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Ontario’s Green Energy Act: Ill Wind All Around

The Fraser Institute recently published a study examining the impacts of green energy policies inOntario,Canada. The summary of the study, which was written by Fraser Institute Senior Fellow Ross McKitrick, is below.

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The Ontario Green Energy and Green Economy Act (herein the GEA) was passed in May 2009 with the purpose of addressing environmental concerns and promoting economic growth inOntario. Its centerpiece is a schedule of subsidized electricity purchase contracts called Feed-in-Tariffs (FITs) that pro­vide long-term guarantees of above-market rates for power generated by wind turbine farms, solar panel installations, bio-energy plants and small hydroelec­tric generators. Development of these power sources was motivated in part by a stated goal of closing the Lambton and Nanticoke coal-fired power plants.

This report investigates the effect of the GEA on economic competi­tiveness in Ontario. It focuses on three questions:

(1) Will the GEA mater­ially improve environmental quality inOntario?

(2) Is it a cost-effective plan for accomplishing its goals?

(3) Are the economic effects on households and leading economic sectors likely to be positive? The answer to each question is unambiguously negative. The specific findings of the report are as follows.

It is unlikely the Green Energy Act will yield any environmental improve­ments other than those that would have happened anyway under policy and technology trends established since the 1970s. Indeed, it is plausible that adding more wind power to the grid will end up increasing overall air emissions from the power generation sector.

As of 2009, air quality in Ontario had improved considerably compared to the 1960s, and showed no tendency to be getting worse. A confidential 2005 cost-benefit analysis for the provincial government, often cited by the Province as a defense of the GEA, in fact predicted that the closure of the coal-fired power plants would yield such tiny effects on air quality as to be unnotice­able in most places.

Because of the fluctuating nature of wind and solar power, adding renew­able capacity to the grid requires additional backup power from natural gas plants. Because Ontario currently has a surplus of base-load generating capacity, further additions to base-load in the form of wind or solar power may require removing a nuclear plant from operation and replacing it with a combination of renewable and gas-fired generation, yielding a net increase in air emissions.

The plan implemented under the Green Energy Act is not cost effective. It is currently 10 times more costly than an alternative outlined in a con­fidential report to the government in 2005 that would have achieved the same environmental goals as closing the coal-fired power plants.

The province’s continued reliance on the confidential 2005 “DSS” analysis in defense of the GEA is misleading since that report did not consider or rec­ommend use of wind or solar energy as a replacement for coal. The analysis by DSS Management Consultants actually shows that a relatively low-cost retrofit option for the coal plants was available that would have yielded envi­ronmental improvements (including reductions in greenhouse gases) effec­tively equivalent to those of closing the plants, at about one tenth the current cost of the GEA, and one seventieth what it will cost if the Province follows its stated plans to completion.

The focus on wind generation is especially inefficient because pro­duction peaks when it is least needed and falls off when it is most needed. Surplus power is regularly exported at a considerable financial loss. On average, due to daily and seasonal wind patterns in Ontario, a 1% increase in wind power production coincides with a 1% reduction in consumer power demand. Eighty percent of Ontario’s generation of electricity from wind power occurs at times and seasons so far out of phase with demand that the entire output is surplus and is exported at a substantial loss. The Auditor-General of Ontario estimates that the province has already lost close to $2 billion on such exports.

Data from the Independent Electricity System Operator shows Ontario now loses, on average, $24,000 per operating hour on such sales, totaling $200 million annually. The loss rate will continue to grow with every new wind turbine installation because the mismatch between the timing of wind-powered generation and Ontario electricity demand is structural.

The wind-power grid is also inherently inefficient due to the fluc­tuating nature of the power source. Output of Ontario’s wind turbines is below one fifth of rated generating capacity about half the time, and below one third of the rated capacity about two thirds of the time. Because of the unreliability of output, 7 MW of rated wind energy are needed to provide a year-round replacement of 1 MW of conventional power generating cap­acity. Consequently, the cost of achieving the provincial targets for renewable energy in the coming years will be much higher than currently acknowledged.

The Green Energy Act will not create jobs or improve economic growth in Ontario. Its overall effect will be to increase unit production costs, dimin­ish competitiveness, cut the rate of return to capital in key sectors, reduce employment, and make households worse off.

The claim by the government of Ontario that 50,000 jobs will be created by the GEA was a guess without any basis in formal analysis, and the Province has since admitted both that the vast majority of any GEA-related jobs will be temporary and that the figure of 50,000 does not account for offsetting perma­nent job losses caused by increases in the price of electricity under the GEA.

Electricity costs for large users in Ontario were moderate compared to surrounding jurisdictions as recently as 2008, but have since risen almost to the highest level in our comparison group. Further price increases of 40% to 50% are forecast, in large part to pay for costs incurred under the GEA. These will result in Ontario being at or near the top end of North American electricity costs over the next few years. Such price increases, were they to occur, would strongly affect the unit cost of production in mining and manu­facturing and, to a smaller extent, forestry. I estimate they will drive down the rate of return to capital in manufacturing in Ontario by 29%, in mining by about 13%, and in forestry by about 0.3%, leading to a net loss of investment and employment in the province.

Provincial efforts to shield these industries through energy subsidy pro­grams only transfer the costs onto households, who are already dealing with increases in the price of residential electricity because of GEA-related initia­tives. There would also be uncertainty as to whether the Province will remain committed to such subsidy measures in the face of its ongoing budget deficit. There are additional costs to households in regions afflicted with new wind turbine installations arising from lost property values, degradation of the rural environment, and increased health and stress problems. Were these to be taken into account, the overall cost burden of the GEA would be even higher.

5 comments

1 Michael Spencley { 05.09.13 at 7:20 am }

Ross McKitrick takes the foo foo dust out of the DSS report. Who knew that retrofitting the coal generating plants would have essentially produced the same result as shutting them down at one tenth of the cost, totally eliminating the need for the subsidies offered through the Feed-in-tariff?

Reasonable people ask two simple questions: Why would a government ignore this essential core information and go on a spending spree of billions of taxpayers dollars in unnecessary subsidies, and who benefited financially?

With the auditor general aparently taking a hands-off position, the RCMP should be called in to perform a full investigation.

And if there is fire where we see smoke, several politicians, and those that lined their pockets under the guise of the Green Energy Act should go to the hoosegow over this grand theft.

2 Ken Langford { 05.09.13 at 11:52 am }

Unfortunately, no one is taken to task for these boondoggles except the taxpayer. The politicians responsible simply reset and move on to the next rescue program. And the complicit media wipes up the historical tracks behind them.

3 Sherri Lange { 05.09.13 at 12:51 pm }

A letter we wrote to the President of Guelph University, thanking Ross for his work.

Dear Ms. Christensen Hughes, office of the Dean, and President/Vice Chancellor Summerlee,

I am writing to thank you on behalf of the North American Platform Against Wind Power (NA-PAW), Toronto Wind Action, as well as Great Lakes Wind Truth, all devoted to the dissemination of truth about wind power, as inconvenient as this may be to some minds. We represent very large numbers of people not only in Ontario, but obviously across the States, and we liaise with EPAW (European Platform) as well as with various scientists, academics, politicians and most wonderful “others” from Australia, Hong Kong, Aruba, Germany, and the UK specifically, as well as people from many other countries.

Some years back, I first heard Dr McKitrick speak in Picton at a symposium organized, in part, and substantially, by Order of Canada pre eminent physician, Dr. Robert McMurtry. Within minutes, Dr. McKitrick with his incredible presentation, had dispelled one of the most promoted myths in Ontario politics: that wind power will help to reduce air pollution and save lives. This is completely false. (Additionally, wind power actually does nothing to reduce CO2, is not environmentally friendly, creates harm to wildlife and human health, and most ironically of all, does not produce meaningful power, less than 1/2 of one percent world wide, despite the sprawl of about 140,000 turbines.)

Over time, Dr McKitrick has solidly and clearly outlined a few of the fallacies of wind power. His latest Fraser Institute report, “Ontario’s Green Energy Act is Causing Energy Prices to Soar,” is achieving interest and acclaim around the world, and contributing even further to economic corrections that are sorely needed.

http://www.utilityproducts.com/news/2013/04/11/the-fraser-institute-ontario-s-green-energy-act-causing-energy-prices-to-soar-nl-plan-now-10-times-c.html

We know that Germany, the UK and Spain, to mention a few, are in serious condition of “energy poverty.” We know that Germany is in the midst of building 26 more coal fired plants much acknowledged as being in order to deal with its green energy failures. Ontario has the opportunity to reverse the dangerous and irresponsible energy policies of the last ten years, and more, and it is research such as your university is engendering, that will help to lead the way.

Again, Dr. McKitrick has provided clarity and truth. His reports and research continue to match international realities that are fast approaching a “tipping point.”

Kudos to Dr Ross McKitrick. There is no question in my mind that his work is contributing to the health and welfare of not just Ontario, but well beyond.

Sincerely,

Sherri Lange

4 Paul in Sweden { 05.09.13 at 8:03 pm }

“Because Ontario currently has a surplus of base-load generating capacity, further additions to base-load in the form of wind or solar power may require removing a nuclear plant from operation and replacing it with a combination of renewable and gas-fired generation, yielding a net increase in air emissions.”

Ontario planned well and is not only meeting current demands but has surplus power to offer for sale. It makes my head spin to see groups and individuals with buckets of ‘Monkey Wrenches’ to dump into the works.

Ross, there is no excuse that I can see tendered by those that cannot understand a simple cost/benefit analysis. You should be given a big stick and allowed to walk the halls. -Paul

5 Craig { 05.11.13 at 9:48 am }

The US presidential election was expensive, about $1 billion. The Ontario liberals spent that much taxpayer cash on 2 seats. The well of ignorance appears bottomless. They could get re-elected.

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