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The Economics of Renewable Electricity Policy in Ontario

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  • Donald N. Dewees

Abstract

Economic 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 Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-478.

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Length: Unknown pages
Date of creation: 05 Mar 2013
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-478

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Related research

Keywords: renewable energy; green energy; wind power; solar power; air pollution harm; greenhouse gases; feed-in-tariff; electricity generation externalities;

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References

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  1. Severin Borenstein, 2011. "The Private and Public Economics of Renewable Electricity Generation," NBER Working Papers 17695, National Bureau of Economic Research, Inc.
  2. Manuel Frondel & Nolan Ritter & Christoph M. Schmidt & Colin Vance, 2009. "Economic Impacts from the Promotion of Renewable Energy Technologies - The German Experience," Ruhr Economic Papers 0156, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. Bejamin Dachis & Donald N. Dewees, 2011. "Plugging into Savings: A New Incentive-Based Market Can Address Ontario’s Power-Surplus Problem," e-briefs 120, C.D. Howe Institute.
  4. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
  5. Stanley M. Besen & Joseph Farrell, 1994. "Choosing How to Compete: Strategies and Tactics in Standardization," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 117-131, Spring.
  6. Böhringer Christoph & Rivers Nicholas J. & Rutherford Thomas F. & Wigle Randall, 2012. "Green Jobs and Renewable Electricity Policies: Employment Impacts of Ontario's Feed-in Tariff," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-40, June.
  7. Richard Green & Adonis Yatchew, 2012. "Support Schemes for Renewable Energy: An Economic Analysis," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
  8. Morris, Adele C. & Nivola, Pietro S. & Schultze, Charles L., 2012. "Clean energy: Revisiting the challenges of industrial policy," Energy Economics, Elsevier, vol. 34(S1), pages S34-S42.
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