High electricity prices hurting Ontario business competitiveness
There’s been a lot of attention given recently to just how much Ontario’s electricity policy failures and expansion of renewables are costing Ontarians. A recent Ontario auditor general’s report concluded that Ontarians have paid $37 billion above market rates over the last eight years.
While much of the focus has been on how these costs impact the average consumer, businesses are also harmed by high electricity prices. In fact, Ontario’s sky-high power prices put Ontario at a significant competitive disadvantage.
Comparing electricity rates between Ontario and competing manufacturing hubs in America’s rust belt helps illustrate the problem.
A 2014 study estimated the prices (in Canadian cents) that small industrial consumers would pay for a kilowatt-hour (kWh) of electricity in 119 Canadian and American cities in 2013. American rust belt cities like Chicago, Cleveland, Indianapolis, Cincinnati and Pittsburg all had electricity prices under eight cents per kWh. By comparison, during the same period, electricity cost about 12 cents per kWh for small industrial consumers in Toronto. Clearly, having to pay 50 per cent more for electricity would place Toronto-based producers at a significant disadvantage. Consider that a small industrial customer can be expected to consume roughly 400,000 kWh a month. This means that a business this size would pay roughly $32,000 a month for electricity in the rust belt but $48,000 a month if they were located in Toronto. That’s an extra $16,000 per month (or $192,000 per year) just for electricity.
Another study produced further evidence of how high power prices hurt businesses when it found that a 50 per cent increase in electricity prices would result in a 29 per cent reduction in the rate of return to capital for the manufacturing industry and 13 per cent reduction in the mining industry.
And the high electricity prices look like they are starting to take their toll. A recent survey of business owners found that 38 per cent expect to see their bottom lines shrink due to rising electricity prices, resulting in delays or cancellation of investment in the province.
Fiat Chrysler CEO Sergio Marchionne recently expressed concerns about the high electricity costs in Ontario, saying that he thinks Ontario needs to create “the conditions to be competitive.”
High electricity costs are also one of the issues hampering the development of the “Ring of Fire,” which is estimated to contain about $60 billion worth of minerals.
Sadly, the high electricity prices that are causing these problems for Ontario businesses were at least partly avoidable, as policy choices (and particularly the heavy subsidization of renewable energy through feed-in-tariffs) have been a major contributing factor to recent price increases.
The effects that high electricity costs have on the province’s businesses and industries are one important reason why Ontario has not been “a place to prosper” in recent years.