Ontario's renewable energy program needs competition

Ontario Premier Dalton McGuinty's program to buy electricity from small renewable generators, which was announced March 21 in Cambridge, will sock Ontario consumers with such excessive costs it will make even nuclear power appear cost-effective.

Consumers will be forced to pay 11 cents per kilowatt hour for renewable power that's identical to the renewable power bought by the government last fall for 8.6 cents – a 28-per-cent premium.

The reason for the price gap is competition, or a lack of it. The government's previous procurement processes, which produced a lower cost, reflected competitive bidding. Its new Standard Offer Contract program, on the other hand, provides for no competition among power generators. Without the protection of competition, consumers are exposed.

McGuinty is hitting consumers even harder by extending the procurement contracts for 20 years. A long-term deal might have been justified at a low price, but a high price and a long term imposes a double jeopardy on consumers.

The government's lack of concern for consumers is evident in its decision to provide windfalls to investors.

Eligibility for the new program's juicy subsidies is retroactive to 2000. So investors who built generators years ago that now meet the small power generator definitions in the Standard Offer Contract program get the windfall. Of course, at the time they built their facilities, they could not have anticipated the subsidies now being extracted from consumers.

This gouging is partly the result of a conflict of interest. The government admits its program was developed by the Ontario Sustainable Energy Association, a lobby group of power developers.

Gouging consumers to pay extra for renewable energy can also be attributed as the cost of celebrity endorsements and political spin. Science broadcaster David Suzuki appeared with McGuinty to announce the program and government news releases cited support from, among others, the Worldwatch Institute, World Wind Energy Association, and two farm lobbying organizations.

Renewable power developers have convinced some environmentalists that the environmental performance of the province's power system is driven by the number of wind turbines and similar devices installed. The success of this simplistic notion can be seen in the praise some environmentalists heaped on Germany's renewable energy policies.

Too many of them ignore the record of Germany's renewable power industry. In 2004, the wind power fleet there produced electricity at a rate more than a third less than the minimum productivity normally expected of successful wind investments. German consumers paid more than 12 cents Cdn per kilowatt hour for wind power, notwithstanding various government grants and no-interest loans available to renewable energy generators. Photovoltaic power served them much worse: German consumers paid $1.15 per kW-h

Wind power expansion in Germany has been directly responsible for a massive expansion of the high-voltage power transmission grid now happening there. This cost is often ignored by wind power advocates – and by too many environmentalists.

McGuinty's program to pay 42 cents per kW-h for photovoltaic solar power is even worse. The province will need electricity police to catch phony solar generators using an ordinary extension cord to exploit the difference between the lower household price and the special high price the government will pay. Given the prices paid by German consumers, Ontario investors in photovoltaic panels will need extra revenue to pay for their investments.

Under agreements negotiated last year with the province, electricity from the refurbished Bruce nuclear reactors will start at 6.4 cents, with provisions likely to drive the cost up to around 11 cents per kW-h If this outcome materializes, refurbished nuclear power will be approximately cost-competitive for consumers relative to the new Standard Offer Contract power.

All economically minded environmentalists will point out that the real cost of nuclear power is much higher than it appears to consumers. If costs for waste disposal, decommissioning, nuclear research, and subsidized borrowing for the original construction of nuclear projects were recovered in the cost of nuclear energy, the current price would double or more.

And if the nuclear industry were not relieved of liability in the event of accidents under the federal Nuclear Liability Act, nuclear power would probably be unavailable at any price.
Although compelling, these arguments have not historically led many consumers to adjust their consumption or energy purchases.

McGuinty's new program represents a challenge to the environmental community. Environmentalists who endorse subsidies to the renewable energy industry – subsidies clearly inflicting wanton harm on consumers for no gain – may find their credibility will suffer if they try in future to present economic arguments favouring energy conservation, or arguments against nuclear power.

By paying too much, the Ontario government is encouraging inefficient power production in a way that will give renewable energy a black eye with consumers. Renewable energy can provide attractive solutions for many of Ontario's power problems, but competition, not the Standard Offer Contract program, is the way to go.

Tom Adams is the executive director of Energy Probe, a Toronto consumer and environmental research group.