The Shotgun Blog
Tuesday, September 07, 2010
You're in for a Shock: Disturbing New Facts About Ontario's Green Energy Act
Ontario Premier Dalton McGuinty is telling everyone that his decision to increase the price of electricity is "responsible" because it will force consumers to pay for the power they consume. It will end an irresponsible old subsidy, he implies, but that implication is false. In reality, his price hike is designed to pay for an irresponsible new subsidy.
Forty-two consecutive years of Progressive Conservative ("PC") rule gave Ontario ridiculously expensive nuclear power generators. To avoid voter backlash, the PCs hid the actual cost of nuclear electricity from consumers. Billions of dollars in government debt were racked up so that electricity bills could be kept artificially low.
In 1998, the Harris government passed legislation to end that irresponsible subsidy by adding a debt retirement charge to electricity bills. It also eliminated price controls on the retail price of electricity. The resulting prospect of getting a reasonable return on investment led the private sector to begin planning the construction of privately owned and operated generators that would replace Ontario's aging, government-owned fleet.
However, as the election of 2003 approached, vocal opposition to higher (i.e., actual) electricity costs led Harris' PC successor, Ernie Eves, to again hide the actual cost of electricity. He imposed a 4.3 cent price cap. The remaining cost of electricity would be paid with government debt and taxes. Within a couple of weeks, McGuinty, who initially condemned Eves' new subsidy, supported it.
Eves' re-imposition of price controls had a massively negative impact that continues to plague Ontario to this day. The price cap, and the evidence that Liberals and Conservatives were both willing to fiddle with market prices, scared the private investors away before their shovels hit the ground.
With prices being subsidized, consumers had no reason to reduce their electricity consumption. The resulting black-outs and brown-outs of the summer of 2003 handed the McGuinty Liberals a majority government in October of that year. At the end of that October, McGuinty largely ended the irresponsible subsidy by increasing the price cap. He explained that, in the approximately 11 months since the cap was introduced, the subsidy had already cost the taxpayer $700M.
In 2003, Ontario often had to import expensive U.S. power to meet Ontario's power demands. Yet, in the face of such a shortage, McGuinty pandered to clean air advocates by promising to close Ontario's workhorse coal-powered electricity generators by 2007.
In 2005, McGuinty introduced a new, irresponsible subsidy to encourage private sector investment in the construction of gas-powered electricity generators. Specifically, he offered them contracts pursuant to which they would be paid for their electricity at a rate approximately three times that paid for electricity generated by coal-powered plants. Rather than cranking up taxes to build new generators, McGuinty would crank up the cost of electricity to cover the cost of the subsidy.
Even with the subsidy, it would be years before the new gas-powered plants were operational. Faced with the continuing threat of black-outs and brown-outs, the McGuinty government decided to buy time by imposing limits and penalties on electricity consumption. Most symbolically, he vowed to ban incandescent light bulbs by 2012. He paid for "Power Wise" commercials in which David Suzuki steals incandescent bulbs from porches, and breaks into homes to steal beer fridges, all so as to convince us that such theft and coercion is necessary not so as to cope with a politically-caused power shortage, but to save the earth.
In 2006, McGuinty's political time-buying would get some help. Al Gore's junk science thriller, "An Inconvenient Truth", transmitted to the masses the green cult's irrational fear that "human CO2 production" (a code phrase meaning "capitalism") will kill us. For every politician, that fear would be the gift that keeps on giving. So long as a new tax or fee or regulation could be characterized as one needed to reduce CO2, many voters would support it. McGuinty could now ban Edison's bulb, and introduce "green" fees and regulations with political impunity.
By 2006, Ontario's high taxes, high labour costs, and potentially higher electricity costs were driving industry and commerce out of the province. The business exodus reduced power consumption more than a million light-bulb snatching Suzukis could ever hope to. The dramatic reduction in demand left Ontario with more than enough electricity to meet its needs even during peak consumption periods.
By 2008, the drop in demand for power had introduced a new problem: "surplus baseload generation". When Ontario's "baseload" nuclear, coal, gas, and hydro generators generate more electricity than is being demanded, the excess electricity must be eliminated from the grid. One option is to reduce generation, but only coal and hydro plants are capable of getting back up to speed quickly enough to meet increased demand after a few hours of low demand, and McGuinty is closing the coal plants. Another option is to export excess power to U.S. buyers at discount prices. When the U.S. will not buy the discounted surplus electricity, Ontario now pays the U.S. to take it (i.e., it "sells" the electricity for a "negative price").
In 2009, the McGuinty government introduced the Green Energy Act. Echoing the misguided subsidy for gas-powered generators, the Act introduced even larger subsidies for private companies who supplied wind and solar power to the grid. Specifically, pursuant to the "feed-in tariff" (a.k.a. "FIT") system, they would be paid for their electricity at rates as much as 16 times higher than the price of conventional electricity. Moreover, wind and solar power generators would be given priority: consumers would be forced to buy up all of the expensive wind and solar power before meeting their remaining power demands with relatively inexpensive electricity from coal, gas, hydro or nuclear generators. With artificially high prices and priority, private investors could now make a killing on otherwise money-losing solar and wind power generation. Not surprisingly, thousands of private sector companies -- including many farmers located in ridings that have usually voted PC -- have signed up to get their cut of the loot.
Ontario's Independent Electricity System Operator is now predicting that the additional power from wind and solar generators will make those expensive and wasteful episodes of surplus baseload generation more frequent for years to come. It is expected that, to cope with the more frequent periods of low demand/excess electricity, wind and solar power generators will be taken off-line from time to time. However, consumers will still have to pay the wind and solar companies for the power they do not deliver while off-line. In a nutshell: McGuinty's Green Energy Act will leave consumers paying the US even more to ditch excess electricity while simultaneously encouraging the construction of even more solar and wind power generators whose owners will be paid not to generate electricity during the periods of excess electricity that their wind and solar generators cause.
To deal with public outrage over soaring electricity prices, McGuinty now falsely implies that Ontario consumers are guilty of not paying the full cost of the electricity they are already consuming, and that he is merely raising prices to put an end to that irresponsible practice; that he is being "responsible". The inconvenient truth he thereby tries to disguise is that, for purely self-serving political reasons, his government is jacking up our electricity bills to pay for unneeded energy that we will not consume.
If we are to have an affordable and reliable supply of electricity in this province, we must learn from Ontario's political history. For electoral reasons, PC and Liberal governments have imposed price controls that have scared away private investment in power generation. The result has been government debt and the payment of outrageous subsidies to the private sector.
Going forward, a system of affordable and reliable electricity requires elected officials who will not repeat the politically self-serving fiascos of Ontario's past and present governments. The Green Energy Act needs to be scrapped. It is plain to see that the contracts made pursuant to it are immoral and unconscionable: they should not be honoured. Ontario's government needs to allow prices to be determined by supply and demand. And, to end the discouragement of private investment in affordable electricity generation, Ontario's government needs to establish guarantees that it will not regulate prices, that it will not subsidize any form of generation, and that priority will be given to purchasing electricity from generators who offer it for the lowest price.
None of these desperately needed steps will be taken by a Liberal or PC government. One cannot expect McGuinty to repeal his own Green Energy Act. PC leader Tim Hudak is not about to alienate thousands of new wind and solar power-producing voters in PC-friendly ridings by repealing the Green Energy Act. Instead, he is promising to repeat a PC fiasco of the past: sticking the taxpayer with the cost of even more unaffordable nuclear generation. Fortunately, the least expensive power of all is the ballot.
Posted by Paul McKeever on September 7, 2010 | Permalink
It remains difficult to understand why so few people understand that "green" has become a perfect cover for governments to steal more money from the workers and never does anything to promote anything actually green. Cap and trade, carbon taxes, environment taxes et cetera are but a few examples. I am all for taking care of our environment but this is simply a Trojan horse used to break into our wallets.
Posted by: Alain | 2010-09-07 11:43:58 AM
Alain, agreed. The only thing that makes sense is that people believe in it like a religion.
Posted by: TM | 2010-09-07 1:25:27 PM
Great post, Paul.
Posted by: Bradley | 2010-09-07 1:47:55 PM
An eerily similar process proceeds to unfold here in BC. I would be prepared to wager it is the same money and contacts pushing both agendas. I've been told by legal experts (on NAFTA) that once domestic, public utility generation, ceases to be less than 50% of output that all public utility protections grandfathered under NAFTA are history. Ultimately, in a perfect world, that might be an acceptable outcome, in the (sadly)real world it means more Enron/California type price rigging and gouging. With private gains and public (taxpayer) losses.
Posted by: peter | 2010-09-07 2:12:41 PM
A very well written piece, can I ask for clarification on a few points?
While the history of the power pricing game is undeniable, your assertation that this is all about money tells me that you do not beleive there is any long-term environmental and economic benefit to moving away from coal generated power?
Also, what has the negative pricing of the sale of excess energy to the US cost Ontario taxpayers? I would be interested to know.
Posted by: Joseph | 2010-09-08 9:16:20 AM
There is no long-term economic benefit, to a particular consumer, of phasing out a technology that gives him the electricity that he needs, warts and all. Clearly, conventional coal pollutes the air (and I'm not referring to CO2 as pollution) and, if someone wants to operate a coal power generation plant, they must not cause harm to the lives, liberty or property of individuals in the process. But there are technologies that leave coal plant exhaust cleaner than natural gas plant exhaust. If such technologies prove price competitive, then such generators should not be eliminated for greenie, trendy, CO2 reasons. If such technologies leave coal not price competitive with other technologies, out it goes. All of that said: private generation investors, not governments, should decide what sort of plant they can operate most profitably, taking into account all costs such companies must incur to provide their product. Right now, wind and solar are not price competitive. Neither are they a replacement for base load power generation. The market, not David Suzuki's fantasies, should determine when wind and solar start contributing power to the grid (or to individual homes directly).
Actual figures (e.g., totals) of the amounts paid to U.S. consumers remain elusive (or, as one industry expert told me, "murky"). However, there is some documentary evidence that Ontarians were paying 1 to 5 cents per kWh at various points to have Americans take our excess juice.
Posted by: Paul McKeever | 2010-09-09 11:24:02 AM
You've got NAFTA. How about a common power market? Suppose coal stations were built massively in Pennsylvania? Oil could be piped in from Alberta in smallish quantities and used to boost peak production of the coal plants by spraying it on the coal.
The technique was used a hundred years ago by the German Navy to boost combat power. It would be relatively cheap to implement.
Posted by: Simon O'Riordan | 2010-09-13 2:21:17 PM
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