Ontario puts $10B in the wind
By Terence Corcoran, National Post
When government and industry talk about green energy, what they mean by green is the green stuff that will be going into the pockets of special corporate and government interests.
In a dramatic move yesterday, Ontario Premier Dalton McGuinty struck a green electricity deal — allegedly the biggest of its kind in the world — that will transmit a subsidy worth as much as $10-billion into the hands of a Korean state enterprise and corporate giant Samsung.
Green economics is a wonderful thing, except for consumers.
The subsidy means that over the next 25 years Ontario electricity users will pay 50% more for the wind and solar electricity produced under the Samsung deal than they would buying the same power from conventional sources. In return for the subsidy, the only thing the average consumer will receive is a warm and fuzzy feeling for having saved the planet from global warming.
Never mind that global warming may not be happening. Electricity consumers everywhere, but especially in Ontario, are often merely cash machines for scheming profiteers and politicians. Any excuse will do. If not global warming there’s always job creation, trade wars, subsidies, economic nationalism, local content rules, renewability claims — and the usual ugly business of buying voters with their own money.
The McGuinty electricity scheme masterfully incorporates all of the above. At the signing ceremony with Korean officials for a 25-year agreement to supply 2,500 megawatts of wind and solar power, the Premier practically declared a green energy war on the United States. “Samsung approached us in the first instance,” he said. “The reason that Samsung and Korea Electric Power are making this investment in Ontario — and not New York or Michigan or Texas or California — is because of Ontario’s Green Energy Act.”
Ontario’s Green Energy Act, said the Premier, is the “best of its kind, best in class, in North America.” By that he means, it offers the biggest giveaways, the fattest subsidies and the most generous guarantees. To hell with good economics, open markets and competition. Using dictatorship-style powers, the McGuinty government can order its subsidiary agencies — power authorities, distribution companies and regulators — to set rates and build power lines. All the Samsungs of the world have to do is show up and receive Ontario’s Feed-in Tariffs — guaranteed above-market power rates of 13.5¢ a kilowatt hour for wind and 44.3¢ for solar power.
But even the Feed-in Tariff scheme, cooked up by former Energy Minister George Smitherman, wasn’t good enough for Samsung, which will also receive another 1¢ a kWh as an extra subsidy in return for building four wind and solar manufacturing plants in Ontario. The plants, to manufacture towers and blades for windmills and inverters and modules for solar-power facilities, will allegedly create 16,000 jobs as part of Ontario’s new “green energy cluster.”
Over the 25-year course of the Samsung-Korea agreement, the cumulative cost of the little 1¢ add-on will be worth about $1-billion, or — as the government put it — $437-million in net-present-value terms. The implication was that Ontario would be getting 16,000 new jobs at a cost of only $437-million, equal to only $1.60 per year to the average Ontario electricity consumer.
What the government failed to mention is that the actual measure of the subsidy should begin with the Feed-in Tariff rates, which are worth billions more. The trick to the Samsung deal is that the Korean operators received a government guarantee — an “assurance of transmission” — for the 2,500 megawatts of power they build at Feed-in Tariff rates of 13.5¢ a kWh for wind and 44.3¢ for solar. The 1¢ bonus subsidy raises the guaranteed price of electricity to be paid to Samsung-Korea to 14.5¢ for wind and 45.3¢ for solar.
Over 25 years, the government says the Koreans will deliver 110-million megawatt hours at these guaranteed prices, equal to 110-billion kWh. Based on operating assumptions for the wind-solar balance, that means the Koreans will receive about a guaranteed $25-billion from Ontario electricity consumers at an average price of maybe 23¢ per kWh. But the current price for new gas-fired power, with all costs accounted for, is maybe 12¢ or about $13-billion. Ontario, in other words, will pay about $10-billion or maybe even $12-billion in subsidy to the Korean consortium over 25 years, equal to about $4-billion in net present value.
The Samsung agreement will also squeeze out other wind and solar power producers from the market, thus eliminating competition and fairness from a power market already grotesquely distorted by the Green Energy Act and the Feed-in Tariff scheme. So not only will the McGuinty energy regime plunder cash from electricity consumers, it will compound the economic mess by squeezing other energy producers.
That’s green energy in action: subsidies, distortion, trade battles, fake job creation and back-room political deals.