Understanding the Changes in Ontario's Electricity Markets and Their Effects
When it comes to energy, policymakers in Ontario have made poor policy decisions, resulting in rising electricity costs, lower employment, and lower competitiveness, while achieving minimal environmental benefits.
Ontario’s main policy shift began around 2005 when the government made a decision to begin phasing out coal.
The next major step occurred in 2009 when the government launched its Green Energy Act (GEA).
The centerpiece of the GEA was a Feed-In-Tariff program, which provides long-term guaranteed contracts to generators with renewable sources (wind, solar, etc.) at a fixed price above market rates.
In order to fund these commitments, as well as the cost of conservation programs, Ontario levied a non-market surcharge on electricity called the Global Adjustment (GA). Between 2008 and 2016, the GA grew more than 70%, causing a drastic increase in electricity prices.
The high cost associated with aggressively promoting renewable sources is particularly troubling given the relatively small amount of electricity generated by these sources.
Ontario’s decision to phase out coal contributed to rising electricity costs in the province, a decision justified at the time with claims that it would yield large environmental and health benefits.
The subsequent research showed that shuttering these power plants had very little effect on air pollution.
Between 2005 and 2015, the province decided to increase its renewable capacity to facilitate the coal phase-out. However, since renewable sources are not as reliable as traditional sources, the government contracted for more natural gas capacity as a back-up.
As a result of these structural shifts and poor governance, electricity costs have risen substantially in Ontario.
Between 2008 and 2016, Ontario’s residential electricity costs increased by 71%, far outpacing the 34% average growth in electricity prices across Canada.
Ontario’s skyrocketing electricity rates also apply to the province’s industrial sector.
Between 2010 and 2016, large industrial users in Toronto and Ottawa experienced cost spikes of 53% and 46%, respectively, while the average increase in electric costs for the rest of Canada was only 14%.
In 2016, large industrial users paid almost three times more than consumers in Montreal and Calgary and almost twice the prices paid by large consumers in Vancouver.
Soaring electricity costs in Ontario have placed a significant financial burden on the manufacturing sector and hampered its competitiveness.
- Ontario's push to phase-out coal and force renewables into the electric power system has surged prices, making it the most expensive power market in North America, with almost no environmental benefits achieved.
- Ontario’s high electricity prices are responsible for approximately 75,000 job losses in the manufacturing sector from 2008 to 2015.
- Given the critically important role that affordable energy plays in economic growth and prosperity, the Ontario government must pursue meaningful policy reforms aimed at lowering electricity costs for all citizens and businesses.
Read the full study here.