Position on Current Legislation... 13 ELECTRICITY... 14 Demand... 14 Supply... 17 Sources of Electricity in Ontario... 18 Generation... 20 Transmission Systems... 20 Local Distribution/Generation... 22 Windsor-Essex Electricity Generating Capacity... 23 Pricing of Electricity in Ontario... 23 Residential Consumers and Small Businesses... 24 Medium and Large Businesses... 25 Global Adjustment... 26 Payment Calculator... 26 NATURAL GAS... 27 Industry Overview... 27 Supply and Distribution Network... 28 Pricing Structure for Businesses... 28 SUMMARY OF RECOMMENDATIONS... 30 APPENDIX... 32 1

EXECUTIVE SUMMARY This paper presents recent research and analysis of the Windsor-Essex and the Ontario energy system. The statements and positions expressed by the Windsor-Essex Regional Chamber of Commerce (The Chamber) are a result of membership surveys and opinions gained during the past year as well as continuous Chamber research on the current and past trends in the electricity and gas supply systems serving the business community in our region. From a business perspective, the energy system is an important component of business competitiveness in a global market. For them to succeed all levels of government must ensure that we have a reliable, modern and efficient supply of energy at reasonable rates. The paper outlines the challenges of the current system and a number of recommendations that are based on achievable outcomes. The Ontario Energy System Ontario s electricity system has a capacity of approximately 35,900 MW of power. The electricity demand Ontario requires approximately 25,000 MW at peak times. Ensuring enough energy to meet that demand is an ongoing and highly-complex process. It requires close co-ordination of all parts of the system. These system parts are organizations with different mandates and management structures. The organizational framework of the energy system in Ontario has five key organizations: The Independent Electricity System Operator (IESO), the Ontario Power Authority (OPA), Hydro One, Ontario Power Generation (OPG) and the Ontario Energy Board (OEB). The IESO and OPA are organizations that provide coordination and planning for the energy system. Hydro One is responsible for the delivery of electricity to the Local Distribution Companies and is the largest of five such companies in Ontario. Hydro One is responsible for the safety and reliability of the electricity system. OPG is the Ontario-based electricity generation company whose principal business is the generation and sale of electricity in Ontario. The OEB is the regulator of all noncommodity electricity rate licenses. Given the structure and the complexity of the energy system in Ontario, the Chamber supports an on-going review and organizational improvements to ensure efficiency, transparency and cost effectiveness of the organizations responsible for managing various components of the system. The system should ensure a reliable, modern and efficient supply of energy to its customers at reasonable rates that enable business and industry to be competitive in the global market place. The Ontario Green Energy Act (GEA) was introduced in the Ontario legislature on February 23, 2009. It was intended to expand renewable energy production, encourage energy conservation and create green jobs by the implementation of its renewable energy programs and by investing in production of clean energy. The Act is best known for creating a number of feed-in-tariff rates for different types of renewable energy sources. Notable among these are the Micro FIT program for small non-commercial systems under 10 KW, and FIT, the larger commercial version of the program which covers a number of project types with sizes into the megawatts. 2

The Smart Grid is a series of integrated initiatives by a variety of organizations that work together to create a modern electricity system aligned with the digital age. The concept was envisioned by the Ontario Green Energy Act to ensure increased reliability, efficiency and sustainability of the electricity system by better management of the sources of energy and the use of technology. The Smart Grid would empower Ontarians to better manage their electricity use, allow more renewable electricity generation, and help utility companies manage crisis and outage situations more quickly. To implement the new law and to help guide the Province s energy supply, distribution and consumption well into the future, the Government of Ontario released its Long-Term Energy Plan (LTEP) in 2010. The plan provides an overview of the overall energy system, the demand and supply of electricity in Ontario as well as the conservation plan and renewal of Ontario s transmission and distribution system. According to the LTEP, the province has plans to phase out coal fired generation and utilize localized generation from smaller, cleaner sources of electricity. Renewable energy such as wind, solar, hydro and bioenergy are becoming integrated into the energy supply mix in Ontario. The main concerns expressed by various participants and analysts of Ontario s planning policies and current legislation include weaker than projected demand for electricity and lack of flexible (load-following) power generation. Ontario Domestic Content (DC) provisions of the Act were set up to ensure that the technology and the solutions behind renewable energy will help generate green jobs in Ontario. Our Chamber continues to support the use of nuclear technology as an integral part of our electrical energy supply. The Chamber urges the Government to apply a very high level of safety and reliability to all energy producing installations. Ontario must plan for natural disasters that could potentially impact our nuclear, gas or oil facilities based on lessons we are learning from the incident in Japan in 2011. Electricity Forecast Electricity consumption in Ontario has declined since reaching a peak in 2005. For the next 10 years, the Ontario Government is expecting the demand to recover from the recent recession and then stay relatively flat due to conservation efforts and an evolving economy. The latest short-term forecasts from the IESO do not align with the Long Term Energy Plan. According to the forecast for 2011-2014, usage will decline in 2013 as it had each year from 2006-2011. They expect that the continued growth in embedded generation and conservation programs will offset any increases from an expanding economy and growing population. It is currently projected that embedded solar capacity alone will increase 600 MW by the summer of 2013 helping to further offset the summer demand peaks. Additional downward pressures on demand are expected from time-of-use rates and global adjustment charges. It is reasonable to assume that Windsor s short term demand will not significantly vary from this forecast. Long term demand will be largely dependent on the region s ability to retain existing businesses and attract new investment. 3

Electricity Supply Mix The Ontario electricity supply mix is set to balance reliability, cost and environmental performance and considers the following factors: conservation, baseload power, variable or intermittent power and intermediate and peak power. The main sources of electricity in Ontario are Coal, Nuclear, Renewable and Natural Gas. The Chamber s recommendations for the supply of electricity in Ontario include supporting the shift from Coal to Natural Gas and the importance of utilizing Hydro and Nuclear energy for the supply of base power. The Chamber urges the Government of Ontario to be more transparent in re-examining the costs, benefits and sustainability of the current energy supply mix, including renewable sources of energy. The local distribution system of Windsor and Essex County is managed by 3 Local Distribution Companies (LDCs): EnWin Utilities, Essex Powerlines and E.L.K. Energy. Their responsibilities include serving individual electricity customers and managing the local distribution grid. Additionally, under the GEA, the LDCs have the responsibility of connecting participants in the government s FIT and Micro FIT programs to the electricity grid. Most significant electricity generation in the Windsor-Essex region comes from Windsor s two natural gas power plants; Brighton Beach Power (580 megawatts) and Windsor West Power (112 megawatts). The full generating capacity of the region from all sources is 1.33 GW. The region has also seen significant uptake in the renewable energy programs through wind and solar installations. Wind capacity includes Comber Wind (166 MW) and Gosfield (51 MW). The Ontario government indicated that the changes since the introduction of the Green Energy Act would result in an increase in electricity prices over the next several years and into the future. The government s own Long Term Energy Plan estimates that electricity prices will rise by just over 30% (in real terms) between 2010 and 2014. The government attributed these cost increases to investments in new renewable energy generation, transmission and distribution upgrades, and improvements to nuclear and gas capacity. A study recently published by Hydro Quebec focused on electricity prices as of April 1, 2012 in 22 utilities across North America. Business rates for electricity in Ontario (Toronto and Ottawa) were in the top 10 for all categories assessed and in the top 3 for large power customers. The total cost of electricity is recovered through a combination of the Hourly Ontario Energy Price (HOEP) and the Ontario Global Adjustment (GA). The GA is the difference between the revenues received from the sale of electricity and the payments made to suppliers of electricity and conservation services. The Chamber urges the Government of Ontario to be more transparent in the actual breakdown of the Global Adjustment fees associated with energy bills in Ontario. The Chamber supports conservation programs to reduce provincial demand but believes that the benefits realized need to be continually evaluated against other costs. A key conservation initiative of the Province was the banning of inefficient light bulbs. The ban, which will ultimately come into effect at the end of this year, will eliminate the 87 million incandescent bulbs currently in Ontario 4

households. The Chamber supports the elimination of energy inefficient products from the marketplace. It is however equally important to ensure that policy and a communication plan is in place to address the resultant 'spin off' impacts and costs of these initiatives, including the release of mercury into the natural environment. Natural Gas The utilities, licenses of natural gas marketers and agreements between utilities and municipalities for the delivery of natural gas and use of road allowances and easements are regulated by the Ontario Energy Board. The OEB also approves gas storage facilities, the sale of distribution systems and any distributor amalgamations. Natural gas power generation is the third largest source of electricity after nuclear and hydro power. With natural gas as the cleanest of the fossil fuel fired generation systems, and the ability of gas-fired generation to respond quickly to peak electricity demands, there has been and will continue to be an investment in new gas-fired generation and co-generation systems in the province. As an affordable and plentiful source of energy, natural gas demand for power generation is likely to double over the next 20 years. As gas prices are predicted to stay relatively stable over the next 10 years, its use for household and business heating is likely to increase as well. The estimated additional supplies of natural gas in North America will ensure its supply for the next 100 years. The pricing structure for natural gas varies between users based on the quantity of gas delivered. Customers are grouped into rate groups that accommodate individual residences, commercial/industrial establishments as well as electrical generators and wholesalers. By regulation, Union Gas is not permitted to earn profit on the sale of the gas commodity or the transportation to its infrastructure. These charges are passed directly through to the customer. Union Gas forecasts the rates and then makes a correction through charging a price adjustment to ensure customers only pay the actual market price. Changes to the forecast price are approved by the Ontario Energy Board on a quarterly basis. The OEB also approves the rates charged for delivery and storage. 5

INTRODUCTION The purpose of this discussion paper is to present the results of the Chamber s Business Priorities Survey as they relate to the area of energy and the environment. Secondly, this paper was prepared to provide a brief overview of available research into today s Ontario energy system with a goal to highlight its strengths, weaknesses and challenges as these are critically important to the business community in Windsor and Essex County. Lastly, the paper also presents reasonable conclusions and recommendations for the Ontario energy stakeholders and the government regarding the future of the energy system. Chamber s Business Priorities In the spring of 2012, the Windsor-Essex Regional Chamber of Commerce conducted a Business Priorities survey. Business attraction and retention, job creation and economic diversification were the top business issues, followed by the lowering Sources of Energy Important Hydro Electric 98% 1% Natural Gas 93% 5% Nuclear 73% 21% Less Important Wind, Solar and 61% 34% Other Renewable Coal 31% 57% of business taxes and fees. On the energy issues, the survey participants ranked the sources of electricity that have been Ontario s primary sources of electricity as most important, starting with hydroelectric power and followed by natural gas and nuclear generation. Wind, solar and other renewables were ranked fourth in order of importance ahead of coal generation. These results reflect that the Chamber s membership feel that the reliability of the energy supply system is paramount. The ranking of renewable sources of energy ahead of coal-fired generation indicates a desire for a sustainable power supply and a shift away from traditional, less environmentally-friendly sources. The survey asked members what the government should do to help reduce energy costs and improve energy reliability. Relative to reducing energy costs, the majority of respondents listed reducing or eliminating feed-in tariffs and subsidies for renewable energy sources. Other comments were related to the provision of incentives for energy conservation measures, reducing the size or better management and transparency of government agencies responsible for our energy supply, and reduction or elimination of taxes on energy bills. Investments that would lead to an improved electrical grid, generation capacity, greater use of natural gas generation and new technologies for storing electricity were among the recommendations for improving the overall energy system in Ontario. The Ontario energy system can improve the Province s and Windsor-Essex County s business climate if the government addresses the charges, beyond those covering the price of the commodity and distribution, such as surcharges, taxes and fees that are increasing the cost of utilities for all businesses. The survey results are the starting point of the discussion paper and have been augmented by research and analysis of the Chamber s Environment and Energy Committee. 6

THE ONTARIO ENERGY SYSTEM In April 1999, Ontario Hydro was re-organized into five successor entities. The move to break up Ontario Hydro and partially privatize the electricity system generated debt of over $20 billion. Deregulation saw electricity prices rise over the past few years. The Ontario government capped prices for residential and small business owners. The cost pressures in an electricity system in need of renewal and additional supply continued to be a problem that is likely to continue in the near future. 1 According to Ontario s Independent Electricity System Operator (IESO), currently, Ontario's electricity system has a capacity of approximately 35,858 MW of power. 2 Ontarians use more than 141,000,000 megawatt hours of electricity a year. The capacity needed to generate the current use is approximately 25,000 MW. Ensuring that there is enough energy to meet that demand is an ongoing and highly-complex process, requiring the close co-ordination of all parts of the system. 3 The Ontario Power Authority (OPA) forecasts that more than 15,000 MW will need to be renewed, replaced or added by 2030. The Ontario Energy Board is largely involved in Ontario s natural gas industry. It regulates utilities, licenses all marketers and approves agreements between utilities and municipalities for the delivery of natural gas and use of road allowances and easements. It approves gas storage facilities, the sale of distribution systems and any distributor amalgamations. Natural gas is superseded only by nuclear and hydro power in the Ontario s electricity generating system. In addition, natural gas is the predominant source of energy for household and business heating systems. Natural gas is the only energy commodity whose price has dropped to historical lows in recent years and is predicted to hold its low price for the foreseeable future. With the recent technological break-through which facilitated the development of shale gas extraction in the North America, the natural gas reserves which were once deemed insufficient to meet future demand are now estimated at 100+ years of domestically available natural gas. Investment in critical infrastructure is required to ensure that Ontario customers have a reliable and secure natural gas supply. Each type of energy generation has a role in meeting overall system needs and the overall supply will likely be accomplished through a diverse supply mix. To ensure a balanced supply mix that is reliable, modern, clean and cost-effective Ontario has to make the best use of its existing assets and expand or convert facilities. 1 Government of Ontario, 2010. Ontario Long Term Energy Plan, Queen s Printer for Ontario p.6 2 IESO Electricity Supply Overview: http://www.ieso.ca/imoweb/media/md_supply.asp 3 Ibid: http://www.theimo.com/imoweb/siteshared/power_system.asp?sid=bi 7

Organizational Framework of the Ontario Energy System The Ontario electricity and energy system is comprised of the following organizations 4 in their respective roles as part of the single system: The Independent Electricity System Operator (IESO) IESO forecasts the demand for electricity and makes this information available to participants in the market. Generators and other energy suppliers then send in their offers to provide energy. Every five minutes, the IESO chooses the least expensive offers and instructs those generators and suppliers to send electricity into the system. Throughout the day, demand forecasts are updated and suppliers revise or send in new offers. The Ontario Power Authority (OPA) The Ontario Power Authority (OPA) was established in December 2004 with the responsibility for medium and long-term planning and ensuring an adequate supply of electricity and demand response in Ontario. The IESO is responsible for preparing short-term forecasts and assessments and works in co-ordination with the OPA. Hydro One There are five transmission companies in Ontario: Hydro One, Great Lakes Power, Canadian Niagara Power, Five Nations Energy and Cat Lake Power Utility Limited. Over 30,000 kilometers of transmission lines crisscross the province, carrying electricity to largevolume consumers and utilities for distribution. The IESO directs the flow of electricity over these lines, while the transmission companies are responsible for their operation and maintenance. The voltage and frequency of electricity travelling along these lines is carefully monitored to ensure safety and reliability. Ontario Power Generation (OPG) OPG is an Ontario-based electricity generation company whose principal business is the generation and sale of electricity in Ontario. OPG s focus is on the efficient generation and sale of electricity from its generating assets, while operating in a safe, open and environmentally-responsible manner. OPG was established under the Business Corporations Act (Ontario) and is wholly owned by the Province of Ontario. In addition, OPG and TransCanada Energy Ltd. co-own the Portlands Energy Centre gas-fired combined cycle generating station. OPG and ATCO Power Canada Ltd. co-own the Brighton Beach gas-fired combined cycle generating station. OPG also owns two other nuclear generating stations, which are leased on a long-term basis to Bruce Power L.P. 4 Information from IESO, Power System: http://www.theimo.com/imoweb/siteshared/power_system.asp?sid=bi 8

As of December 31, 2011, OPG s electricity generating portfolio had an in-service capacity of 19,051 megawatts ( MW ). OPG operates: 3 Nuclear, 5 Thermal and 65 Hydroelectric generating stations and 2 Wind turbines in Ontario. 5 The Ontario Energy Board (OEB) The Ontario Energy Board regulates all non-commodity electricity rate licenses, the IESO and all market participants. The IESO issues annual fee submissions for review by the OEB, as well as quarterly updates on its fulfillment of license requirements. Recommendations on the Ontario Energy System The Chamber supports on-going review and organizational improvements of the Ontario energy system to ensure the efficiency, transparency and cost effectiveness of organizations responsible for managing various components of the system. The review should have a particular emphasis on reducing the overall complexity of the Ontario energy system. The Ontario energy system should ensure a reliable, modern and efficient supply of energy to its customers at reasonable rates that enable business and industry to be competitive in a global market. Legislative Acts and Planning The Green Energy Act The Ontario Green Energy Act (GEA), formally Bill 150, Green Energy and Green Economy Act, 2009, introduced in the Ontario legislature on February 23, 2009 is intended to expand renewable energy production, encourage energy conservation and create green jobs by the implementation of its renewable energy programs and by investing in production of clean energy. The GEA is best known for creating a number of feed-in tariff rates for different types of renewable energy sources. Notable among these are the Micro FIT program for small non-commercial systems under 10 kilowatts, and FIT, the larger commercial version which covers a number of project types with sizes into the megawatts. 6 The Act specifies the rules for the FIT and Micro FIT programs and the qualifications criteria to participate in the programs. Under the Act, the local electrical distribution companies (LDCs) are obliged to accept small generators (under 10KW in capacity) into their systems with a simplified application process. 5 OPG Annual Report 2011: http://www.opg.com/pdf/annual%20reports/annual%20report%202011.pdf 6 From Wikipedia: http://en.wikipedia.org/wiki/green_energy_act_2009 9

Smart Grid According to the provincial government, the smart grid is intelligent electricity infrastructure that uses technology such as sensors, monitoring, communications, automation and computers to improve the flexibility, reliability and efficiency of the electricity system. A smart grid was set up to: Empower Ontarians to better manage their electricity use and take advantage of conservation and small-scale generation opportunities Allow more renewable electricity generation, such as wind and solar power, to connect to the electricity grid Help utilities identify and fix outages more quickly Give businesses opportunities to provide innovative products and services to a growing market, creating jobs and stimulating economic growth; and, Enable electric vehicles to be charged conveniently. Building a smart grid is not a single project, but a series of integrated initiatives by a variety of organizations that work together to create a modern electricity system aligned with the digital age. Advancing the smart grid is a smart investment in our clean energy future and our economy. Also important when considering the benefits of the Smart Grid concept, the province can ensure increased reliability, efficiency and sustainability of the electricity system by better management of renewable sources of energy as well as more localized supply of electricity. 7 Ontario's Long-Term Energy Plan (LTEP) The Province of Ontario currently operates its energy system based on Ontario s Long-Term Energy Plan (LTEP) of 2010. The plan provides an overview of the overall energy system, the demand and supply of electricity in Ontario as well as the Province s efforts on conservation and the renewal of its transmission and distribution system. The plan outlines the need for capital investment and describes the pricing of electricity in Ontario. According to the LTEP, nuclear power is projected to continue to reliably supply about 50% of the province's electricity needs. Hydroelectric power is planned to expand to include increased capacity from the Niagara Tunnel project and the Lower Mattagami project. Natural gas-fired plants have the flexibility to respond quickly when demand is more than the base load level estimated to be at 11,000 to 15,000 megawatts (as a peak source for the electricity system). The peak power needed by the province is sometimes as high as 10,000 additional megawatts. 8 Natural gas is the cleanest of the fossil fuels, emitting less than half of the carbon dioxide emitted by coal. 9 7 IESO Website, the Smart Grid in Ontario: http://www.ieso.ca/imoweb/siteshared/ontarios_smart_grid.asp?sid=md 8 From OPG Publication How it Works, Electricity. 9 Compared to the average air emissions from coal-fired generation, natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides, and one percent as much sulfur oxides at the power plant. Source: U.S. EPA, egrid 2000. 10

In addition to these sources of electrical power the Province of Ontario has plans to phase our coalfired generation and utilize localized generation from smaller, cleaner sources of electricity. Renewable energy such as wind, solar, hydro and bioenergy are becoming integrated into the energy supply mix in Ontario. Currently Ontario is in the phase of investing in equipment and infrastructure for these sources of energy to plan for an increase in capacity. The fuel cost and greenhouse gas emissions associated with renewables are zero or very low. In terms of government policy and planning the government's Ontario Long-Term Energy plan was created to help guide the Province s energy supply, distribution and consumption well into the future. Concerns about Ontario s Planning Policies and Current Legislation Weaker Than Projected Demand for Electricity The Environmental Commissioner of Ontario, Gord Miller, in his yearly report for 2011 stated that several of the key assumptions in the Long Term Energy Plan now appear inaccurate. With reduced demand and excess generation capacity now a feature of Ontario s electricity sector, the LTEP s key elements (e.g., a medium load-growth forecast, the need for additional generation capacity, nearterm conservation targets) are likely no longer relevant, at least in the short term. 10 11 As the electricity market has evolved since opening in 2002, and as conditions have changed recently (e.g., demand growth trending even lower than the LTEP s low-growth scenario, the need for flexible load-following generation, and a potential generation capacity shortfall around 2018), 10 Gord Miller 2011, Energy Conservation Report p.47 11 Government of Ontario, 2010. Ontario Long Term Energy Plan, Queen s Printer for Ontario: http://www.energy.gov.on.ca/en/ltep/demand 11

its operation has revealed areas for improvement in market design, contracting for generation and conservation resources, and rules related to regulated assets. In response, the IESO established the Electricity Market Forum and, throughout 2011, led a stakeholder consultation that focused on improving system operations, market efficiency and the engagement of market participants. In December 2011, the report of the forum was delivered containing 12 recommendations and a roadmap forward. It is a clearly presented technical document targeted at an industry audience which addresses many of the short-term (to 2014) challenges mentioned above in relation to the IPSP process, such as the current reduced demand and global oversupply of electricity. The report recommends various actions be taken, for example, to: Eliminate pricing distortions and enhance the real-time price signal; Review components of the global adjustment to encourage greater consumer response to the costs it recovers; Examine whether new ancillary services could be provided by generators (i.e., consumers of electricity, particularly large industrial and commercial customers) to provide more flexibility for the system operator; Have the IESO consult on how to reduce barriers to increased demand-side participation in the market; and Optimize the OPA s supply procurement process to ensure, among other objectives, demand forecasts are strongly reflected. 12 Emphasis on Jobs There are indications that job creation, one of the three goals of the Green Energy Act has been singled out as the most important short-term goal. According to recent Toronto Star article 13 the principal goal of the Act seems to have been a strategy to create manufacturing jobs quickly, while at the same time providing power production capacity to replace the capacity of the closing coalfired facilities in the province. Ontario Domestic Content (DC) provisions within the Feed-in Tariff program help to ensure that the technology and the solutions behind renewable energy generation will help generate green jobs in Ontario. Domestic Content levels start at 25% for wind projects with a contracted in-service date before 2012 and have increased to 50% starting on January 1st, 2012. The current requirement for micro solar and larger solar photovoltaic (PV) projects (10 kilowatts or less), is 60%. 14 12 Gord Miller 2011, Energy Conservation Report 13 Toronto Star, How Ontario can Fix Green Energy Act http://www.thestar.com/opinion/editorialopinion/2012/10/29/how_ontario_can_fix_the_green_energy_act.html 14 Ontario Government Presentation on the Green Energy Act, October 5, 2010: http://www.ontla.on.ca/library/repository/mon/25001/305948.pdf 12

In November 2012, the Province of Ontario received a WTO complaint made by Japan and the European Union regarding domestic content requirements of the Green Energy Act and is currently being pursued for contravening the General Agreement on Tariffs and Trade agreement. 15 The Domestic Content requirements have the potential to close other markets for renewable energy equipment for Canadian producers. This would put strain on placing research and development centres in Ontario because they would not be able to commercialize the products on a necessary scale without export opportunities. Chamber s Position on Current Legislation The Windsor-Essex Regional Chamber of Commerce (The Chamber) has developed policies that support conservation of power, generation of affordable and reliable energy as well as initiatives to clean the Ontario air from air emissions harmful to our health. To that effect the Chamber has penned a number of resolutions with support from the Ontario Chamber of Commerce asking the government to implement policies that will support these goals. The Chamber wholly supports both the Integrated Power System Plan (IPSP) and the Green Energy Act provisions with the following comments: The Minister of Energy in 2009 stated that the cost to users of the implementation for the Green Energy Act and the IPSP would be a 1% increase in electricity commodity price. This was an acceptable price for users to pay to ensure the sustainability and reliability of our limited energy resources. By the fall of 2010, the government estimated a rate increase as high as 45% over five years. This level of increase, even with the recently announced Ontario Clean Energy Benefit, has not been supported by our business community and has to be addressed by the government. The Chamber does not support price increases beyond those indicated at the time of the Green Energy Act. The costs associated with the Green Energy Act will be driven primarily by renewable power projects, including generation costs, and transmission and distribution costs to accommodate local renewable power. These costs have not been transparent or easy to understand in the current context. 16 The implementation of smart metering will introduce time-of-use electricity pricing to our Chamber members. This will result in a significant increase in electricity commodity rates of at least 50% during daytime peak periods. This is an unwelcome and significant burden on the already stressed businesses of Windsor and Essex County. Most small businesses cannot reasonably shift their electricity usage to off-peak hours. Consideration must be given to lowering/limiting daytime 15 World Trade Organization, Dispute Settlement, Dispute DS412, Canada Certain Measures Affecting the Renewable Energy Generation Sector: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds412_e.htm 16 For costing of the increases due to the Green Energy Act see Donald Dewes. 2012. What is Happening with Ontario electricity Prices. University of Ottawa, p. 18. 13

electricity rates for small business and retail sectors in order to maintain competitiveness with neighboring jurisdictions. The Chamber supports the responsible and fiscally prudent implementation of renewable/alternative energy generation facilities in the Windsor-Essex region providing due consideration is given to: Providing a local mix of generation options, thereby ensuring the use of our limited transmission system is optimized without compromising the stability and the reliability of the electrical grid. Seeking opportunities for locally developed embedded generation and distribution schemes such as Combined Heat and Power and District Heating projects in conjunction with the Windsor Essex Economic Development Corporation and other local stakeholders. The Chamber and its members acknowledge the Ontario government s latest efforts to improve the sustainability and reliability of our limited energy resources and to build new renewable energy capacity in the Province. This also requires adequate and timely upgrades to the electrical grid to accommodate connecting to the planned expansion of the renewable power generation. A renewed commitment to nuclear energy, funding for new transmission lines and a commitment to renewable energy along with energy conservation measures are welcome developments. Our Chamber continues to support the use of nuclear technology as an integral part of our electrical energy supply. As with other energy sources, we urge the Government to apply a very high level of safety and reliability to all energy producing installations. Ontario must plan for natural disasters that could potentially impact our nuclear, gas or oil facilities based on lessons we are learning from the incident in Japan in 2011. 17 ELECTRICITY Demand Electricity consumption in Ontario has declined since reaching a peak in 2005. For the next 10 years, the Ontario Government is expecting the demand to recover from the recent recession and then stay relatively flat due to conservation efforts and an evolving economy. 17 Windsor-Essex Regional Chamber s energy position is contained in a letter to the Ontario s Minister of Energy on May 19, 2011 See Appendix. 14

18 Ontario's Long-Term Energy Plan outlines three potential scenarios for electricity demand: Low, medium and high growth scenario. 19 For planning purposes, the government is using the medium growth scenario which assumes a 15% increase in demand between 2010 and 2030. This would require the system to provide 146 TWh of generation in 2015and 165 TWh in 2030. The Ontario Long Term Energy Plan states that the composition of the economy will evolve as hightech and service industries grow and manufacturers evolve to keep pace with technological advances and global competition. The output of large industrial customers, which accounts for about 20 per cent of electricity demand, is expected to grow moderately. Another important factor in demand will be the introduction of the electric vehicle. Ontario's goal is that by 2020, about one in every 20 vehicles on the road will be electric. Baseload vs. Peak From OPG Publication How it Works, Electricity. The constant steady demand for electricity is called BASELOAD DEMAND. In Ontario our Baseload demand for electricity is approximately 11,000 15,000 megawatts depending on the time of year. Ontario uses nuclear and large hydroelectric stations to meet most of its Baseload demand. This is because these types of generating stations can produce electricity at a constant and reliable rate. The demand for electricity varies throughout the day. Between 4 p.m. 7 p.m. as people arrive home from work and school and turn on their lights, ovens, televisions and dryers the demand for electricity is usually at its highest. This increase is what we call PEAK DEMAND. Typically, peak demand in Ontario can be as much as 10,000 megawatts more than Baseload demand. On the hottest days of the summer, this number can soar even higher as people turn up their air conditioners to keep cool. 18 Source: World Wildlife Fund (WWF): http://blog.wwf.ca/blog/2010/01/08/solving-the-mystery-of-the-missing-megawatts-conservation-killed-them/ 19 LTEP p. 14. 15

To meet the sharp increases in electricity demand throughout the day, Ontario uses thermal generating stations like coal, oil and natural gas plants as well as smaller hydroelectric stations. These types of generating stations can quickly increase or decrease their power output whereas a nuclear station is less able to vary its electricity output. As well, electricity from fossil-fuelled sources has a larger impact on the environment and therefore it s best to only use them when demand exceeds the output of other generating sources. The latest short-term forecasts from the IESO do not align with the Plan. According to the forecast for 2011-2014, usage will decline in 2013 as it had each year from 2006-2011. They expect that the continued growth in embedded generation and conservation programs will offset any increases from an expanding economy and growing population. It is currently projected that embedded solar capacity alone will increase 600 MW by the summer of 2013 helping to further offset the summer demand peaks. 20 Additional downward pressures on demand are expected from time-of-use rates and global adjustment charges. It is reasonable to assume that Windsor s short term demand will not significantly vary from this forecast. Long term demand will be largely dependent on the region s ability to retain existing businesses and attract new investment. The Chamber supports conservation programs to reduce provincial demand but believes that the benefits realized need to be continually evaluated to ensure they are balanced by the cost. The benefits/costs of these programs should also be communicated in a transparent and accessible format. A key conservation initiative of the Province was the banning of inefficient light bulbs. The ban, which will ultimately come into effect at the end of this year, will eliminate the 87 million incandescent bulbs currently in Ontario households. Once replaced, energy savings of 6,000,000 megawatt hours could be realized annually. This initiative has however created another issue relating to the disposal of the energy efficient replacement (i.e. compact fluorescent lamps) which contains mercury. While large quantity generators will collect and ship intact waste bulbs to recyclers for a fee, generators of the occasional bulb need to locate a drop off location at a local retailer. Other concerns surround the management of broken bulbs and the avoidance of mercury exposure. The Chamber supports the elimination of energy inefficient products from the marketplace. It is however equally important to ensure that policy and communication plan is in place to address the resultant 'spin off' impacts of these initiatives, including the release of mercury into the natural environment. 20 IESO_REP_0791v1.0 18 Month Outlook from December 2012 to May 2014, November 23, 2012, p. 3. 16

Ideally, the collection and recycling programs should have been fully developed prior to the ban taking place. An awareness campaign on the safe handling of broken bulbs would also have aided in addressing consumer concerns regarding mercury exposure from broken lamps. Supply The Ontario electricity supply mix is set to balance reliability, cost and environmental performance and considers the following factors: Conservation: As the best and first resource, it reduces consumption and therefore demand on the system. By avoiding the need to build new generation, all consumers benefit through cost savings. Baseload power: Generation sources, such as nuclear and hydro stations, designed to continuously operate (i.e. Niagara Falls). Variable or intermittent power: Generation sources that produce power only during certain times (i.e. wind and solar). Intermediate and peak power: Generation sources designed to ramp up and down as demand changes throughout the day (i.e. natural gas and hydro generation). These function as a cushion to the system to ensure reliability when demand is highest. 21 The installed capacity of the system is designed to accommodate scheduled and unscheduled equipment maintenance and repairs, as well as unprecedented peak demands. Generation, or the Ontario s Installed Generation capacity: November 23, 2012 22 Nuclear 12,998 MW or 36% Gas 9,987 MW or 27% amount of electricity Ontario produces, is measured in terawatt hours (TWh or billion KWh). The capacity of the system, or what it is able to generate, is measured in megawatts (MW) (OEP p. 17). Coal 3,293 MW or 9.2% Hydro 7,947 MW or 22.2% Wind 1,511 MW or 4.2% Per IESO s quarterly report dated November 8, 2012, Ontario s installed generation capacity is 35,858 MW. This excludes generators operating within local distribution areas, except for those that participate in the IESO-administered market. Other (wood waste, biogas, etc.) 122 MW or 0.3% To generate this electricity, Ontario utilizes a diverse supply mix that continues to evolve as additional renewable sources are introduced. 21 Ontario Long Term Energy Plan p. 16. 22 IESO Electricity Supply Overview: http://www.ieso.ca/imoweb/media/md_supply.asp 17

Sources of Electricity in Ontario Coal Since 2003 the government has reduced the use of coal-fired plants by 70% through the closure of 8 coal units. The remaining units will close by 2014. Eliminating coal-fired electricity generation will account for the majority of Ontario's greenhouse gas reduction target by 2014 - the equivalent of taking 7 million cars off the road. Ontario is the only jurisdiction in North America that is phasing out coal-fired generation Nuclear Nuclear power is described in Ontario s Long Term Energy Plan as a reliable, safe supplier of the province s Baseload generation. Nuclear power plants operate 24 hours a day, seven days a week and they produce more than 50% of Ontario s electricity. The government stated that it plans to keep nuclear power at its current level of contribution to the supply. Benefits of nuclear power include the fact that they do not produce any primary air pollution or release greenhouse gases. The fuel cost for a nuclear power plant is a small portion of its total costs and is not impacted by fuel price fluctuations. Nuclear plants do however create waste which must be strictly managed. The OPG makes annual contributions of $250 million dollars to a fund dedicated to long-term nuclear waste management and decommissioning. Construction of new infrastructure requires significant lead time, and can be costly. The government is planning to refurbish existing nuclear plants producing some 10,000 MW of electricity. 23 It is also committed to building new nuclear capacity in the future but has not finalized its long term plans. The decrease in demand together with the new supply added in recent years, means that Ontario is well-positioned to examine a number of options for negotiating new nuclear production at the right time and a cost-effective price. 24 Renewable Energy One of the sources of base load power in Ontario is hydroelectric. The operating cost and the environmental impact are highly positive for this source of energy. It is clean, renewable, costeffective and it does not emit any harmful pollutants into the water or air. Currently, the hydroelectric plants generate about 90% of Ontario s total renewable energy. In order to improve the quality of air and to protect the natural environment from harmful pollutants, the Government of Ontario has set goals to become a North American leader in producing energy from other sources that are continually renewed by nature such as wind, sun and 23 Ibid p. 23 24 Ibid p. 24 18

bioenergy. In addition to investments in the FIT and Micro-FIT Programs, the government has also invested in contracts with major private sector manufacturers of renewable energy equipment. Most prominent is the $7 Billion Green Energy Investment Agreement with Samsung C&T Corporation and Korea Electric Power Corporation (Consortium). This agreement is described by the government of Ontario as the single largest investment in renewable energy in provincial history. Overall, the number of jobs projected to be created is at more than 16,000. 25 The number of actual jobs created because of the implementation of the Green Energy Act is difficult to obtain as the programs are still in the implementation stage. Ontario has plans to continue to develop its renewable energy potential over the next decade with forecasted 10,700 MW of renewable capacity by 2018, the equivalent of two million homes. The Province also stated that the popularity of the clean energy program is such that the applications to the Micro FIT and Capacity Allocation Exempt (CAE FIT) program are outpacing needed upgrades to the grid. This will necessitate additional investment (cost) in upgrades to the transmission and distribution systems to accommodate renewable supply. 26 Natural Gas Natural Gas is a flexible source of electricity and can therefore be used to address peak demand production or to replace Baseload supply. Natural gas produces electricity by burning to directly power a gas turbine or by producing steam to drive a steam turbine. Gas power plants can effectively supplement the intermittent nature of wind and solar generation. Natural gas is much cleaner than coal; in fact some harmful air emissions are totally eliminated when natural gas replaces coal. In addition, carbon dioxide emissions are reduced by between 40 and 60%. Currently the Ontario s electricity generation capacity from natural gas is over 9,500 MW. 27 Since the price of gas is predicted to stay stable or decrease, and the supply of natural gas on the continent has been greatly expanded, natural gas will likely remain as one of the most viable and cost effective means of generating electricity for Ontario. According to the Environmental Commissioner of Ontario s report from 2011, the planning process, as it has unfolded since the first Supply Mix Directive of 2006, appears too cumbersome to respond to changing conditions. A more nimble approach with attention to localized load growth and closer alignment of conservation targets with annual results and demand growth would better serve the province effectively a new short-term contingency plan for electricity is needed. Some of the work undertaken by the IESO s Electricity Market Forum addresses these contingencies. 25 Government of Ontario, 2010. Ontario Long Term Energy Plan, Queen s Printer for Ontario, p. 29. 26 Ibid p.33. 27 Ibid p.33. 19

Recommendations on the Supply of Electricity in Ontario The Chamber supports the shift from Coal to Natural Gas in the generation supply mix of Ontario The Chamber stresses the importance of utilizing Hydro and Nuclear energy for the supply of base power in Ontario. The Government of Ontario should be more transparent in re-examining the costs, benefits and sustainability of the current energy supply mix, including renewables in the Province of Ontario. Generation Nuclear power remains the largest contributor to the grid, providing more than 50% of the province s electricity. 28 The output by fuel types varies continually based on outages and the capacity factors associated with the various forms of supply. However, in viewing data from 2008-2011, obvious trends are apparent as the Province continues to phase out coal fire plants and increases its reliance on natural gas and renewables. Ontario Electrical Output by Fuel Type 29 100% 50% 0% 2008 2009 2010 2011 Transmission Systems The transmission system is mainly comprised of a 500 kv transmission network, a 230 kv transmission network, and several 115 kv transmission networks. It is divided into ten zones. Essex County is located in the West Zone. 30 28 Ibid 29 IESO, Electrical Output by Fuel Type: http://www.ieso.ca/imoweb/media/md_newsitem.asp?newsid=5529 30 IESO_REP_0265v20.0 Ontario Transmission System Map, p.6. 20

Map of Transmission System Zones in Ontario Total resources in the West Zone generally exceed the zone s peak demand. Most of the generation is from coal and natural gas sources with some wind. The Zone is also connected to Michigan through four circuits. The transmission system has nine major internal interfaces. Interfaces are defined by grouping one or more lines for the purpose of measuring their combined flow and enforcing a power flow limit or, as it is more commonly called, an interface limit. Interface limits are directional and interfaces may have limits imposed in one or both directions. The interface between the West Zone and our neighboring zones to the east (the Southwest Zone and the Bruce Zone) is called the Buchanan Longwood Input (BLIP) interface. It is limited to 2,800 MW due to stability and voltage limitations. A one year rolling historical flow distribution across the interface is depicted below. It suggests that the capacity is set appropriately to meet current demand, and any marginal future increases. 21

31 The Ontario-Michigan interconnection is constrained by thermal limitations and therefore has a winter limit of 1,650 MW and a lower summer limit of 1,600 MW. As depicted in the chart below, electricity is flowing into Michigan more than 95% of the time. 32 Local Distribution/Generation Windsor and Essex County is serviced by three local distribution companies for electricity: EnWin Utilities Ltd. (http://www.enwin.com/). Serving the City of Windsor, EnWin provided electricity to 85,425 customers in 2011. Their network includes 467 km of underground cable and 709km of overhead lines. These pass through 8,122 distribution 31 IESO_REP_0265v22.0 Ontario Transmission System Report 32 IESO_REP_0265v22.0 Ontario Transmission System Report 22

transformers as well as various sub and transformers stations. EnWin reports that it has invested $116 million in infrastructure and technology since 2004. 33 Essex Powerlines Corporation services more than 28,000 residents and businesses in Amherstburg, LaSalle, Leamington and Tecumseh (http://www.essexpowerlines.ca). E.L.K.Energy Inc. services Essex, Harrow, Belle River, Comber, Kingsville and Cottam (https://www.elkenergy.com/). Windsor-Essex Electricity Generating Capacity Most significant electricity generation in the region comes from Windsor s two natural gas power plants; Brighton Beach Power (580 megawatts) and Windsor West Power (112 megawatts). 34 The full generating capacity of the region from all sources is 1.33 GW. The current electricity source list with corresponding capacity is in the attached Windsor-Essex Power Generating Capacity table. The region has also seen significant uptake in the renewable energy programs through wind and solar installations. Wind capacity includes Comber Wind (166 MW) and Gosfield (51 MW). Pricing of Electricity in Ontario The cost of electricity became an important political debate in Ontario around 2010 as a result of several changes. Some factors include the introduction of time-of-use (TOU) pricing across the Province, the application of the Harmonized Sales Tax (HST) to electricity bills and the projected cost of new renewable power in the electricity system. The concern was raised once the Ontario government revealed that the changes since the introduction of the Green Energy Act would result in an increase in electricity prices over the next several years and into the future. The government s own Long Term Energy Plan estimated that electricity prices will rise by just over 30 % (in real terms) between 2010 and 2014. 35 The government attributed these cost increases to investments in new renewable energy generation, transmission and distribution upgrades, and improvements to nuclear and gas capacity. 33 Enwin Annual Report 2011 34 Source: http://www.choosewindsoressex.com/?q=node/115 35 Environmental Commissioner of Ontario report 2010, p.22 23