Rising electricity prices have little to do with renewable energy

Toronto Star

May 05, 2012

Tim Weis, Pembina Institute

While spring in Ontario has yet to bring much rain, thereʼs been no shortage of mudslinging over rising electricity prices. But thereʼs more to it than critics of renewable energy would you have you believe: new data helps to clarify how prices are linked more to nuclear power than clean energy programs.

To start with, electricity prices are going to go up no matter what source of energy we choose to use. Half of the provincial electricity systemʼs generating capacity — including almost every nuclear reactor — needs to be replaced or rebuilt within the next 10 years and you simply cannot build power plants in 2012 at 1980s prices.

While itʼs the only province so far to be phasing out coal, price increases are by no means exclusive to Ontario. In coal-powered Alberta, energy prices are forecast to rise by 50 per cent between 2010 and 2016. Between 2002 and 2010, rates in Nova Scotia rose by 37 per cent. In Saskatchewan they rose by 36 per cent. And B.C. Hydro forecasts a rate increase of 32 per cent between 2011 and 2014.

What seems to be unique to Ontario is the fear that renewable energy is the sole cause of the increase. Although Ontarioʼs ambitious clean energy development targets are being met by establishing contracts with renewable energy generators in the form of feed-in tariffs (FIT), the province has similar long-term contracts with both nuclear- and gas-powered plants.

The difference with renewable energy, however, is that FIT prices are fully disclosed, while the same cannot be said for nuclear, or many of the provinceʼs gas contracts. Ironically, itʼs this transparency that seems to put renewable energy at a disadvantage, allowing critics to do what they will with the data while prices for other energy sources slip under the radar.

While FITs are transparent, it can be difficult to understand their impact on Ontarioʼs electricity market, in part because it really isnʼt much of a market at all. Huge assets of Ontarioʼs electricity grid remain under the ownership of Ontario Power Generation (OPG) as well as other private companies, and adjustments to your electricity bill ensure they get paid if market prices drop.

New data from the Ontario Energy Boardʼs market surveillance report shows that the power providers who have received the largest portion of these adjustments since 2006 arenʼt wind and solar energy — they only account for 6 per cent. Instead, itʼs nuclear, at 45 per cent. Given that nuclear energy accounts for over half of Ontarioʼs electricity consumption, this is hardly surprising.

As more renewable energy enters the grid and gains a larger percentage of provincial contracts, future price increases will have more to do with renewable energy generators. But for now, the biggest player in the system (i.e., nuclear) is also the biggest price setter.

The good news about renewables is that as more come online, the FIT prices will decrease. This model has driven solar prices down by 50 per cent in Europe over the past five years, and Ontarioʼs recent price adjustments show the same thing is happening here.

No one is hiding the fact that Ontario is currently paying a premium to get the ball rolling with renewable energy. Whatʼs not being discussed is the cost of alternatives to renewable energy, since doing nothing is not an option.

At the Pembina Institute we completed a study which found that cancelling the FIT would barely slow price increases in the near term, culminating in a monthly savings of about $4 at most for a typical household hydro bill. In the longer term, however, stable renewable energy prices are likely to save consumers money, as the price of gas is expected to increase, while the wind blows and the sun shines for free.

That said, we know even less about the cost of a continued commitment to nuclear power, currently forecast to be 50 per cent of Ontarioʼs future supply. Almost all of the provinceʼs nuclear units need major work — in the case of Pickering, a complete shutdown — yet the

full costs associated with refurbishing existing units or building new ones has never been made public. Given the history of cost and time overruns in Ontario, and recently in New Brunswick and Quebec, price watchers ought to be asking for at least the same transparency and price guarantees that renewable energy offers.

While thereʼs little respite from rising electricity prices no matter what the source, with renewable energy at least consumers know what theyʼre paying for.

Tim Weis is a professional engineer and director of renewable energy policy at the Pembina Institute. He is lead author of Behind the Switch, a study that examined the price impact of future electricity generation scenarios in Ontario.