This is a post written by Bruce Sharp. An earlier version appeared on Linkedin.
Well, the (subsidized, one would suppose) L.E.D. light bulb finally went on at Queen’s Park last week concerning electricity costs.
Did a single by-election loss cause this awakening?
In this day of politicians seemingly and completely incapable of climbing down from heavily entrenched positions, this seems to represent at least some progress – admitting there’s a problem.
Upon hearing this news, my mind went to what the government would do to provide relief – the depth, breadth and source of funds. Since 2003, we’ve had a number of dubious band-aid solutions, including a retroactive price freeze, the Ontario Clean Energy Benefit, an end to the Debt Retirement Charge (for residential consumers) and the Ontario Electricity Support Payment.
What would be next?
We now know it’ll be a removal of the 8% provincial sales tax — for those who vote and perhaps small business. Estimates have put the cost at $ 1 billion per year – suggestive of a base of $ 12.5 billion per year. That looks to me something like 70 TWh at 18 cents/kWh or perhaps slightly more energy at a slightly lesser rate. The Regulated Price Plan is about 58 TWh per year and excludes those on retail contracts, so perhaps the threshold will be 250,000 kWh per year.
The inappropriateness of this new measure should be obvious to anyone with even a modicum of energy policy instinct and yet the policy will have appeal for some. For all but the latter group, one has to wonder: does the government think we’re all stupid?
Some of the reactions have been bang-on, including Ontario Regional Chief Isadore Day’s reference to the move as a “shell game” and a Globe and Mail editorial referring to the move and electricity file as a “total mess”.
A missed source of savings
Back to that $ 1 billion dollars per year being moved around – taken from general tax revenues and contributing to greater provincial debt. Where else might $ 1 billion have been found?
For just one example, we can go back to the origins of the Green Energy Act (GEA) and Ontario’s original Feed-In Tariff or FIT rates – specifically solar.
Ontario’s GEA was developed in late 2008 and early 2009 by the highly self-interested Green Energy Act Alliance. In March 2009, Ontario’s then-Ontario Power Authority (now part of Ontario’s Independent Electricity System Operator) held consultations on the FIT program.
A prominent energy industry friend with a strong customer protection bent attended at least one of these sessions and spoke of the domination of the proceedings by renewable energy developers and their lawyers. My friend spoke of how during a break in the proceedings, a senior OPA staffer offered the aside that the consultation process amounted to “polishing the turd”. I’d never heard the term but the implied meaning was obvious – and hilarious in a black humour kind of way.
In a March 17 consultation presentation, a draft FIT solar program parameter presented was rate degression, whereby the price paid for FIT solar would decrease by 9% for every 100 MW addition of contracted solar capacity. Here’s the slide:
Price degression seemed like a good idea – in lieu of price competition through competitive procurement, solar contracting would only continue if installed costs continually decreased.
Solar developers’ reaction to this was no doubt swift and vociferous. In a consultation presentation from one week later, any reference to solar price degression was obliterated.
The financial implication
If price degression of 9% per 100 MW contracted had been applied – either linearly or compounded and to all types of FIT and other GEA-related solar – development would have ground to a halt at anywhere from 500 to 700 MW.
Including an original 474 MW of solar from the Renewable Energy Standard Offer Program (RESOP), there’s currently a total of 2,490 MW of contracted solar. If say FIT and other GEA-related solar had hit a brick wall at 600 MW, we might be looking at an ultimate 1,074 MW (474 from RESOP + 600) of solar versus 2,490 MW.
Here’s the math for these two scenarios:
You may be able to quibble here and there with the variables I’ve chosen but the order of magnitude of $ 925 million is indisputable. If the OPA had held firm on solar price degression, an added cost of close to a billion dollars (call it that amount if you consider the HST paid on it by many consumers) per year (for 20 years) could have been easily avoided. Contrast this with using tax dollars to achieve the same things.
What are your thoughts?
I doubt fans of renewables will care to comment. If you do, know that any claims of local economic benefits will fall on deaf ears here. Also and in my opinion, a vast amount of this money is enriching a relative few.
Otherwise, what are your thoughts?
For more information on this or Ontario energy in general, please send me a Linkedin message or email me at email@example.com.
Bruce Sharp, P. Eng., CEM, CMVP, CIGC
Principal, Bruce Sharp Energy