Ontario’s Green Energy and Green Economy Act subsidizes producers of renewable electricity by paying them far more for their output than the prevailing market price of electricity. Wind power receives a fixed electricity price of 13.5 cents per kilowatt-hour, and solar receives even larger amounts. This subsidy will result in additional costs to the average Ontario household of $310 per year; ostensibly designed to reduce emissions and create jobs, Ontario’s renewable electricity subsidy is an expensive way of meeting these goals. The drag of unnecessarily high electricity costs on the Ontario economy could be reduced if the province did not award any further subsidized contracts to renewable electricity generators.Economic Growth and Innovation, renewable energy, Province of Ontario, Canada, Feed-In-Tariff (FIT) program, energy subsidies

Benjamin Dachis

Jan Carr

English

Research Papers in Economics

e-brief
ECONOMIC GROWTH AND INNOVATION
Zapped: The High Cost of Ontario’s Renewable Electricity Subsidies
May 31, 2011
 Ontario’s Green Energy and Green Economy Act subsidizes producers of
renewable electricity by paying them far more for their output than the prevailing
market price of electricity. Wind power receives a fixed electricity price of 13.5 cents
per kilowatt-hour, and solar receives even larger amounts; 
 This subsidy will result in additional costs to the average Ontario household of
$310 per year; ostensibly designed to reduce emissions and create jobs, Ontario’s
renewable electricity subsidy is an expensive way of meeting these goals;
 The drag of unnecessarily high electricity costs on the Ontario economy could be
reduced if the province did not award any further subsidized contracts to
renewable electricity generators.
Rising electricity costs are a matter of increasing concern for Ontario consumers and businesses and therefore
the Ontario provincial government. In its most recent Long-Term Energy Plan (Ontario Ministry of Energy
2010) the government forecasts that in nominal terms, electricity costs for the typical household will rise from
under $1,400 a year in 2010 to over $2,600 in 2022. Although there are many reasons for higher electricity
costs, a major driver is Ontario’s subsidy program for renewable electricity – particularly wind and solar –
through the Ontario Power Authority’s (OPA) Feed-In Tariff (FIT) program.
1
We estimate that renewable subsidies will represent $310 per year in additional costs per household if
existing policies are not revised.  Ontario’s policies do not provide cost-effective approaches to meeting the
government’s goals of creating jobs in the renewable energy technology sector or reducing greenhouse gases
(GHGs). This e-brief argues that Ontario should phase out its costly subsidy program and not award further
contracts in their current form.
By
Benjamin Dachis and Jan Carr
Thank you to the many individuals who provided useful comments on the methodology, data, and text. We take full
responsibility for the analysis in this paper.
1 Under a FIT, electricity producers have access to contracts that guarantee a defined price for every unit of electricity
they produce for the electricity grid. While Ontario’s FIT program pays a premium for renewable generation, a FIT that
does not incorporate subsidies can be potentially useful for procuring electricity from any type of small-scale distributed
generator (see Carr and Dachis forthcoming).
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Institut C.D. HOWE Institute
 Essential Policy Intelligence  |  Conseils indispensables sur les politiques  e-brief | 2
Ontario’s Renewable Electricity Subsidy Program
In 2009, Ontario introduced the Green Energy and Green Economy Act. One of the centerpieces of the legislation was the
creation of a special tariff rate, the FIT, for producers of renewable electricity sources, which guarantees their prices for 20
years.
2 Most installed capacity and currently approved contracts under FIT, in Ontario, are for wind or solar projects, with
smaller amounts of capacity provided by small-scale hydroelectric and other energy sources, such as biogas, landfill or
biomass projects. The FIT program:
￿ guarantees land-based wind producers 13.5 cents per kilowatt-hour (kWh) and large ground-mounted solar power producers
44.3 cents per kWh;
3
￿ will ‘create’ 50,000 jobs over six years, according to the Long-Term Energy Plan (2010);
￿ requires that 50 percent of the value of FIT-eligible wind projects (60 percent for solar) built after 2012 is sourced from Ontario.
As of May 13, 2011, there are 2,293 projects that have FIT contracts offered or executed, with 2,611 MW of installed
capacity under development (Table 1), with another 6,302 projects with 11,079 megawatts (MW) of combined capacity in
the application stage. Assuming proposed and in-development projects have the same approval and failure rates as they
have had until now, we anticipate total future capacity of 8,075 MW from these projects. 
However, most of these renewable energy projects operate only intermittently – the wind does not always blow nor does
the sun always shine. The average operating capacity will be well below the installed capacity.
4 Based on average annual
2 This FIT replaced the OPA’s Renewable Energy Standard Offer Program that had been in place since 2007 and more closely reflected
market prices.
3 Producers with rooftop solar panels receive higher rates, as high as 80.2 cents. The tariff rates in all calculations are the weighted
average of the amounts that broad technology categories (wind, solar, hydro and other) are paid based on the distribution of sizes of
currently approved projects. 
4 The capacity factor of a generator is the amount of electricity it actually produced over some period of time divided by the amount it
would have produced if it had operated at its design capacity for the entire period. The average operating capacity for a given period
such as a day or year is therefore the design capacity multiplied by the capacity factor.
Table 1: Total Capacity and Expected Production and Costs from Ontario FIT Projects, as of May 13, 2011
Note: This includes large and small-scale FIT projects connected only to the distribution network, known as ‘capacity allocation exempt’ projects.
However, this does not include the microFIT program. We calculate a weighted average price for solar producers where we assume that all ‘capacity
allocation exempt’ FIT solar projects receive 71.3 cents per kWh and all other FIT solar projects receive 44.3 cents per kWh. Prices are in 2011 dollars
because only a small fraction of FIT payments contract rates are indexed to inflation and will not escalate in the future. 
Source: Authors’ calculations from Ontario Power Authority (OPA), Independent Electricity System Operator (IESO).
Average Feed-in
Tariff Rate
(cents/kWh)
Total Capacity 
Likely to be Built
(MW)
Expected Actual
Production (TWh)
Annual Payment 
to FIT Projects 
($ million)
FIT Premium 
Relative to 
Natural Gas
($ million)
Wind 13.5 4,324 11.4 1,534 284
Solar 48.5 3,309 3.2 1,514 1,163
Hydro 13.0 320 1.7 218 34
Other 13.0 123 0.9 112 17
Total 19.8 8,075 17.2 3,378 1,498
E SSENTIAL P OLICY I NTELLIGENCE| 3 e-brief
capacity of current similar electricity facilities
5 we expect annual production of FIT projects to be about 17 terawatt-hour
(TWh)
6, or about 12 percent of 2010 total Ontario annual demand. 
Cost to Electricity Consumers
Ultimately, costs of subsidizing electricity will be paid by electricity users through higher electricity bills or by provincial
residents in general through higher taxes than otherwise. Comparing the average FIT rate to the cost of purchasing
electricity from newly built natural gas generators – about 11 cents per kWh
7 – we find the expected annual excess cost of
current and future FIT projects to be $1.5 billion.
8 This amounts to $310 per Ontario household, based on 4.8 million
Ontario households.
9
The $1.5 billion excess cost of renewable electricity could be reduced by two-thirds to $550 million if the province did
not offer contracts for projects that are now in the pre-approval stage. Alternatively, costs could be reduced by offering
incentives to current contract holders, who have yet to incur development costs, to not carry out their contracts. This could
reduce the net cost to the province and potentially leave current FIT contract holders better off. 
As the province becomes more reliant on intermittent electricity sources, it will need to i) build additional standby
capacity or ii) purchase more power from outside the province when wind and solar power generators are not producing,
which will further increase costs to consumers. Additionally, the costs of building transmission and distribution networks to
new generating facilities are not included in our estimates, and may be substantial.
When FIT producers are operating, their output must be purchased at the rates specified in their contracts. Other, larger,
electricity producers also have fixed price contracts (at cheaper rates) or normally run at all hours. In some cases, their
output must be purchased too, irrespective of demand. FIT electricity generation may therefore cause or exacerbate surplus
supply of electricity relative to demand, creating system management problems and higher costs than otherwise.
Greenhouse Gas Reduction 
We estimate that the Ontario FIT program will offset approximately 8.4 megatonnes (MT) of GHG that would otherwise be
produced by natural gas facilities, assuming that renewable intermittency leads to no increased emissions from standby
generators. Natural gas will be the only GHG-emitting electricity source in Ontario after 2014 once Ontario shuts down its
last remaining coal-fired electricity plant. The effective subsidy of GHG offset will be $177 per tonne (Table 2).
10
Under a cap-and-trade system, which the Ontario government has committed to implementing, the total cap on emissions
is already set.
11 A FIT would lead to no incremental economy-wide GHG emissions but would only transfer GHG reductions
from the rest of the economy to the electricity sector (see Rivers 2010; and Fischer and Preonas 2010).
5 We estimate effective capacity of FIT projects based on historical intermittency of similar projects in Ontario over the course of 2010.
For wind, this is 30 percent, 60 percent for small-scale hydro, and we assume that other technologies produce 80 percent of the time,
the average capacity factor of existing biomass facilities in Ontario. We use an 11 percent annual capacity factor for solar power, based
on similar principles (Pelland and Abboud 2009).
6 A terawatt-hour is one million megawatt hours or one billion kWh. 
7 This is in the mid-range of combined cycle natural gas procurements that the Ontario Power Authority has recently signed. See
http://powerauthority.on.ca/understanding-electricity-prices/generation-procurement-cost-disclosure 
8 This does not include the cost of an additional provincial agreement for ‘economic development adders’ worth $437 million (in net
present value) over 20 years if a manufacturing consortium builds certain manufacturing facilities in Ontario by 2015 (Benzie and
Hamilton 2010).  
9 The provincial government recently instituted a 10 percent rebate to current electricity bills, the effect of which is to defer costs rather
than eliminate them. These deferred costs become a liability for either taxpayers or electricity users resulting in some combination in
the future of higher taxes, lower government spending on services or higher electricity prices.
10 The amount of GHGs offset would fall, and the cost per tonne would rise, if FIT projects offset lower emission nuclear or hydro power. 
11 In a cap-and-trade system, there is an economy-wide cap on the amount of GHGs emitted.
E SSENTIAL P OLICY I NTELLIGENCEe-brief | 4
Further, subsidizing renewable electricity through a FIT leads to little incentive for cost reductions for renewable energy
sources because generators have no price competition once they receive FIT contracts (Söderholm and Klaassen 2007). If
the goal of policymakers is to encourage development of cost-competitive wind and solar technologies, traditional research
and development credits or direct subsidies to the buyers of renewable electricity would be more effective means. 
Job Creation
While job creation is a major goal of the FIT program, with 50,000 jobs projected over six years, those jobs would be
heavily subsidized by electricity users paying premiums for renewable energy. Taking the province-wide cost estimates
above, and the government’s job creation estimates at face value, we estimate the subsidy to be $179,000 per job per year.
12
These estimates of the number of jobs – in construction, manufacturing and spinoffs – do not take into account two
countervailing effects. First, many of the people who would be employed by these projects would have had jobs anyway,
meaning that jobs created from subsidies will have crowded out other jobs. Second, the higher electricity costs will raise
business costs, resulting in fewer jobs than would otherwise have been created in the broader economy. The net number of
jobs created therefore may be negative. 
Furthermore, Ontario’s FIT program is meeting international opposition. Japan has initiated a complaint against Canada
at the World Trade Organization (WTO) – subsequently joined by the European Union and the United States – claiming that
the program’s requirement for domestic procurement constitutes a prohibited subsidy, which violates WTO rules. The
Ontario government’s current policies thus also raise the risk of a costly trade dispute. 
Conclusions
Ontario’s renewable electricity subsidy is a costly means of reducing domestic GHG emissions and creating jobs. These costs
will be borne by Ontario electricity consumers and amount to $310 annually per household, with additional costs due to the
intermittency of power from renewables and the transmission infrastructure investment needed. The Ontario government
could reduce this cost by not continuing the program in its present form.
12 In comparison, the German renewable electricity subsidy cost $273,000 per gross job created (Frondel et al., 2009).
Table 2: Cost per ‘Green Job’ Created and Tonne of GHG Offset Relative to Natural Gas Production
Source: Authors’ calculations from OPA, Ontario Ministry of Energy, IESO, Natural Resources Canada (2010). 
Note: We use emissions intensity estimates of 494.6 grams of GHG per kWh of electricity delivered from natural gas turbines. We assume renewable
power results in no additional GHG emissions, such as through manufacturing or standby generation.
Total Premium Paid Over
Natural Gas Electricity 
($ million)
Premium Paid per ‘Job
Created’ ($)
MT of GHG Offset Relative
to Natural Gas
Premium Paid per Tonne of
GHG Offset Relative to
Natural Gas ($)
1,498 179,760 8.4 177
E SSENTIAL P OLICY I NTELLIGENCE| 5 e-brief
This e-brief is a publication of the C.D. Howe Institute.
Benjamin Dachis is a Policy Analyst at the C.D. Howe Institute.
Jan Carr is the former CEO of the Ontario Power Authority.
This e-brief is available at www.cdhowe.org.
Permission is granted to reprint this text if the content is not altered and proper attribution is provided.
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E SSENTIAL P OLICY I NTELLIGENCE

Combining Policies for Renewable Energy: Is the Whole Less than the Sum of the Parts?” Resources for the Future Discussion Paper,

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GHGenius version 3.19.

Historic’ deal energizes Ontario.”

Ontario Ministry of Energy.

Ontario’s Feed-in Tariff for Renewable Energy:

Request for consultations by Japan: Canada – Certain measures affecting the renewable energy generation sector.”

Zapped: The High Cost of Ontario's Renewable Electricity Subsidies

Zapped: The High Cost of Ontario's Renewable Electricity Subsidies

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