Oxford Sentinal-Review By Diane Katz and Nevana Pencheva
The Government of Ontario recently signed a $7-billion no-bid contract with two Korean companies to supply wind and solar power to the province. Officials claim the backroom deal will boost “green” industry and job creation. But it’s hard to fathom how the additional employment can possibly be beneficial when each new manufacturing job will cost taxpayers a whopping $303,472. Nor do dramatic increases in electricity rates constitute much of a bargain.
Having failed on his pledge to shut all coalfired plants in the province by 2007, Ontario Premier Dalton McGuinty evidently has sought a grand green gesture that would appease the global-warming alarmists. Executives of Samsung C&T Corp., in concert with the Korean Electric Power Corporation, were understandably eager to cooperate.
The agreement commits the province to buy wind and solar energy from the two companies at artificially high rates. It also extends to Samsung and Korean Power preferential access to the transmission network at the expense of independent wind power producers. As if either provision won’t adequately punish Ontarians, McGuinty also has pledged to override local zoning laws in locating new wind farms and transmission corridors.
The contract calls for Samsung and Korea Power to supply 2,000 megawatts of wind power and 500 megawatts of solar power. In return, the Ontario Power Authority will purchase the electricity at a rate of 13.5¢ per kilowatt-hour (kWh) for power generated onshore and 19¢/kWh for electricity generated from off-shore turbines. These rates for solar power range from 44.2¢/kWh to 80¢/kWh. In comparison, the current average price for residential electricity is about 7¢/kWh.
Samsung will also be paid an additional $437 million (in net present value) to build four factories in Ontario to manufacture components for wind turbines and solar power stations. According to the government, 1,440 manufacturing jobs will be created as a result, which equates to $303,472 per job.
The rates to be paid to Samsung and Korean Power are largely the result of Ontario’s 2009 Green Energy Act, which created a “feed-in tariff” to promote new generating capacity for renewable power. A feed-in tariff is the mandatory rate utilities must pay for electricity fed into the power grid from independent sources of renewable energy.
The government claims the cheaper electricity from conventional sources will offset the higher rates. But the cheapest energy fuel source is coal, which the province is planning to eliminate by 2014. Nuclear power is relatively inexpensive to generate, but constructing and maintaining a nuclear power plant is enormously costly. Those currently operating in Ontario require major refurbishments to continue operations. According to the Ontario Ministry of Energy and Infrastructure, many existing facilities are near the end of their operating lives and as many as 80% will need to be refurbished or replaced over the next 20 years.
Nor will the Samsung-Korean Power project come close to replacing the 6,000 megawatts of generating capacity the province will lose by shuttering all coal plants by 2014. Thus, the province faces a potential shortage of power despite billions of dollars in subsidies for renewable energy.
Wind and solar power constitute only a small proportion of the overall electricity generation in Ontario. Currently, according to the Ontario Ministry of Energy and Infrastructure, 22% of Ontario’s generating mix comes from hydropower, 4% from wind, solar, and biomass generation, with the rest coming from nuclear energy, coal and natural gas.
Incumbent wind firms are particularly concerned about the transmission preferences bestowed on Samsung and Korean Electric Power by the province. Absent a major expansion of the network, some independent wind power producers will be shut out of the grid. Moreover, the generous subsidies for the manufacture of project components will put competing firms at a serious disadvantage.
Diane Katz is the director of risk, environment and energy policy for the Fraser Institute. Nevena Pencheva is an intern with the Fraser Institute’s Centre for Energy Policy Studies.