Are Ontarians Subsidizing Exported Power?

June 2009

• Ontario Power Authority contracts with base load generators can contribute to low spot prices.
• When spot prices are low, exports tend to be high.
• Subsidies to generators, who directly or indirectly drive exports, range from $3 - 8 million per month, per 100 MW of output.
• The subsidies are captured in the Global Adjustment.

Ontario Power Authority base load contracts

There are a number of drivers behind negative electricity prices. One key driver is Ontario Power Authority contracts with base load nuclear and wind generators. Even if prices don't "go negative", output from these generators can still contribute to low prices.

Relationship between average prices and net exports from Ontario

Exports of power are greater when prices in Ontario are low relative to neighbouring jurisdictions. The graph below shows the relationship between average spot prices and net exports (exports minus imports) since the beginning of 2004. In the second half of 2005, we saw a transition from Ontario being a net importer to a net exporter. Recently, net exports have averaged about 1,200 MW and it doesn't appear a downward trend in exports is anywhere in sight.

Subsidies related to cheap exports

With so much OPA-contracted base load supply receiving fixed prices, it raises the question, "Who's paying when these plants contribute to low spot prices, thereby driving net exports ?"

Bruce Power is paid an all-in price of about $75/MWh for output from it's Bruce 'A' plant. Wind generators are paid around $90/MWh under previous renewable energy supply programs. Under the OPA's feed-in-tariff program, onshore wind generators will be paid $135/MWh.

The difference between spot market and fixed-price OPA contracts is paid for by Ontario consumers through the Global Adjustment mechanism.

The following graph shows the monthly notional subsidy paid per 100 MW of output when these generators either directly export power or indirectly contribute to additional exports by other generators.

In recent months, these per-100 MW subsidies would have been in the order of $4 - 8 million each. At balance-of-year forward prices, the subsidies would be in the order of $3 - 7 million each.

The potential for increased net exports will rise over the next 18 months and beyond as additional Bruce 'A' units and wind and other renewable generators subject to the feed-in tariff come into service and contribute to low prices.

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