Doug Ford’s decision to cancel the Green Energy Act (GEA) is good news for the people of Ontario. The GEA resulted in Ontario having the highest electricity prices in Canada.
In 2009, the Ontario Liberal Government passed the GEA to encourage the production of green energy. A basic principle of economics is that if you subsidize something, you get more of it. The GEA included subsidies called feed-in-tariffs: long-term contracts with green energy producers at fixed prices. For wind, solar, and biomass, these contracts lasted for 20 years.
Under the GEA, green energy producers were paid rates many times higher than the market rate for electricity. In 2009, the average market rate was 3.16 cents per kilowatt-hour. Wind producers were paid up to 13 cents and solar producers received as much as 80 cents.
Another principle of economics is that if the government gives someone a financial benefit, other people have to pay for it. Unfortunately, the higher rates given to green energy producers were paid for by Ontario energy consumers.
This is how the GEA stuck consumers with the bill:
When residential customers pay for electricity, the market price is only a portion of their total bill. The market price is known as the Hourly Ontario Energy Price (HOEP). A hidden surcharge is added to the HOEP called the Global Adjustment (GA).
In April 2018, the Global Adjustment was 9.96 cents per kilowatt-hour, and the HOEP was 2.97 cents. Stated differently, if consumers paid $100 on their hydro bill, the GA was $77. The actual cost of the electricity was only $23!
Between 2008 and 2016 the GA grew more than 70 percent. One reason the GA has skyrocketed is it includes the cost of the feed-in-tariffs paid to green energy producers. According to the Fraser Institute, “In 2016, renewable sources generated less than 7 percent of electricity in Ontario while accounting for almost 30 percent of the GA.”
Another problem with the Green Energy Act is green energy is often produced when it is not needed, but the province still has to pay the producers. As a result, excess energy on the grid is sold to other markets at a loss. In 2016, Ontario lost 500 million dollars exporting clean energy to other markets including Michigan and New York.
Producing green energy and selling it at a loss is economic insanity. If a private company did this, it would go bankrupt.
To help restore sanity to the energy industry, the Ontario Conservative government cancelled hundreds of green energy contracts earlier this year. Greg Rickford, the Energy Minister, said it will save energy consumers $790 million.
While the Ontario Liberal government had good intentions in trying to reduce C02 emissions by subsidizing green energy, good intentions by the government do not always produce good results. The GEA was an economic disaster that emptied the pockets of the poor and middle-class.