Contributed by Robert Lyman © 2019
Robert Lyman is an Ottawa energy policy consultant. He was a public servant for 27 years and a diplomat for 10 years prior. His full biography is here.
With the current push for public policy to adopt ‘green energy’ schemes, it is time to reflect on the Ontario experience.
Ontario’s disastrous electricity policy has been publicized and commented on extensively by many sources, so this is not news. What is news is to lay the blame squarely at the door of its climate policy motivation, and, perhaps, to remind people of high the bill has been – $9 billion for poor contracting practices, $133 billion in global adjustment fees from 2015 to 2032 (at least 20 per cent of which relates to renewables), $3.6 billion to build the “smart grid and smart meters”, up to $55 billion in deferred costs that will hit future ratepayers, and 75,000 lost industrial jobs. That is quite the tally for zero global environmental benefit.
From 2003 to 2018, two Ontario Premiers, Dalton McGuinty and Kathleen Wynne, and their parties governed the province of Ontario and implemented a series of policies founded on the theory that humans are causing catastrophic global warming and that reducing greenhouse emissions in Ontario would make things better. The centerpiece of their climate policy was the transformation of Ontario’s electricity sector.
LINK TO FULL REPORT: The Ontario Electricity Legacy FINAL
After winning the provincial election in 2003, the McGuinty government began closing coal plants, adding wind and solar power generation and expanding the nuclear and hydro generation in the province. It did not anticipate the effects of the global financial crisis or of the higher electricity prices that resulted from their actions. By 2008, it became clear that electricity demand had declined significantly, and that the by-then available nuclear, hydro and natural-gas fired generation was more than adequate to meet Ontario’s needs, even if the coal-fired plants were closed. Yet the Ontario government embarked on a major expenditure program, which it presented as a job creation initiative.
In 2009, the Ontario government passed the Green Energy Act. The Act sought to stimulate investment in wind, solar, hydro, biomass and biogas projects and to increase energy conservation. Notably, it:
- Created a Feed-in-Tariff that the Independent Electricity Systems Operator (IESO) must pay, guaranteeing specific above-market rates for energy generated from renewable energy sources under 20-year contracts;
- Gave renewables “first-to-the-grid” rights, meaning that IESO had to take their production in preference to all other sources of generation; and
- Implemented a “smart” grid to support the development of renewable energy projects.
On December 2, 2015, Bonnie Lysyk, Auditor General of Ontario, released her 2015 annual report on the value for money received by Ontario residents from the operations of the Ontario provincial government. Chapter 3 of the report contained a blockbuster – an extraordinarily damning assessment of the actions of the government with respect to electricity power system planning over the period from 2003 to the end of 2014.
The report found that, from 2004 to 2014, the portion of residential and small commercial customers’ bills covering electricity generation costs increased by 80%, from 5.02 cents per kWh to 9.06 cents per kWh. The overall cost of electricity to consumers increased by 56%, from $12.2 billion in 2004 to $18.9 billion in 2014. Electricity consumers had to pay $9.2 billion more for renewable energy (wind, solar and biomass generation sources) over the 20-year contract terms under the Ministry’s current guaranteed price (i.e. feed-in-tariff) program than they would have under the previous program under which renewable energy was purchased through competitive bidding. Because of the mismatch between when wind and solar generation provides power and when consumers want it, Ontario increasingly had to curtail generation from other sources (i.e. pay generators not to produce) and dump surplus generation on the export market. From 2009 to 2014, Ontario exported 95.1 million MWh of power; the total cost of producing this power was about $3.1 billion more than the revenue Ontario received for exporting it.
This had adverse consequences for ratepayers. Between 2010 and 2016, monthly electricity bills (including tax) in major Canadian cities increased by an average of $37.68. During the same period, electricity bills in Toronto and Ottawa increased by $77.09 and $66.96, respectively. The annual average household cost of electricity in 2009 was $486.72; in 2016 it was $1,002.48. By 2016, Ontario’s electricity rates were among the highest in North America.
The largest corporations in the province, especially those facing stiff competition from companies in other jurisdictions, successfully lobbied to have their rates reduced. So, in 2011 the Wynne government decided that residential and small commercial customers should be forced to cross-subsidize the large companies. From mid-2011 to 2017, $6.2 billion in costs were transferred from large industrial users to residential and commercial users. Despite having some of their costs allocated to other users, large industrial firms saw their rates rise above those of their competitors and downsized accordingly. Ontario lost almost 75,000 industrial jobs.
To deal with the mounting political opposition to high electricity costs, the Wynne government belatedly introduced the “Fair Hydro Plan”. The plan involved a shifting of costs from some groups to others through a complicated system of refinancing. Basically, the province will borrow the money to pay some of the current costs that would normally be passed on to electricity users in their rates, to reduce rates below the levels they would otherwise be until 2027, then increase rates after that to recover both the deferred costs and the interest that it had to pay to borrow. It was initially estimated that electricity cost refinancing alone would reduce ratepayers’ bills by $18.4 billion from 2017 to 2027. The actual costs have been higher. As a result, after paying elevated electricity bills for the next ten years, future ratepayers could be on the hook for as much as $54.7 billion in deferred generation and interest costs.
From 2005 to 2016, Ontario reduced greenhouse gas emissions from utilities by 27 megatonnes. Canada’s GHG emissions declined due to the economic recession and then gradually increased to 722 Mt. Global emissions, meanwhile, grew from 30.1 billion tonnes in 2007 to 32.8 billion tonnes in 2015 and 33.4 billion tonnes in 2017, almost entirely due to economic developments in the Asia-Pacific area. So, Ontario’s actions reduced Canada’s overall emissions in 2015 by 3.7% and had no effect whatsoever on global emissions.