Ontario is scaling back its grand experiment with green energy, slashing $3.7-billion worth of electricity that was to have been produced from wind or solar projects.
The cuts will hit a controversial sole-source deal with a consortium led by South Korea-based Samsung Group that offered special financial incentives in a bid to attract investment in renewable energy.
The province’s change of heart is partly a response to the backlash over that arrangement – which made electricity bills more expensive – as well as an acknowledgment that Samsung was having trouble holding up its end of the bargain.
It is also the latest sign of turbulence in the green-energy industry after the global recession reduced the need for power and an uncertain economy made less costly conventional electricity more attractive than pricey renewables.
“One of my top priorities has been to look for ways to bend the cost curve [down] for ratepayers,” Energy Minister Bob Chiarelli said Thursday. “This was the single most significant step our province could take to do just that.”
Under the original deal, Ontario was to have paid the consortium $9.7-billion to produce 2,500 megawatts of electricity. Now, Samsung will produce only 1,369 megawatts and the province will shell out $6-billion, which the government estimates will save average Ontarian households $24 annually on their hydro bill. The new arrangement also guarantees that the consortium will keep 900 jobs manufacturing green energy equipment in Ontario until 2016.
Mr. Chiarelli said the opportunity to renegotiate arose because Samsung was missing deadlines for getting energy projects running.
“Changing economic conditions in the province and our vital work to engage our communities have impacted our original timelines,” Samsung executive vice-president Ki-Jung Kim said in a statement.
The move is part of a broader trend of retrenchment in the alternative energy sector. After a decade of rapid expansion, during which Ontario badly wanted to increase the power supply as it shut down coal plants to cut greenhouse-gas emissions, the recession drove down demand and the province wound up with an electricity surplus.
In Europe, meanwhile, the debt crisis led to austerity measures that included cuts to green energy subsidies. The rise of low-cost solar panel manufacturers in China has put further pressure on Western-based companies.
Last year, leading Canadian solar power firm Arise Technologies Corporation of Cambridge, Ont., went bankrupt and solar-energy equipment maker Siliken SA shut down its Windsor, Ont., plant. They joined green-power companies from California to Germany that closed their doors.
The still-shaky Ontario economy has also made it politically harder to justify the cost of subsidizing green power both to cash-strapped households and industrial enterprises for whom power is a major business expense. Rural communities, angry that they weren’t adequately consulted about nearby wind farms, also turned their backs on the Liberals in the 2011 election, cutting them down to a minority government.
“We need to see energy as an economic driver as opposed to a social policy,” Progressive Conservative MPP Lisa Thompson said in an interview.
The New Democrats, meanwhile, contend the government should run green-energy projects itself rather than hand them off to the private sector.
“We’ve clearly seen that sweetheart deals with private companies have not delivered good jobs and they’ve created increased costs,” NDP MPP Jonah Schein said.