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As cost pressures mount, Ontario’s wholesale power prices set to soar

The Ontario Power Generation's Darlington nuclear facility near Oshawa, Ont.

Fred Lum/The Globe and Mail

Electricity consumers in Ontario face the prospect of soaring prices in the coming decade, a trend that would put additional cost pressure on power-hungry industrial users.

The cost pressures are rising at the province completes the closing of its coal-fired plants while its nuclear fleet faces further retooling and renewable power takes a greater share of the load. A new forecast by London Economics International predicts Ontario's wholesale power price will jump by 74 per cent – to $55.80 per megawatt hour between 2013 and 2022 from $32. That figure does not include higher costs to distribute the power and for conservation and other demand-side programs.

Concerns about rising electricity prices will be one of the key economic challenges facing the incoming premier Kathleen Wynne as she prepares to assume power from the outgoing Dalton McGuinty. Ms. Wynne will have to take on opposition critics who have slammed the government for its election-related cancellation of a gas-fired power plant that result in $190-million in compensation payments to the plant's financiers.

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Ontario is not alone in anticipating sharply higher power prices. Alberta will see its wholesale prices decline slightly over the next few years, but then turn, beginning to rise significantly in the latter part of the decade. Western New York State could see wholesale electricity prices double, but from a lower base than Ontario, according to A.J. Goulding, president of the Toronto-based economics firm, which has produced a series of forecasts for provinces and states.

"I think the concern is that at least over the next decade, Ontario is going to see prices higher to final consumers than neighbouring markets and that is going to have an impact on people's industrial and commercial investment decisions," Mr. Goulding said in an interview.

He said all jurisdictions – including Ontario – got a reprieve from higher prices because the recession drove down electricity consumption, which is only now returning to the previous peak that Ontario hit in 2006.

Critics often point to Mr. McGuinty's Green Energy Act for being responsible for higher electricity costs. But the new forecast identified several contributing factors, including the need to refurbish Ontario aging nuclear fleet, the decision to shut down coal-fired plants due to climate change and other pollution concerns, and expected increases in natural gas prices from today's depressed levels.

Still, Mr. Goulding said the Liberal government's green energy policy – with its premium feed-in tariffs for companies that locate renewable energy jobs in the province – runs counter to desire of existing industrial customer to obtain competitively priced power.

"The Green Energy Act was not the low-cost approach to procuring carbon-free power," he said.

Jim Burpee, chief executive at the Canadian Electricity Association, said the LEI forecasts makes some assumptions that may not be borne out, including the retooling of additional units at the Bruce nuclear plant later this decade. Mr. Burpee added that Ontario is also spending money to encourage consumers to "use electricity more wisely" so that as prices rise, customers can keep a lid on their bills.

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Industrial customers are eyeing Ontario's electricity system with growing concern, said Adam White, president of the Association of Major Power Consumers of Ontario, which represents companies in the manufacturing and resource sectors. Mr. White said the power-sector forecasts rarely takes into account the fact that higher costs will drive down demand, which in turn will moderate the price increases.

"Ontario has the highest delivered prices for industry in North America, so we need to have a reality check," he said. Industrial customers now pay roughly $85 per megawatt hour given all the various components of the price, compared to roughly $40 in Quebec, Manitoba and Michigan.

"No one should be making decisions based on continued escalation of electricity rates here, at rates higher than inflation and higher than adjacent jurisdictions," Mr. White said. "It's just not a tenable future scenario because the industrials just won't pay it. They'll leave."

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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