Time to tax the wind?

March 19, 2018

Ontario electricity consumers are already on track this year to pay more for wind, and for the cost of wasting (clean) power from other sources due to surplus power — is it time for some fairness in the electricity sector?

The science on using wind energy to generate electricity is branded as innovation, but it’s actually very old.

Power generation via windmills was technology developed by Scottish engineer James Blyth (1839-1906). “In 1887, while a professor at Anderson’s College in Glasgow (an ancestor of the modern Strathclyde University), he constructed a windmill attached to a dynamo to light his cottage in his home village of Marykirk.”

In Ontario, government brought us the Green Energy Act touted as a revelation to clean our air and create 50,000 jobs. The government claimed: “Ontario wants green energy business. These regulations will help ensure industry and municipalities that jobs will be created, investment is committed and that the renewable energy industry grows across the province.”

To try to make that happen, we were saddled with the FIT (feed in tariff) program offering payment for generation by wind and solar generators at multiples of power already in place. Additionally, to attract the investment in renewable energy, developers and operators were granted tax breaks. Examples follow.

Tax Breaks                                                                                                                                    The Finance Minister instructed MPAC to limit their assessment of wind turbines to $40,000 per/MW of capacity, meaning municipalities would receive meagre realty taxes and had no say in accepting or rejecting them. Subsequent to that direction it was changed for large installations (over 500 kW) of both wind and solar to: “10.7% to the industrial tax class.”

Additionally, the federal government granted wind developers the ability to allow them to accelerate deductions (depreciation) of the capital costs under “Class 43.2 of the Income Tax Act.” And those rights were recently extended by the federal government, as noted by CanWEA here to 2025.

So, wind and solar power developers are paid high prices for generation classified as “baseload” power meaning the grid operator, IESO, is obliged to accept and pay for the power. That’s a guarantee whether the sun shines or the wind blows they will be paid the contracted prices, or paid slightly less for curtailed generation. At the same time, developers walk away with the cash and pay almost no taxes except for meagre realty taxes.

Cashing in                                                                                                                                    Ontario’s ratepayers have been adversely affected by the continued addition of wind capacity as IESO and its predecessor, the OPA, follow[ed] ministerial directives and continue to contract for more and more capacity. As CanWEA notes, “Ontario remains Canada’s leader in clean wind energy with 4,900 MW of installed capacity.”

The cost of grid- (TX) and distribution-accepted (DX) wind and curtailed wind in 2017 was more than $1.6 billion, and that’s without factoring in the additional ratepayer costs of steamed-off nuclear, spilled hydro, subsidized exports of surplus generation or idling gas plants (built to back-up the wind and solar generation). So far in 2018, the costs of wind (generated and accepted plus curtailed) versus 2017 for the months of January and February are $447 million — $44.7 million higher than 2017.

Evidence clearly points to wind power generation occurring during low demand hours, days and months, rather than high demand hours causing waste of nuclear and hydro power, still paid for by ratepayers.

Time for a tax?

If industrial wind power plants can’t generate power when needed, maybe it’s time to reconsider the pricing model, or find a way to recover some of those additional costs. As noted, above the only tax paid by wind power operators is realty tax at a rate of about $4,000 per turbine annually (estimated) which collectively, returns tax revenue of about $2 per ratepaying household.*

That $4,000 tax, however, is really not much more than the taxes paid for an ordinary house in Ontario. For a home assessed at $300,000, for example, the average realty tax is $3,300. Not far off from a huge, industrial-scale wind turbine which is reaping hundreds of thousands in income each year for its owners.**

The state of Wyoming has found a way to increase tax revenue: it simply levies a tax per MWh (megawatt hour) of generation.  Wyoming is currently looking at increasing that tax from $1/MWh to $2/MWh and had considered levying it at the rate of $5/MWh.

If Ontario used the Wyoming model, for example, a $5/MWh tax for grid-accepted generation (9.2 TWh) and a $20/MW tax for curtailed generation (3.3 TWh) in 2017 would have generated approximately $60 million in tax revenue. Even at those rates, it would only represent 2.2% of what ratepayers are paying for intermittent and unreliable wind power.

Perhaps it would be more fair for wind power developers and operators to pay up for the constant subsidization by the ratepayers and taxpayers of Ontario, and bring more revenues to Ontario’s stressed municipalities — tax them!

© Parker Gallant

* Ontario has approximately 4.9 million households.

** From The Toronto Star: “A turbine with a feed-in tariff contract receives 13.5 cents a kilowatt hour, or $135 a megawatt hour for its output. A two-megawatt turbine running at full speed, 24 hours a day for a year, would therefore produce 17,520 megawatt hours of power. Assuming it operates at 35 per cent capacity, in the real world it will produce about 6,132 megawatt hours. At $135 a megawatt hour, that means revenue of $827,820 annually. Assuming a more conservative capacity of 27 per cent, it would generate revenue of $638,604.” There are capital costs of course, like the “rent” paid to the landowner which might be $15,000 to $40,000 per year.