The Rising Cost of Energy

  • The Rising Cost of Energy

    The Rising Cost of Energy

    A few weeks ago, Ontario released its 2013 Long Term Energy Plan promising a new set of reforms and policies, among the more important points were:

    • Shut down of all coal-fired generators
    • Implementing conservation programs to offset growing electricity demand in the next 20 years
    • Refurbishing Darlington and Bruce Nuclear Generating Stations beginning in 2016; shutting down Pickering by 2020
    • Expanding renewable energy generation to 50% of total capacity by 2021

    Critics of the government, however, were quick to point out that under this new plan, energy rates were almost guaranteed to increase by as much as 43% in the next 3 years, which has businesses and home owners worried. However, is an increase in electricity rates such a horrible thing? It is true that governments can and have mishandled energy issues (e.g. Oakville natural gas cancellation), but in this case, increasing electricity rates is hardly a reason to get angry especially when we have it so well compared to other countries around the world.

    The average weekday price of electricity in Ontario is about 9.55 cents/kWh and under the government’s plan, that rate is expected to increase. But according to data gathered by Shrink That Footprint, electricity rates in Western Europe and Asia are typically more than double the Canadian average of 10 US cents/kWh (refer to Figure 1), giving Ontarians very little reason to complain.

    How Much Does Energy Cost

    Figure 1

    The United Kingdom pays twice as much per kWh than we do, in Spain their rate is three times ours, and in Denmark, they pay, on average, a whopping four times what we pay per kWh! Furthermore, this study doesn’t even consider the different economic disparities between countries. For example, $ 1 US can buy considerably more in India than it can in a relatively more expensive country like the United States; therefore adjusting the price per kWh using the purchasing power parity makes electricity rates in Canada the cheapest out of the surveyed countries at a paltry 8 cents/kWh.

    Electricity Prices relevant to purchasing power

    Figure 2

    Our electricity prices here in Ontario are the envy of the rest of the developed world; however, other provinces do have it better than us. Manitoba, British Columbia and Quebec, in particular, have electricity rates that are considerably less than Ontario’s. However, this is because Ontario has the distinction of being the only province that uses nuclear to generate more than half of its demand. Evidently, nuclear energy has proven to be very expensive not just to build, but to maintain and keep.

    The actual market price for electricity in Ontario is only about 2.5 cents/kWh; however, this is before the Global Adjustment (GA) fee is added to the price, with it, electricity rates are more than tripled. The GA charge was added to provide electricity producers with added revenue. Unfortunately, the vast majority of it was used to subsidize nuclear, natural gas and coal generation. According to the Ontario Clean Air Alliance, from 2006-2011, 45% of all GA revenue was used to subsidize nuclear power, 6.7% was used to subsidize coal and an additional 34% was given to natural gas generation.

    Global Adjustment Payments

    Only 6% of all GA revenue was used to subsidize new renewable energy projects and 8% was used for energy efficiency programs. Simply put, nuclear and natural gas subsidies are the reason why Ontario’s electricity rates are higher than other provinces’ and increasing. If Ontario weren’t so dependent on nuclear for its electricity, there wouldn’t be such a great need to subsidize it.

    Spending tens of billions of dollars on new nuclear reactors and then several more to refurbish them years later, and have the taxpayers make up the difference is simply not fair nor does it make economic sense. Ontario is bracing for a future where renewable energy will provide the bulk of its demand, and one day it will negate the need for all of those subsidies for nuclear and natural gas generation. In the mean time, electricity rates are going to increase, and so long as renewable energy is continually opposed, there will be no end in sight for the Global Adjustment fee.

    If empty promises and well wishes could power our homes, we would have solved our energy issues a long time ago. Unfortunately, reality can be cruel, and pragmatic solutions are necessary in order to ensure that our energy supply is clean, reliable and affordable in the long run even if that means increasing its price in the short term.

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