Moving Energy Efficiency to the Tax Base Would Raise Ontario Power Costs, Increase Emissions, Efficiency Canada Warns
The Doug Ford government in Ontario is at risk of driving up electricity costs, stifling energy innovation, and driving up the need for peak electricity supplied by carbon-emitting natural gas plants if it follows through on a plan to fund energy efficiency programs through the tax base, rather than consumers’ power bills, Efficiency Canada warns in a new policy brief.
Ford’s election commitment to shift efficiency to the rate base, linked with his widely-touted promise to cut the province’s energy costs, could “result in arbitrary political decisions that artificially restrict efficiency efforts, resulting in a more expensive electricity system, higher bills, and fewer jobs,” the organization states.
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Energy efficiency already functions as a resource for Ontario’s electricity system: at a cost of 2.2¢ per kilowatt-hour, it offsets the need for new gas plants that would cost 8.0 to 24¢/kWh, or nuclear refurbishments at a quoted price of 8.0¢ but a likely final cost of about 12 to almost 30¢/kWh. The province’s most recent renewable energy purchase delivered an average price of 8.6¢/kWh.
Ontario’s energy conservation programs are already subject to a rigorous cost-effectiveness test, notes Policy Director Brendan Haley, and they’ll become ever more important in a province that could face electricity shortages as early as 2023. “The shortfall will be 1,400 MW in 2023, 3,700 MW in 2025, and even higher if existing generation contracts are not renewed,” Haley writes. Already, while new efficiency programs could reduce generation capacity needs by 1,000 MW in 2025, “more conservation and demand management programs could be needed” to manage the supply shortfall.
Efficiency Canada stresses that conservation and demand management is an essential electricity system resource—not just a government program, as Ford and his advisors seem to think. “Ratepayer funding lets conservation programs compete alongside generation options to provide the lowest-cost and highest-value electricity services,” the organization notes.
But “if conservation programs are ‘tax based’, the program budget could become politically determined and subject to cutbacks in the face of government budgetary pressures. Placing conservation programs within the volatile annual budget cycle will also make it difficult for electricity system planners to rely on energy savings in their projections and operations, tipping the balance in favour of more expensive generation choices paid for by electricity ratepayers.”
The issue gets a bit ironic for a political party that criticized past provincial governments for “making political decisions that prioritized higher-cost energy resources over less expensive ones,” the policy brief adds. “If the ‘tax base’ promise leads to an arbitrary restriction of conservation budgets, the government will be doing what it previously opposed.”
If that happens, the costs will extend beyond Ontarians’ hydro bills: Modelling shows that Ontario could create 14,000 new jobs by 2030 by investing in energy efficiency on a par with leading North American jurisdictions. And the resulting energy savings would help low-income consumers, boost business competitiveness, help keep economic activity in the province, and give grid planners more flexibility to deliver energy reductions where they’re needed without building costly new capacity.