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Does Ontario's Green Energy Act pass the 'net benefit' test? Add to ...

Ontario's race to green energy - akin to a race run on steroids - has embedded in it a recipe for tears.

In the Green Energy Act, the feed-in-tariffs act as the primary mechanism to provide a turbocharged set of financial incentives for renewable energy resources such as solar, wind and bioenergy. One of the most egregious examples is an incentive for solar roofs that is 10 times higher than the current cost of electricity. If only diamonds would rain down on us!

But this is only part of the story. The incentives are further coupled with additional requirements on utilities to connect any and all distant, dispersed and distributed sources that can impose significant costs on the overall electricity system - ultimately, to be paid for by the consumer.

The worry is that the die may have already been cast for a consumer backlash. Such a scenario would be an unfortunate outcome because it would undermine the case for a more orderly and measured path to a "cleaner" energy future. What, then, are the options?

Let's concede that speed at any price is not a prudent path. The policy goals and intent of the Green Energy Act may well come undone under the withering glare of disaffected and angry consumers. Thus, there's an urgent need to begin the process of reducing the largesse provided to those who have become adept at securing private benefits -albeit under the convenient disguise of green - at the expense of the captive consumer.

Electricity sector policies must aim for a stable middle ground because the sector is far too important to be a testing ground for interest groups promoting fads imported from other jurisdictions. Provision of a robust, reliable and affordable electricity supply is crucial to Ontario's economic prosperity. A policy objective that links economic development benefits - namely, clean high-tech jobs - as part of the investment in the electricity sector is a reasonable goal for government.

But in the search for the right mix of policies that would deliver on such a promise, the Green Energy Act - in its enthusiasm for "green" and assertions of "clean" - seems to have missed a few key gateposts: the test of reliability and economic prudence.

The act doesn't give any serious consideration to economic prudence and compounds the error by not providing a clear path to support innovation that would help reduce costs, improve service and reliability and offer true value to the consumer. Instead, we have set up an incentive structure that promises to deliver a high cost of generation, permits "economic rent-seeking" with abandon and uploads a large part of the cost to unsuspecting consumers. The cruel irony is that the greater the success of the incentives through wider adoption, the greater the pain for the ratepayer.

Ostensibly in the name of job creation, if I partake in a publicly endorsed scheme that delivers a significant benefit at the expense of increasing the cost to my neighbours, does the question of equity and fairness not become relevant? We ignore this at our peril.

A solar roof may be "clothed" as a green solution, but will it deliver sustainable prosperity? Emerging evidence from the oft-cited jurisdictions such as Germany, Denmark and Spain is not compelling and casts doubt on the "job creation benefit." Several studies even argue that, in the long run, "high real cost" destroys jobs and prosperity.

If we truly want to transform the electricity sector to make it an engine for economic growth, then increasing the role of renewable technologies along the principles of a "smart grid' is a better approach. It paves the path for innovation to flourish and to help reduce costs and improve reliability of service over time. It may be a slower, less glamorous path, but it will deliver long-term value.

Ontario's electricity infrastructure was built over a hundred years: Now that the infrastructure is old and parts need to be replaced, the transformation should be undertaken at a pace that allows some degree of trial and error and correction for improvements. The time has come to subject the Green Energy Act to one key test: Will it deliver "net benefit" to Ontario?

Jatin Nathwani is the Ontario Research Chair in Public Policy for Sustainable Energy at the University of Waterloo.

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