A new study of Ontario wind power by Richard Ivey School of Business researchers Guy Holburn and Charles Morand suggests the provincial government should enact bold legislation on renewable energy, with long-term capacity targets, to attract cautious investors.
The Ontario government was wise to address NIMBY roadblocks and unveil the Green Energy Act this week to encourage renewable energy investment, according to Holburn, who collaborated on a study to determine why provincial renewable power policies have yet to meet their potential.
However, the Act doesn’t go far enough by failing to include long-term targets for renewable capacity and leaving decision-making to Ministers.
Holburn and Morand surveyed 63 wind developers and studied past policies to determine why previous provincial initiatives to increase green energy – including a feed-in tariff that guarantees the Ontario Power Authority will purchase from renewable electricity suppliers at fixed prices – have failed to meet targets.
“Ontario has been considered a risky jurisdiction for renewable energy investors. The new Green Energy Act removes some of the uncertainty around municipal permitting and grid connection policies,” said Holburn, who specializes in utility regulation and stakeholder management. “However, the Act does not establish long-term targets for renewable capacity.
Instead it leaves key decisions on targets and power pricing in the hands of the Minister, who can easily change policies if political priorities shift.”
According to their study, “Regulatory Risk and Private Investment in Renewable Energy Technologies: A Study of the Ontario Wind Power Sector”, four and a half years of Ontario government initiatives on green energy have produced mixed investment results in the wind power industry. Less than 50 per cent of the original 2004 target for renewable investment by 2007 was actually achieved.
Holburn and Morand attribute this to policy-making that is conducted outside of the scope of formal legislative and regulatory processes.
While the Ontario Power Authority is responsible for implementing renewable energy regulatory policies, the Minister of Energy and Infrastructure has extensive authority to control it by issuing directives without the need for broad public consultation.
Since Ministers change frequently, renewable policies have repeatedly been adjusted or abandoned through new directives and orders. The Green Energy Act further broadens Ministerial powers – exposing policy even more to political pressures.
“Developers rate regulatory policy stability as one of the weakest aspects of Ontario’s business environment,” said Holburn. “Concerns over policy stability and regulatory risk have led developers to invest in other jurisdictions or to price in a risk premium here in Ontario – implying higher rates for consumers. The Green Energy Act should go further by delegating more policy-making authority to independent agencies and limiting the scope for Ministerial directives.”