THE BLOG

Oakville's Power Plant Fiasco Is a Lesson in Policy

11/01/2013 05:29 EDT | Updated 01/23/2014 06:58 EST

Back in 2005, the Fraser Institute published a policy study examining the Ontario government's decision to shut down coal-fired power generation in the province. We observed that while the environmental benefits of such a move would be meagre, the costs would be significant, and regressive.

At the time, we observed that coal was the low-cost price-setting fuel over 50 per cent of the time, and that replacing coal-fired power plants with natural gas would result in more expensive energy for Ontarians that would land disproportionately on people with lower incomes. Gas, at the time, was running at twice the price of coal. Environmentalists, at the time, were strong champions of natural gas power plants, and natural gas itself was usually referred to as "clean-burning natural gas."

Looking back, it's clear we underestimated the capacity of the Ontario government to bungle Ontario's energy file, and we underestimated the hypocrisy of the environmental movement. The new report of the Auditor General of Ontario on the Oakville power plant cancellation shows just how ill-advised the coal retirement plan was, and also, how disingenuous environmentalists were in arguing for the swap, since as soon as they got a commitment to close the coal plants they turned around and fought the replacement gas plants.

As the report observes, the 850 Megawatt (MW) natural gas power plant in Oakville was needed as partial replacement for the 1150 MW Lakeview coal plant, which the province removed at a time when peak demand for electricity in the Southwest GTA was growing at twice the average rate of the province as a whole.

Instead, as we all know now, the Oakville natural gas power plant was cancelled for political reasons, and a whopping debt was settled onto the ratepayers and taxpayers of Ontario. The Auditor General estimates that the decision to cancel the plant and to build a new one in Napanee may cost the public $675 million, with $635 million of that being paid by ratepayers, and $40 million by taxpayers. The AG adds that an additional $140 million might be added to the bill due to tolls relating to the delivery of natural gas to the plant at Napanee.

What led to the Oakville cancellation? While good old-fashioned NIMBYism was clearly a factor, so was opposition from environmental groups, the same people whose pressure to shut down coal power necessitated its construction. As the Auditor General observes, Oakville took a series of steps in opposition to the power plant, including amending the official plan of the Town of Oakville, implementing new bylaws limiting construction of power plants, limiting the emissions of particulate matter, and subjecting any proposed power plant generation to a variety of environmental criteria. The "Citizens for Clean Air Oakville" even brought out the heavy guns, inviting U.S. environmental activist Erin Brokovich to speak in opposition to the plant.

The Oakville gas plant fiasco exposes the ugly reality of environmentalist's intentions when it comes to energy development. While they say that all they want to do is to replace "dirty" energy with cleaner energy, when the time comes to procure that new, cleaner energy, they oppose it.

Environmentalists act as if what they want, at the end of the day, is a Canada that uses less energy, and pays more for it. As one of us (McKitrick) observed in a recent study of the Green Energy Act's impact on power prices in Ontario, they seem to be getting their way. Ontario power prices have shot toward the highest end of the price spectrum in North America, and the planned additions to the wind grid, even in the face of a now-persistent surplus generating capacity, mean this trend will worsen.

Ontario's disastrous handling of provincial energy policy is a vivid illustration of how political control over important industrial sectors always ends badly, as special interests inevitably twist the system to their own advantage. The focus of energy planning should be to harness private markets to produce abundant, affordable energy for Canadians, while safeguarding the public's health through compliance with our longstanding air pollution regulations.

This commentary was co-written by Ross McKitrick, Senior Fellow at the Fraser Institute and Professor of Economics at the University of Guelph.

The Many Faces Of Kathleen Wynne