Ontario’s Power Trip: The great electricity bill cover-up
Apr 5, 2012 7:49 AM ET
Ontarians will pay $319 more per year for green energy soon — despite government denials
The Ontario green-energy ship is taking on water and yet one would never know it from how the captain is talking. On March 22, the provincial government announced the results of its highly anticipated feed-in tariff (FIT) review and the message from the bridge was “Everything’s fine … stay the course.”
In supporting this message, the current captain/Minister of Energy Chris Bentley made reference to how green energy accounts for only about 5% of the increase in electricity bills. The problem with such a statement is it begs many questions, including 5% of what, and over what period?
A recent electricity price-increase forecast for 2012-16, filed with the Ontario Energy Board, helpfully provides answers, with wind and solar energy forecast to directly add $3.05-billion to annual provincial energy bills. Furthermore, if one makes conservative estimates for the costs required to integrate wind and solar, the added annual cost rises another $850-million. So, the additional annual cost for wind and solar will reach $3.9-billion by 2016, resulting in a residential bill increase of 3.17¢ per kilowatt hour or an annual $319 per household by 2016. In contrast to the current captain’s recent statement, this represents 54% of the total increase expected for 2012-16.
This number is a lot higher than 5%, so how did we get here?
The ship’s first captain — who long ago left the ship — allowed an external and somewhat self-interested group to craft the legislation that set Ontario electricity on a course for dangerous waters. At the time, the captain assured everyone that the Green Energy and Economy Act would increase bills by only 1% per year, while acknowledging that unit prices would rise significantly, so the only way for consumers to limit their increase would be to conserve. The problem is that in a business such as electricity, where most of the costs are fixed, uniformly reducing consumption leads to higher unit rates and largely unchanged bills. The only hope for conservers is that no one else will conserve and that they will be in the small minority.
Past and current captains alike have and continue to pull out a number of other life rafts that are full of holes. Here’s a few:
Renewables Replace Coal The Retire Coal movement started in the run-up to the 2003 election, when the Liberals matched the New Democrat Party’s promise to phase out Ontario’s coal-fired generating plants. To deal with this loss, the Ontario Power Authority procured over 7,000 megawatts of new, natural gas-fired generation, most of which is now in service. The Renewables Replace Coal argument has come up belatedly, as a way of justifying the runaway development of green energy, the associated gold rush and approaching high bill increases. Too bad wind and solar are none of what coal and natural gas are: firm, dispatchable and flexible. So, Ontario’s onslaught of renewable energy could not be coming at a worse time — just as uber-flexible coal is being replaced by flexible-but-less-so natural gas and as renewable energy provides too much power at the wrong times. One ugly result is that Ontario will be paying more and more to generators to not generate.
Health savings Back in 2005, the Ontario government commissioned a study that claimed that replacing coal would result in annual health savings of $2.6-billion. The preferred option to generate these questionable savings was — you guessed it — natural gas and not renewables. And what made the claimed savings questionable? The study authors incorrectly concluded there was a statistical cause-and-effect relationship between coal-fired generation and respiratory deaths — a fact that hasn’t prevented rampant misuse of the study (see University of Guelph economics professor Ross McKitrick’s work debunking this claim). On the off-chance the research was correct, now that coal-fired generation is down 85% from the study’s reference quantity, one would have expected that in his recent report Don Drummond would have talked about the supposed (pro-rated) annual health savings of $2.2-billion.
Green jobs Any projection that never changes is worthy of suspicion. From the introduction of the Green Energy and Economy Act, it has always been claimed that it will produce 50,000 green jobs. These jobs are largely to come from expensive wind and solar and with their 20-year contract lives, one would hope that these types of generation would then produce the lion’s share of the million person-years (50,000 jobs x 20 years) of employment Ontario should expect to see. Not so, according to studies done in 2011 for Canada’s wind and solar trade associations. Looking at the 2009-28 period, wind is to produce 73,000 person-years of employment while solar is to produce 85,000 person-years. Within these numbers, once the renewable energy gold rush ends around 2018, the combined ongoing employment drops to a measly 2,100 jobs. And before we leave the green-jobs topic, let’s not forget the jobs issue the government never discusses: the other jobs destroyed by high electricity prices.
Income from electricity exports Some see this as a good thing, but the fact that the quantity is growing and the sales are taking place at very low prices are both very negative factors. The increasing export quantity is a sign of excess supply — something that will only get worse over the next few years as Ontario adds huge quantities of wind, solar and other generation. The export sales also take place at prices that represent only pennies on the dollar relative to what was paid for the electricity. The current export price is under 2¢ per kWh and over the next five years is forecast to average under 3¢. So, if Ontario is buying at the respective prices of 13.5 and 44.3¢ per kWh and selling at small fractions of that, an increasing volume will only make matters worse.
In the end, Ontario will have expensive renewables that do not replace coal, do not deliver health savings, may cause a net job loss and that also contribute to a costly supply glut.
Who pays for all of this? Ontario electricity consumers in steerage. The upper decks, including offshore suppliers, far-flung and local project developers and investors, are all making out like bandits … and those setting Ontario’s course seem strangely indifferent to what’s happening on the lower decks.