This article was originally published in Maclean's Magazine on June 14, 2010
Green Energy Fraught with Risk
In Ontario, the frenzied rush to "green" the province's power grid has reached a new level. It's now possible for farmers to erect a brand new barn without paying a dime. The barns are being offered by a company called Hay Solar and come equipped with a sloping rooftop covered with solar panels. By selling the power generated by the solar panels to the grid, Hay Solar figures each barn is capable of generating enough revenue to let the company pay off the pricey $750,000 buildings (solar panels are expensive) in 20 years, plus taking a cut for its services. After that, the barns and the solar arrays belong to the farmers.
James Mann, the president of Hay Solar and Mann Engineering, one of the country's largest solar companies, says it's an opportunity to kill two birds with one stone by satisfying farmers' immediate demand for more storage space while finding a new market for the company's cumbersome solar arrays, which offer a potentially attractive revenue stream but require a daunting up-front investment. While he's convinced his business model will fly (350 barns have already been promised, but none have yet been built), even he admits the pitch sounds a little out there. "When you give a free barn away, people think you're from Mars."
The truth is that companies like Hay Solar would never see the light of day if Ontario hadn't decided it was prepared to pump billions into green ENERGY. The province has so far approved thousands of green energy contracts, ranging in size from a few SOLAR panels on the roof of a family home to industrial-scale projects, in which they agree to pay several times the going electricity rate for periods of up to 40 years. It has also signed a controversial $7-billion deal with a consortium led by South Korean giant Samsung that includes a massive investment in WIND and solar electricity. The hope is that all the spending will seed a new green energy industry in Ontario (all projects must source a percentage of materials locally), creating some 50,000 new jobs in the process.
But so far, the rush to a so-called green economy seems fraught with risk. While the thought of powering homes and businesses with power harnessed from the sun and wind is appealing, it's currently far more expensive and less reliable than conventional sources, which means consumers and taxpayers will be the ones left on the hook - for decades - if the experiment doesn't work out. Even a former head of the Ontario Power Authority (OPA), Jan Carr, has said the ongoing green rush has led to "a largely ad hoc approach to the selection and investment in power generation technologies that will unnecessarily increase the cost of electricity with far-reaching economic and social effects."
To date, the OPA has granted conditional approval for more than 694 long-term renewable energy contracts under its Feed-In-Tariff, or FIT, program (another 3,360 conditional offers have been made to homeowners under the government's MicroFIT program). The FIT contracts include 184 large-scale projects capable of producing 2,500 megawatts of renewable energy, enough to power an estimated 600,000 homes. Most of the contracts are for solar, on-shore wind or waterpower projects and, in most cases, offer guaranteed rates - ranging from 13.5 cents a kilowatt hour for wind to 44.3 cents a kilowatt hour for large ground-based solar arrays - over a 20-year period. By contrast, the market price of a kilowatt hour rarely tops 4.5 cents.
It's an incredible deal for green power companies, but not necessarily for consumers. By some calculations, the average residential power bill is already set to climb as much as 25 per cent, or $330, annually over the next few years and, once new green energy projects come online, prices could rise even further. Why is Ontario willing to pay such a steep price to go green? For starters, Premier Dalton MCGUINTY has pledged to eliminate dirty coal-fired power plants by 2014 and alternative energy sources are needed to fill the gap. Coal-fired plants now produce about 15 per cent of the province's electricity. The rest comes from NUCLEAR (40 per cent), natural gas (25 per cent) and hydro (18 per cent). At the same time, the government is hoping that its requirement for "made in Ontario" technologies will help make the province North America's leader in green jobs and manufacturing.
But critics say it's a mistake to link policy goals like emissions reduction and job creation directly to the province's electricity system, which has historically - and sensibly - been charged with providing power to consumers as cheaply and reliably as possible. "Now, under the Green Energy Act, none of that matters," says Tom Adams, a Toronto-based energy consultant, adding that renewable energy sources need to be able to compete economically if they are going to have a meaningful impact. "The customer just doesn't exist on the green energy landscape."
The province disagrees. "Green energy does cost more than coal does, but there's an obvious benefit to it," says Brad Duguid, Ontario's minister of energy and infrastructure. He says the province's decision to move away from coal was made for environmental and health reasons and that energy costs are going up regardless (thanks to the need to refurbish Ontario's aging fleet of nuclear reactors). "We need a stable, sustainable and affordable supply of energy," he says. But the question remains whether wind, solar and other new sources of green power are right for the job.
Michael Trebilcock's introduction to Ontario's green energy dreams came a couple of years ago. The professor of law and economics at the University of Toronto discovered that his 100-acre farm in a picturesque corner of Ontario was set to be bookended by a half-dozen wind turbines. "Obviously, from a selfish point of view, this intrusion was not one we welcomed," he says, echoing the sentiments of a growing number of rural Ontarians who have found themselves in a similar predicament. "But I was inclined to think that there were substantial social benefits on the other side of the scale." Except after doing some research, he discovered that wind power wasn't a very reliable source of energy, nor particularly green.
Ontario experiences most of its windy days during the winter - not the summer, when demand for electricity typically peaks. "Seasonally, this thing is out of phase," agrees Adams, adding that, in order to become a reliable part of the grid, there needs to be a backup, a job that has typically fallen to reliable, cost-effective coal-fired power plants. Even if Ontario makes good on its promise to shutter its coal-fired plants in four years (it had previously promised to close them by 2009), the job of backing up wind farms would fall to hydro and nuclear plants, which are already "green" when it comes to emissions.
Trebilcock also questions whether paying top dollar for green energy will yield the big job gains promised by the government. "We are paying three or four times as much for this power than we are for conventional power, and this is already translating into dramatic increases in electricity bills," he says. "This is actually killing jobs because people have less money to spend while industrial producers are also facing higher costs." A better approach, says Trebilcock, is to put a price on dirty forms of electricity that reflects environmental costs, and then let the market develop cleaner and cheaper alternatives, while the government invests in research. It's not as flashy as windmills and solar farms, but it's bound to result in solutions that are more workable and cost-effective, he says.
Perhaps. But green sells, and politicians know it. Adam White, the president of the Association of Major Power Consumers in Ontario, says his group made a tactical decision several years ago not to challenge the government's green energy push because it would be like spitting into the wind. Besides, he says it's not like Ontario's current mix of power sources are a recipe for guaranteed success either. "We might get nuclear cheap, but if it craps out, then we pay more. And if it keeps crapping out then we keep paying more," he says. "It's a bit of a pig in a poke."
Mann, too, is among the first to admit that Hay Solar's renewable energy of choice isn't perfect. Solar arrays are expensive to install, don't perform well on cloudy days and require a large amount of land to be effective. But he's still a believer that green technologies are the future. "Watch CNN and the oil spill going on in the Gulf of Mexico," he says. "What future do we have on this planet if we don't start doing things differently?" The catch is, like Hay Solar's "free" barns, someone eventually has to pay for it.
The price of green power
Ontario pays above-market rates (measured in cents per kilowatt hour) for green electricity. In the case of solar, it's as much as 10 times more.
Water power 12.2
Market rate* 4.3
Wind (onshore) 13.5
*spot price on Monday May 31 at 5:00 p.m.
Maclean's June 14, 2010