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Ford government should solve Ontario’s electricity-cost problem

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Ford government should solve Ontario’s electricity-cost problem

According to a report in the Financial Post, Ontario’s New Democratic Party says the Ford government’s decision to cancel some 750 early-stage renewable energy contracts actually cost Ontario taxpayers $231 million in fiscal year 2018-2019 (instead of saving the province $790 million over no specified time horizon as the Ford government promised).

Both of these claims could be true or false, as the Post article concedes that industry groups have challenged estimated savings from the contract cancellation, while the government suggests that some of the project cancellations/decommissioning are still underway so it’s too early to determine final the costs/benefits of cancelling the renewable contracts.

Given the slow nature of change in the energy sector, it may be some time before a true reckoning on the decision to terminate contracts can be rigorously derived.

However, some context is worthwhile. As a recent study by Fraser Institute economists Elmira Aliakbari and Jairo Yunis observes, power prices in Ontario continue to rise.

…instead of receiving the reductions in electricity prices that were promised by the new government, almost all types of consumers in Ontario have faced hikes in the price of electricity over the past year. Specifically, electricity prices for residential and small-power consumers (such as small businesses) in Toronto increased 5% and 6%, respectively, between April 2018 and April 2019. Large businesses and industries have also suffered from rising electricity costs. For example, over the past year, large-power consumers in Ottawa faced a 7% increase in their electricity costs and medium-power users, an increase of 12%. In Toronto over the same period, electricity costs rose by 10% for large-power consumers and by 15% for medium-power users.

They also observe that “large-power industrial consumers in Ontario are paying almost 65% more than the cost to the same type of consumers in the rest of Canada.”

And where does the blame lie? In the component of Ontarian’s power bills that carries the costs of renewable power and other non-market interventions such as conservation programs, called the “Global Adjustment” or GA. Again, the researchers observe that most cost increases in Ontario power prices reflect the growth of the GA and that subsidies to renewable generators still represent approximately 34 per cent of the total GA.

All dueling cost estimates aside, one thing is fairly certain. Ontarians continues to labour under high electricity costs, lightening the pocketbooks of Ontario families, increasing costs for Ontario businesses and damaging Ontario’s overall competitiveness. Finding a fundamental solution to reduce electricity costs should remain a priority of the government, no matter which party is in power. Addressing the renewable component of the Global Adjustment is a good place to start.

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