Canada: The "Green Energy Act": Green Energy Unbounded

Ontario's proposed Green Energy and Green Economy Act (Green Energy Act) signals a profound shift in the role of renewable energy in the province. The Act, which received First Reading on February 23, 2009, and received Royal Assent on May 14, 2009, is attracting international attention for its aggressive promotion of renewable energy (i.e., wind, water, biomass, biogas, biofuel, solar energy, geothermal energy and tidal forces). The new Act amends 15 pieces of legislation, including the Electricity Act, the Ontario Energy Board Act, and the Planning Act.

Empowering The Green Economy

The Green Energy Act transforms the approach for evaluating options for electricity generation, a task handled by the Ontario Energy Board (OEB). Consider an example where the OEB must choose between natural gas-fired generation, hydroelectric, and wind. The conventional approach is to use a model, known as the Levelized Unit Energy Cost (LUEC), to derive a cost per unit of energy (usually stated in kilowatt-hours, kWh). All other things being equal, the option having the lowest LUEC would be selected. Using recent estimates, costs per kWh are $0.04 for hydro power, $0.10 for gas-fired generation, $0.13 for wind power and $0.53 for solar power.

Under the conventional approach, hydro would be selected first, with wind and then solar being capped in favour of gas-fired generation. Wind energy is at an economic disadvantage because it is often most abundant in areas far from population centres, requiring the construction of transmission connections to deliver electricity to consumers. Solar-generated electricity is often characterized by increased electricity distribution costs due to the presence of relatively small generation sites in close proximity to end-users, which contrasts with the common approach of building fewer large generation plants farther away.

The outcome would be different under the Green Energy Act, which sets a goal of achieving all of the renewable power that is feasible even if it leads to a net decrease in economic efficiency. The Act reflects a view of the energy sector as being uniquely positioned to achieve environmental and social goals, and ushers in a green economy in which renewable energy is viewed as inherently valuable.

Three Major Shifts Towards Renewable Resources

The Green Energy Act contains three major shifts towards renewable resources and the green economy. First, renewable energy generators have the right to connect to the electricity distribution system and recover revenues for the power generated, without having to prove its cost-effectiveness against conventional generation. Second, electricity distributors and transmitters are required to expand their systems to accommodate renewable power; they are also responsible for the associated costs. Third, the Act directs the OEB to require transmitters and distributors to file plans that will lead to the expansion of their systems to facilitate the use of renewable resources.

Additionally, the Green Energy Act amends the Electricity Act to require transmitters or distributions to provide eligible renewable energy facilities with "priority connection access" to transmission and distribution systems. These shifts signal a departure from the current approach, which treats all types of electricity generation in the same manner and prioritizes equal and non-discriminatory access to transmission and distribution systems. They also represent a dramatic change to the role of the OEB.

The OEB: From Watchdog To Facilitator

The Green Energy Act's aggressive promotion of renewable energy resources challenges the OEB's role as an economic regulator. Currently, the OEB (and most other utility regulators) reviews spending on expansions in the electricity network with the purpose of ensuring that only cost-effective expansions are approved.

Yet under the Green Energy Act, the OEB is to require transmitters and distributors to expand their systems to connect renewable generators. The OEB, which prior to the Green Energy Act was the check on expansions, now becomes the catalyst for expansions.

The challenge facing the OEB goes beyond the task of coming up with new economic models to assess the cost-effectiveness of future proposals for generating electricity. The reason public utility regulators use the approach of cost-effectiveness is based largely in terms of expertise, but also in terms of legitimacy. The OEB, like other public utility regulators and agencies, essentially tries to avoid making decisions based on a broad range of values, leaving such decisions to democratically accountable governments. When regulators have gotten involved in value judgments beyond economic efficiency, they were clearly both out of their comfort zone and without a clear compass for making decisions. Under the Green Energy Act, many of the regulatory instruments the OEB has used in the past will have to be reconsidered.

Ontario's government intends for the Green Energy Act to position the province as a North American leader in renewable energy, establishing leadership in an industry of strategic importance. Unconstrained by traditional approaches to dealing with renewable energy, this proposed law is green energy unbounded.

For a more detailed discussion of this significant change in Ontario, see our Legal Update. We have also included in this issue a report from our London office on the renewable energy initiatives of the United Kingdom.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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