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Folly of Ontario's renewable energy program provides warning for other governments; Ontario households to pay extra $285 million annually for electricity

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Release Date: April 12, 2012

CALGARY, AB—Ontario consumers will pay $285 million more annually for residential electricity and Canada could lose 41,000 full-time-equivalent jobs over a 20-year period due to Ontario’s subsidization of renewable energy, concludes a new study from the Fraser Institute, Canada’s leading public policy think-tank.

The calculations for the residential sector are based on a Statistics Canada analysis using its Interprovincial Input-Output Model, commissioned by the Fraser Institute.

When business and industrial electrical customers are included, the total additional costs for Ontario electricity users could hit $18 billion over 20 years.

"The Ontario government has embraced wind, solar power, and other renewable energy sources without regard to the cost to consumers, which is already having widespread negative economic impacts," said Gerry Angevine, Fraser Institute senior economist and co-author of A Sensible Strategy for Renewable Electrical Energy.

"If other governments choose to emulate Ontario’s energy policies, they too will see higher electricity prices for homeowners and businesses, a need to build costly new electric transmission infrastructure, and the likelihood of job losses in the manufacturing sector as companies relocate in search of lower-cost electricity."

Caught up in the climate change debate and in an attempt to reduce its reliance on coal-generated electricity, the Ontario government in 2009 established a generous subsidy program via its feed-in-tariff program (FIT) to encourage the use of wind, solar, and biomass to generate electricity.

But recent reports from both the International Energy Agency and the U.S. Energy Administration Agency found that the cost of electricity produced by renewable energy technologies is generally higher than in the case of conventional fossil fuel combustion technologies or nuclear power.

But despite these warnings and the problems experienced by Ontario, many other provincial and U.S. state governments are poised to follow Ontario’s path of subsidizing energy technologies—chiefly wind, solar, and biomass units—to compete with conventional, cost-effective electrical power.

"Over the next decade, at least 80 per cent of the net increase in North America’s electric generation is scheduled to come from renewable energy technologies," Angevine said.

"It simply costs more to generate electricity using wind or solar power. Consequently, consumers and businesses can all expect to pay significantly more for electricity in the coming years. Instead of mandating specific types of renewable power, governments should follow a market-based approach to determine the best mix of electricity-generating technologies."

A Sensible Strategy for Renewable Electrical Energy analyzes the economics of technologies used to generate electricity, associated technical issues, and, using Ontario’s feed-in-tariff program as a case study, some of the broader effects that renewable energy policies might have on the North American economy.

The study cautions that the Statistics Canada Input-Output model may overestimate the employment impacts from higher electricity prices in the residential sector when, as in the Ontario case, the adjustment period is long. However, the higher electricity prices resulting from FIT program subsidies will also have undesirable consequences for employment in the commercial and industrial sectors.

The study also reviews barriers that stand in the way of the sound, sustainable development of renewable energy as a significant source of electric power in North America and makes recommendations for economically efficient energy policies.

It notes that as of March 2012, three Canadian provinces—Ontario, British Columbia, and Nova Scotia—had explicit policies requiring electric-power utilities to use renewable energy sources for generating a certain share of their overall electricity supply. In addition, 29 U.S. states plus Washington, D.C. have enacted renewable portfolio standards.

To help to ensure that electricity consumers benefit from competitive prices that foster competition, innovation, economic growth, and prosperity, the report recommends that governments:

  1. Abandon renewable energy portfolio targets;
  2. Stop promoting any single electricity source via incentives or subsidies of any kind;
  3. Work to develop long-term plans for electricity transmission systems that can carry the additional power load that will result from expanded power generation likely to evolve from market-based investment decisions;
  4. Simplify and streamline regulatory approval processes and procedures for investment in transmission facilities and electric-generation capacity;
  5. Remove uncertainty about limits on carbon emissions; and
  6. Establish clear, stable energy policies and regulations.

"Federal and many provincial and state governments have been preoccupied with providing direct subsidies and tax breaks for investment in renewable energy and ensuring their connection to transmission systems without regard for the combined cost of generation and transmission which, ultimately, must be borne by electricity consumers," Angevine said.

"A market-based approach is required to determine the most efficient mix of technologies for electric generation and to reduce consumer costs."

A Sensible Strategy for Renewable Electrical Energy is the fourth installment in a series of Fraser Institute reports on developing a continental energy strategy for North America.