Fraser Institute report slams plan as too costly.
June 19, 2013
by Joe Terrett, Editor
The Canadian think-tank says costs for developing more wind and solar power generation will hit manufacturing and mining hard.
Ontario premier Kathleen Wynn has declared she is very sorry for the $585 million cost (so far) of cancelling two planned natural gas power plants in Oakville and Mississauga during the provincial election in 2011, but there may be more regrets related to her predecessor Dalton McGuinty’s Green Energy Act (GEA) to come.
The Fraser Institute, a Canadian think-tank with offices across the country, has released a report that’s highly critical of the costs associated with the former premier’s flagship energy policy, saying large industrial users of electricity will see costs rise to be among the highest in North America, resulting in serious consequences for the province’s economic growth and competitiveness.
“Already, the GEA has caused major price increases for large energy consumers, and we’re anticipating additional hikes of 40% to 50% over the next few years,” says Ross McKitrick, a Fraser Institute senior fellow and author of Environmental and Economic Consequences of Ontario’s Green Energy Act, in a statement announcing the report.
McKitrick, noting the Ontario government defends the GEA by referring to a confidential 2005 cost-benefit analysis on reducing air pollution from power plants, says the analysis did not recommend pursuing wind or solar power. Instead it looked at conventional pollution control methods, which would have yielded the same environmental benefits as the GEA, but at a tenth of the current cost.
“If the province sticks to its targets for expanding renewables, the GEA will end up being 70 times costlier than the alternative, with no greater benefits,” he says.
The report contends the manufacturing and mining sectors will be particularly hard-hit by rising energy costs. It predicts returns to investment for manufacturing will likely decline by 29%, mining by 13%, and forestry by less than 1%.
“We’ve always had concerns with the economic modelling of the Green Energy Act,” says Ian Howcroft, vice-president of the Ontario division of Canadian Manufacturers & Exporters (CME). “We supported looking at alternate energy; we thought the energy mix should include solar, nuclear, gas and other opportunities, [but] you have to look at the economics of this, you can’t have a subsidized rate starting at 62 cents for solar and then sell that for between 5 and 11 cents, it just doesn’t make sense, its not sustainable. I think we’re finding that out right now.”
McKitrick says provincial efforts to shield these industries through subsidy programs only transfer the costs onto Ontario taxpayers, “who are already dealing with skyrocketing residential electricity prices.”
But Howcroft recommends an industrial rate in line with what competing jurisdictions in the US are offering their manufacturers.
“We have to make sure everyone understands the important role manufacturing plays in the province of Ontario: …750,000 direct jobs and 1.5 million indirect jobs. How do we protect that?”
And yes, ratepayers would be subsidizing those rates, but Howcroft emphasizes the importance of making the “right investments” rather than in something that doesn’t make economic sense, such as the Feed-in Tariff (FIT) program.
In an e-mailed response to questions, the communications branch of the Ontario Ministry of Energy says its 2010 Long-Term Energy Plan estimated that industrial electricity prices would rise an average of 5% a year between 2010 and 2015. So far, the increase has been less than that forecast. Last year, non-hydro renewables accounted for about 14% of the Global Adjustment, including 4% from the FIT program. It notes the following measures that could lessen the burden on manufacturers:
• As of January 2013, industrial companies could be eligible for electricity rates among the lowest in North America if they start or expand operations and create jobs through the recently announced Industrial Electricity Incentive program.
• The Industrial Conservation Initiative, available to approximately 150 of Ontario’s largest energy consumers, shifts electricity consumption to off-peak hours.
• The Northern Industrial Electricity Rate Program provides price rebates of two cents per kilowatt-hour to qualifying large industrial facilities. On average this reduces industrial electricity prices by about 25%, based on 2012 levels.
• The Ontario Power Authority offers demand response and energy efficiency programs that can further reduce industrial customers’ bills.
The Fraser Institute study is especially critical of the GEA’s focus on wind generation. It claims 80% of Ontario’s wind-power generation occurs when electricity demand is so low that the entire output is surplus and must be dumped on the export market at a substantial loss.
The Auditor General of Ontario estimates that the province has already lost close to $2 billion on surplus wind exports, and the report says figures from the electricity grid operator show the ongoing losses are $200 million annually.
The wind grid is described as inherently inefficient due to the fluctuating nature of the power source. The report calculates that due to seasonal patterns, seven megawatts of wind energy are needed to provide a year-round replacement of one megawatt of conventional power.
“Consequently, the cost of achieving renewable energy targets for the coming years will be much higher than the Ontario government’s current projections,” McKitrick says. “In fact, air emissions may start going up under the GEA if the growing surplus of wind and solar power necessitates taking one of Ontario’s nuclear power plants offline.”
The Canadian Wind Energy Association (CanWEA) says the Fraser Institute takes a “simplistic approach” to examining the benefits of the GEA, and highlights its reliance on “the widely criticized” 2011 annual Report by the Auditor General of Ontario.
Although electricity prices are increasing across North America as jurisdictions upgrade “ancient electricity systems,” CanWEA vice-president Chris Forrest says “wind energy is cost-competitive with virtually every potential new source of generation available in Ontario and it does not create hazardous waste or consume vast amounts of fresh water from our Great Lakes.”
The Ministry of Energy dismissed the idea of scrubbing old coal-fired power plants, saying there is no proven technology that prevents coal plants from emitting greenhouse gases. “On the other hand, wind and solar power emit zero greenhouse gases, zero smog-causing pollutants and zero mercury.”
It says new rules enabling the “dispatch” of wind generation in Ontario’s electricity system are to be implemented by the fall. “Once the rules are in place, wind can be turned off when generation is not needed, decreasing the need for temporary shutdowns of nuclear units.”
And it also allows there may be adjustments: “As we move forward we will continue to look at all options to strike the balance between reliability and affordability, while continuing our work on modernizing our electricity system.”
Those potential adjustments will likely be impacted by the government’s response to a World Trade Organization upholding a complaint from the EU and Japan that Ontario’s program to promote green energy violates international rules. The complaint centres on the GEA’s requirement that a percentage of solar and wind components be made in the province.
Energy minister Bob Chiarelli has said the province isn’t about to abandon its green energy initiative, and he told the CBC Ontario will be working with the federal government to address the ruling’s implications.
The province’s manufacturers will also be monitoring the act’s impact on their operations. Howcroft observes that growing the manufacturing base will require more energy, so it must have a reliable supply. “And as our members keep reminding us, it has to be cost competitive. [When you] look at what the US, Quebec and Manitoba provide to their manufacturers, the energy file is not looking too positive for Ontario manufacturers.”
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This article appears in the May/June edition of PLANT.