Ontario’s green-energy catastrophe
A transition to renewables sent energy prices soaring, pushed thousands into poverty and fuelled a populist backlash.
In February 2009, Ontario passed its Green Energy Act (GEA). It was signed a week after Obama’s Economic Recovery and Reinvestment Act in the US, following several months of slow and arduous negotiations. It also had grand plans to start a ‘green’ recovery following the financial crash – although on a more modest scale.
This was the plan: increased integration of wind and solar energy into Ontario’s electricity grid would shut down coal plants and create 50,000 green jobs in the first three years alone. Additionally, First Nations communities would manage their own electricity supply and distribution – what observers would later call the ‘decolonisation’ of energy – empowering Canada’s indigenous communities who had been disenfranchised by historical trauma. Lawmakers promised that clean and sustainable energy provided by renewables would also reduce costs for poorer citizens. This won an endorsement from Ontario’s Low Income Energy Network – a group which campaigns for universal access to affordable energy.
George Smitherman, Ontario’s energy minister in 2009, when contacted for comment, remarked that ‘drafting and passing the GEA were not the greatest challenges’ compared to its implementation. He was ‘proud’ that the ‘GEA passed on economic benefits to First Nations populations’. It’s hardly surprising that Smitherman passed the GEA relatively easily. Who wouldn’t support a programme promising to kickstart the economy after a financial crisis, with social and environmental benefits to boot?
But on 1 January, 2019, Ontario repealed the GEA, one month before its 10th anniversary. The 50,000 guaranteed jobs never materialised. The ‘decolonisation’ of energy didn’t work out, either. A third of indigenous Ontarians now live in energy poverty. Ontarians watched in dismay as their electricity bills more than doubled during the life of the GEA. Their electricity costs are now among the highest in North America.
Energy officials I spoke to cited one apparent success of the GEA: the 2014 shutdown of coal plants. This may be commendable. But in actual fact, the regulation to phase out the coal plants came into effect in 2007 – two years before the GEA. Between 2007 and 2009, Ontario’s greenhouse-gas emissions from coal had already dropped by 55 per cent.
In truth, the GEA had a devastatingly negative impact. And the need to disentangle it will burden Ontarians – especially poorer ones – for at least a decade to come.
To understand how the GEA went irreparably wrong, we must look at Ontario’s contracts with its green-energy suppliers. Today, Ontario’s contracts guarantee to electricity suppliers that they ‘will be paid for each kWh of electricity generated from the renewable energy project’, regardless of whether this electricity is consumed. As preposterous as this may seem, it’s actually an improvement on many of the original contracts the Ontario government locked itself into.
Earlier contracts guaranteed payments that benchmarked close to 100 per cent of the supplier’s capacity, rather than the electricity generated. So if a participating producer supplied only 33 per cent of its capacity in a given year, the state would still pay it as if it had produced 100 per cent.
This was especially alarming in context, as 97 per cent of the applicants to the GEA programme were using wind or solar energy. These are both intermittent forms of energy. In an hour, day or month with little wind or sun, wind and solar farms can’t supply the grid with electricity, and other sources are needed for back-up. As a result, wind and solar electricity providers can only supplement the grid but cannot replace consistently reliable power plants like gas or nuclear.
Many governments, including other Canadian provinces, have used subsidies of all hues to incentivise renewables. But Ontario put this strategy on steroids. For example, the Council for Clean and Reliable Energy found that ‘in 2015, Ontario’s wind farms operated at less than one-third capacity more than half (58 per cent) the time’. Regardless, Ontarians paid multiple contracts as if wind farms had operated at full capacity all year round. To add insult to injury, Ontario’s GEA contracts guaranteed exorbitant prices for renewable energy – often at up to 40 times the cost of conventional power for 20 years.
By 2015, Ontario’s auditor general, Bonnie Lysyk, concluded that citizens had paid ‘a total of $37 billion’ above the market rate for energy. They were even ‘expected to pay another $133 billion from 2015 to 2032’, again, ‘on top of market valuations’. (One steelmaker has taken the Ontarian government to court for these exorbitant energy costs.)
Today, this problem persists.
In April this year, the market value for all wind-generated electricity in Ontario was only $4.3 million. Yet Ontario paid out $184.5million in wind contracts. Extraordinarily, if this trend were to continue throughout the whole of 2020, it would still result in a lower payout than under the former contracting system. Ontario corralled taxpayers into long-term electricity contracts at eye-watering prices for electricity that suppliers did not even produce.
Furthermore, electricity demand from ratepayers declined between 2011 and 2015, and has continued to fall. Ontarians were forced to pay higher prices for new electricity capacity, even as their consumption was going down.
Despite the mounting costs, the GEA still has its defenders. But even if we were to attribute declining emissions to GEA-backed renewables, was it worth the cost?
Ontario’s auditor general in 2015 stated that: ‘The implied cost of using non-hydro renewables to reduce carbon emissions in the electricity sector was quite high: approximately $257 million [£150million] for each megatonne of emissions reduced.’ Per tonne of carbon reduced, the Ontario scheme has cost 48 per cent more than Sweden’s carbon tax – the most expensive carbon tax in the world.
Clearly, bad policy has led to exorbitant waste. This wasn’t the result of corruption or conspiracy – it was sheer incompetence. It’s a meandering story of confusion and gross policy blunders that will fuel energy poverty in Ontario for at least another decade.
As democracies across the West respond to the coronavirus crisis with hastily prepared financial packages for a ‘green recovery’, they should consider the cautionary tale of Ontario.
The disaster of the GEA has had political consequences, too. Unsurprisingly, in the 2018 elections, the Liberal Party, which had drafted the GEA when in power, suffered the worst election results in its 161-year history, falling from first to third place – a defeat so terrible it lost is status as an official party. Disdain for renewable energy is now a key indicator of voting intention.
Ontario is now governed by a populist leader who has since taken a ruthless and costly approach to cancelling renewable-energy contracts. But this is understandably well-supported by the public.
The GEA’s stubborn defenders refuse to recognise that poor policy, even with the best intentions, discredits future efforts at cutting emissions. ‘Green New Deals’ for the post-pandemic recovery in the US and Europe should learn from the GEA. Clean energy at any cost will be rightfully short-lived and repealed, and its supporters will be unceremoniously booted out of power.
Babatunde Williams is a public policy student at the Hertie School in Berlin.
Picture by: Getty.
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