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OPA’s CHP RFP doesn’t deliver the goods, says Casten

On January 19th, the Ontario Power Authority (OPA) announced a new power-related program that is meant to serve both Ontario’s electricity users and the province's industrial backbone. The initiative, called Combined Heat and Power III (CHP III), is part of an integrated effort to support the provincial government’s aggressive conservation and renewable energy targets. However, not all observers believe the proposal will succeed. Thomas Casten, Chairman of Recycled Energy Development LLC and an Energy Management columnist, was unimpressed by the announcement.


February 23, 2009
By Rob Colman

The OPA posted a draft request for proposal (RFP) on the 19th to enter into contracts with large industrial companies capable of generating both electricity and heat for industrial processes, from renewable fuels.

The CHP procurement is designed to increase industrial efficiency, expand the role of renewables in Ontario’s energy mix and increase the flexibility and reliability of the entire electricity grid.

The draft RFP — posted on the OPA’s website — responds to a directive from the Government of Ontario, to secure approximately 100 megawatts (MW) of high-efficiency renewable-fuelled Combined Heat and Power (CHP) projects.

CHP III encourages large industrial businesses to generate both electricity and process heat for their own manufacturing processes and to sell excess power back to the provincial grid. The procurement is expected to attract companies that create potential bio-fuels as part of routine industrial process, such as wood waste.

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“The latest RFP for 100 MW of CHP from the OPA is disappointing to say the least, and could be viewed in an even more negative light,” says Casten. “Give it a B- for public relations, a D for listening and transparency and an F for meaningful efforts to deploy clean energy.”  

Casten admits these are strong words, but he has his reasons.

Regarding the B- For Public Relations, he notes, “The OPA’s long range plan was full of problems and the responses of interveners to the Ontario Power Board were so strong that the Minister of Energy stopped the proceeding in November 2008 and sent OPA back to the drawing board. Time to divert public criticism, so issue a short-time-fuse RFP (answers due in under three months) to divert more critical questions about OPA planning.”

D for Listening and Transparency: “In 2005, Premier McGuinty [made a] pledge to close Ontario’s coal fired power stations. In response, a broad group of stakeholders formed the Alliance for Clean Technology (ACT), which sought a consensus on the best way to induce waste energy recycling from manufacturers and new local power plants. ACT suggested defining qualified clean energy plants as those achieving nearly twice the efficiency of the Ontario power system, which would slash all pollution, including greenhouse gasses. World Wildlife and others sponsored a public conference, attended by several OPA officials and knowledgeable CHP and recycled energy developers and policy makers from the U.S. and Canada.  The message was clear and uniform.  Because developing local energy projects takes two to three years and requires a partnership between developer and industrial host, the RFP process does not work. RFPs for CHP have not succeeded anywhere in the world.

“What is needed is a standing offer to purchase the clean power at stated prices and terms,” continues Casten. “California has used standard offers to induce 22 per cent of total power from efficient local generation. The last OPA RFP for CHP did not attract enough bids to fill the 500 MW goal, and only completed a process that had been underway for several years. It failed to induce new projects.”

Casten explains that a CHP RFP assumes CHP developers and industrial hosts are prepared to go at risk, work through design of process changes and develop legal partnerships, spending two years and perhaps $1 to $3 million, all in hopes that OPA will decide to ask for bids at some time in the future.  

“This is a lousy bet,” says Casten. “Unless OPA acts, the project ends up displacing retail power that is subsidized by Ontario’s taxpayers. The projects could sell at a discount to the best new central power, thanks to their efficiency, but they cannot compete with the average cost of today’s power, that includes massively subsidized nuclear generation.”  

Casten further gives the initiative an F for Meaningful Efforts to Deploy Clean Energy:  “Ontario needs over 3,000 MW of new generation to replace coal. Provincial manufacturers are facing global competition and need every cost saving possible to keep producing — to keep jobs in the province. These manufacturers have waste energy streams that could be recycled into electricity and thermal energy, and they burn precious fossil fuel to produce process heat. Local generation efficiency savings could improve manufacturing competitiveness and reduce emissions. There are many local generation opportunities in Ontario, because the old Ontario Power did all in its power to discourage local generation, the subsidized electric rates discouraged investment, and the Province offered no environmental rewards for cleaner energy.  

“If the OPA is serious about deploying clean energy, then make a standard offer with stated prices, below the best delivered cost of the best new central options, wind or solar, but above the retail price,” insists Casten. “Keep the offer open for three to four years or until 500 MW of bona fide contracts are signed.  Then evaluate results, tweak the offer and go attract more clean energy generation. This action hardly suggests a desire to meaningfully develop clean energy. Perhaps the real goal is to make sure that the only remaining option is full taxpayer support for another nuclear adventure.”
 
 


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