The Economics of Renewable Electricity Policy in Ontario
AbstractEconomic evaluation of green or renewable power should compare the cost of renewable power with the cost savings from displaced fossil generation plus the avoided harm from reduced emissions of air pollution and greenhouse gases. We use existing estimates of the values of the harm and we calculate cost savings from renewable power based on wholesale spot prices of power in Ontario and steady-state estimates of the cost of new gas generation to estimate the value or affordability of various forms of renewable power in Ontario. We find that timing matters in evaluating intermittent renewable sources. Considering air pollution and greenhouse gases we find that coal generation is dominated by natural gas, supporting Ontario's policy of ending coal generation by 2014. Renewable power thus displaces gas. Dispatchable renewable generation sources, such as many biogas, biomass and some hydroelectric sites cause savings and reduced harm that can justify some of the Ontario Feed-in-Tariff prices up to $130/MWh; other FIT prices are too high. Wind and solar power are variable, so the value of their power depends on system marginal costs when they generate. Wind's displacement of gas capacity is low because it cannot be depended upon when demand is high and generation is needed, so it justifies prices of only $60 to $95/MWh, less than the FIT price of $115. Solar power justifies higher prices than wind, up to $152/MWh because solar generates in the daytime when prices are higher and when solar can fairly reliably displace gas capacity. Still, solar power falls far short of justifying the 2012 Ontario FIT prices of $347 to $549/MWh. Ontario's Feed-in-Tariff program costs more than necessary to achieve its environmental goals.
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Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-478.
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Date of creation: 05 Mar 2013
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renewable energy; green energy; wind power; solar power; air pollution harm; greenhouse gases; feed-in-tariff; electricity generation externalities;
Find related papers by JEL classification:
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
- Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
- NEP-ENE-2013-03-16 (Energy Economics)
- NEP-ENV-2013-03-16 (Environmental Economics)
- NEP-REG-2013-03-16 (Regulation)
- NEP-RES-2013-03-16 (Resource Economics)
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