Energy Probe

March 18, 1996

Supplementary Submission to the Advisory Committee on Competition in Ontario’s Electricity System Concerning Renewable Energy

March 18, 1996

225 Brunswick Avenue, Toronto, Ontario M5S 2M6
Telephone (416) 964-9223 Facsimile (416) 964-8239

INTRODUCTION

This submission briefly supplements Energy Probe’s written presentation to the Advisory Committee on Competition in Ontario’s Electricity System of January 26, 1996. This submission addresses the impact of electricity system reform through competition and privatization on the development of renewable energy options in Ontario.

GREEN POWER THROUGH CONSUMER CHOICE

Several individuals and organizations have expressed concern that the introduction of open competition in electricity generation would impede renewable energy development in Ontario and end Ontario Hydro’s Renewable Energy Technologies Strategy (RETS). At least one submission to your Committee has recommended a formal "regulatory set-aside" for renewable energy to guarantee it some market share in a competitive electricity system. Often the unspoken assumption behind set-asides is that renewable electricity generators could not compete on a "level playing field" and would need preferential treatment.

Energy Probe seeks to promote economically sustainable options for renewable energy in the long term–options like wind power, photovoltaic power, and biomass-fired power. However, we believe that an open market and thorough application of the principle of polluter pays (as outlined in our first submission), not subsidies and special protection, provide the best mechanisms to promote beneficial development. Empowering individual consumers to choose their power supplier will likely promote renewable energy development in Ontario more effectively than the RETS program. Customer choice will promote renewable supplies without making suppliers dependent on government or regulatory intervention. Too often, formal set-asides create perverse incentives that encourage unsustainable development. Sometimes, renewable power options have become stigmatized due to public contempt for excesses fostered by special programs.

There are many reasons to be optimistic about the future of renewable supplies in an open market. One obvious reason is that many technologies for renewable electricity production have made, and are making, tremendous progress in cost and efficiency. Meanwhile, the efficiency of the least environmentally attractive options–coal and nuclear–is stagnant or even deteriorating. In addition, the costs of the least attractive options in many cases are escalating. We expect these comparative trends to continue to favour renewable options well into the future.

However, we acknowledge that many environmentally appealing renewable generation technologies cannot yet deliver electricity at the very low costs achievable with natural gas-fired combined-cycle, cogeneration, and trigeneration. Although these gas options are highly efficient and clean relative to other fossil-fired options, they are not renewable. At least in the near future, gas options will likely be the price setters for new electricity supply. Despite the attractiveness of gas, we expect renewable technologies to compete very effectively in an open marketplace that empowers all customers to choose their supplier.

Energy Probe believes that many consumers will want, and be willing to pay a premium to get, "green power". Empowering consumers to directly control their power purchases will boost renewable supplies through customer choice. Given a chance, we are confident that many customers will be willing to pay a premium for renewable supplies. Perhaps even more will be willing to pay a smaller premium for "ABCAN" (i.e., Anything But Coal And Nuclear), thereby bidding up the price of greener, more efficient sources, and depressing the price of "black energy". Customer choice will encourage the most customer-preferred options, while tending to retire or phase out less preferred options.

Despite the institutional status quo, there is already some market indication of a premium value for green power in Ontario. In February, the chair of Toronto District Heating Corporation (TDHC), Councillor John Adams, appeared before the Advisory Committee at the public hearing in Toronto. Mr. Adams indicated that a U.S. power marketer offered TDHC a premium price for cogenerated district heating-derived power.

We expect that some businesses and corporations, given the chance, would incorporate a preference for "green energy" into their own business plans, and into their publicity. (We would not expect, for example, The Body Shop, Mountain Equipment Co-op or most health-food or camping establishments to light their stores with coal-fired and nuclear power if an affordable alternative were available.)

We have not attempted to quantify our forecast–which is admittedly qualitative, not quantitative–nor to document the public preferences on which it is founded, which we consider self-evident. Indeed, one cannot enter a supermarket or look down a Toronto street on "Blue Box" day without seeing ample evidence of the eagerness of typical Ontarians to incur costs or inconvenience to minimize their negative impact on the environment. Similarly, mutual funds with environmental "screens" have made significant inroads in the investment field. Public opinion polls of consumer interest often show a willingness by members of the public to pay a premium to buy "environmentally friendly" products.