Rising hydro rates could cause ‘serious harm’ to Ontario’s economy, BMO chief economist says
Continued increases to the cost of electricity threaten to undermine the long-term competitiveness of Ontario’s economy, warns BMO’s chief economist Doug Porter.
“It’s the sort of thing that works against the economy over a long period of time,” said Porter, who cites rising energy costs as one of the most significant factors weighing on consumer spending.
“It hurts small businesses, it hurts large business. And it reduces their willingness to invest here in the province if one of their core costs is higher than in other nearby regions.”
Porter says the long-term effects of such increases is what worries him most.
“In the last year we’ve seen prices for the average consumer in Ontario rise by a little bit more than 15 per cent,” said Porter.
This compares to an overall increase in the rate of inflation of less than 2 per cent.
While Porter says there are a number of factors that contribute to rising energy costs, like replacing aging infrastructure, purchasing renewable energy and phasing out coal-powered generation, he believes there’s only so much the economy can handle before businesses and consumers begin feeling the consequences.
“Let’s just say it is going to do very serious harm to the Ontario economy if we continue to see double-digit increases in electricity rates,” said Porter.
While Porter suspects energy costs will stabilize over the next 12 to 18 months, he’s still concerned by the possible cumulative effects of another five to 10 years of increases – which according to Porter, includes the possibility that businesses might choose to relocate outside of Ontario or even Canada.
“What really stands out to me is we’re not seeing that kind of increase in other provinces,” said Porter. “Ontario is really unique in that sense.”
Green energy and rising hydro rates
In 2009, Ontario passed the Green Energy Act, an ambitious plan to phase-out the use of coal-powered generation and reduce the province’s dependence on fossil fuels. An important component of this strategy was to increase the use of renewable forms of electricity, like wind, solar, hydro and biomass fuels in order to produce electricity.
According to the Independent Energy System Operator, the organization responsible for administering Ontario’s energy system, renewable forms of electricity currently represent roughly 36 per cent of Ontario’s total production capacity. Under the province’s newly proposed Long Term Energy Plan, this figure is expected to increase to more than 50 per cent by 2025.
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Opponents to this strategy, like energy analyst Steve Aplin, say the province’s approach to green energy is short-sighted and that the high costs of renewable electricity should be more thoroughly considered when implementing new proposals. Alpin also suggests the rates paid to renewable energy producers are a driving factor behind increases to Ontario’s overall hydro rates.
“Not only are they more expensive per kilowatt hour of energy than conventional sources,” said Aplin, referring to wind and solar installations. “They also require infrastructure to connect them to the grid.”
Instead of shifting toward a system of renewable forms of energy, Aplin believes Ontario should utilize already existing sources of carbon-free electricity, like nuclear and hydro. He says the decision to continually increase the province’s capacity of what he describes as “low-efficiency” forms of renewable energy is unfortunate.
”The government should re-examine its commitment to double the wind fleet capacity,” said Aplin. “It doesn’t matter how many wind turbines and solar panels you put into your grid. You still need fossil sources to back them up and those fossil sources come with a carbon price.”
Ontario must change
Not all analysts agree with Aplin’s less-than-optimistic view of renewable energy. Keith Brooks, an energy specialist from Environmental Defence, believes Ontario had no choice but to phase out the use of coal and reduce its dependence on fossil-fuels. He believes clean energy like solar and wind should play a significant part in the province’s energy future.
“Renewables have been inaccurately portrayed as the cause behind rising electricity prices,” said Brooks. “They’ve definitely been a factor, but they’re quite a small factor.”
In fact, Brooks says the costs associated with wind and solar production represent just 9 per cent of the overall cost of electricity in the province, while oil and gas-generated electricity accounts for more than 15 per cent.
Brooks also cites polling conducted by Ekos Research in which upwards of 70 per cent of Ontarians supported the elimination of coal as an energy source and more than 80 per cent believed Ontario should utilize more forms of renewable energy.
“What we can’t forget is coal power was costing us a lot of money,” said Brooks. “Not just for the generation of electricity, but in health and environmental costs.”
Although not Ontario, an example of this is a 2013 report by the Canadian Medical Association which suggested the generation of coal-powered electricity costs Alberta as much as $300 million annually in additional health care costs.
Aside from the added health benefits of renewable energy, Brooks says Ontario’s shift toward clean technology has been an overall boost to the provincial economy. He cites Canadian Solar based in Guelph, Ont., one of the world’s leading solar panel manufactures, as an example of new manufacturing being brought to the province as a result of renewable energy.
Opposition speaks out
Andrea Horwath, leader of the Ontario NDP, believes Kathleen Wynne and the Ontario Liberals are out of touch when it comes to the affect of rising hydro rates upon the people of Ontario. She also believes lucrative energy contracts awarded to private renewable energy producers have been a leading cause of increased rates over the past decade.
“What the Liberals decided to do is invite in private interests – private companies – to provide that green energy in their own interest,” said Horwath.
“The private sector interests made out like bandits, while the rest of us are paying the price.”
While Horwath cautions against cancelling any existing contracts with electricity producers, many of which guarantee minimum levels of income regardless of the amount of energy produced, she feels there are places in which cost savings can be accomplished. She also believes the auditor general should have the authority to review these contracts and make recommendations on how to lower energy prices in the province.
In addition to removing HST from energy bills, Horwath says an NDP government would immediately stop any further sale of shares in Hydro One, the Crown corporation which currently provides electricity to more than 1.3 million households in Ontario.
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