Expensive lesson for Ontario
Troy Media – by Gwyn Morgan
A recent study, conducted by respected energy economist Gerry Angevine for the Fraser Institute, found that Ontario residents will pay an average of $285 million more for electricity each year for the next 20 years as a result of subsidies to renewable energy companies.
By the end of 2013, Ontario household power rates will, with exception of PEI, be the highest in North America and will continue to accelerate while most other jurisdictions see rates level off. Even more alarming for the province’s economic competitiveness, businesses and industrial customers will be hit by almost $12 billion in additional costs over the same period.
“Feed-in” rates very expensive
Such is the legacy of the provincial government’s 2009 decision to establish “feed-in” rates ranging from 80.2 to 44.5 cents per kilowatt-hour (Kwh) for solar power and 13.5 cents/Kwh for wind power. These solar feed-in rates average 11 times the 5.6 cents/Kwh paid for nuclear and 18 times the 3.5 cents/Kwh for hydro generated power. The wind power rates are more than twice as high as nuclear and four times those of hydro.
Besides the enormous direct cost of these huge subsidies, there’s also a big hidden cost for expensive fossil-fueled standby facilities because the wind doesn’t always blow and the Ontario sun certainly doesn’t always shine.
Faced with rising consumer reaction the provincial government recently announced modest feed-in rate reductions, but those do nothing to change the results of the Fraser study, since thousands of contracts already approved have been guaranteed these higher rates for the next 20 years.
Premier McGuinty has predicted that the subsidies will propel Ontario to world leading position in green power technology, creating thousands of jobs. Sadly, the Fraser study shows quite the opposite as the province’s already beleaguered manufacturing heartland sees a former electricity cost advantage transformed into a competitive millstone.
Ontario isn’t the only place where grand green power dreams have turned into a nightmare. Several European countries began doling out subsidies nearly a decade ago. Germany has given away $130 billion, mostly to solar power companies. Yet solar power makes up a minuscule 0.3 per cent of German power supply, while doing virtually nothing towards the original objective of reducing greenhouse gas emissions. Last February, Germany’s Minister of Economics and Technology announced a pullback from green power subsidies stating that the cost was “a threat to the economy”. Spain also poured cash into solar and wind power subsidies with little to show for it except a $25 billion increase in this financially crippled nation’s debt. Meanwhile, British consumers have grown increasingly outraged over paying some $700 million a year in wind farm subsidies that produce less than 0.5 per cent of power demand.
In the United States, green power companies have received more than US$4 billion to build wind farms as part of the Obama administration’s massive job stimulus program. A recent Wall Street Journal investigation found that the projects created a total of 7,200 temporary construction jobs at cost of US$600, 000 per job, and 300 permanent jobs at a whopping US$14 million per job.
The Administration also awarded grants and loan guarantees to solar power companies with pretty rickety business plans. Last September, California based Solyndra LLC sought bankruptcy protection after receiving US$535 million in federal loan guarantees to build a new solar panel factory. And, earlier this month, Solar Trust filed for bankruptcy after failing to meet the terms a US $2.1 billion federal loan guarantee to build what was to be the world’s largest solar power generation plant.
A perfect storm
It’s not only power consumers and taxpayers who have been hit by the green power mania. In a February 24 article headlined “Perfect storm hits green energy stocks”; the Globe and Mail reported that 10 wind and solar equipment makers in China, India, Europe and the U.S. have seen the price of their shares collapse by 86 to 98 per cent since 2008; as a combination of ineffectual environmental benefit, escalating power costs and debilitating government deficits drive a precipitous drop in the outlook for green power subsidies.
The lessons of the green power debacle are clear: for governments, forcing consumers and taxpayers to subsidize any business almost always leads to economic damage and political unpopularity; for investors, companies living on government subsidies will die when they stop.
Gwyn Morgan is a Canadian business leader and director of two global corporations.