nuclear-news

Ontario’s huge nuclear debt and other things Dutton doesn’t understand about cost of electricity

 Dutton and O’Brien also want to do this via a government-owned utility, instead of via a competitive market.

ReNewEconomy, Tristan Edis, Oct 30, 2024

All of this has left taxpayers with a massive budget and timeframe blow-out. This is what happens when we leave it to politicians in a hurry to hand pick power projects.

It seems our alternative Prime Minister Peter Dutton’s favourite topic is your electricity bill.  Given how much he talks about electricity prices, you’d think he might know a fair bit about what makes up your electricity bill, wouldn’t you?

According to Dutton and his Shadow Energy Minister Ted O’Brien, the problem is all about too much renewable energy in the mix. And their answer to the problem is nuclear power, as well as more gas.

According to Peter Dutton, “We can’t continue a situation that Labor has us on of a renewables only policy because, as we know, your power prices are just going to keep going up under this Prime Minister.”

Instead, according to Dutton, “we could be like Ontario, where they’ve got 60 or 70 per cent nuclear in the mix, and they’re paying about a quarter of the price for electricity that we are here in Australia.”

O’Brien, elaborated on this point by saying:

“We will have plenty of time in due course to talk about the costings [for their nuclear plan] once we release them here in the Australian context. But I point to Ontario in Canada, there you have up to 60 per cent of their energy mix in the grid, coming from zero emissions, nuclear energy. Their households pay around about 14 cents kilowatt hour. There are parts in Australia that will be paying up to 56 cents a kilowatt hour from July 1 this year.”

Once you actually delve into these numbers it becomes apparent that O’Brien and Dutton don’t seem know much about electricity costs and pricing.

But even worse, they don’t know how badly Ontario’s taxpayers and electricity consumers were burnt by their utility racking up huge debt building nuclear power plants equal to $70 billion in current day Australian dollars.

Do Dutton and O’Brien understand your electricity bill?

You can actually look up what Ontario households pay for electricity via the Ontario Energy Board’s bill calculator website.

This provides you with a break down on the charges a typical household faces depending on the utility you choose…………………………………………………

But notice there’s also other very significant items in this bill separate to the kilowatt-hour charge? There’s a “delivery” charge which is the cost of paying for the  distribution and transmission poles and wires. There’s also regulatory charges and also their sales tax is known as “HST” rather than GST for us.

So the Ontario 14 cents per kilowatt-hour charge that O’Brien and Dutton are referring to covers only the wholesale energy portion of their bill.

In Australia, we pay a majority of the costs of distribution and transmission in our cents per kilowatt-hour charge, in addition to wholesale energy costs, and then we get GST added on top. O’Brien and Dutton don’t seem to have appreciated this important aspect of electricity pricing in this country, which is different to Ontario.

But it actually gets worse.

I went digging on the official government energy retailer comparison sites- www.energymadeeasy.gov.au and www.energycompare.vic.gov.au and I initially couldn’t find a single Australian retailer selling electricity at 56 cents per kilowatt-hour. 

This was based on looking at offers based on a single rate tariff. Then I had a brainwave and looked at time-of-use rates. In Queensland and Victoria I still couldn’t find anyone wanting to charge me 56 cents for the peak period. 

But eventually I succeeded. Right at the bottom of the EnergyMadeEasy list of retailer offers – which were ordered from best to worst – sat EnergyAustralia as the worst offer, charging 57 cents for the peak period in South Australia (although with a compensating high solar feed-in tariff of 8.5 cents)…………………………………

To help out O’Brien and Dutton, I’ve prepared the table below which provides a proper apples versus apples comparison (as opposed to apples vs peak rate bananas) –[on original ]

…………………………………………….. Ontario’s nuclear debt debacle

Yet this comparison between Ontario and Australia misses a far more important part of the story that O’Brien and Dutton seem to be blissfully ignorant of. 

That is the history of the Ontario’s state owned utility – Ontario Hydro – and the unsustainable level of debt that it racked up over the 1980’s and 1990’s as a result of an ambitious nuclear plant construction program that went wrong. 

While this cost is no longer apparent in current electricity prices, Ontario businesses and households were stuck with paying back CAD$38.1 billion in debt (over $70 billion in Australian current day dollars) for more than 35 years after their public utility committed its last nuclear reactor to construction in 1981. 

So what went wrong?

In anticipation of large growth in electricity demand, over the 1970’s and 1980’s Ontario Hydro committed to construction 12 nuclear reactors with 9,000 MW of generating capacity. To fund the projects the public utility accessed commercial debt markets anticipating that it could comfortably repay this debt from the increased electricity demand it forecast. However, several things went wrong.

 The nuclear power stations took far longer to build and were around twice as expensive to build than had been planned

– Interest rates on debt rose to very high levels by historical standards over the 1980’s in order to contain the high levels of inflation that unfolded over the 1970’s and early 1980’s. With the nuclear power stations taking longer than expected to build, interest was accumulating on this debt with far less output from the plants to offset it.

– Lastly, Ontario Hydro’s estimate of large growth in electricity demand didn’t eventuate. A 1977 forecast projected a system peak of 57,000 MW by 1997. Actual peak demand in 1997 was 22,000 MW. This meant that the very large cost and associated debt of the large nuclear expansion had to be recovered from a much smaller volume of electricity sales than it had anticipated, making it much harder to pay off the debt without substantial increases in electricity prices.

……………………………………………………………………………………………………………… “On April 1, 1999, the Ministry of Finance determined that Ontario Hydro’s total debt and other liabilities stood at $38.1 billion, which greatly exceeded the estimated $17.2-billion market value of the assets being transferred to the new entities. The resulting shortfall of $20.9 billion was determined to be “stranded debt,” representing the total debt and other liabilities of Ontario Hydro that could not be serviced in a competitive environment.”

So the CAD$38.1 billion in debt was transferred out of the electricity companies and into a special purpose government entity called the Ontario Electricity Financial Corporation (OEFC). This debt management corporation was given the following revenues to service the debt:

– Both residential and business consumers were required to pay a special “Debt Retirement Charge”. This charge was introduced in 2002 and lasted until 2016 for residential consumers and 2018 for business customers.

– The Ontario government would forgo any corporate income and other taxes owed by the offshoot electricity companies from Ontario Hydro so they could be diverted to the OEFC to pay down debt.

– If the cumulative profits of two of the new state power companies exceeded the $520m annual interest cost on their debts, then this would go towards paying stranded debt rather than dividends to the Ontario government.

None of this is apparent on current bills, but the burden of repaying the nuclear debt left the Ontario government and its taxpayers far poorer than Dutton and O’Brien seem to appreciate.

More things O’Brien doesn’t want to understand about Ontario’s nuclear power program

Dutton and O’Brien like to claim that nuclear power plants last a very long time and so therefore the large upfront cost of these plants isn’t something we should be too worried about………………………..

It’s not as simple as this. Nuclear power plants involve a range of components which are exposed to severe heat and mechanical stress. These all need to be replaced well before you get to 60 years, and such refurbishment comes at a cost.

Ontario’s experience is that refurbishment comes at a very significant cost. Less than 25 years after the Darlington Nuclear Power Plant construction was completed, it needed to commence refurbishment. The total cost? $12.8 billion in Canadian dollars or $14 billion Australian dollars. 

This is partly why, even though the original nuclear construction cost debt had been largely paid down and nuclear operating costs are lower than coal or gas plant, Ontario still pays more for its electricity than we do.

This is because the current owner of the nuclear power plants – Ontario Power Generation – operates under regulated return model where the regulator grants them the right to recover these refurbishment costs from electricity consumers.

Are O’Brien and Dutton about to commit to another Snowy 2.0 budget blow-out, but on steroids?

………………………………The problem here is that when you don’t know very much and you’re spending other people’s money, ego can easily cloud your judgement.  Don’t get me wrong, ego will often cloud business leaders’ judgement too. But their ability to spend money to feed their ego can only so far before either competitors or shareholders intervene.

Ontario taxpayers on the other hand realised far too late that their public utility, in cahoots with their politicians, were pursuing a nuclear vanity project built upon a poor understanding of the future, and without any competitor to discipline their ego. 

Australian taxpayers have seen a similar mistake unfold with the Snowy 2.0 pumped hydro plant whose cost now stands at five times greater than the original expectation, and double what was meant to be a fixed price construction contract.

Snowy 2.0 is a parable of what goes wrong when:

– Politicians rush things leading to inadequate planning and preparation;

– Politicians fail to objectively and thoroughly evaluate alternatives; and

– Politicians fail to employ open and competitive markets to deliver end consumer outcomes.

All of this has left taxpayers with a massive budget and timeframe blow-out. This is what happens when we leave it to politicians in a hurry to hand pick power projects.

Unfortunately for us, Dutton and O’Brien are also in a hurry. They think they can deliver nuclear power plants far faster than what many experts believe is sensible and what many countries with far more nuclear experience than ourselves have been able to achieve. Dutton and O’Brien also want to do this via a government-owned utility, instead of via a competitive market.

While the budget blowout of Snowy 2.0 is bad enough, it pales into comparison with the kind of cost blow-outs that can unfold with nuclear power projects. As an example, the budget for completion of UK’s Hinkley Point C nuclear project now stands at $89.7 billion which is three times higher than what was originally budgeted.

We’ve all seen this movie before, including in Ontario, and it doesn’t end well……………………………………………………………………………………………………………….. more https://reneweconomy.com.au/ontarios-huge-nuclear-debt-and-other-things-dutton-doesnt-understand-about-cost-of-electricity/

October 31, 2024 - Posted by Christina Macpherson | AUSTRALIA, business and costs, Canada