Green is good for business

Green energy, in particular the Green Energy Act, has become the central issue in the Ontario election campaign. This is of critical importance to the renewable energy industry across Canada, since no other province – and certainly not the federal government – has gone so far to support the inevitable transition from fossil fuel and nuclear energy. Tim Hudak, leader of the Ontario Progressive Conservative Party, has taken aim at the GEA and decried the fact that electricity bills in Ontario have increased since the GEA went into effect.

Whether the GEA is to blame for increased electricity prices is another matter. It is definitely true that participants in the FIT (Feed-In Tariff) and MicroFIT programs are paid a higher rate for the electricity they produce than, say, Bruce Power (operator of one of the three nuclear plants in the province). The citizens of Ontario are paying two prices for energy – one for traditional nuclear or thermal energy, and one for renewable energy. The price for renewable energy is higher.

I used to work for an accounting firm. The standard jibe at accountants is that they know the cost of everything, and the value of nothing. The campaign rhetoric from GEA opponents suggests that the price of renewable energy is higher, and there could not possibly be any defensible reason why this might be. Hence, the cause for the higher price must be rooted out and eliminated.

Could it be that renewable energy has a higher price because it is worth more?

Let’s say you have a business, and that business requires you to lease a car. The leasing company has two options. Plan A has a monthly lease cost that is guaranteed to increase over time. That doesn’t sound too attractive. But the bad news doesn’t end there. The price is also subject to incredible spikes that may mean your payment today is double what it was last month. And Plan B? The price is higher, but it is guaranteed to drop. And unlike Plan A, the price has no random jumps.

Which would you pick?

Businesses thrive on predictability. So do households. Companies like Direct Energy have made lots of money selling contracts that guarantee a particular rate for natural gas or electricity. The customer pays more in the long run, but the price is fixed, and there’s comfort in predictability. Whether you’re a business or an individual, when one of your most significant bills can fluctuate like mad, it wreaks havoc on your ability to plan. You either have to sock away precious cash in a rainy day fund, or pay the price of borrowing the money when the nightmare bill is due. Multiply that by every business and household, and you have a huge drag on economic growth.

Non-renewable energy is Car Lease Plan A. All fossil fuels have been trending upward in price in the long term. All of them took a huge spike upwards in 2008. The per-barrel price of West Texas crude oil fluctuated around the US$20 mark from 1986 to 2000, and then it started a relentless climb to today’s price of around US$83. That’s a fourfold increase in only eleven years. Along the way, it took some eye-popping spikes; its 2008 peak price topped US$130.

Natural gas has seen similar volatility. The current price is close to a ten-year low, but its 2008 peak was nearly double that figure. Coal is selling for nearly twice what it was five years ago, and its 2008 peak was nearly double today’s price. Even uranium, which admittedly doesn’t account for a significant portion of the cost of providing nuclear power, is five times what it was five years ago and hit a 2006 peak of two and a half times the current price.

The price of renewable energy is relatively high, but it is dropping. It is also relatively stable – it doesn’t bounce all over the place.

The reason for this is simple. Renewable energy, with the exception of biomass, is all about the technology. The input is free, and always will be – sunshine, wind, waves, or falling water. So the price is directly related to the technology; as the technology improves, the price drops. But the technology only improves when it has customers. So if you want to see green energy become cost-competitive with brown energy, you need to encourage customers to buy in. The more customers that buy in, the more rapidly the technology improves, and the more rapidly it approaches what energy wonks call “grid parity” – the energy nirvana, where green is actually cheaper than brown.

If I could lease a car for my business at a nice, predictable price, and I knew that price would drop rather than rise over time, that’d be great news. I could make plans for growing my business, maybe hiring another employee, secure in the knowledge that I wouldn’t suddenly see my bottom line going into the red because one of my bills went through the roof.

It’s time we got down to the business of eliminating the drag that volatile fossil fuel prices place on our economy. It’s time we invest in green energy. And it’s time that the Ontario PCs realize that the Green Energy Act is not just good for renewable energy businesses, but for all businesses, and for all households.

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