Ontario Progressive Conservative Leader Tim Hudak's campaign team continue to battle nagging questions about his campaign promise to generate $20-billion in economic activity and 5,000 jobs by ending subsidies for renewable power to bring down electricity costs.
The pledge has raised concerns that a future Tory government would renege on wind and solar electricity contracts entered into by a government agency, the Ontario Power Authority, with Canadian and international power producers. Mr. Hudak has insisted contracts will be honoured.
Last weekend, the Tory campaign media director, Will Stewart, sought to clarify the pledge in an e-mail to my Globe and Mail colleague, Adrian Morrow. A PC government, he said, would honour contracts where projects are connected to the grid and producing power. It would cancel all projects that have not been approved by the Ontario Provincial Authority. And for contracts are not yet up and running, a future Tory energy minister would exercise his or her discretion whether or not to proceed, to renegotiate, or to end the project.
That's clear enough, so far as it goes. But it does raise other questions. Especially when one looks at the analysis prepared by U.S. consultant Benjamin Zycher that underpins Mr. Hudak's claim for economic and job impacts.
But let's start with the most obvious point: the plan outlined by Mr. Stewart includes the abrogation of renewable energy contracts, at the minister's discretion, so long as the project has not been completed.
In an interview, Mr. Stewart said the minister would make use of existing termination clauses in the contracts, but there's actually little leeway there.
Previously, the OPA had the right to terminate contracts for wind and solar producers who had signed deals but not yet reached a "notice to proceed" milestone in achieving financing and regulatory approvals. But the OPA waived that right in 2011, a decision that Mr. Stewart says has been criticized by the province's auditor-general. But one that nonetheless stands.
"If what we're talking about is projects that have contracts and are applying to get permits – the main one being the so-called renewable energy approval – we assume that for the most part, those are all binding contracts that have been entered into between the OPA and different suppliers," Sean O'Neill, an energy lawyer at McCarthy Tetrault LLP, said in an interview. While project developers have certain hurdles to clear before receiving regulatory approvals, those are not typically subject to political interference.
Mr. O'Neill adds that governments can legislate to eliminate the property rights that underpin those contracts.
"Fortunately, the inherent political and economic risks of such actions make them relatively rare because governments worry that interference in the contractual rights of private parties would have a chilling effect on investment," the lawyer said in a blog post last week.
If he is going to honour "contracts," Mr. Hudak will have to live with a significant amount of new renewable power coming on stream.
But let's assume that Progressive Conservative government is determined to roll back virtually subsidies paid to renewable power. It is still unlikely to generate the economic benefits Mr. Hudak is claiming on the campaign trail. He estimates that 40,000 jobs of his one-million-jobs promise will result from ending renewable subsidies – that's straight from analysis provided by Mr. Zycher.
Mr. Zycher assumed that the reduction in feed-in-tariffs for wind and solar, and other subsidies for "uneconomic power" could reduce Ontario's electricity costs until they equalled the Canadian average, despite the existence in Quebec, Manitoba and British Columbia of cheap and plentiful hydro power. By getting down to the Canadian average, Mr. Zycher said Ontario could generate $20-billion in additional annual GDP, and 5,000 more jobs – or 40,000 over eight years as Mr. Hudak's pledge calculates.
But renewable power accounts for only a small portion of Ontario's cost-disadvantage.
"It really hasn't been driven to date by subsidies for renewables," said Adam White, president of the Association of Major Power Consumers of Ontario, which represents major industrial customers.
He said renewable energy producers get roughly 5 per cent of the so-called "global adjustment" payments which go to all power generators to provide revenue over and above the market-based wholesale price of power. As more renewable power comes on stream, it will account for a greater proportion of the power bill, Mr. White said, but it will never represent more than a quarter of the total cost while natural gas and nuclear are also expensive in Ontario.
Assuming you don't want to abrogate contracts, the best way to reduce costs is to reduce demand at peak hours to avoid the need for gas-fired plants that sit idle most of the time, Mr. White said. "If we consume less power – especially if we consume less of it when it's most expensive during peak times – then we'll need less of it."
Shawn McCarthy reports on energy from Ottawa.