daveman
Diamond Member
Environmental and
Economic Consequences
of Ontarios Green Energy Act
What an unmitigated failure.
And no, it will NOT work better in the United States.
Economic Consequences
of Ontarios Green Energy Act
Executive summary
The Ontario Green Energy and Green Economy Act (herein the GEA) was
passed in May 2009 with the purpose of addressing environmental concerns
and promoting economic growth in Ontario. Its centerpiece is a schedule of
subsidized electricity purchase contracts called Feed-in-Tariffs (FITs) that provide long-term guarantees of above-market rates for power generated by wind
turbine farms, solar panel installations, bio-energy plants and small hydroelectric generators. Development of these power sources was motivated in part by
a stated goal of closing the Lambton and Nanticoke coal-fired power plants.
This report investigates the effect of the GEA on economic competitiveness in Ontario. It focuses on three questions: (1) Will the GEA materially improve environmental quality in Ontario? (2) Is it a cost-effective plan
for accomplishing its goals? (3) Are the economic effects on households and
leading economic sectors likely to be positive? The answer to each question
is unambiguously negative. The specific findings of the report are as follows.
--
5 Concluding comments
From the analyses above, we can draw the following conclusions.
1 As of 2009, air quality in Ontario had improved considerably compared to
the 1960s, and showed no tendency to be getting worse. A confidential 2005
cost-benefit analysis for the provincial government, often cited by the Province as a defence of the GEA, in fact predicted that the closure of the coalfired power plants would yield such tiny improvements to air quality as to be
unnoticeable in most places.
2 The plan implemented under the Green Energy Act is already 10 times more
costly per year than an alternative retrofit plan examined in 2005 that would
have yielded the same environmental benefits as closing the coal-fired power
plants. And, the GEA-based plan has so far only yielded a fraction of the
electricity necessary to replace the coal-fired power plants. Expansion of
renewables up to the scale outlined in the Long Term Energy Plan would
make the GEA strategy 73 times more costly than the retrofit option.
3 Eighty percent of Ontarios wind power generation occurs at times and seasons so far out of phase with demand that the entire output is surplus and is
exported at a substantial loss. The province has already lost close to $2 billion on such exports and currently loses, on average, $24,000 per operating
hour on such sales, totaling $200 million annually. The loss rate will continue
to grow with every new wind turbine installation, because the mismatch
between the timing of wind-powered generation and Ontario electricity
demand is structural.
4 Output of Ontarios wind turbines is below one-fifth of rated generating
capacity about half the time, and below one-third of the rated capacity about
two-thirds of the time. Due to fluctuating output, 7 MW of rated wind energy
are needed to replace 1 MW of conventional power generating capacity. Consequently the cost of achieving the provincial targets for wind energy in the
coming years will be far greater than has been acknowledged or, alternatively,
will entail relying on sources that are unreliable depending on the season.
5 Electricity prices for large users in Ontario are now among the highest in
North America and are expected to increase by 40% to 50% further, in large
part to pay for costs incurred under the GEA. As a result, the effect of the
Green Energy Act on Ontario industry will be to increase unit costs, diminish competitiveness, cut the rate of return to capital in key sectors, reduce
employment, and make households worse off. The rate of return to capital in
manufacturing will drop by about 29% if the projected increases in electricity
prices are realized. The rate of return in mining will drop by about 13% and
in forestry by about 0.3%.
6 The Provinces claim that 50,000 jobs will be created by the GEA was unsupported by any formal analysis, and the Province has since admitted both that
the vast majority of any GEA-related jobs will be temporary, and that the
50,000 figure does not account for offsetting permanent job losses due to
electricity price increases under the GEA. Consequently, the claim has no
basis in fact.
7 In regions afflicted by the proliferation of wind turbine installations, there
are additional costs to households due to lost property values, rural environmental degradation, and increased health and stress problems. These have
not been taken into account in this analysis but, were they to be considered,
the overall cost burden of the GEA would be even higher.
The Ontario Green Energy and Green Economy Act (herein the GEA) was
passed in May 2009 with the purpose of addressing environmental concerns
and promoting economic growth in Ontario. Its centerpiece is a schedule of
subsidized electricity purchase contracts called Feed-in-Tariffs (FITs) that provide long-term guarantees of above-market rates for power generated by wind
turbine farms, solar panel installations, bio-energy plants and small hydroelectric generators. Development of these power sources was motivated in part by
a stated goal of closing the Lambton and Nanticoke coal-fired power plants.
This report investigates the effect of the GEA on economic competitiveness in Ontario. It focuses on three questions: (1) Will the GEA materially improve environmental quality in Ontario? (2) Is it a cost-effective plan
for accomplishing its goals? (3) Are the economic effects on households and
leading economic sectors likely to be positive? The answer to each question
is unambiguously negative. The specific findings of the report are as follows.
--
5 Concluding comments
From the analyses above, we can draw the following conclusions.
1 As of 2009, air quality in Ontario had improved considerably compared to
the 1960s, and showed no tendency to be getting worse. A confidential 2005
cost-benefit analysis for the provincial government, often cited by the Province as a defence of the GEA, in fact predicted that the closure of the coalfired power plants would yield such tiny improvements to air quality as to be
unnoticeable in most places.
2 The plan implemented under the Green Energy Act is already 10 times more
costly per year than an alternative retrofit plan examined in 2005 that would
have yielded the same environmental benefits as closing the coal-fired power
plants. And, the GEA-based plan has so far only yielded a fraction of the
electricity necessary to replace the coal-fired power plants. Expansion of
renewables up to the scale outlined in the Long Term Energy Plan would
make the GEA strategy 73 times more costly than the retrofit option.
3 Eighty percent of Ontarios wind power generation occurs at times and seasons so far out of phase with demand that the entire output is surplus and is
exported at a substantial loss. The province has already lost close to $2 billion on such exports and currently loses, on average, $24,000 per operating
hour on such sales, totaling $200 million annually. The loss rate will continue
to grow with every new wind turbine installation, because the mismatch
between the timing of wind-powered generation and Ontario electricity
demand is structural.
4 Output of Ontarios wind turbines is below one-fifth of rated generating
capacity about half the time, and below one-third of the rated capacity about
two-thirds of the time. Due to fluctuating output, 7 MW of rated wind energy
are needed to replace 1 MW of conventional power generating capacity. Consequently the cost of achieving the provincial targets for wind energy in the
coming years will be far greater than has been acknowledged or, alternatively,
will entail relying on sources that are unreliable depending on the season.
5 Electricity prices for large users in Ontario are now among the highest in
North America and are expected to increase by 40% to 50% further, in large
part to pay for costs incurred under the GEA. As a result, the effect of the
Green Energy Act on Ontario industry will be to increase unit costs, diminish competitiveness, cut the rate of return to capital in key sectors, reduce
employment, and make households worse off. The rate of return to capital in
manufacturing will drop by about 29% if the projected increases in electricity
prices are realized. The rate of return in mining will drop by about 13% and
in forestry by about 0.3%.
6 The Provinces claim that 50,000 jobs will be created by the GEA was unsupported by any formal analysis, and the Province has since admitted both that
the vast majority of any GEA-related jobs will be temporary, and that the
50,000 figure does not account for offsetting permanent job losses due to
electricity price increases under the GEA. Consequently, the claim has no
basis in fact.
7 In regions afflicted by the proliferation of wind turbine installations, there
are additional costs to households due to lost property values, rural environmental degradation, and increased health and stress problems. These have
not been taken into account in this analysis but, were they to be considered,
the overall cost burden of the GEA would be even higher.
What an unmitigated failure.
And no, it will NOT work better in the United States.
