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Ross R. McKitrick is a Professor of Economics at the University of Guelph, a Senior Fellow at the Fraser Institute and author of Environmental and Economic Consequences of Ontario’s Green Energy Act. Kenneth P. Green is Senior Director, Energy and Natural Resources at the Fraser Institute.
The province could soon top North America in electricity costs
In 2009 the Ontario government passed the Green Energy Act (GEA), with the aim of increasing the province’s use of renewable energy such as wind and solar power, biofuels, and small-scale hydro. The centerpiece of the Act is a schedule of subsidized electricity purchase contracts – called Feed-in-Tariffs – that provide long-term guarantees of above-market rates for power generated by those renewables.
The GEA may have been well-intended but a recent Fraser Institute analysis, called The Environmental and Economic Consequences of Ontario’s Green Energy Act, demonstrates that it is driving up Ontario’s energy costs and poses a threat to economic competitiveness for the manufacturing and mining sectors. What little environmental benefit it is expected to generate could have been achieved at a fraction of the cost. Unless the province changes course, the GEA will saddle Ontarians with needlessly high energy costs for decades to come.
As our study demonstrates, the GEA will soon put the province at or near the top of North American electricity costs. Already the GEA has caused major price increases for large energy consumers, and analysts in both the government and the private sector anticipate additional hikes of 40% to 50% over the next few years. We estimate that the manufacturing and mining sectors will be hard hit, with energy cost increases reducing returns to investment by between 13% and 29%.
All this pain will do little to improve air quality. Ontario’s air pollution levels were already at or below clean air standards and were continuing to decline prior to the introduction of the GEA. And in a classic case of the law of unintended consequences, the GEA poses a risk of increasing air pollution levels. Wind power requires natural gas as a backup. If the province continues adding wind and gas power at a time when there is a surplus of generating capacity, it may render one of Ontario’s baseload nuclear plants superfluous. Taking a nuclear plant offline and replacing it with gas would leave us with higher overall emissions.
Ontario’s pursuit of windpower was particularly ill-considered because provincial demand tends to be out of phase with wind patterns. In Ontario, 80% of wind-power generation occurs when demand is so low that the entire output is surplus and must be dumped on the export market at a substantial loss. The province’s Auditor General estimates that Ontario has already lost close to $2-billion on surplus wind exports: Figures from the electricity grid operator also show the ongoing losses are $200-million annually. The wind grid is also inherently inefficient due to seasonal variability. Seven megawatts of installed wind energy capacity are needed to provide a year-round replacement for one megawatt of conventional power.
For the rest of this article, click here: http://opinion.financialpost.com/2013/05/01/ontarios-green-disaster/