Ross McKitrick, Elmira Aliakbari and Ashley Stedman outline one of the fastest ways for the Ontario government to get Ontario electricity rates back down toward the national average:
The Ford government seems to want to repair Ontario’s electricity market. It recently moved to scrap the Green Energy Act and reportedly plans to eliminate or alter the so-called Fair Hydro Plan.
While these moves will mitigate future price increases, they won’t reduce current electricity prices. In fact, according to a Fraser Institute study being released today, to lower existing prices the government must reduce what’s known as the “Global Adjustment” — an extra charge on electricity. It won’t be easy, but reducing the global adjustment could bring down electricity prices by about 24 per cent.
This would be welcome news for Ontarians, as electricity prices increased 71 per cent from 2008 to 2016, far outpacing electricity-price growth in other provinces.
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Between 2008 and 2017, the GA grew from less than one cent per kilowatt-hour (a common billing unit for energy) to about 10 cents, accounting for the entire increase in Ontario electricity commodity costs over that time. Therefore, the key to lowering power prices in Ontario is to reduce the GA.
In our study, we use reports published by the Ontario Energy Board to breakdown the GA to better understand where the money goes and provide specific recommendations on how to lower electricity prices. We found that the largest component of the GA charge — nearly 40 per cent — funds subsidies paid to renewable energy sources (wind, solar, etc.) under feed-in-tariff contracts, yet these sources only provide seven per cent of Ontario’s power output.
And notably, the GA provides almost 90 per cent of revenue earned by renewable generators, with only 10 per cent coming from actual power sales. This overwhelming reliance on government subsidies (paid by ratepayers) rather than actual electricity sales reveals how distorted the pricing structure has become in Ontario.
