07 Jul 2005 HEADLINE

Ontario Study Identifies Social Costs of Coal-Fired Power Plants

Critics, notably in North America's fossil-fuel industry, have labeled this unrealistic if not foolhardy. Ontario generates nearly 27 TWh per year from 6,450 MW of coal-fired power plants, almost one-fifth of total provincial generation.

Often overlooked in the charged atmosphere among protagonists is that both major parties, including the previous ruling party, promised to close the coal plants. They disagreed only on timing.

With the late spring release of a report commissioned by the Ontario government, the ruling party has responded to its critics. The government says that it can not only close the coal plants, it's in the financial interest of the province to do so.

The study, "Cost Benefit Analysis: Replacing Ontario's Coal-Fired Electricity Generation," was conducted by DSS Management Consultants Inc. for the Ontario Ministry of Energy.

Not unsurprisingly, considering the province's long romance with nuclear power, the report concludes that lost generation can be most cost-effectively made up by a mix of new gas-fired power plants and refurbished nuclear plants.

The nuclear industry wasted no time in widely trumpeting the report. Similarly, the Ontario Chapter of the Sierra Club of Canada quickly attacked the study's key weakness that it didn't include an aggressive energy efficiency and renewable energy development program among its policy alternatives to continue burning coal. "Cost estimates for broken down nukes are less dependable than weather predictions," said Dan McDermott, Ontario Chapter Director in a press release.

Despite the Ontario government's avowed plan to replace 10% of its generation with renewables, the study failed to include the cost of new renewable generation. The study examined only the existing costs of coal, the cost of new, cleaner coal plants, the cost of gas-fired replacement, and the cost of a gas-nuclear combination. The ministry's consultants noted themselves that this was a serious limitation of the study.

The Ontario Clean Air Alliance called into question the reports assumption on the cost of refurbishing the province's idle nuclear reactors. The report estimated that it would cost $1,300 to $1,400 CAD/kW to refurbish currently inoperative reactors. The Alliance noted that it cost upwards of $2,400 CAD/kW to refurbish Pickering A4 and that the current cost of refurbishing Pickering A1 has already reached $1,900 CAD/kW and the work is not complete.

Further the Alliance challenges the report's assumption of the cost of capital for nuclear refurbishment. The study used a conservative estimate of 5% for the cost of capital to the province. The Alliance countered that the province's own earlier study on the role of nuclear power in Ontario recommended a more realistic figure of 10% to15%, reflecting the high risk of nuclear reconstruction.

Despite these and other limitations, the study provides sufficient economic grounds for the province to close the coal plants because of the plants' excessive environmental and social costs.

Coal plants kill 668 people per year in Ontario, says the report, and cause 1,100 emergency room visits, and more than 300,000 minor illnesses per year. These and previous findings by the Ontario Medical Association were the rationale used by Ontario's ruling party in arriving at its campaign promise.

The Ontario Medical Association considered only the number of premature deaths and acute illnesses caused by coal-fired air pollution. Significantly, the study used a more complex cohort methodology to estimate external health costs from coal-fired generation. This captures the illnesses, hospital visits, and deaths from long-term exposure. Public policy decisions are often based on cohort studies.

The costs associated with long-term exposure are almost an order of magnitude greater than those from premature deaths only. The study estimated that the costs from long-term exposure were more than six times those from premature deaths. While the Ontario government made a public policy decision to close the province's coal plants based solely on premature deaths attributable to coal-fired air pollution, the use of cohort data more than substantiates the decision.

Estimates of such costs are sensitive to the value society places on a human life. Fortunately, there was an earlier study on the Value of a Statistical Life in Hamilton, Ontario. The Ministry of Energy consultants used the conservative data from this study  of an average $4.2 million CAD per life. For comparison, the report cites the U.S. Environmental Protection Agency uses a range of values from $2.6 to $13.3 million CAD per life. The average value used in the Ontario Ministry of Energy report is somewhat less than that used by Europe's ExternE study of $5 million CAD per life. Thus, the external costs due to premature deaths could be from 20% to 90% greater than those used in the study. Using a sensitivity analysis, the study increased the value of a statistical life 25% to reflect the higher values used in Europe and the USA. This resulted in an increase in overall costs by 30%. Thus, increasing the value of a statistical life could add $0.03 CAD/kWh to the environmental and social costs of coal-fired generation in Ontario, bringing the total to more than $0.15 CAD/kWh.

When dealing with the difficult task of estimating the costs of climate change from coal-fired and gas-fired generation, the report opted for the easiest solution: the expected trading price of greenhouse gas permits. Under Canada's Kyoto agreements, the upper cost of greenhouse gas control is capped at $15 CAD/tonne through 2012. After 2012,  the price is more uncertain.

Greenhouse gas costs accounted for 90% of the external environmental (as opposed to external health) costs of the base case, continuing operation of the existing coal plants. This is the cost of tradable permits and not the cost of damage from climate change.

The cost of impact from climate change could be as much as ten times that used in the Ministry's study, according to a recent report by Olav Hohmeyer at the University of Flensburg in Germany. Hohmeyer is one of the world's leading authorities on valuing external costs of electricity generation and was one of the principal authors of Europes ExterneE study on external costs.

In sum, the Ontario report estimates that the net present value of total environmental and health costs from operating the existing coal plants during the 22-year time horizon of the study is $0.127 CAD/kWh.

The study estimated that the total net present value of coal-fired generation is costing Ontario $0.164 CAD/kWh. Environmental and health costs accounted for 77% to total generation costs.

The total cost of gas-fired generation was $0.098/kWh CAD; the gas-nuclear case: $0.072/kWh CAD; and the implementation of stringent new controls on coal: $0.105/kWh CAD.

The Ministry of Energy's report could have far-reaching consequences for public policy in North America. Few other studies have found coal-fired generation so expensive. Nor have previous studies been used to justify such momentous action as closing one-fifth of a region's electricity generation on health and environmental grounds. If Ontario is successful, the province's bold move could be precedent setting across North America.

"Cost Benefit Analysis: Replacing Ontario's Coal-Fired Electricity
Generation" by DSS Management Consultants Inc. and  RWDI Air Inc., for the Ontario Ministry of Energy, April, 2005, 93 pages,
http://www.energy.gov.on.ca/english/pdf/electricity/coal_cost_benefit_analysis_april2005.pdf.