In major policy shift, government lets Ontario Power Generation bid for large renewable projects

lakeviewIt’s been eight days since Ontario Energy Minister Bob Chiarelli directed the province’s power authority to eliminate large renewable-energy projects from the feed-in-tariff program and design a competitive procurement process that will get the best deal for ratepayers. We knew this was coming, as Chiarelli said as much in a speech a couple weeks earlier. What we didn’t know is that the energy minister would direct the power authority to let Ontario Power Generation bid for these large projects (see page 3, third paragraph of directive).

This is a major policy shift, and I’m surprised it hasn’t received any coverage in the mainstream Ontario media. OPG is a crown corporation. Under its 2005 agreement with the Ontario government, “OPG will not pursue investment in non-hydroelectric renewable generation projects unless specifically directed to do so by the Shareholder.” Instead, OPG’s mandate has been to maintain its fossil fuel, nuclear and hydroelectric fleet of generation, and pursue new large hydroelectric projects. The reason for this restriction was to limit OPG’s clout in the marketplace and give independent power producers a chance to establish a foothold in the generation mix. The decision to let OPG bid for all large renewables — including wind and solar — is significant for a number of reasons:

  • This is getting close to what the Ontario NDP said it will do if elected. According to the NDP’s energy policy, “We will maintain the feed-in-tariff for small and community-based projects” and “for new larger projects we will move towards public ownership” through OPG. The Liberal government isn’t proposing complete public ownership of large renewables, but it is letting OPG bid for some ownership in a competitive process. Could this be part of a compromise that won it NDP support for the provincial budget?
  • Independent power producers, I would imagine, aren’t very happy about this. They will assert that they can’t compete against a giant like OPG that just happens to have the government in its corner. Is it a fair fight? Maybe not. But will it get the best deal for ratepayers? Presumably, yes.
  • Having OPG compete for renewables will create more opportunities to develop renewable resources in remote areas, and to partner with aboriginal communities. OPG has experience in this area, and many private developers are too risk-averse to go into these markets. They prefer to go after the low-hanging fruit, even if the orchard isn’t located in the best area.
  • Letting OPG compete in renewables could turn the Power Workers’ Union into an ally over time. Right now, renewables mean competition with union jobs. The PWU doesn’t like that — the fact that jobs at coal-fired power plants are being phased out and there is a significant threat to nuclear jobs as well. Renewables could be a path to save OPG jobs.
  • On that note, could letting OPG get into large renewables also be a signal that the province under this government is going to abandon efforts at building new nuclear reactors?
  • Finally, as a crown corporation, OPG can be directed to do things that other private developers would never take on — such as experimenting on a large scale with energy storage technologies, and being a test bed for energy innovation coming out of the province. Indeed, it would be interesting if OPG was directed to set aside a certain percentage of profits for R&D and to support pilot projects.

So that’s why I think this latest government directive is significant and should get more attention. Perhaps I’m reading too much into this, but my gut tells me no. I’ve long argued that OPG should be able to compete for large renewable energy projects. It’s something the Society of Energy Professionals, a shareholder in the nuclear business of Bruce Power, has called for since at least 2007. Many will complain, and for good reason. If a giant like OPG is to compete for these projects, how do we make sure it’s a fair competition? Will the process be transparent? Reasonable questions, but not a reason to not do it.

5 thoughts on “In major policy shift, government lets Ontario Power Generation bid for large renewable projects”

  1. Good catch, Tyler. I skimmed that section and missed it. Looks like you have an easy scoop.

    I’ve always liked the idea of RFP’s for larger projects. A FIT process runs the risk of leaving too much money on the table for the larger projects with strong wind resources. Plus, the firms who are active in those sizes of projects aren’t burdened too much by the bid process.

    I’ve also argued that OPG should have been allowed to participate in renewable energy – to some degree. Otherwise, as you point out, their only degree of freedom is nuclear energy or hydro. It’s not surprising that the Power Workers Union and the Society of Energy Professionals (aka OPG engineers union) were aggressively anti-wind in the last election.

    However, who takes the risk for cost over-runs and delays if they low-ball a bid and win? I don’t think that there has every been a multi-hundred dollar project completed on budget and on time by OPG – even in recent history. There doesn’t appear to be any consequences or discipline when OPG is owned by the Province.

  2. If you want to reduce the cost for the electricity consumer, you have to deal with OPG’s large fixed costs. Whether OPG builds the replacement capacity that is going to be needed or someone else does, the ratepayer will have to pay OPG’s fixed costs. It will take a long time, say ten to twenty years, for OPG to work through these costs. But it needs to be the one who builds and owns almost all the replacement capacity Ontario may need to spread these costs over for the next many years.

  3. So long as OPG doesn’t … a) contract the whole thing out on (b) borrowed money from (c) foreign banks and give up control of the (d) “price” of the delivered output … maybe it could work? But what are the chances… ? In my humble opinion, solar and wind provide a real measure of relief to the aging and ailing grid – this reduction in load on transformers, breakers, transmission lines et al is a big offset to operating costs, and this is not something easily accepted or understood by Joe Public: Most have the basic understanding of the century old “War of the Currents” as a bedtime story and little else… they pay their Hydro bill and carry on with their lives.. We should own our costs and have the facts if we are to do this right!

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