Last month, the Province announced a massive cut to electricity conservation programs in Ontario. Relatedly, the government transferred responsibility for conservation program delivery from Local Distribution Companies (LDCs) such as Toronto Hydro to the Independent Electricity System Operator (IESO). The stated goal of these changes is to reduce electricity prices by one-tenth of one cent per kilowatt hour (kWh). With electricity prices already down about four cents per kWh over the past three years, due to the previous government’s Fair Hydro Plan, one might ask whether an additional tenth of a cent reduction justifies eliminating some of Ontario’s most successful conservation programs. But the more important point is that the cuts to conservation will actually increase total electricity system costs, leading to upward pressure on prices over time.
Cut to conservation = increase in purchasing = higher costs
The reason that utilities across North America run conservation programs is precisely because they reduce energy system costs. All conservation programs are subject to rigorous cost-benefit testing to ensure that their net impact is a reduction in system costs. In other words, the cost of conservation programs on a per kWh basis is less than the cost of buying any available source of electricity. So it is not just the participants in energy conservation programs that benefit; benefits are shared by all ratepayers.
Conservation is required. The IESO was already forecasting a shortfall in electricity generation capacity by 2023. The conservation program cuts will further widen that gap, requiring the purchasing of even more electricity. The likely result is an increase in reliance on natural gas-fired generation to supply peak power needs. According to the IESO, the cost of natural gas fired generation is at least 60% higher than the cost of conservation programs.
Program cuts will lead to higher emissions
Cutting conservation programs will also increase Ontario’s carbon emissions. While natural gas power plants supply only six per cent of Ontario’s electricity, these plants are on the margin around one-third of the time (see TAF’s guideline on electricity emissions factors for an overview). Put simply, that means that a disproportionate share of the additional energy consumption caused by conservation cuts will be supplied by fossil fuels. Based on current government directions, the IESO is forecasting that carbon pollution from electricity generation in Ontario will double over the next decade, adding five million tonnes to Ontario’s annual carbon emissions. That is equivalent to putting another 1.2 million cars on the road.
Conservation programs are also an engine of economic growth. Research commissioned by the Federal Government shows that every $1 million invested in energy conservation programs in Ontario generates a net increase of $6 million in GDP and 42 job-years of employment. Based on the size of the cuts, that equates to a net loss of over 17,000 job-years and $2.5B in economic activity. Clearly, support for energy efficiency shouldn’t be a partisan issue – in fact the above-noted research was commissioned by the Harper Government.
Ontario’s electricity conservation programs certainly weren’t perfect, but they did play an important role in reducing electricity system costs, reducing carbon emissions, and supporting jobs and economic growth. The cuts to conservation leave a major gap that, if left unfilled, will undermine the Government’s priorities around job creation and energy affordability.
Low energy bills and low carbon? It is possible
TAF supports an energy system that is clean and affordable. Conservation is critical to achieving both of these aims, because the cleanest and cheapest kWh is the one you don’t use. If this government wants clean and affordable energy for Ontarians, it will need to find other ways to deliver conservation. For example: the proposed Ontario Carbon Trust could be directed to fund conservation; the IESO’s planned Incremental Capacity Auction could be expanded to include conservation; or, the government could drive energy efficiency through stronger use of codes and standards. The only option that is not worth considering is the status quo. We’re happy to work with government officials and industry leaders to find a way forward.