Ontario energy minister admits mistake with green energy program
Ontario Energy Minister Glenn Thibeault has issued a mea culpa on the way the Liberal government implemented its Green Energy plan.
Thibeault says the implementation of the Green Energy Act has led to “sub-optimal outcomes” for consumers and to increased prices in electricity for families and businesses in Ontario.
In a speech delivered Friday to the Economic Club of Canada, the energy minister indicated that Ontario’s Feed-in-Tariff program, or FIT, has resulted in over-manipulation of the province’s energy sector and to the removal of competitive incentives for energy producers.
“At its core, Ontario’s renewable energy procurements were absolutely the right policy,” Thibeault said. “However, it was the ‘how’ and not the ‘what’ that drove price considerations. How we implemented those policies led to a number of sub-optimal outcomes.”
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Referring to the FIT program, which awards energy producers long-term contracts with rates as high as 40-times the fair market value of electricity, Thibeault said the government’s implementation of its own renewable energy strategy is at least partly to blame for the rising cost of electricity in Ontario.
“This made sense at the time,” said Thibeault, referring to contracts with fixed-prices at above market rates. “We drove significant investment in the province. [But] we now know that competitive tension within and among renewable energy developers could lead to much more attractive pricing. As they say, hindsight is 20-20.”
In other words, the policy itself was good – phasing-out coal and investing in new infrastructure – but exactly how the government went about achieving its green energy goals was not.
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In the future, Thibeault says the government must move away from setting targets for specific types of energy – such as wind, solar, hydro and nuclear – and should instead focus on implementing a system in which energy producers compete for electricity contracts – regardless of what type of energy they produce.
“It is essential that we begin to move towards more technology-agnostic procurements,” Thibeault said. “We must unleash the electricity sector and our system operator to find the appropriate mix to fulfil a capacity auction that would ensure ratepayers receive the best prices possible.”
What this seems to indicate is that the government no longer intends to favour one type of energy production over another, but will instead implement a competitive bidding process, or an auction-based approach, that will drive future energy procurements in Ontario – something other jurisdictions, like Alberta, have indicated they will do when phasing-out coal.
Interestingly, a section not included in Thibeault’s speech, but contained in an earlier emailed version, seems to indicate that the ministry is also aware of concerns over where in the province certain renewable energy projects were constructed.
“Government values the clean, green, renewable energy sector and the contribution that firms have made to our domestic economy and job creation. But allocating the precise mix of technology types has largely been arbitrary and led to sub-optimal siting, uncompetitive prices, and heightened community concern.”
The Feed-in-Tariff program
Ontario’s FIT program was launched in 2009 as a way of procuring renewable wind, solar, hydro and biomass energy. The program’s primary objective was, and still is, to replace coal-powered electricity.
The Independent Electricity System Operator, or IESO, signed long-term contracts with energy producers that guaranteed rates well above fair market value for the length of the contract. Wind, solar and biomass producer were given 20-year contracts, while hydro producers were given 40-year contracts.
Projects approved under the FIT program range in size from large-scale solar and wind farms, like the $7-billion deal with Samsung for solar energy, to small-scale operations such as anyone with a solar panel on their roof or in their backyard.
The prices the government sets for these contracts are arbitrary. In some cases, like solar projects with less than 10 kilowatts capacity, initial prices in 2009 were as high as 80.2 cents per kilowatt-hour – or about 40 times the actual market value of electricity.
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For large-scale solar producers, any project above 100 kilowatts capacity, initial prices ranged from 44.3 – 63.5 cents per kilowatt-hour depending on the type of installation – or roughly 20 to 30 times the market value of electricity.
At no time did the government enter into a competitive bidding process for FIT contracts. Not all FIT applications were approved, but once a contract was signed, energy producers were guaranteed a fixed price for the duration of the deal.
Following a review of the FIT program in 2012, the government reduced prices significantly. For example, prices awarded for large and small-scale solar projects were cut in half.
By January 2017, less than eight years after the initial launch of the FIT program and roughly 12 years away from the first contracts expiring, the government had reduced the prices paid for solar projects by roughly 65 per cent.
For example, rooftop solar projects approved in 2009 or 2010 with a capacity of 500 kilowatts received 63.5 per kilowatt-hour for the duration of the contract. In 2017, this same size project receives a rate of 20.7 cent per kilowatt-hour – a reduction of 67 per cent.
One of the pillars of the Liberal’s Green Energy Act was a buy-local provision. The purpose was to spur economic growth within Ontario’s energy manufacturing sector and make the province a leader in renewable energy innovation.
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But in 2012, the World Trade Organization struck down these provisions after a complaint by Japan, the U.S. and the European Union. The government appealed the decision, but this move was denied, forcing the government to change the buy-local provisions.
According to the Ministry of Energy, the Green Energy Act and the FIT program have created more than 20,000 jobs in Ontario. They say the program has resulted in more than $20 billion of investment in the province and supplied enough electricity to power roughly 1.8 million homes.