The sorry lessons of green-power subsidies

A recent study, co-authored by Fraser Institute energy economist Gerry Angevine, found that Ontario residents will pay an average of $285-million more for electricity each year for the next 20 years as a result of subsidies to renewable energy companies.

By the end of 2013, Ontario household power rates will be the second-highest in North America (after PEI), and they will continue to accelerate while they level off in most other jurisdictions. Even more alarming for Ontario's economic competitiveness, businesses and industrial customers will be hit by almost $12-billion in additional costs over the same period.

Such is the legacy of the provincial government's 2009 decision to establish feed-in rates, ranging from 44.5 cents to 80.2 cents per kilowatt-hour (kWh) for solar power, and 13.5 cents/kWh for wind power. These solar feed-in rates average 11 times the 5.6 cents/kWh paid for nuclear-generated power, and 18 times the 3.5 cents/kWh for hydro-generated power. The wind-power rates are more than twice as high as nuclear, and four times those of hydro.

Besides the direct cost of these huge subsidies, there's also a big hidden cost of fossil-fuelled standby facilities, because the wind doesn't always blow and the Ontario sun certainly doesn't always shine.

Faced with rising consumer reaction, the provincial government recently announced modest reductions to the feed-in rates, but they do nothing to change the results of the Fraser study because thousands of contracts have been guaranteed the higher rates for the next 20 years.

Liberal Premier Dalton McGuinty has predicted that the subsidies will propel Ontario to a world-leading position in green-power technology, creating thousands of jobs. Sadly, the Fraser study shows quite the opposite as the province's already beleaguered manufacturing heartland sees its former electricity-cost advantage transformed into a competitive millstone.

Ontario isn't the only place where grand green-power dreams have turned into a nightmare.

Several European countries began doling out subsidies nearly a decade ago. Germany has given away $130-billion, mostly to solar-power companies. Yet solar power makes up a minuscule 0.3 per cent of German power supply, while doing almost nothing toward the original objective of reducing greenhouse gas emissions. In February, Germany's Minister of Economics and Technology, Philipp Roesler, announced a pullback from green-power subsidies saying the cost was "a threat to the economy."

Spain also poured cash into solar- and wind-power subsidies with little to show for it except a $25-billion increase in its national debt. And British consumers have grown increasingly outraged about paying some $700-million a year in wind-farm subsidies that produce less than 0.5 per cent of power demand.

In the United States, green-power companies have received more than $4-billion (U.S.) to build wind farms as part of the Obama administration's massive job-stimulus program. A recent Wall Street Journal investigation found that those projects created a total of 7,200 temporary construction jobs and only 300 permanent jobs.

Federal grants and loan guarantees were also awarded to companies with rickety business plans. Last September, California-based Solyndra LLC sought bankruptcy protection after receiving $535-million in loan guarantees to build a solar-panel factory. This month, Solar Trust of America filed for bankruptcy after failing to meet the terms a $2.1-billion loan guarantee to build what was to be the world's largest solar-power generation plant.

It isn't only energy consumers and taxpayers who have been hit by the green-power mania. The Globe and Mail reported in February that 10 wind- and solar-equipment makers in China, India, Europe and the U.S. have seen their share prices collapse by between price of their shares collapse by between 85 per cent and 98 per cent since 2008. A combination of ineffectual environmental benefit, escalating power costs and debilitating government deficits have driven a precipitous drop in the outlook for green-power subsidies.

The lessons of the green-power debacle are clear. For governments, the message is that forcing consumers and taxpayers to subsidize any business almost always leads to economic damage and political unpopularity. For investors, the lesson is that companies living on government subsidies may die when the handouts stop.