Saturday, November 27, 2010

An $87-billion grave

Ontario’s plan to pour colossal amounts of money into nuclear, wind and solar could bury the province

Just over a decade ago, Ontario Hydro died, buried under the weight of an unserviceable debt. The chief agents of its destruction? Uneconomic nuclear power, in the form of the $14-billion Darlington nuclear power plant, and uneconomic alternative energy generation, in the form of $6-billion in contracts with private power producers. Taxpayers and ratepayers are still paying off the $30-billion debt that Hydro left behind through higher taxes and higher electricity bills, with no end in sight — 90% of the debt remains.

This week, the Ontario government published its Long-Term Energy Plan. Under it, the province and Ontario Hydro’s successors are committing to more uneconomic nuclear power projects and more uneconomic alternative energy generation contracts, but on a far bigger scale than the old Ontario Hydro ever undertook. The grave the government is digging this time is big enough to bury the province as well as the power sector.

Where the four reactors at Darlington cost $14-billion, the new long-range plan calls for $33-billion, more than double the previous price tag, and that’s to build just two new reactors and refurbish 10 old ones, including those at Darlington. That $33-billion estimate is more a wish than a firm projection. Nuclear reactors, notorious for their cost overruns, typically come in at two to three times their original estimates. Darlington, originally estimated at $3.5-billion, came in at four times its estimate. Refurbishments likewise run up the bills, as seen in the two Bruce reactors at Lake Huron. In 2005, the estimate was $2.75-billion. Today, the refurbishment is already three years behind schedule and $2-billion over budget. No one would be surprised to see the $33-billion estimate balloon to $99-billion or more by the time the plan is complete.
Amazingly, the nuclear boondoggle may not represent the biggest blowout. Where the original alternative energy contracts with private power producers cost $6-billion, the new round of alternate energy projects envisaged in the Long-Term Plan cost more like $27-billion — or more like $45-billion once the supporting infrastructure for these alternative projects is factored in. This $45-billion,like the $33-billion estimate for nuclear power, may itself be a gross underestimate, partly because the supporting infrastructure is subject to cost overruns, partly because the bulk of the new alternative energy projects — unreliable wind and solar — are likely to require expensive backups to avoid blackouts.

All told, the province plans to spend $87-billion on a 20-year plan that will bring Ontario a system highly dependent on nuclear, wind and solar, all of which have a track record of being unreliable and all of which, by the government’s own reckoning, will contribute to much higher power rates in future.

Is the investment sound on non-energy grounds? Ontario’s Long-Term Plan touts jobs.

“Ontario’s landmark Green Energy and Green Economy Act, 2009 is projected over three years to support over 50,000 direct and indirect jobs,” it claims, without foundation. Germany’s green energy plan, on which Ontario’s is based, has been deemed a job killer, according to Economic impacts from the promotion of renewable energies: The German experience, a blue-ribbon German report released last year.

“While employment projections in the renewable sector convey seemingly impressive prospects for gross job growth, they typically obscure the broader implications for economic welfare by omitting any accounting of offsetting impacts. These impacts include, but are not limited to, job losses from crowding out of cheaper forms of conventional energy generation, indirect impacts on upstream industries, additional job losses from the drain on economic activity precipitated by higher electricity prices, private consumers’ overall loss of purchasing power due to higher electricity prices, and diverting funds from other, possibly more beneficial investment.

“Proponents of renewable energies often regard the requirement for more workers to produce a given amount of energy as a benefit, failing to recognize that this lowers the output potential of the economy and is hence counterproductive to net job creation. Significant research shows that initial employment benefits from renewable policies soon turn negative as additional costs are incurred. Trade [benefits] — and other assumptions in those studies claiming positive employment — turn out to be unsupportable.”

Other studies in other single-mindedly green jurisdictions concur. In fact, the evidence has become so compelling that the Ontario government’s own Task Force on Competitiveness, Productivity and Economic Progress, in a study released just this week, concludes: “While the [Green Energy Act] may create 50,000 new jobs, the higher energy costs may result in employment losses elsewhere in the economy, particularly in industries that are intensive energy users.”

The Ontario government’s Long-Term Plan endorses the decision to scrap the privatization of Ontario Hydro in favour of its publicly owned successors, which it sees as engines of the economy. Yet with those successors, Ontario lost its status as Canada’s economic leader. Since 2000, the province’s real per-capita GDP declined by 8%, the country’s worst economic performance. No longer does Ontario boast Canada’s highest real per-capita GDP next to resource-rich Alberta; Ontario is now fourth highest, and a recipient of equalization payments.
It isn’t too late to turn things around. Just bury the long-term plan, none of which passes muster, and resurrect the privatization of the power system. Power rates would drop and Ontario’s economy would soar.

Financial Post

Lawrence Solomon is executive director of Energy Probe and the author of The Deniers.

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