Ontario’s Power Consumers Being Fleeced by Wind Industry Subsidies

half shorn sheep
Only half way there: the wind industry’s lust
for subsidies doesn’t involve half-measures.

How green energy is fleecing Ontario electricity consumers
Financial Post
Ross McKitrick and Tom Adams
29 October 2014

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. Elements of the Global Adjustment that are not disclosed include payments to generators to not generate, rates paid to historic non-utility generators, and costs for new hydro-electric developments.

Since 2007, the Global Adjustment has risen six cents per kilowatt-hour in inflation-adjusted terms, pushing up the commodity portion of bills by 50%. Not long ago, Ontario’s total industrial rate was less than six cents per kilowatt-hour. The rising Global Adjustment is by far the biggest driver of the resulting 21% increase in the overall average cost of power in the province over the period 2007-2013.

The Global Adjustment’s upward path is a direct consequence of government intervention in the electricity market. Our analysis unpacking the costs of different types of generation shows that the consumer impact of new renewables substantially exceeds the direct payments to those generators by as much as 3 to 1. And renewables are a big part of the problem: Wind and solar systems provided less than 4% of Ontario’s power in 2013 but accounted for 20% of the commodity cost paid by Ontarians.

Getting to the bottom of the rate implications of adding renewables gained new urgency when Premier Wynne declared last month that the 2013 fleet of wind and solar will almost triple by 2021. This is an incredibly reckless decision. In his National Post column recently on the 2014 Ontario Economic Summit, co-chair Kevin Lynch, Vice-Chair of BMO Financial Group, stated bluntly “That Ontario has a serious growth problem is rather difficult to deny, or debate.”

What’s the solution? If the Province wants to contain electricity rate increases it needs to halt new hydroelectric, wind and solar projects. In order to reverse rate increases, the province should seek opportunities to terminate existing contracts between renewable energy companies and the OPA. Alas, as the Premier has indicated, that’s not where they’re headed.

Alternatives to costly new renewables include using some imported electricity from Quebec while Ontario refurbishes its nuclear power plants and maintaining 4 of 12 coal-fired power units at Lambton and Nanticoke that had been outfitted with advanced air pollution control equipment just prior to their closure, making them effectively as clean to operate as natural gas plants. Costly conservation programs encouraging consumers to use less electricity make particularly little sense these days in Ontario. Right now, Ontario is exporting vast amounts of electricity at prices that yield only pennies on the dollar, and also paying vast but undisclosed sums to generators to not generate.

Many European countries made costly commitments to renewable energy but are now winding them back. Germany is investing in new smog-free coal power generation. Environmentalists often suggested that following Europe is the way to go. Perhaps Ontario should consider following them now.

Ross McKitrick is a Professor of Economics at the University of Guelph and Senior Fellow of the Fraser Institute. Tom Adams is an independent energy consultant and advisor.
Financial Post

Ross and Tom’s complete study is available here in pdf.

For more of Ross McKitrick’s work see our post here.

For a primer on how the subsidy scam works in Australia, see our posts here and here and here.

Downwind - Ross McKitrick - Uni of Guelph (Time 0_06_00;22)
Professor Ross McKitrick, separating the sheep from the goats.

2 thoughts on “Ontario’s Power Consumers Being Fleeced by Wind Industry Subsidies

  1. When the wind turbines are not generating power, they generally draw power out of the grid to “stay alive”. The greater the number of turbines in one meteorological locality, the greater the amount of parasitic power these greedy behemoths consume when the wind isn’t blowing.

    If Macarthur wind farm drew just 1MW for one hour, that would be enough power to supply 50 homes for 24 hours. The parasitic consumption is usually significantly higher than that. That parasitic power has to be recouped before it can start generating anything. The wind turbines are no better than leeches!

  2. Until this whole mess changes these messages are repeated over and over again in the same way we teach small children. Costly ‘renewable’ charges by importing electricity from South Australia’s turbines are ahead for Victorians once the interconnector hooks up to our grid. You would reasonably expect with all the billions invested in renewable infrastructure, proven in many postings on this website to be unworkable, with all the expenses we pay for in our bills; that this Summer, Victorians won’t suffer the power blackouts of the past. Last Summer Premier Napthine requested Victorians to cut back on power consumption with exemptions for emergency services such as hospitals, during one of Australia’s hot spells. Putting up more turbines in the hope they’ll prevent blackouts makes no sense when wind turbines don’t work under extremes. Turbines stop production when there is no wind or too much wind or even if it is too hot and are utterly unreliable as more often than not they are just not operating or operate under 30% capacity. When they don’t operate they draw on traditional power sources putting further strain on the energy system and it doesn’t matter if we’re connected to SA because the wind and turbines stop over there as well. Will Australia resort to paying generators not to generate, to compensate these parasitic companies? All over the world after years of operation, ripping off the public through glutinous subsidies and damaging peoples health and communities, when will wind facilities be properly regulated or even banned using some REAL ‘anti-wind farm’ laws?

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