PlanetNL5:
Low Reservoirs Will Strain Thermal Generation This Winter
Uncle Gnarley suggested readers be given a respite from the
gloomy Muskrat analysis series and instead asked PlanetNL to provide a critique
on a different energy concern: the impact of low reservoir levels on this
winter’s energy supply needs, as just revealed in a recent NL Hydro report.
The first concern is the cost of unplanned high fuel consumption
at Holyrood and the standby combustion turbines over the winter and possibly
well into 2018, a cost that NL Hydro is certain to want to recover through rate
adjustments. A considerable pre-Muskrat
rate hike will result.
The next concern is a more chilling worry. Can the Holyrood plant and the turbines, mostly
aged assets in need of extensive repair, withstand the biggest demands placed
on them in many years? If not, the
entire island system is at considerable risk of major outages.
Last week, NL Hydro released it’s latest twice-annual “Near Term Generation Adequacy Report” to the Public Utilities Board. As expected from a Nalcor subsidiary, they have given themselves a passing grade and conclude they have adequate capacity margin for this winter and for the next 4 years before Muskrat generation is fully on-line and even if mainland interconnection is incomplete that whole time.
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| NL President Jim Haynes |
Last week, NL Hydro released it’s latest twice-annual “Near Term Generation Adequacy Report” to the Public Utilities Board. As expected from a Nalcor subsidiary, they have given themselves a passing grade and conclude they have adequate capacity margin for this winter and for the next 4 years before Muskrat generation is fully on-line and even if mainland interconnection is incomplete that whole time.
Within the report it is revealed that in the July through
October period this year, barely half the average reservoir water in-flow rate
has occurred, resulting in low energy reserves at key hydro generation sites. Copied
below is a Table from the report that presents those in-flows in their
equivalent energy value. The historic
average annual value totals 4600 GWh but 2017 is coming up well short.
The report also included this useful Figure copied below
presenting that indicates reservoir energy level is approximately 1000 GWh
lower than ideal and over 500 GWh lower than the 20-year average.
The Figure also shows the story for winter 2016-17 which was a
normal season. Above average late fall
2016 rains brought water levels to near maximum just before the high demand
winter heating season, however, winter in-flows were below average, resulting
in overall average inflow. The
reservoirs were drawn down very evenly from 1-Dec (orange line at right) to
just after 1-Apr (blue line at left) by over 1200 GWh and still had some margin
to spare when spring thaw started new in-flows.
As a result, Holyrood supply last winter stayed on plan. The system was adequate, reserves were
present and large power outage events were few and brief.
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| Recent photo intake at Hinds Lake (submitted) |
Winter Energy Requirements – December through March
The 2018 Island Interconnected System Energy Forecast included
in NL Hydro’s General Rate Application filed this year, shows the energy supply
required during the 4-month winter period totalling over 3200 GWh. Holyrood is expected to produce 1300 GWh while
other non-hydro sources add a little over 100 GWh.
The balance of 1800 GWh supply is set to come from hydro
generation. As the historic average
monthly inflows (see the Table above) total to 1300 GWh, therefore the drawdown
from reservoir storage would be 500 GWh. But there are two circumstances that
makes the problem appreciably worse. One
is that hydro turbine efficiency drops significantly when water levels are low
(lower head pressure reduces power output).
The second is that NL Hydro acknowledges their weather forecaster, AMEC,
has advised to expect below normal precipitation for the next few months.
The reservoir energy deficit is likely 800 GWh. Ideally, an alternate source of supply would
be switched on during the winter period to not push the reservoirs below their
specified minimum target levels and avoid a carryover problem to next
winter. That would require 270 MW of
steady supply for 4 months and it simply doesn’t exist. Even if the Upper Churchill recall was
available this winter (it is scheduled to operate by next winter) it would only
deliver 110 MW of firm power and with the Labrador West mining industry
possibly warming up again, it could be even less.
Thermal Generation To The Rescue?
NL Hydro must find a balancing act to use hydro generation
judiciously this winter while maximizing use of it’s thermal assets – a group
of plants that don’t inspire confidence.
The Holyrood plant is the only one intended to supply regular
baseload power and it is already planned to run to about 80% of it’s maximum
total theoretical utilization and couldn’t be asked to do anything more until
at least April when loads appreciably drop off.
The energy deficit has nowhere to go but to the combustion
turbine fleet that are intended to serve as occasional brief emergency backup
rather than as baseload power supply.
The 50MW turbines at Hardwoods (St. John’s) and Stephenville
are practically obsolete, have a spotty service record, and planned major
capital upgrading remains incomplete.
The 120MW turbine installed at the Holyrood site a few years back, while
newer and more serviceable, is due for major inspection and overhaul next
year. If all three units are pushed into
hard service and perform well, they will deliver energy of about 100 GWh per
month.
Assuming 400 GWh of energy is successfully generated by the
combustion turbines from December through March, the remaining 400 GWh
reservoir energy deficit can be produced through no action except by running
the reservoirs well below their minimum target levels – presumably
unprecedented territory. Between April
and November of next year, barring above average precipitation and in-flows,
Holyrood is likely be called upon to produce the remaining energy deficit of
400 GWh, no trivial matter itself and not something the utility can wait out
and trust to the unproven Muskrat transmission line to resolve.
Cost
Consequences
Hydro generation is essentially a fixed cost business with no
production related variable costs – pay the overheads and the energy is
practically free. Thermal generation has
the substantial variable cost of fuel.
Holyrood burns Number 6 type fuel, presently forecast in the
GRA at $86.68 (CDN$) per barrel average cost in 2018. The plant’s energy conversion rate is 608 KWh
per barrel leading to a fuel-only cost of 14 c/kwh. The standby combustion turbine plants are
both less efficient than Holyrood and they burn higher-price diesel: the fuel
energy cost is typically double that of Holyrood, therefore 2018 costs might be
28 c/kwh.
The 400 GWh of turbine generation computes to a fuel cost of
$112M. The 400 GWh assigned to Holyrood will
add $56M in fuel cost.
NL Hydro will want to recover these costs from
ratepayers. Based on 7000 GWh total
island energy sales, recovery of this unplanned $168M fuel cost would require a
rate adjustment of 2.4 c/KWh to be passed on to all customers for a period of 1
year.
If these costs are treated under the 5-year Rate Stabilization
Program to defer and average exceptional cost items, substantial interest costs
are added and the rate premium would be 0.5 c/kWh minimum over 5 years. However, a 5-year period overlaps the enormous
future Muskrat price hike increasing rate shock effects.
Precedent
and the PUB
The PUB will be confronted with several options should these
costs come to bear.
The Board may deny NL Hydro part or any of the cost recovery
if they find more prudent management could have reasonably avoided extra fuel
costs. As precedent, the PUB rejected a
February 2016 request by NL Hydro to recover turbine fuel costs that winter which
NL Hydro attributed to a similar low water problem. As Uncle Gnarley summarized later that month,
in a blog post titled “Incompetence In Real Time”, the poor state of
maintenance at Holyrood was the root cause of the issue and therefore
ratepayers should be spared the cost.
With the power of hindsight, it can also be surmised that the
urgent low reservoir situation faced by NL Hydro in winter 2015-16 wasn’t truly
urgent at all. Reservoir energy was over
500 GWh better than today and was easily at or above historic average levels
before December yet the application stated the energy deficit was an astounding
1200 GWh. This level of estimating error
seems to the Nalcor way and is not limited to the Muskrat project. As further indication of possible subterfuge,
while the historic water level average line is included in last week’s report,
it was absent from the February 2016 application.
Unlike two winters ago, the problem of winter 2017-18 is
substantial and real, and it is likely the PUB will have to fairly consider
this situation. Recovery of any approved
amount is likely to be considered in tandem with other rate increases including
the 0.9 c/kwh increase made July 1, 2017 and the proposed increases of 0.7
c/kwh July 1, 2018 and 0.6 c/kwh January 1, 2019 in the GRA presently under
review. The PUB may ultimately decide to
do a highly customized 2 or 3 year recovery period to clear the slate before
Muskrat rate hikes of an additional 5-10 c/KWh arrive by 2021.
Reliability
Worries
The “Near Term Generation Adequacy Report” goes into some
detail assessing available generation capacity and concludes that NL Hydro has
adequate reserve margin and will be reliable under their normal assumptions for
generation equipment availability. At no
point, however, does the report indicate that the three combustion turbines
will be used for steady baseload power generation which will often reduce or
eliminate the reserve margin needed to avoid major outages.
When those standby resources are pressed into full-time
service, they are also at risk of suffering new and unanticipated failures that
may lead to their derating or complete unavailability. The same applies to the Holyrood plant whose ongoing
life cycle extension program is a feat of maintenance engineering by the line
management and staff tasked with keeping it running.
NL Hydro needs to rerun its report with decreased hydro efficiency,
lower hydro energy availability, combined with revised assumptions when using
standby turbines for baseload power generation.
The highest-level stress cases in last week’s report already look bad
but NL Hydro seems to dismiss them as unlikely.
It is quite probable that a properly revised model will show
considerably increased risk of major outage events: the unlikely could be
become the probable case.
While NL Hydro does have capacity assistance contracts,
principally with Corner Brook Pulp and Paper and a few other far smaller
sources, these provide for load curtailment or for Deer Lake Power to add
capacity for short bursts of up to a few hours duration only and for only so
many successive days. These measures
will help to a point but in the event of multiple long-duration equipment
failures and a serious hydro reservoir issue, the benefits will be limited.
NL Hydro is scheduled to present their overall Winter
Readiness Report to the PUB in early December.
Let’s hope that report will contain a much more thorough approach to
energy reserves and operating philosophy and that the PUB will not hesitate to
demand clarification if it comes up short.
Plan for
Outages
The potential for breakdowns during high load periods will be
the greatest in recent memory and certainly since the Dark NL event of January
2014. Much of the present spike in
capital program work at NL Hydro is being spent to address deficiencies
identified in reviews (mainly by the Liberty Group) completed after Dark NL,
however, plenty of the recommended work still lies ahead in the 2018-2022
Capital Plan. This winter’s real-world
stress test of a partly upgraded system is coming a few years too soon for
comfort.
Is NL Hydro ready for major outage events? What is their
operating plan to minimize outages? How and when do they intend to communicate
the low reservoir problem to the public?
Is there a contingency plan for days when the reserve margin drops below
desired levels other than saying listen for the “power watch warning” and asking
the public to down their heaters? Early
notice to the public of a challenging winter ahead could result in their taking
important individual actions to prepare themselves for difficult circumstances.
Likewise, is the Government ready to deal with the issues of
vulnerable people at risk or will a different Premier soon say he does not see it
is as a crisis about to happen?
For many of the public, this event could be their personal
tipping point to act on getting their energy consumption down. It is inevitable that this will happen before
the full measure of Muskrat-driven rate increases occur in 2021. Together with recent and projected rate
increases, the possibility of a one-time fuel cost recovery charge could increase
rates by about 40% in the space of 18 months since July 1, 2017. Those who are contemplating switching off
electric resistance heating, should hardly need more motivation.
Muskrat
Implication
The Pro-Muskrat crowd – particularly the New Muskrateers,
Ball, Coady, and Marshall – will likely attempt to spin the issue as a
justification for Muskrat Falls and will laud the potential for mainland energy
interconnection to prevent this from ever happening again. Such boasts would be to ignore terrible past
decisions, the possibly extraordinary price of imported power, and the
remaining opportunities to reduce future hardship. Had the right decisions been
made, an isolated island system could have withstood this low water event at a
fraction of the fuel cost and with a miniscule capital program relative to
Muskrat. It may still prove to be the
most sensible solution available if the elusive Muskrat can be killed.
References:
NL Hydro, Near Term Generation Adequacy Report, November 15,
2017: document not yet uploaded to PUB website or not located; obtained through
public email release NL Hydro, General Rate Application 2017, see p.144 of pdf for
2018 Energy Forecast:
NL Hydro Capital Budget Plan 2018-2022: http://www.pub.nf.ca/applications/NLH2018Capital/applications/From%20NLH%20-%202018%20Capital%20Budget%20Application%20-%20Volume%201%20-%202017-07-28.pdf
Uncle Gnarley post, “Incompetence in Real Time”, February 22,
2016:
NL Hydro application to PUB, February 5, 2016, for turbine
fuel costs arising from alleged low reservoir level concerns:
