High electricity prices hitting Ontarians in the wallet
Ontario’s electricity prices have increased dramatically in recent years. This won’t come as a surprise to most Ontarians, who have repeatedly seen rate hikes take a bite out of their budgets.
What may be surprising to some, however, is the extent policy choices at Queen’s Park have helped drive higher electricity prices. Further, it may come as a disappointing surprise that many of these policy decisions have done precious little to protect the environment.
First, let’s take a look at the numbers. Between the winters of 2005 and 2015, Ontario’s electricity prices increased by more than 50 per cent—considerably faster than the Consumer Price Index, a common measure of inflation. It’s also a markedly larger increase than the rest of the country has experienced (38 per cent).
But why have electricity prices increased faster in Ontario? One reason is Ontario’s 2009 Green Energy Act (GEA). The GEA has contributed to higher electricity prices primarily through the creation of “feed-in-tariffs,” which are designed to encourage the generation of wind and solar power. Feed-in-tariffs ensure the government purchases renewable (wind and solar) electricity at guaranteed rates above the market price.
The predictable result is that Ontarians pay more for electricity than we have to, and also pay more for renewables than our economic competitors. In fact, a recent report from Ontario’s auditor general shows that in 2014, Ontario’s guaranteed prices for renewable energy were approximately twice as high as the average cost paid in the United States for wind, and three times the average American price for solar.
These policies, and the high electricity prices they drive, are putting the squeeze on household budgets across the province. In fact, a recent analysis showed that in 2013, 7.5 per cent of all Ontario households spent 10 per cent or more of their household budget on in-home energy use such as lights, appliances and heating.
Unfortunately, the impact of high energy prices tends to be regressive and lower-income households tend to be hit harder. So it’s likely that an even larger share, beyond 7.5 per cent, of low-income households devote a substantial portion of their household budgets to electricity and home-heating.
Clearly, basic energy needs now represent a significant expense and burden for many Ontario households, particularly those with low incomes. But sadly, the evidence suggests that the policies behind the prices have produced very few environmental benefits in return. For example, a recent study found that if Ontario’s government had merely continued with ongoing retrofits to coal plants, it could have achieved comparable environmental benefits compared to the GEA—at one-tenth the cost.
There’s no question that conservation and environmental protection are important objectives, but it’s essential for governments to find cost-effective green strategies. Ontario’s approach to electricity policy has failed badly in this respect.
Ontario’s government should therefore look for new policies that weigh all of the relevant costs and benefits instead of continuing down the harmful path of paying above-market rates for electricity from specific, ideologically preferred sources such as wind and solar.
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