In response to the Ontario Clean Air Alliance’s misleading bulletin

The Ontario Clean Air Alliance (OCAA) emailed out a bulletin on November 6th in which they claimed that the Fraser Institute is “not telling the truth”. Their claim was in response to our recent report The Ontario Government’s Electricity Policies 2018–2019: How They Are Failing and How to Fix Them which examines recent electricity prices in Ontario and evaluates the Ford government’s performance on the electricity file in the province.

It is noteworthy that the OCAA did not link to or quote from our report so their readers were unable to see what we actually said. Instead the OCAA misquoted us and misled their readers with a biased paraphrase of our findings.

The OCAA claimed we said “renewable energy is the single largest cause of Ontario’s rising electricity rates.” This is untrue. We said that the “drastic increase in the Global Adjustment (GA) has been the primary cause of rising electricity prices in Ontario” (p. 7). We also showed that rather than going down after the last election, the GA increased by 13% (p. 8). Much of our report was a detailed explanation of what is driving the GA, and how Ontario’s electricity prices compare with other provinces.

In our Executive Summary we said that “Ontario’s rising electricity costs have been in part blamed on the province‘s 2009 Green Energy Act (GEA).” We then explained:

The centerpiece of the GEA was a Feed-In-Tariff program, which provides long-term guaranteed contracts to generators with renewable energy sources (wind, solar, and so on) at a fixed price well above market rates. To fund these commitments, as well as the cost of other non-market interventions such as conservation programs, Ontario levied a surcharge on electricity called the Global Adjustment (GA). Over the past decade, the GA has soared, resulting in a drastic increase in the cost of electricity in Ontario. Consequently, the key to lowering electricity costs in Ontario is reducing the Global Adjustment.

We showed (pp. 13-14) that, according to the OEB payment categories (as prescribed in O.Reg. 429/04 and shown in the RPP Supply Cost report of Apr 17, 2019 p. 7), payments to renewable generators are currently the largest single component of the GA, comprising 34% of the total. In the next table, however, we also showed that payments tabulated by fuel source indicate that nuclear gets the largest fraction of the Global Adjustment (43%), but it also generates 55% of the province’s electricity. By contrast, wind and solar get 27% of the GA while supplying only 10% of the province’s electricity. These discrepancies arise because the revenue guarantees per kWh for renewables are extremely high compared to those for nuclear and hydro.

We attributed the rise in the GA to the provincial revenue guarantees, which we stated apply to virtually all classes of generators (p. 15). These revenue guarantees distort the market by incentivizing generators to offer near-to-zero wholesale prices to gain more market share. This distortionary bidding practice is the reason why the gap between the wholesale market price and the GA has widened over the past few years thereby explaining the hikes in electricity prices (pp. 14-15).

The OCAA’s only source for their claim that nuclear is the largest single driver of rising electricity rates is a link to one of their own previous bulletins comparing nuclear prices between 2002 and 2019, for which they made no adjustment for inflation, nor did they show the corresponding increase in the costs of renewables during the same interval. Moreover we did not look at the drivers of the GA back to 2002 in this report (such an analysis was done previously in McKitrick and Adams 2014) so the comparison is irrelevant. They did acknowledge that “Declining market prices have led to a growing gap between the rates guaranteed to these electricity generators and the actual market price of electricity” but they did not explain why “market prices” are declining. We discuss the distortions in bidding behaviour created by the revenue guarantees, and we explain measures that can be taken to prevent such behaviour.

Recapping, the OCAA claimed we said “renewable energy is the single largest cause of Ontario’s rising electricity rates,” which is untrue, and they claimed we are not telling the truth because they had claimed something different in an earlier bulletin which did not address the same time interval as our report and which did not provide a relevant comparison. What our report actually said was:

1. The main driver of rising electricity prices is the increase in the GA surcharge.
2. The growth of the GA is being driven by market distortions created by rate guarantees set by the province.
3. The GA increased by 13 percent in the last year (inflation adjusted).
4. According to the OEB-defined regulatory categories, payments to renewable generators are currently the largest single component of the GA, as shown by the OEB data on page 14 of our report.
5. Nuclear gets a much smaller guaranteed rate per kWh than renewables but because it supplies 55% of Ontario’s electricity, when tabulated by fuel source nuclear gets the largest component of the GA revenue.
6. In order to reduce Ontario electricity prices it will be necessary to fix the wholesale market distortions created by revenue guarantees. This will necessarily involve scaling back some of the revenue guarantees to renewable generators, among others.

We stand by our research and our findings, and we completely reject the false assertions from the OCAA.