Options for paying for new lines -- Ontario transmission crunch

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The need for certainty over how transmission upgrades in Ontario will be planned and paid for is vital if the province hopes to follow through on its plans for renewable energy, says the Canadian Wind Energy Association (CanWEA). The Ontario government wants to see 5% of electricity coming from renewable sources by 2007 and has just issued a request for 1000 MW of new renewable energy. It also placed orders for 395 MW of renewable capacity in November -- 90% of that in five wind projects -- and is planning a further request next month for another 200 MW.

Government has begun the process of consulting with electricity industry stakeholders on transmission policy, releasing a discussion paper on transmission and distributions issues, and holding a series of meetings to collect input. "We're very pleased the Ontario government is engaging in this process and starting to think through these issues," says CanWEA's Robert Hornung. "But at the same time, the need to move on them is fairly urgent. If we are going to meet the government's target of ten per cent renewable energy by 2010, they really have to figure this stuff out."

Right now, says Hornung, policy uncertainty poses a real potential constraint. Existing transmission is either lacking in many high wind resource areas or will soon be fully utilised. "Ontario will need upgrades in transmission in several areas in order to access good low cost wind energy," CanWEA says.

Central planning

The Ontario Power Authority (OPA), officially launched in January, will play a central role in procuring the supply to meet the government's targets. But it will also take on the much bigger job of forecasting Ontario's resource needs and preparing an integrated system plan that will include new transmission.

Centrally planned system upgrades have a number of advantages, says Hornung. Looking at where new generation is going to come from and designing upgrades to accommodate expected future expansion is more efficient and less costly than the current piecemeal approach, he says. And because grid reinforcements would be included in the rate base, it would provide a level playing field for all bidders in future requests for renewable energy.

A big drawback, however, is whether upgrades would be done in time for developers to bid their projects into those requests, especially since the OPA is only just getting up and running and the method for identifying areas to receive transmission reinforcements, and when, is unclear. "There are a lot of attractive features to a planning system and we certainly encourage the government to go down that path, but with no clarity behind the timelines for that or a process in place for that, we have to leave other options open," says Hornung.

One option already available to generators is to plan and pay for any transmission upgrades needed to connect their projects. While that eases concerns over timing, says CanWEA, it could lead to higher costs to consumers through less competitive bids and less efficient transmission expansion. "There is no doubt that the cost of the upgrade will be passed on to the OPA, and thus to ratepayers, through higher bid prices for the renewable energy," says CanWEA.

Instead, CanWEA and the Ontario Waterpower Association, which represents small hydro producers in the province, are proposing a hybrid system that would allow renewable energy developers to bid into future requests for project proposals, knowing any needed grid reinforcements will be included in the rate base, but only to a limit of C$60,000/MW. That sum, the groups estimate, is the amount of incremental annual revenue realised by the transmission and distribution systems from having additional electricity to sell.

This reinvestment, says CanWEA, "Would seem to be a reasonable amount for the ratepayers to pay to obtain this new power." Generators would pay a fixed connection fee and any costs above the $60,000 limit, preventing them from requesting interconnection studies for wind projects that are not likely to be viable or from locating wind farms in remote areas where the economics do not make sense.

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