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Wind power is great politics but lousy policy Add to ...

Ten years ago, the quest was on to move the Ontario electricity market to a more competitive, efficient structure. I was chair of the province's Electricity Market Design Committee then and we were charged with developing policies and rules to make it all happen.

To this end, we recommended that Ontario Hydro, over a 10-year period, divest generation assets to reduce its market share to about 35 per cent and create an independent system operator to manage dispatch of generation on a merit-order basis, and to manage a spot market for electricity. We urged strengthening the regulatory powers of the Ontario Energy Board and giving it greater political independence to regulate non-competitive elements of the industry.

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Much of this thinking was driven by the crises that had afflicted Ontario Hydro over many years, culminating in the mid-1990s with massive cost overruns at the Darlington and Pickering stations, massive stranded debt, and about a third of total provincial indebtedness accounted for by provincially guaranteed Ontario Hydro debt.

In short, following the recommendations of the Macdonald task force in the mid-1990s, our objective was to move away from a command-and-control, politically managed electricity system, to a system governed more by normal competitive principles.

When the McGuinty government came to power in 2003, it committed itself to retiring Ontario's coal-fired generation (most of the province's peaking capacity) by 2007 - without saying how the power would be replaced. The commitment proved unrealistic and was postponed to 2009, then 2014.

The Green Energy Act, which will heavily promote subsidized renewables, in particular wind power, appears to be the latest attempt to honour this 2003 commitment. As former colleague professor Michael Trebilcock has pointed out in remarks to Ontario's legislative committee on Bill 150, industrial wind-turbine power cannot be relied on to provide peaking capacity, because of its intermittent character (as demonstrated in Denmark, Germany, and other European countries). Thus, the idea wind power is likely to have a significant impact on Ontario's carbon emissions is fallacious.

Moreover, as Prof. Trebilcock notes, wind power is very expensive compared to some conventional forms of electricity generation; for base-load power, it makes no sense to displace lower-cost, low-carbon hydro and nuclear generation.

To put concerns over carbon emissions from peak load coal-fired generation in perspective, it's important to note that in 2008, coal-fired generation accounted for only 14 per cent of total output in Ontario, compared to about 73 per cent for nuclear and hydro. Wind accounted for 0.8 per cent.

Taking Canada as a whole, electricity generation accounts for only 14 per cent of Canada's total CO{-2} emissions (with transportation, oil and gas production and refining representing 50 per cent).

The Green Energy Act - following earlier decisions to create a government agency, the Ontario Power Authority, to manage all contracts for the supply and pricing of new generation (an agency not replicated in any other industrialized country) - will further centralize and politicize most important aspects of the provincial electricity sector. At the same time, the act, currently before the Legislature, will compromise the role of the independent regulators (the Ontario Energy Board and the Independent Electricity System Operator) in ensuring the sector's efficient operation.

As Prof. Trebilcock shows, either a carbon tax or a cap-and-trade system is likely to be dramatically more cost effective in reducing carbon emissions, and is entirely consistent with a competitive, merit-driven electricity generation sector. Better integration of the provincial market with surrounding electricity markets is likely to give Ontario the flexibility it needs to meet variable demand at much lower cost than massive public investments in subsidized wind power.

Prof. Trebilcock's two key points are irrefutable: All climate change policies require vigorous cost-effective assessments relative to each other if we are not to bankrupt the economy - we simply cannot afford "to do everything we can imagine, all at once"; relying on millions of supply and demand-side decisions in the face of socially-efficient incentives is vastly preferable and less risky than politicians trying to pick technological winners in a centralized (and politicized) decision-making process.

Years ago, Princeton economist Alan Blinder famously exhorted policy-makers to frame policy that was based on soft hearts and hard heads. The McGuinty government's proposed foray into investments in wind generation upends this admonition by giving us policy that is soft-hearted - and soft-headed.

Ronald J. Daniels is president of Johns Hopkins University.

 

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