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A Big New Green Energy Act Payoff in Ontario

by nb41 Thu Jul 30th, 2009 at 09:35:29 AM EST

SUMMARY
From the Great Lakes Wind Collaborative comes news of the first major Great Lakes Offshore wind project (see Watertown Daily Times article). In effect, a 710 MW wind turbine array is planned for Duck Island Shoal, which is on the Canadian side of the NE corner of Lake Ontario, next to Main Duck Island, of course - here's the map. It's roughly 22 miles due west of Cape Vincent, NY, in some of the shallower waters of lake Ontario, though close to the drop-off where deeper waters are the norm. in general, Lake Ontario is fairly deep (average depth is over 86 meters/282 feet, but as you get near the mouth of the St Lawrence River, it gets shallower - maximum depth is 244 meters/802 ft). This spot gets the full force of the prevailing winds across the waters, which tend to be in the direction from the exit of the Niagara River to the entrance of the St Lawrence River.

This project has been in the works for a while, but a couple of key events have made this a happening project. The island has some of the strongest average winds in Lake Ontario, according to estimates derived from the Canadian Wind Atlas - the site is predicted to experience annual average wind speeds of 8.64 m/s at 80 meters above the water; slower in summer, and a very decent 9.5 m/s in the winter. It has a fetch of the prevailing winds of over 165 miles/265 km, and being Lake Ontario, icing is not a huge problem (though that part of the Lake may get iced up briefly, since it is shallow). It is also close enough to land to "wire up", and there is a big grid connection on the northern shore of Lake Ontario, so the electricity product can get to market. And there is a strong grid network around the edge of the lake (US and Canadian sides), a big market in Toronto and Montreal (~ 5 million people each), and pumped hydro/deferred hydro electricity storage capability en masse, should the need arise, in various locations in Ontario/Quebec and NY State.


DISCUSSION
The developer of this project is Trillium. This would be a first in many ways, including the first humongous wind turbines (5 to 6 MW size) to be used in North America. At 710 MW capacity, this would be 142 of them at 5 MW each. So far there are only 4 manufacturers of units that big (Areva (ex-Prokon-Nord), Bard, Enercon and REPower), and the latter two are busy setting up manufacturing facilities in Quebec due to the recent 2 GW RFP that they shared.

Maybe it is just coincidence, but this item about a recent revealing (and unflattering to the nuke industry) RFP bid for a pair of nukes in Ontario is good news for Trillium. It seems that in a recent bid for a pair of ~ 1 GW nukes for Ontario, the low bid came way above expectations:

"The only "compliant" bid -- one where the supplier would be sufficiently at risk if costs exceeded the amount quoted -- was reportedly a $26 billion quote from Atomic Energy of Canada, Ltd, equal to roughly $10,800 per kW. (If this sounds familiar, recall my January 2009 study estimated a new nuclear project would most likely cost approximately $10,500/kW)".

The next highest bid came from Areva:

"Another bid was reportedly received from French nuclear vendor Areva LP, which also "blew past expectations", at $23.6 billion. However, that bid was ruled non-compliant as Areva was unwilling to sufficiently shoulder the risks of cost overruns."

Let's say the size of these was 1 GW each. The delivered production capital cost (assuming 90 % uptime) would be $CAN 12 BILLION each, or $12 million per delivered MW. To put this in perspective, onshore wind turbines ($2 million/MW capacity) at a decent 30% operating factor would be $6.7 million per delivered MW, and offshore units at about $4 million per MW and a 40% operating factor come in at $10 million/MW delivered. Plus, there is a lot less lead time/construction time involved, and if one of the turbines screws up, the rest of them are still producing; but if one of the nukes screws up (and not even in a Chernobyl way, just a "does not work" way), well, there goes 50% of the revenue stream for this "paranukes" project. Ontario has a weird relationship with nukes (they use heavy water (D2O) moderated CANDU reactors), nukes have put the province into significant debt ($30 to $20 billion for decades). They almost bankrupted the province, and enormous tax payer subsidies have gone into this financial dead chicken hung around the proverbial neck of Province. Most people in the Province are not fans of nukes, but the Atomic division of Ontario Hydro (--> Ontario Power Generation) keeps on going no matter what - like a world unto itself. For some reason, Ontario Hydro never invested even a mere $1 billion for wind turbines - maybe they were afraid they like like wind energy and dump the nuke line....

So, nukes are out, and so is the provinces 6 GW of coal burners, including that obnoxius acid gas/Hg vapor puker in Nanticoke (4 GW). This is North America's largest single point emission spot of CO2 pollution, it's 8 x 500 MW boilers are all unscrubbed of acid gases and the complex is a big contributor to particulate pollution in Buffalo, which is downwind 50 miles/80 km. Oh well, payback for so many humanoid turkeys in NY that voted Republican, maybe? Lots of lung problems, though, especially asthma....

The other key factor in the Trillium project is Ontario's Green Energy Act, and the Feed-In Tariffs for offshore wind (about 19 c/kw-hr CAN). If Trillium can pull this project off, and the project has an average 40% net output (284 MW), revenues of close to $CAN 480 million/year could be anticipated. While that may sound like a lot (well, it is), this project could cost about $US 2.8 billion/$CAN 3.3 billion. Of this, maybe $CAN 1.4 billion will be for the actual turbines and $CAN $1.9 is for the installation part - especially jack-up barges, foundations and underwater cables/offshore transformer stations. Of course, that $CAN 1.9 billion goes into jobs, and could eventually reach 114,000 job-years (at $CAN 100,000 per job (fully absorbed cost) and a job multiplier of 5). After all, employment is mostly what commercial scale wind turbines are supposed to be all about, with by-products of home-grown, non-polluting electricity that can replace electricity made by polluting approaches (coal, oil, natural gas, nukes).

This project would be going nowhere fast if Trillium had to marekt this power on either the Ontario and/or NY State grids via the merchant market mode. Electricity being a relatively price inelastic commodity means that a relatively small shift in demand leads to very large shifts in price. Due to the current recession/depression in the US North Coast/Canadian South Coast region (Ontario really got hammered with the auto industry turndown), and especially the lessened industrial output/demand for electricity, the price of electricity has collapsed in NY and Ontario. Wholesale prices were less than 1.9 CAN cents/kw-hr earlier this spring, or about 10% of the price needed to make such a project economically viable. For example, if the project produces about 2.5 TW-hr/yr, odd are the 1.9 c/kw-hr would just cover the O&M part of the project, or at least an appreciable fraction of it. But that could never covre the financing part of this project. And since Ontario Power Generation (OPG) is still infatuated (it is a bizarre love affair...paid for with Other People's Money (in this case, the people of Ontario's money) in this instance) with the nuclear Genie...well, they would/will be of no help. And if Ontario's merchant prices for (mostly polluting) power were not in the bottom of the dumpster, the presence of the Duck Island project would sink those prices (an example of Jerome's Conundrum). Rumor has it the nuke owners/entities were having to pay people to take their electricity in the some of off-peak period in April of 2009. How's that for a functional electricity market? So, the 20 year GEA contracts will make this Trillium project viable. Too bad NY State has to be left in the dust, so to speak, as they are still stuck with the merchant marketing model for wind energy - and as a result, the wind industry is kaputz in NY for a while, till prices recover, or until their Feed-In Laws (A187/S2715) get passed....

Cool. I'm jealous, but congratulations to all involved, and best of luck. Odds are, there will be even more jobs, especially for tower production/steel production (1000 tons minimum per unit). Towers made in a place like Hamilton (where a major steelworks exists) would minimize transport costs - just put them on a boat/barge, and the same goes for the foundations. Who knows, Trillium may even be able to make it worthwhile for one of the offshore manufacturers to open up blade and nacelle production in Ontario. That is one of their stated goals. And lots of money is sloshing around in Toronto these days, looking for a (reasonable probability of a) profitable home.

BTW, here is a link to the Green Energy Act (GEA). See NY Times article, too.

Nb41

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thanks for posting this. Are you certain the Ontario feed-in tariff is $0.19/kwh for offshore? Wow.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Thu Jul 30th, 2009 at 12:43:50 PM EST
CH,

Yes. You can find it in Paul Gipe's site, or at http://www.greenenergyact.ca

Nb41

by nb41 on Sat Aug 1st, 2009 at 09:08:44 PM EST
[ Parent ]
yes skenna, nb is right. here's my must recent post with the current tariffs.

http://www.wind-works.org/FeedLaws/Canada/OntarioProposesHighestBiogasTariffsinNorthAmerica.html
Ontario Proposes Highest Biogas Tariffs in North America--Coupled with expected changes in connection requirements, the new tariffs may lead to a boom in new biogas construction. . .

we're now expecting the tariffs to go into effect in september--months behind schedule.

to stay up to date, follow my home page or my ontario pages at

http://www.wind-works.org/FeedLaws/Canada/OntarioandtheCampaignforAdvancedRenewableTariffs.html

Paul


Paul Gipe

by pgipe (pgipe(at)igc.org) on Sun Aug 2nd, 2009 at 08:26:26 PM EST
[ Parent ]
With the US dollar being valued at 5% more than the Canadian dollar, those cost estimates for nuclear seem really weird. Any word on why they've gone up by so much, except the weak dollar? Manufacturing supply crunch?

Further, I've heard rumours that nuclear is being put off because of idiotic plans of privatising AECL, (which is essentially a death sentence as the CANDU tech needs a reference customer, and really insane in the middle of a recession, it's not like they're going to be payed top dollar).

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Jul 30th, 2009 at 08:15:46 PM EST
Starvid,

The US and Canadian dollars have been shifting around in value a lot of late; two weeks ago it was 1 USD to 1.16 CAN, now it's 1 USD to 1.07 CAN - see http://www.x-rates.com/d/CAD/USD/graph120.html.

This will make the Feed-In Law, which is all about stable prices in CAN dollars, somewhat variable in terms of the USD. I'm sure that some speculators have noticed that one, and will play it to the hilt.

As for reactors and their costs, a number of articles have pointed out that very high discount rates are needed in the US due to the many uncertainties associated with projects that can take 10 years of more to install. Furthermore, a lot of the industrial infrastructure that was available to manufacture the many custom parts (such as those enormous steam boilers (hot water to steam) that tend to be made out of Inconel) has been toasted/gone belly up, part of the many factories that have gone kaputz in the last decade or so, along with the associated jobs (For the US, where a lot of those parts for Canadian reactors would be made, 40,000 factories and 6 million jobs in the last decade). So there are hordes of special parts that will be tough to manufacture anymore, at least in the US and Canada. And then there is the engineering and construction for these big projects...those who used to do this are out of practice, to say the least.

But more important, why would Canada, with a wind resource capable of producing several Terawatts of electricity in a country with only 30 million people ever need nukes? And as for pumped hydro capacity - Ontario has scads of it, especially on the shoreline of Lake Superior, and along the Niagara Escarpment (near Owen Sound/Lake Huron), for starts. And they could always buffer with NY and Quebec. Nukes have put the Province of Ontario deeply in debt, and as one who drinks Great Lakes water, I don't appreciate having these potential leakers (US and Canadian side) using lake water for cooling. They have a history of leaking, and they really leak money like there is no tomorrow. Ontario Power Generation could get better value for its investments if it plunked down $20 billion on wind and pumped hydro storage for the province, instead of conjuring up a need for nukes. Plus, with the neo-depression, electricity demand is down, not up, kinda trashing the argument for more power. But, there is the need to replace the coal burners for the province....and wind/pumped hydro would do a better job at that. For example, see http://wagengineering.blogspot.com/2009/07/windy-way.html. Rumor has it that OPG was paying people to take their nuke electricity this spring, due to supply-demand...imbalances....

Nb41

by nb41 on Fri Jul 31st, 2009 at 10:51:48 PM EST
[ Parent ]


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