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Adding renewable generating capacity triggers changes throughout the system that multiply costs for consumers
Ontario’s green energy transformation – initiated a decade ago under then-Premier Dalton McGuinty – is now hitting consumers. The Nov 1 increase for households is the next twist of that screw. As Ontario consumers know all too well, the province has gone from having affordable electricity to having some of the highest and fastest-increasing rates in Canada.
Last year, in a report for the Fraser Institute called “Environmental and Economic Consequences of Ontario’s Green Energy Act,” one of us (McKitrick) explained how the Green Energy Act, passed in 2009, yielded at best tiny environmental benefits that cost at least ten times more than conventional pollution control methods, and was directly harming growth by driving down rates of return in key sectors like manufacturing.
But complex financial structures and a lack of official disclosure around large embedded costs have let supporters of the green energy act deny that green power is responsible for the price hikes. Green industry advocates, including the consulting firm Power Advisory and advocacy group Environmental Defense, have added up the direct payments to new renewable generators, and concluded that since those costs are relatively small, the impact of renewables on the total cost of power is likewise small.
However, such analyses ignore the indirect costs that arise from the way renewables interact with the rest of the power system. Adding renewable generating capacity triggers changes throughout the system that multiply costs for consumers through a mechanism called the Global Adjustment. Our new study, released Wednesday by the Fraser Institute, quantifies the impacts of different types of new generators on the Global Adjustment. The analysis pinpoints what causes the raw deal for consumers.
Here’s how it works: over the last decade, Ontario closed its coal-fired power plants and built a rapidly expanding portfolio of contracts with other generators including renewable energy companies producing power from hydro, wind, solar and biomass. These companies charge the Ontario Power Authority (OPA) higher-than-market-value prices for energy. To make up the difference, the OPA slaps an extra charge – called the Global Adjustment – on the electricity bills of Ontarians.
The Global Adjustment adds to the commodity portion of rates, which combined with charges for delivery, debt recovery, and regulatory factors constitute the overall rate.
For the rest of this article, click here: http://business.financialpost.com/2014/10/29/how-green-energy-is-fleecing-ontario-electricity-consumers/