Did Ontarians get a good deal with the Green Energy Act?

Op-ed - Sept. 16, 2011 - By Tim Weis

Published in The Toronto Star (Sept. 16, 2011), The Mark (Sept. 16, 2011)

The Green Energy Act brought Ontario new investment, jobs and manufacturing — not to mention clean sources of energy. But Ontario is now paying premium prices for that clean electricity, and many Ontarians are wondering if they got a good deal. Given the increase in manufacturing jobs, and the promise of lower energy prices in the medium to long term, the Green Energy Act is a winning proposition.

Those who disagree find fault with the fixed-price contract or 'feed-in tariff' (FIT), which is simply a guaranteed price paid to renewable energy producers when they sell clean energy into the grid. Critics argue that the FIT is overly generous. In fact, the FIT is set at the price that makes renewable energy plants financially viable. Is this too generous? No, if you want clean energy, then you needs to pay the costs to attract the private sector investment required to build renewable energy projects.

Critics also often compare the FIT to current electricity prices, which tend to be much lower. This is a false comparison. Current prices reflect the broad use of decades-old technology in plants about to be retired. It would be far more meaningful to compare the FIT to the cost of electricity generated in the modern plants that will replace current ones, and whose prices are more comparable to the current FIT.

What about a competitive bidding process? Some believe awarding development contract to the lowest bidder would lead to lower prices for consumers than a feed-in-tariff, which offers anybody who wants to produce the same fixed price. But the experiences of European countries suggest otherwise. The United Kingdom's competitive bidding system left it with higher energy prices than Germany's, which used a FIT-style system. The UK has since switched to a FIT system as well.

Renewable energy projects may cost a little more in the short-term, but once built, they provide predictable supply, demand, and prices over the medium to long term that encourages investment in further renewable energy projects. This, in turn, creates winning market conditions for manufacturers of wind turbines, solar panels and other renewable energy equipment that Ontario is trying to attract.

To further encourage manufacturers to build plants and create jobs in Ontario, the Green Energy Act makes FIT prices contingent on made-in-Ontario manufacturing content. That means any farmer who wants to get paid through the FIT program to feed, say, solar power back to the grid would have to install a solar panel made from at least some parts manufactured in Ontario. This is no small matter given that previous renewable energy development policies in Ontario resulted in virtually no associated manufacturing growth.

The fact is electricity prices are going up with or without feed-in tariffs. Half of Ontario's electricity transmission system is now over 50 years old, and almost half of its current power plants, including all nuclear plants, will need refurbishment or replacement within the next 10 years. Ontario will also phase out coal power within the next three years. Modernizing Ontario's electricity system will require massive investment in the coming decades, which will certainly mean higher prices.

Put differently, the amount of electricity generated from renewable sources represents such a small share of total electricity produced in Ontario that its impact on prices paid by consumers is negligible. In the years ahead, electricity prices will be far more heavily influenced by the costs of nuclear energy and natural gas than by the FIT program. Cancelling the Green Energy Act would lower electricity prices by two per cent at most.

Major changes are on the way in Ontario's electricity system. Ontario's FIT is not perfect, but it doesn't deserve the blame for all the changes to electricity prices. The built-in bi-annual review of the FIT is due to begin this fall, a process designed to reduce prices over time, and then Ontarians will to need to ask themselves if they want to improve the program, or throw it out and tell investors and manufacturers the rules of the market will start all over again. Whatever decisions are made will determine how clean, efficient and affordable Ontario's electricity will be in 20 years, and how much of it will be made in Ontario.

Tim Weis
Tim Weis

Dr. Tim Weis was the director of the Pembina Institute's renewable electricity program until 2014.


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