Electricity Prices Go Up Regardless

Ontario will be having an election this October, and the Green Energy Act is being raised as an issue.  I’ve decided to write this post before I know what different candidates are saying, because I’m not trying to favour one side or the other so much as discuss a point of view.

To start, I’ve heard people criticize the Green Energy Act on the basis that it will increase people’s electricity bills. It will.  But what that objection implies is that somehow, electricity prices would stay the same otherwise.  This is false.  Electricity rates are going up, period.

Why?  For starters, coal, oil and natural gas are all getting more expensive to mine or extract, and consumption for all three is increasing rapidly in China, India and other high-growth economies.  Demand for electricity is increasing in general, and where populations are growing it’s increasing even faster. In Ontario, our generation and distribution infrastructure is old, inefficient and in need of significant and expensive upgrades.  This means that it is getting more and more expensive just to keep things going at current levels, ignoring the fact that we’re already at the very edge of rolling blackouts every summer.  Added to that, some sort of cost for carbon emissions is starting to look inevitable (regardless of your opinion on global warming, that’s just political reality right now), and our current infrastructure still relies too heavily on coal.  I could go on, but you get the point.

The 2003 Blackout - The most dramatic recent example of how fragile our power grid can be.

To emphasize: No matter what we do, the price of electricity is going to go up. So, if you’re going to pay more, what would you like to buy with those extra dollars? There are many options, but here are two:

Option # 1: Invest minimally, keep electricity costs low (for now)

Some people will argue that we should spend and invest as little as possible, and our goal should be to keep electricity rates as low as possible now.  This means we don’t focus on any of the serious upgrades we badly need, and we keep importing extremely expensive power when we can’t generate enough in the summer.  This scenario assumes we don’t have to shut down any of the nuclear power plants, and we keep all of our current coal plants running. Electricity costs will still go up, but in the next few years, the increases will probably be slower. Once the growing costs of nuclear power plant maintenance, carbon taxes, rising fossil fuel prices and the long term health costs to the people living downwind from coal fired stations start to add up, things can easily very expensive, very quickly. In the long term, we’ll pay much more, and we’ll get little more than the status quo to show for it.  (And remember, all of the GTA and an overwhelming majority of the people in Ontario live downwind from Nanticoke, literally the most polluting coal plant in the Western Hemisphere.)

Option #2: Invest in a long term energy plan, stabilize and possibly reduce prices over the long term

The other alternative is to invest.  Reasonable people can disagree on the best way to invest, or even if that is a better course of action, and the Green Energy Act is absolutely not the only model for investing in a better energy future for Ontario.

With the Green Energy Act, we are paying more for electricity than we would otherwise. The extra money is used for several things: extensive upgrades to Ontario’s electrical distribution and generation infrastructure, aggressive efficiency and power reduction targets, and direct stimulation of renewable energy development via feed-in tariffs. Feed-in tariffs are controversial. They have been a disaster for Spain and Italy, but have had astonishing results in Germany and Japan.  The Ontario Green Energy Act was built with a specific set of long term goals in mind: job creation; increasing our clean energy supply; steadily lowering the price of renewable energy in Ontario by growing the market; eliminating coal-fired power plants; and, broadly speaking, avoiding instability in supplies and electricity price shocks, thereby keeping long term electricity costs low.

I can’t say if the all of the goals set out in Green Energy Act will be reached, and I certainly can’t say if it’s the best way to reach these goals.  But the goals seem worth trying to reach, and so far things seem to be working well. Unlike Spain or Italy, the OPA and the province have shown they can react quickly to make changes as needed in a timely and reasonably transparent manner. The uncertainty over the future of the Act is preventing a few companies from moving here or investing too much in Ontario operations, but in general, we’re seeing a fast growing solar energy sector.

Personally, I’d want to see strong evidence that the act wasn’t working, or that the added cost to electricity was having a clear negative effect on the province before I could be convinced it should be repealed.  Even then, there would need to be an alternate plan for our energy future, with clear goals and a way to reach them. It’s my opinion, but I strongly believe that doing nothing and focusing on the short term price of electricity without considering the bigger picture will be a bad strategy in the long run.

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Relevant reading:

The International Energy Agency’s (IEA’s) World Energy Outlook 2010 Fact Sheet

OPA’s Q4 2010 Progress Report on Electricity Supply