PPG to Close Doors

An Owen Sound glass factory, PPG, has announced that it will close early next year. 130 people will lose their jobs, a significant number in a small town of 22,000. Does this have to happen?

The PPG plant opened over 30 years ago. When it opened, it had almost 1200 employees. Today, with only 130 people, they produce as much product as they did when they opened. Clearly, the workforce, systems and equipment are very productive.

One of the key costs for a glass plant is energy. The plant was a huge consumer of both natural gas and electricity. Ontario will never have the lowest energy costs. Our natural gas needs to be piped in from a great distance, and we have to rely on higher cost sources for electricity than some other areas. Our coal for our power plants comes from West Virginia, Montana, or Wyoming, with associated freight costs. Our low cost waterpower like Niagara Falls has already been tapped. Even our wind resource is not as good as the maritimes, or prairies, and so it costs more. So we have come to rely on costly nuclear.

But there is an opportunity to do better with what we have. Co-generation, where electricity is produced on site, and the surplus heat used for industrial purposes has a long history in Europe. The benefit of it is that the efficiency of co-generation can be as high as 80%, compared with perhaps 40% for conventional generation, or conventional industrial heat. More of the energy in the fuel is used.

I spoke to a couple of managers at PPG over the summer, and they had considered co-generation. Their concept was to produce some of their own electricity, so they wouldn’t have to buy it from the grid. But the economics of this will never work - we sell our electricity too cheaply, and the price is too volatile to build a business case. Displacing electricity purchases just doesn’t work. What they need is a long term contract to buy the power at a price that makes sense.

And it here that our government policy makes a difference. The government, through the Ontario Power Authority, routinely offers contracts to generation companies to buy power. And the prices offered are always higher than what the current market price of power is. This is done to ensure that the lights stay on. Consumers will continue to get low power prices, when the new more expensive power is blended with the older low cost power from long depreciated plants.

The Ontario Power Authority operates under legislation that states they must have cost in mind when they procure power. They claim they don’t have authority to offer high prices. One of the ways they accomplish this is through the use of Requests for Proposal. This is a competitive bidding process, where only the lowest bidders receive contracts. But is a company like PPG supposed to spend $100,000 doing preliminary engineering, so they know their cost, so they can prepare a bid, that may or may not be successful? Only the bravest companies would do this.

What is needed is a Standard Offer for co-generation and combined heat and power applications. A Standard Offer would offer a price for the electricity, with a long term contract, that would allow the industrial company to build a project at a profit. No bidding is required. If a firm can co-generate and produce power at the price offered, they will get a contract. The government will have to issue a directive to the OPA to do this.

A Standard Offer would have to include some price variability for fuel price changes, and could be higher for smaller installations. A 5 MW facility will cost more per kWh than a 50 MW facility. In addition to a Standard Offer, the government should offer low cost capital, as many struggling industrial firms don’t have sufficient access to capital right now. Ontario’s forest sector would be a key beneficiary of such a program.

What would be the outcome of a successful program? Ontario’s energy consumption would decrease. Ontario’s emissions would decrease. Ontario’s industries would become more competitive in the market. And the province would end up with a new baseload source of electricity supply, with shorter leadtimes, and less financial risk than new nuclear builds.

This type of program could be the single most important action that the Province could take to help Ontario’s industries. We should get on with it.