Obstacles to business investment in Ontario—high electricity prices

Ontario’s recent economic growth is masking a troubling slump in business investment in the province, according to a study released by the Fraser Institute this week. Despite a booming housing market, the province suffers from weak business investment, which could undermine its economic gains in the long run.

There are a number of reasons why business investment to Ontario remains weak including the fact that government policy choices have contributed to a rising cost of doing business in the province. Indeed, a separate recent Fraser Institute study shows that electricity costs in Ontario have surged much faster than they have in other provinces across Canada over the past several years.

Rapidly increasing electricity costs are one of the most important ways rising costs have discouraged business investment.

The price of energy in a given jurisdiction is a key consideration for businesses looking to set up shop, especially for those firms in sectors that consume large amounts of electricity. That’s why Ontario’s high electricity rates put it at a significant disadvantage, particularly in its vitally important manufacturing sector. Despite its recent struggles, Ontario’s manufacturing sector is still the third largest employer in the province. But the province risks losing even more manufacturing jobs if its electricity prices continue to put Ontario firms at a sizeable economic disadvantage.

For instance, the government electricity prices are significantly higher than they are in neighbouring Quebec. The significant price difference may help explain why firms in energy-heavy tech industries are choosing Quebec over Ontario—Amazon, IBM, and Bell Canada all recently chose to open huge data centres in Quebec. Ontario is also at a competitive disadvantage with a number of nearby manufacturing jurisdictions in the United States where electricity prices are lower.

It’s clear that electricity rates in Ontario are a significant barrier to business investment in the province. Renewed business investment will be crucial if the province wants to supplement its booming housing market with strong, long-term growth. But it won’t get there unless it’s able to provide businesses with access to electricity at reasonably competitive rates.