There is still much work to be done on behalf of Ontario’s energy consumers and taxpayers.
In 2005, I released a study called Pain Without Gain with two co-authors (University of Guelph professor Ross McKitrick and air quality analyst Joel Schwartz). The subtitle of the piece was that shutting down coal-fired power plants would hurt Ontario.
In that study, we showed that, despite operating coal-fired power plants, air quality improved dramatically since the 1970s.
We also showed that coal plants played only a small role in pollution and smog formation, and that emissions of mercury (from all sources) did not pose a significant risk to Canadian’s health. And that closing the coal plants would have little to no effect on environmental mercury levels.
It turns out, in hindsight, we were somewhat generous in our assumptions regarding the long-term costs and lack of environmental benefits that would stem from the coal plant phase-out.
“Ontarians derive substantial benefits from the operation of the coal-fired power plants,” we wrote, “and before shutting them down the Ontario government has a fundamental duty to evaluate whether the costs of such a decision would exceed the benefits; and Ontario’s coal plants are likely a net benefit to society, and the decision to close them is unlikely to pass an objective cost-benefit test.”
Fast forward 13 years and we see how disastrous the Ontario government’s choices to shutter coal-power plants, and later enact the Green Energy Act, have been.
A recent Fraser Institute study digs deeply into power prices in Ontario to show just how much of today’s high electricity prices stem from the coal phase-out, subsequent development (and non-development) of backup natural gas generation, and, most critically, the decision to subsidize wind and solar power with feed-in-tariffs (FIT) that guaranteed those energy sources would command higher than market prices for decades.
What the Fraser researchers found is astonishing.
To help pay for the FITs and the commitments the Ontario government made to renewable energy generators, the government levied a surcharge on electricity bills, called the global adjustment (or GA). Between 2008 and 2017, the GA grew from under one cent per kilowatt-hour (a common billing unit for energy) to about 10 cents, causing a drastic increase in electricity prices, spiking home hydro bills and hitting Ontarians in the wallet. The allocation of the GA to renewable energy generators is now nearly 40 percent, making it the largest component of the GA.
But that’s not the most shocking part. Most revenue earned by renewable power producers is from the GA subsidy – not actual power sales. From May 2017 to April 2018, market revenues for renewable generators (based on wholesale market sales) totalled about $0.5 billion, which was supplemented by $4.2 billion from GA revenues to satisfy FIT contract requirements.
In other words, almost 90 percent of the revenue to renewable generators came from the GA subsidy, rather than through sales of actual power. And for all of that, wind, solar and biomass power generate only seven percent of Ontario’s electricity generation (63 percent is nuclear, 26 percent is hydro).
The authors of the recent study urge the Ontario government to continue cancelling FIT contracts, but offer a caveat. To do it without incurring financial liability, Ontario’s legislature must pass explicit legislation – it can’t simply cancel the contracts through administrative action. For the sake of Ontario power consumers, households and businesses, one hopes the government of Premier Doug Ford takes this up expeditiously.
The people of Ontario have been poorly served by a green agenda that put posturing ahead of Ontario’s energy consumers and taxpayers. Ford is right to have unwound much of this. There’s still more work to be done, however, to put things right for Ontarians.
Kenneth Green is an analyst at the Fraser Institute.