Ontario revisits renewables
Energy has been a disturbing topic in Ontario in recent days. The rapid increase in electricity bills, over 70% in one decade, led the province to prioritize a competitive mix of energies rather than simply targeting green projects. After building a clean and reliable energy system, phasing out coal-fired electricity generation, and promoting a massive use of renewables over the last years, now the focus is on delivering affordable energy.
Ontario has one of the lowest emission electrical systems in the world, about 1/10th that the emission rates in the United States, Europe, and China. Policies such as a ban on coal-fired generation, and programs to attract new renewable generators, nearly swept the carbon footprint away from the power grid over the past decade. However, at the same time, electricity bills in the province jumped more than twice as much as any other place in Canada.
While the measures taken by the government to transform the electricity sector fully accomplished remarkable goals regarding environmental targets, they embedded an uncomfortable cost for Ontarians ratepayers. According to a report from the Ontario Society of Professional Engineers (OSPE) "there was a lack of detailed engineering analysis on the impact of the variable renewable generation before phasing out coal."
Analysts point to the Feed-in-Tariffs (FITs) program, launched in 2009, as a part of the reason for the escalating energy prices in Ontario. Under the FITs, investors in new renewables plants were paid a guaranteed price, far above the wholesale market prices, for 20 years. The gap between the market prices and the price guaranteed has been covered through a surcharge on power bills called Global Adjustment (GA). According to a price report from the Ontario Energy Board, for the period between May 1, 2017 to April 30, 2018, the GA accounts for about 75% of the generation cost in Ontario, and about 30% of the GA corresponds to the wind and solar projects under the FITs.
The full power capacity of each project contracted through the FITs is paid whether used or not. In the first years of the FITs, about 6,000 MW of new capacity was added to the grid, generating a large surplus of supply in the province. This oversupply from renewable plants has increasingly burdened the power bills as the electrical demand in Ontario has decreased in the last ten years. As well, the cost of renewable energy, particularly solar and wind, has consistently dropped year by year.
In a speech delivered to the Economic Club of Canada last year, Ontario Energy Minister Glenn Thibeault admitted that the strategy adopted by the government for implementing renewable energy is partially responsible for the rising cost of electricity in the province. Thibeault said that the fixed-price made sense at the time, but now it's known that competitive tension among renewable energy developers could lead to much more attractive pricing.
Thibeault also said that the government must in the future move away from setting targets for specific types of energy, and should instead focus on a system where energy producers compete for contracts, regardless the type of energy, ensuring ratepayers receive the best prices possible.
Over time, adjustments have been made to Ontario's energy policies, such as ending the procurement for large projects under the FITs. Likewise, capacity from small projects, particularly solar PV installations, are likely to grow in coming years through programs such as the Net Metering, where customers trade renewable energy to the grid for credits on energy bills.
In the Ontario Long-Term Energy Plan 2017, entitled "Delivering Fairness and Choice", the government outlined that costs of new wind and solar energy installations will come down, and new smart grid and storage technologies will become more readily available. Furthermore, the plan states that Ontario’s cap and trade program will increase the price of fossil fuels and affect how often fossil fuelled generators get called on to meet the province’s electricity demand. Started in 2017, the program is applied to companies that produces over 25,000 tonnes of carbon dioxide equivalent per year.
As a short-time measure, in June 2017 the government passed the Fair Hydro Act which reduced electricity bills for residential consumers by an average of 25% and will hold any increases to the rate of inflation for four years, by rebating taxes, cutting subsidies and restructuring debts. At the same time, the government sold 20% of Hydro One, the provincially-owned electric distribution company, on the stock market to reduce the company's debts.
Ontario still ranks highest in energy price among major provinces in Canada, but renewable programs, after all, are certainly not the only cause of this. The biggest portion of the GA, for instance, is related to maintaining costs of the three large nuclear plants that currently account for about 50% of Ontario's electricity production. The actual generation mix also includes approximately 22% of hydro, 20% of natural gas and 8% of wind.
In other provinces, such as Quebec and Manitoba, for example, electricity costs about 50% less, but both provinces generate up to 98% of their electricity from hydro, one of the cheapest source of energy. Alberta and Saskatchewan also enjoy lower rates, but unlike Ontario, they still generate with coal, another cheap source of energy.