Fraser Forum

Ontario’s flawed electricity system subsidizes neighbouring jurisdictions

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A recent study by the Ontario Society of Professional Engineers (OSPE) found that cheap exports of surplus clean electricity—nuclear, solar, wind and hydro—could have cost Ontario up to $1.25 billion over 21 months.

The study states that between 2016 and the first nine months of 2017, Ontario exported clean electricity to neighbouring provinces and states such as Manitoba, Michigan, New York and Quebec at lower prices than what it costs to produce, costing Ontario between $732 million and $1.25 billion.

So, why is Ontario exporting its electricity at a loss?

Over the past few years, Ontario significantly increased its renewable capacity—solar, wind and bio-energy. However, since these energy sources are not as reliable as traditional sources, the government contracted more natural gas capacity as a back-up to renewable sources.

As a result, the province realized a 26 per cent increase in the total amount of installed capacity from 2005 to 2015. But while the province increased its installed generation capacity, the demand for electricity declined, partly due to rising electricity costs. The increase in total capacity, coupled with lower electricity demand, has resulted in a significant oversupply of electricity.

In response, Ontario has either increased exports at prices below cost or resorted to dumping. Specifically, the dumping happens when the generated power is not needed in Ontario, and could not be exported. In this case, the generators are paid to curtail their production.

In fact, an earlier analysis by OSPE this year found that the province dumped a total of 7.6 terawatt-hours (TWh) of clean electricity in 2016—an amount equal to powering more than 760,000 homes, or a value in excess of $1 billion. This represented a 58 per cent increase in the amount of clean electricity Ontario dumped in 2015, which was 4.8 terawatt-hours.

As a result, Ontario’s flawed electricity market comes at a high-cost for the province. By exporting clean electricity at losses, Ontario seems to be subsidizing clean power in neighbouring states and provinces, while electricity prices skyrocket for residents and businesses at home. This is just one of many issues plaguing Ontario’s electricity system.

Ontario requires real reforms that will actually bring electricity prices down, while ensuring that Ontarians get the most from their province’s power generation.

 

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