TORONTO, ONTARIO--(Marketwired - Apr 11, 2013) - Ontario's Green Energy Act (GEA) will soon put the province at or near the top of North American electricity costs, with serious consequences for the province's economic growth and competitiveness, concludes a new report from the Fraser Institute, an independent, non-partisan Canadian think-tank.
"Already, the GEA has caused major price increases for large energy consumers, and we're anticipating additional hikes of 40 to 50 per cent over the next few years," said Ross McKitrick, Fraser Institute senior fellow and author of Environmental and Economic Consequences of Ontario's Green Energy Act.
"The Ontario government defends the GEA by referring to a confidential 2005 cost-benefit analysis on reducing air pollution from power plants. That report did not recommend pursuing wind or solar power, instead it looked at conventional pollution control methods which would have yielded the same environmental benefits as the GEA, but at a tenth of the current cost. If the province sticks to its targets for expanding renewables, the GEA will end up being 70 times costlier than the alternative, with no greater benefits."
Environmental and Economic Consequences of Ontario's Green Energy Act analyzes the GEA and its effects on economic competitiveness and environmental improvement in Ontario. The report calculates that the manufacturing and mining sectors will be particularly hard hit by rising energy costs, with returns to investment in manufacturing likely to decline by 29 per cent, mining by 13 per cent, and forestry by less than one per cent.
"Provincial efforts to shield these industries through energy subsidy programs only transfer the costs onto Ontario taxpayers, who are already dealing with skyrocketing residential electricity prices," McKitrick said.
"Overall, GEA-related energy cost increases will yield a net loss of investment and employment in Ontario, in pursuit of environmental benefits that could have been obtained at a fraction of the cost."
Gone with the wind
The study shows that the GEA's focus on wind generation is particularly wasteful: 80 per cent of Ontario's wind-power generation occurs when electricity demand is so low that the entire output is surplus and must be dumped on the export market at a substantial loss. The Auditor General of Ontario estimates that the province has already lost close to $2 billion on surplus wind exports, and figures from the electricity grid operator show the ongoing losses are $200 million annually.
The wind grid is also inherently inefficient due to the fluctuating nature of the power source. The report calculates that due to seasonal patterns, seven megawatts of wind energy are needed to provide a year-round replacement of one megawatt of conventional power.
"Consequently, the cost of achieving renewable energy targets for the coming years will be much higher than the Ontario government's current projections," McKitrick said.
"In fact, air emissions may start going up under the GEA if the growing surplus of wind and solar power necessitates taking one of Ontario's nuclear power plants offline."
The Ontario government has also backtracked on its original claim that the GEA would create 50,000 jobs, a projection that failed to account for permanent job losses due to electricity price increases under the GEA. The province has also admitted that the vast majority of GEA-related jobs will be temporary.
"The overall effect of the GEA will be to increase unit production costs, diminish competitiveness, cut the rate of return to capital in key sectors, reduce employment, and make households worse off," McKitrick said.
"And all for some small emission reductions that could have been obtained at a fraction of the cost."
The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.