Part 1:  The “S-word” (subsidies, not the other s-word)
Electricity is soon going to hit the headlines again. And before it does, let’s pause, think and decide that this time, we are going to discuss this important public policy properly.
The government is poised to reset the province’s Feed-in Tariff (FIT), the schedule of prices that are paid for electricity generated from renewable resources. Based on the consultation, it seems prices may well be lowered, at least for technologies like solar power where equipment costs have declined. Before the bloggers, tweeters and editorial writers gear up to comment in high dudgeon, I’d like to suggest that we also reset the communications approach, and agree to promote a literacy on power prices that provides a more balanced analysis without selective presentation of the facts. To start the effort, I am posting a three-part blog that explores this issue in more detail and suggests how we might give consumers better and more accurate information about electricity prices.
By promoting price literacy, I mean helping the public build a proficiency or command of prices: how generators are paid, why some generators are paid more than others, who is subsidized, and how the individual prices are combined into an overall Ontario price. Electricity pricing is an extremely complex subject and although many Ontarians may think they understand it, I’ve discovered it’s not a subject one can easily start from zero and master. In my opinion, precious little has been done to make these complexities clear to Ontarians. My fellow officer of the Legislative Assembly, the Auditor General, recently encouraged such an effort in his report. In their responses, the Ministry of Energy, Ontario Power Authority (OPA) and Ontario Energy Board (OEB) have all promised to enhance their communications with the public.
In the spin and counter spin about renewable power, the single biggest charge levelled by critics of FIT is that it subsidizes the generators of renewable power. And the word subsidy is used as a pejorative. So I’d like to offer the following starting point for an improved communications effort: let’s begin with the fact that all forms of power generation, as well as the delivery side of the electricity business receive subsidies. For better or worse, this is the way we have built Ontario’s power sector.
I find the term subsidies can be a slippery notion to pin down. Economists have listed the many ways we subsidize – subventions or direct payments that cover operating deficits or avoid price increases, marketing boards that require consumers to pay higher prices, debt guarantees to reduce companies’ borrowing costs, and trade barriers that support domestic producers – and they have pointed out that subsidies are used in many sectors like infrastructure, agriculture, export development and culture. The electricity sector has its fair share, and not just for renewables. They are woven into all aspects of our electricity use.
For example, there is the Ontario Clean Energy Benefit that provides ratepayers a subsidy, by reducing their electricity bill by 10%. The money comes from taxpayers who pay to support electricity generators so that electricity ratepayers can enjoy artificially lower prices. The government’s rationale for this five-year transitional assistance was to help consumers manage rising prices. In my 2010 energy conservation report, I stated my opinion that the subsidy perversely undermines conservation and transfers wealth from energy misers to energy hogs. I also suggested ways to make the subsidy more palatable to those of us who promote a steady diet of conservation, for example by making it a fixed amount rather than a benefit based on consumption.
One of the long-standing rationales for subsidies has been to impart equity. An example is rural rate assistance. A tiny fraction of the general rate charged to deliver power is used to lower the distribution rates of consumers living in Ontario’s rural and remote areas. Without the subsidy, the low density of ratepayers in the countryside would mean their bills would be higher than people living in urban areas.
This subsidy works by addressing non-uniform costs of service because the unit cost, or rate, for the delivery service is higher in some cases than others. The same is true with generation services – the cost of generation varies by generator (and also by other factors like the time of day). Ontario introduced competition to electricity generation more than a decade ago, which in theory should have eliminated or reduced generation subsidies, but subsequent policies changed this. Nowadays, almost all electricity fed into the grid is directly subsidized since generators are paid more than the price at which they sell their power into the wholesale electricity market. The price that consumers pay for electricity includes this subsidy which covers costs determined outside of the wholesale market.
Ontario has a hybrid market, meaning that while there is a competitive market there is also a large amount of regulated or contracted supply that is bought from generators at different rates, some more expensive than others. But before these costs reach the consumer’s bill, a smoothing mechanism globally adjusts or blends the different prices paid to generators into an overall generation price paid by consumers. I noted above that the term “subsidies” can be difficult to define with precision. In my view, these price adjustments are essentially what we mean when we speak about price subsidies: almost every generator is paid an amount above the price determined in the market. In terms of the payment made by an end user of electricity, which is really what the consumer cares about, these above market amounts are blended into the overall generation price paid and the costs are spread out across all users of electricity. Today, the overall generation price is roughly double the wholesale market price, representing above market price subsidies paid to generators.
The potential for confusion exists since consumers can be quoted several different prices when trying to understand what they are paying for electricity: the price paid to a certain generator, or the wholesale market price, or the overall generation price comprised of the wholesale market price plus the adjustments, or even occasionally an all-in price that includes the wholesale market price and adjustments, plus delivery, regulatory and debt charges.
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“In the spin and counter spin about renewable power, the single biggest charge levelled by critics of FIT is that it subsidizes the generators of renewable power”
WRONG.
The big criticism of FIT is that it is in place to encourage the generation of intermittent, unreliable, non-dispatchable, power which is in effect forced payment for no real capacity.
The rate and taxpayer are being obliged to support generators which have been shown to consume vast tracts of precious agricultural land and minimally impacted wilderness and wetland for an inferior product which can’t justify itself in an open market.
Those who should know that these generators require constant balancing by fossil fuel generators and so reduce neither dependence nor CO2 but choose not to, those who are supposed to protect the environmental rights and health of all citizens but choose not to, those individuals will leave a shameful legacy.
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No Catharine, renewable generation does NOT “require constant balancing by fossil fuel generators”. That is just the way our grid has currently evolved, or the mindset of our current planners. Various forms of renewable energy can balance each other – for example, stored hydro or biomass or biogas can each be used to provide energy when a particular intermittent renewable source (solar or wind) isn’t available. By combining renewables with different profiles, the need for fossil fuel “backup” can be reduced or even, ideally, eliminated. But the various pieces each have to come online their own way, and the best way to get the wind and solar pieces into the mix is via FIT.
Plus, renewable doesn’t consume “vast tracts of agricultural land”, first because it doesn’t “consume” the land at all, in they way that development or quarrying do. The land is still there and able to produce food if, at some point, the need for food becomes more critical than the need for energy. (Much of Ontario’s farmland is currently producing corn and soy to feed to animals, not people). Not to mention that uses an overlap, such as pasture and wind generation. And of course my 25kW of rooftop microFIT consume zero land whatsoever.
And the amount of land temporarily needed for renewable energy is tiny compared to the amount that is being truly consumed (destroyed) for fossil-fuel-driven road and sprawl development every day.
Calling renewable energy “unreliable” is also an exaggeration. Solar relies on a sun which has been burning for longer than life has existed on this planet and will continue long after we leave, while fossil fuels depend on increasingly strained supplies and unpredictable markets. You can generally predict that in daytime the sun will shine, nighttime will be dark, and the sunny, hot summer days when the AC demand is highest will also be your peak solar production hours.
“Reliability” means a lot more than simply having a full tank of gas and a switch. Nuclear, for example, in addition to being vastly uneconomical, is also unreliable if you consider that you can’t turn it off when you DON’T need it, but if it goes off for any reason (accident or need for repairs), it will take far longer than you had hoped (and cost far more than you had budgeted) to get it back online. Yet despite this unreliability, our gridmasters have never chosen to backstop all our nuclear with fossil fuel generators.
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The “mindset of our current planners” seems to be on the whacky, ignore the laws of thermodynamics, side of things where the constraints of reality give way to computer projections and modelling and even “visioning”. As the Auditor General 2011Report stated unambiguously:
Although the Ministry consulted with stakeholders in developing the supply-mix directives, the LTEP, and the Green Energy and Green Economy Act, billions of dollars were committed to renewable energy without fully evaluating the impact, the trade-offs, and the alternatives through a comprehensive business-case analysis. Specifically, the OPA, the OEB, and the IESO acknowledged that:
• no independent, objective, expert investigation had been done to examine the potential effects of renewable-energy policies on prices, job creation, and greenhouse gas emissions; and
• no thorough and professional cost/benefit analysis had been conducted to identify potentially cleaner, more economically productive, and cost-effective alternatives to renewable energy, such as energy imports and increased conservation.
So unless anyone has actually some facts, performance data studies such as BENTEK Energy’s Wind Power Paradox, to present instead of fantasy or CANWEA sales pitch you should just read something more enlightening than green PR spin and government propaganda. I live off the grid and have a first hand knowledge of the actual limitations of solar and wind unmasked by the balancing grid.
People who don’t think that industrialization by solar and wind development don’t “consume” land have little understanding of the structure of soils and their fragility, a road is a road, and those for wind developments are huge gashes through a forest as are the transmission out-builds to reach the remote “wind resource” areas where the tops of mountains are blown off for a vastly inferior form of energy.
Nuclear arguments are typically tossed in to distract from the failure to produce concrete evidence.
A World Bank study http://www.foodgrainsbank.ca/uploads/Can%20a%20hungry%20world%20afford%20biofuels.pdf said that 75% of the food price rise in the past six years was due to biofuels, the poor will eventually die off and decrease fossil fuel use, oops was that not part of the visioning exercise?
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Erich, Sorry to disagree… maybe in a perfect world renewable energy would balance each other. However, in an unregulated environment it is every R.E. generator for themself and each is looking to get fat selling electricity at peak times for maximum ROI.
Privatization of our generation opportunities is not working. Private R.E. generators can be ruthless. There is an alternative…
I have developed a non-commercial business model for local ownership of renewable energy projects.
I am the founder of Trillium Energy Alliance and have been a guest lecturer at a major university and I have made appearances on the Agenda and at Queens Park (see youtube).
The business model could help shape the public debate about electricity generation options. At the very least, it can challenge our perceptions and contribute to our understanding of an increasingly complex electricity system.
The business model has been accepted by academics at a number of universities as a sensible option that may help reduce social friction.
Implementation of a workable solution would benefit all Ontarians especially those in the impacted community.
Yet, McGuinty and his ministers ignore this sensible solution and reject invitations to engage in a dialogue.
Instead, it appears this government may continue down a path that benefits their friends in the private sector.
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Catherine Bayne: So, if you are saying all forms of generation present problems, we can agree that conservation is the first priority?
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Taking both my previous comments, what I am saying is that people who do not do proper cost/benefit analysis and due diligence before embarking on BILLION dollar energy experiments, particularly when the European experience gives every indication that subsidies to intermittent and unreliable energy generators is harmful to the economy,society, and the environment, are irresponsible fools and should be immediately challenged to go back and provide the proof that their scheme will accomplish any of it’s purported goals.
The fact that you are, without benefit of that analysis, functioning as an apologist for a scheme with a huge spatial footprint resulting in the instant industrialization of areas like the minimally impacted watershed of Lake Superior, by companies which then have access to land, water, and mineral resources in sensitive areas facilitated by the GEA, all for an inferior energy source which requires almost complete duplication in balancing generation undermines your implied devotion to a conservation-first paradigm. This is unconscionable waste of precious natural resources and the myth that it results in a “free” energy source does nothing to promote energy conservation and much to instil an unrealistic expectation on pricing.
It has repeatedly been shown that the effect of wind is to reduce efficiencies of the grid while increasing costs both monetary and environmental, yet here you are, redundant to the greedy booster-club for government meddling in the energy sector and now, having apparently switched loyalties, useless as an environmental watchdog. The damage this is doing to the carefully nurtured stewardship and conservation ethic of rural landowners is horrific.
By the way, back in the day, I fought nuclear power because of its large temporal footprint but that battle was lost and regardless of my initial concerns we have decades of spent fuel to responsibly deal with and I consider it far safer and cheaper to have ongoing R&D involved rather than entrust that challenge to a sunset industry. It also seems reasonable to expect nuclear to become more important under ice-age conditions. Energy experts (not lobby groups) should do a cost/benefit analysis on that in lieu of hyperventilating about only one sort of Climate Armageddon.
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