The Toronto Star by Leak Stokes 22 July 2013
Over the past six years, Ontario’s ambitious energy policies have more than quadrupled wind energy in the province, and brought solar energy from non-existence to a significant place on the province’s grid.
These policies, called feed-in tariffs, allow individuals and companies to develop projects, sign contracts with the government, and receive a guaranteed price for their energy for 20 years.
Last month, Ontario’s minister of energy took a step backward with a directive that could undo the gains made over the last half decade. Large-scale projects will not be eligible under the revised policy, effectively excluding wind projects. And the new program has an extremely tight cap. Given past growth rates, solar contracts would fill the annual capacity target in three months.
These changes leave industries relying on the policy with an unclear future. The point of a feed-in tariff policy is to create certainty that drives investment and job creation. This principle was violated when Ontario cut one renewable energy policy before clearly identifying a new path forward.
Pressure to gut Ontario’s renewable energy policy came from three directions: anti-wind activists, inefficient pricing and international trade law.
Local anti-wind activists succeeded in creating a perception that wind turbines were harmful and being rejected by rural Ontario. News articles argued the Liberal government may have lost its majority in the 2011 election because of anti-wind voters. These stories likely scared Liberal politicians away from supporting wind projects in their ridings.
In reality, these arguments were false.
Statistical research on Ontario’s 2011 election shows that the Liberal party vote share declined only marginally in ridings with wind turbines. While the voting shifts were detectable, at a scale of around 3,500 total votes across the province, anti-wind protesters did not swing the election, let alone a single riding.
The more likely scenario was that voters were supportive or did not have any opinion about the renewable energy program. This finding is supported by opinion polls from early 2012 that found most Ontarians believed wind energy is a safe form of electricity generation. But regardless of the facts, the story was cast: wind turbines were bad politics.
Second, economic critics, including the auditor general of Ontario, argued the price per unit of energy was too high. As a result, developers were receiving windfall profits. Some of this argument was true, as the Ontario Power Authority recognized when it dropped the price for solar by over 25 per cent in 2010 and 2012.
But the problem went beyond high initial prices. The policy lacked a regular review process or a mechanism that would automatically reduce the price offered as renewable energy expanded in the province.
Instead, the first review was scheduled for two years after the program started. This long delay did not allow the policy to flexibly respond to changes in technology costs. It was clear Ontario was paying more than necessary for renewable energy.
Finally, international pressure on the program grew through a World Trade Organization challenge to the local content rules.
When the policy was being revised in 2008, unions suggested requirements for local content would help ensure domestic manufacturing and installation jobs. Unfortunately, these rules also violated trade law.
The U.S., EU, and other countries challenged the law through the WTO. Ontario lost this case, making changes to the policy necessary.
The minister’s changes are an attempt to placate these critics. The new policy appeases anti-wind advocates by requiring local buy in, slashes costs by capping capacity and cutting large projects, and removes local content rules. The recent cuts to the Samsung deal further reduced renewable energy capacity and costs.
Some of these modifications — for example the mandatory one-year review period — will be useful. But the program cap is too low, and while large projects will likely be built through auctions, the mechanism and timeline are left unclear.
A stronger approach would be continued reliance on an uncapped feed-in tariff, with proper municipal consultation and community sharing of the profits from energy development. Economic concerns could have been addressed through a price that dynamically adjusted as new contracts were signed, and a transparent formula to set the tariffs.
The sad part of this story is that the feed-in tariff was working. Renewable energy projects were being built, jobs were being created and climate change was being addressed. At a minimum, the province needs to act quickly and clarify its auction mechanism, to ensure this significant investment in an Ontario renewable energy industry wasn’t for naught.
Leah Stokes is a PhD candidate at the Massachusetts Institute of Technology. Her research focuses on renewable energy policies.