I’m reposting a recent entry from the blog of Ontario’s Environmental Commissioner, Gord Miller, to put Ontario’s green energy strategy – largely, its feed-in-tariff program – in perspective. Conservative pundits, anti-wind groups and other angry birds in the province like to point out how green energy is hurting hard-working families, but this is far from the truth. Natural gas and nuclear contracts contribute more, and while Miller recognizes that over the next few years green energy costs will represent a larger portion, that’s not the case today or in the near future so all the scare-mongering is just a blatant attempt to mislead voters and steal votes. Here’s how Miller lays it out:

There has been much effort made in the media to lead the public to believe that their electricity bills have been spiralling due to the cost of subsidies to wind and solar initiatives of our energy conservation programs.  The 80 cents/kilowatt hour (kWh) for solar is frequently cited as the greatest offender, even though that rate only applies to rooftop solar with a capacity of 10 kW or less. In total, such installations currently amount to just 34 MW out of the 37,000 MW of installed generation in the province.   Not mentioned are the subsidies paid to our private natural gas generators, or those paid to Bruce Power, when the market price doesn’t meet their guaranteed price (which is almost all the time).  The latter subsidies involve 70% of the global adjustment monies paid out, simply because they pay for the delivery of much more power.  In fact, the Ontario Power Authority paid out $1.35 billion in 2010 to meet gas and nuclear power purchase agreements.

So how significant are the subsidies to renewable energy and the monies paid for conservation in a typical residential electricity bill anyway?  To answer that we had better clarify what a typical electricity rate is per kilowatt hour delivered to your home.  There has been much confusion about that as well.

A typical electrical bill consists of a charge per kWh of electricity used, plus a charge for transmission and distribution, plus a fixed fee to the utility, plus a regulatory charge, plus a debt retirement charge, plus HST, less the 10% the Province has just given us in the clean energy benefit.  It is a complicated system to be sure. To get an estimate of a representative rate, we looked at a typical home that heats with natural gas and uses 800 kWh of electricity per month, and we compared that to a similar house with electric heat that uses typically 2500 kWh of electricity per month (averaged over 12 months).  Although the costs per month obviously varied ($105 vs. $303) the cost of electricity per kWh “all in” was the same, about 13 cents.

So how much of that is due to renewables and conservation?   In 2010, the Ontario Power Authority paid electricity resource costs of $317 million for conservation programs, and $269 million for renewables.  That is a lot of money – but you must realize that it is recovered over a total Ontario consumption in 2010 of 142 terawatt hours (that’s 142,000,000,000 kWh), which amounts to 0.4 cents per kWh (split roughly equally between conservation and renewable subsidies).  So the cost of conservation and all the renewable subsidies in 2010 amounted to 0.4 cents of the 13 cents we paid for a kWh in our homes.  A significant amount, perhaps, but hardly the bogeyman that it is so often made out to be.

In fairness, it must be acknowledged that this 0.4 cent amount will rise as more green energy comes on line in future years, but in 2010 that is what it was.  During these times when we are publicly discussing a long-term electrical energy plan, I think it is important to be honest about the current cost of electricity.

Now, I think we need to start moving larger-scale wind and solar projects to a competitive bidding process to keep FIT costs from escalating too much, too quickly, but clearly the impact today doesn’t justify what public outcry there has been.

Okay, here are budget highlights related to clean energy and technology (in no particular order):

1) $97 million over two years to renew funding for technology and innovations in areas of clean energy and energy efficiency.

2) $8 million over two years to renew funding to promote the deployment of clean energy technologies in Aboriginal and Northern communities.

3) Accelerated capital cost allowance has been expanded to include investment in technologies that generate electricity using waste heat from industrial processes. The CCA allows the cost of eligible assets to be deducted for tax purposes at a rate of 50 per cent per year on a declining balance basis—which is faster than would be implied by the useful life of the assets.

4) Oil sands investments will see some reduced subsidies. The accelerated capital cost allowance will be reduced for “intangible capital expenses in oil sands projects”  to align them with existing rates for the conventional oil and gas setor. Question: Why does the conventional oil and gas sector still get this subsidy?

5) And, while the government continues to figure out how to sell of AECL’s commercial reactor division, Canadian taxpayers will pay another $405 million on a cash basis in 2011–12 to cover the crown corporation’s anticipated commercial losses and support the corporation’s operations, including to ensure a secure supply of medical isotopes and maintain safe and reliable operations at the Chalk River Laboratories.

6) $870 million over two years to support the government’s Clean Air Agenda, including $400 million in 2011 and 2012 to temporarily revive the EcoEnergy retrofits program and $252 million to support “regulatory activities to address climate change and air quality,” whatever that means. Also included in this larger figure is $86 million to support clean energy regulatory actions that focus on energy efficiency; $48 million to develop transportation sector regulations and next-generation clean transportation initiatives; $58 million for projects that improve our understanding of climate change impacts; and $25 million to advance Canada’s engagement in international negotiations and support the Canada-U.S. Clean Energy Dialogue.

7) Finally, $40 million over two years will go to Sustainable Development Technology Canada. It’s not a lot of money compared to the more than $50 million it has issued annually in previous years, but it keeps the agency alive and supporting new energy innovations.

I’ll comment on these more later…

My Clean Break column for Friday (published online today) explores the importance of demographics when creating and implementing energy policies, such as time-of-using pricing. My observation over the past few years is that those most vocal against green energy and time-of-use plans tend to be folks on fixed incomes — i.e. mostly seniors — who are understandably worried about higher energy costs and how they, along with other costs of living, are rising relative to incomes. If the baby boomers are just beginning to enter their retirement years, staying at home more (meaning using air conditioning and heating more) and many are struggling to survive on fixed incomes, what does this mean for energy policy?

I asked demographer David Foot, author of the well-known book Boom, Bust and Echo, and he confirmed there is a strong tension between the wants and needs and concerns of baby boomers and the kinds of energy policies and program we so desperately need. But, as he said, boomers occupy the largest voting block, they tend to vote more often than generations after them, and this means politicians can’t ignore their concerns and need to design programs carefully and equitably. As you’ll read in my column, as people age they tend to use more energy per capita. Our aging bodies, quite simply, need to be kept cooler in the summer and warmer in the winter. If energy prices are rising and a greater per cent of the population will be spending their days at home, how will this impact the silver tsunami and attempts to get a handle of greenhouse gas emissions?

Not to generalize. There are plenty of folks in this demographic willing to make the sacrifice, even if it affects them more than others. But those wanting equal treatment have a point and they should be heard. Food for thought.

NOTE: I see the folks over at Wind Concerns Ontario have seized on the column and misinterpreted its message, suggesting that I am “eagerly awaiting boomers to die off.” They’re a venomous, very angry bunch over there – at least those who do the postings and comments – but this only undermines their own efforts. There’s no room for mature debate or constructive comment over there. Either you support their view or you’re an idiot, a word they frequently label on me. And people want them to be taken seriously?

Of course, my column is actually pointing out the legitimate concerns that baby boomers have and how current policies are failing to appreciate them. I actually wrote the piece because of concerns my mother, who is a retired first wave boomer on a pension, expressed regarding the difficulty of paying rising power prices. The message of the column is that blanket programs can miss the mark and more care must be taken to craft them.

I know saying is not doing, and that’s certainly true in democratic countries that are politically polarized, but when China says it’s going to do something, you can be sure it’s going to try. The world’s largest emitter of CO2 may not be signing onto any international climate treaties, but don’t confuse that for inaction. The country has committed over the next 10 years to building enough renewable-energy capacity that it could serve a country the size of Canada four times over. As we squabble about how to combat emissions and how to move forward in the green economy, China is doing. We can blame China for its current emissions, which are indirectly caused by us, since it’s the insatiable consumerism of western society that’s driving those emissions; or, we can see China’s drive to deploy renewable energy as a reason to up our game. If you want to get a sense of what China has planned, click here. We need to get our collective heads out of the oil sands and start building the future, not basing our future on an addiction to the past.

My Clean Break column takes a look at some of the new assumptions in Ontario’s latest 20-year electricity plan — assumptions that have changed dramatically since the previous plan was introduced (but never formally approved) three years ago. Electricity demand that we were supposed to reach before 2015 has now been delayed to beyond 2030. Now that’s quite the gap. More than that, the newer forecast takes into account the impact of electric-vehicle charging on the grid and the plethora of power-sucking gadgets populating our homes, while the previous forecast didn’t (at least not as much). Five years ago, Ontario was going to convert its Thunder Bay coal-fired power station to run on natural gas. Gas was cheap back when the decison was made, but the plan was cancelled a couple of years later after gas prices shot up to record highs. We took a $10 to $13 million cancellation penalty for that decision. Now, thanks to a bounty of shale gas, the option isn’t just back on the table, it’s going ahead. More than that, the government is now seriously looking at converting a number of other coal-fired units (at Nanticoke and Lambton) to natural gas.

The point: So much can change in just a few years it’s incredible. This is why the decision to plan for a new nuclear build I take with a grain of salt, as there are many alternative options that exist or will emerge. Importing hydroelectricity from Quebec or Newfoundland & Labrador is but one. I’m quite resigned to refurbishing, where appropriate, much of the nuclear fleet we have (sorry, Greenpeace), but I’m not as keen about building new reactors. Once built, they’re designed to last for 50 years or longer. So much can change in that 50 years that, as a ratepayer, I don’t want to be locked into one technology at the expense of others that may — and likely will — emerge. As I just showed, so much can change in just five years. I don’t want new nuclear crowding out better options.

Andy Frame, a former advisor to Ontario’s Ministry of Energy, wrote yesterday in a commentary that the new plan, while better than the last one, is still severely flawed. But his criticisms are mostly over the top. He says “this policy has resulted in the doubling of rates in Ontario to a level higher than in most U.S. states,” and that this has killed our industrial advantage. Historically there have always been U.S. states and Canadian provinces with lower — in some cases much lower — electricity rates. Have we seen a mass exodus of industry into Quebec, or Manitoba, or Wyoming? No, because electricity rates are one of many factors that are weighed by companies. Ontario is still very much competitive with many of the states that count, including Michigan and Pennsylvania, and we’re far cheaper than New York State, New Jersey and California. The claim that our industries are going to pick up and run is scaremongering, and other quite innovative programs are in place to help these Ontario industries cope with rising prices by becoming more efficient with their energy use, including the Industrial Accelerator Program and the Northern Pulp and Paper Electricity Transition Program. For too long unsustainably low electricity prices have been used to prop up our industry, which does nothing to make them more globally competitive/efficient.

And while it is true — and no surprise — that rates will keep going up over the next 20 years, critics too often look at this in isolation from trends in other states. Most U.S. states have renewable portfolio standards that require a certain amount of renewable energy in their mix. Like Ontario, they need to desperately upgrade infrastructure, and they’re making their grids smarter. Bottom line is that electricity prices will be going up in jurisdictions all across North America. Ontario is not unique here, and it’s unrealistic to keep measuring ourselves by pointing to Quebec, which has low-cost hydroelectric resources that are unique to its geography. Where is our industry going to move? To Europe, where rates are well above what we have here? Not likely. China? Well, if they’re moving to China it’s because of cheap labour and energy subsidies that violate WTO rules. We need to keep the situation in Ontario in perspective.

Andy Frame also writes:

Turning to supply, the decision to shut down coal generation for environmental reasons was made in haste, without considering alternatives or the problems that result from providing replacement power. In Europe, coal gasification has become a major source of supply. Called “cleaner coal,” it results in lower emissions — much less than what blows over Ontario from Ohio Valley coal plants. If coal plants were converted to cleaner coal, existing transformer stations and transmission lines could still be used.

This is a ridiculous comment. Yes, coal gasification exists in Europe, though I’m not sure I would agree it has become a “major” source of supply. But at the same time as Frame says it’s good to leverage our existing coal-plant assets, he talks about a technology — gasification — that can only be applied to new coal plants. New coal plants that use gasification are expensive and are only built if there is a plan to capture the CO2 and store it. Ontario doesn’t have the geography that can do CO2 sequestration economically, and so-called carbon capture and sequestration is hugely expensive and untested at large scale even for the most ideal locations. And yes, there are technologies — i.e. band-aid solutions — for retrofitting coal plants, but these also don’t come cheap, aren’t 100 per cent effective and don’t address the CO2 issue. Frame could be a climate skeptic who doesn’t care much about the CO2 issue, I don’t know, but if so that’s not the position of those who have an ounce of concern for climate change.

The bottom line is that Frame and other critics of the plan seem to think that electricity policy alone is what determines the survival of Ontario industry. It’s an important component, but the price on a bill doesn’t reflect other programs and initiatives in place to help alleviate the economic strain. Sure, looked at in isolation it may seem scary, and it’s easy to criticize something in isolation of other facts, but it’s not constructive to the debate.

The Ontario government’s plan isn’t perfect. I have my own concerns. I think we’re paying too much for large-scale solar, largely because solar prices have dropped dramatically since the FIT was introduced and this isn’t reflected in FIT prices. If I had my way, I would take the opportunity during the 2-year FIT rate review to dramatically cut the FIT price for multi-megawatt solar farms and eventually move to competitive bidding for these large projects. I would keep the rooftop FIT and microFIT but adjust the rates down accordingly, as the Germans are doing. I would also throw large wind projects — 50 MW or larger — back into a competitive bidding situation that, like Quebec, still has some local content requirements.

Beyond that, what else can be done? Everybody is claiming about how expensive the plan is, but what’s the alternative? Green energy is less than half of the projected cost increases, and the rest are a necessary part of modernizing the grid and realizing the potential of conservation and energy efficiency. Even building new coal plants would be more expensive. Keeping our existing coal plants open is not an option, in my view.

On a final note, a carbon tax should be viewed as a complement to this, not as an alternative as the Task Force on Competitiveness, Productivity and Economic Progress suggests in its recent review of the Ontario economy. I’ve got my problems with this report, largely because it fails to consider the many barriers that alternative technologies face to being adopted. The purpose of the FIT was to help level the playing field so newer, smaller developers, farmers, communities, homeowners, schools, etc… can participate in the province’s energy system. Its goal was to promote more distributed generation, diversity of supply, and of course renewable energy technologies that face an uphill battle in an industry dominated by nukes and fossil fuels. Simply throwing a carbon tax out there will help, but it won’t change that much, especially if the tax doesn’t amount to very much. Bottom line is I found their analysis flawed and their research weak.

The other problem, and Frame does this as well, is that it keeps using the average spot price for electricity as the comparison to new green energy generation. A more fair comparison is to the marginal cost of generation, because we know that whatever new form of generation we add to the grid — nuclear, natural gas, renewables — is going to be more expensive (far more) than the spot price.