4/9/10: an in-depth look at the rate impacts of Ontario's feed-in tariff and green energy policies

Friday, April 9, 2010

Today I'm taking a more in-depth look north of the border at what one Canadian province is doing to encourage green electricity generation -- and at the electric rate impacts of this policy.

As you may know, Ontario plans to eliminate its coal-fired power plants by 2014 and replace them with cleaner energy sources. In October, Ontario unveiled the Green Energy Act, which includes a set of feed-in tariffs that guarantee renewable generators fixed, above-market prices for 20 years to feed their production into the electricity grid. Yesterday, the province has announced 184 contracts for green energy projects, totalling 2,500 MW.

Minister of energy and infrastructure Brad Duguid said these contracts will generate 20,000 direct and indirect "green jobs" and attract $9 billion in private investment. In addition, Ontario is seeing interest in local siting of manufacturing facilities to produce the products and components needed to site renewable generation. In the last three months, Ontario has received commitments from both South Korea’s Samsung C&T Corp. and Germany’s Bosch Solar Energy to site manufacturing facilities in the province. It is assumed that the feed-in tariffs and contracts are required to incentivize this economic development activity.

But at what cost? The Globe and Mail has a good article detailing how Ontario is poised to face the highest electricity prices in Canada, replacing PEI as the province with the most costly power. Projections show that residential customers in Ontario were already facing a 25% rate hike, paying $300 more a year on average for electricity by the end of 2011. The green energy contracts will add another 5%, or $60 a year by 2012. Consumers' total cost, including distribution, may rise to 14.54 cents in 2011, while the average residential rate in the United States will rise just 2 per cent to 11.74 cents next year.

Simultaneously, a "smart grid"-related initiative will raise most residential rates even further. Ontario is introducing time-of-use billing, charging 9.3 cents per kWH during peak periods and 4.4 cents during off-peak periods. One forecast suggests this will result in a $50 a year increase for the average residential ratepayer. Of course, those ratepayers who can successfully shift their load to off-peak hours -- whether through careful management, or investment in appliances and technology systems that do the management for them -- might be able to reduce their costs through this move.

On top of all this, the province -- like many U.S. states -- is exploring tax hikes and broadening of the tax base to raise funds. In Ontario, a new harmonized sales tax will add 8 per cent to everyone’s bill starting July 1, or $98 a year for the average bill.

It will be interesting to watch as Ontario policymakers pursue these initiatives. Will there be ratepayer backlash? Or will ratepayers take the rate increases in stride, and feel like they're getting something -- freedom from coal-fueled power plants and their environmental impacts -- for their money? Time will tell.

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