Appendix A: Analysis and Assessment of Individual Measures

1.4 ecoENERGY for Renewable Power

Table 7: Summary of Analysis for ecoENERGY for Renewable Power

Summary of the Initiative and Emissions Projections

The ecoENERGY for Renewable Power is the most recent of a series of incentive programs (previous programs were the Wind Power Production Incentive [WPPI] and the Renewable Power Production Incentive [RPPI]) that provides an incentive of one cent per kilowatt hour for up to 10 years to reduce the cost gap between new technologies and traditional sources of electricity.

Analysis

The estimates above have not changed from those provided in the 2007 or 2008 Plans, and so the issues brought forward in the 2007 and 2008 NRTEE responses remain as well.

The emissions reductions are calculated by assuming that without the subsidy, none of the facilities receiving the payments would have been built. These estimates were calculated on the basis of renewable energy supplies of 4.7 TWh in 2008, 8.0 TWh in 2009, 11.7 TWh in 2010, and 14.3 TWh for 2011 and 2012, and the emissions reductions are derived using a conversion factor of 0.4564 Mt/TWh. These estimates do not represent the incremental energy generation caused by the subsidy program — rather these figures represent the total amount of generation occurring in projects financed by the subsidy program. The only case under which these numbers will be a completely accurate representation of the effect of the program is if none of the financed projects would have been built absent the subsidy.

The overestimate here is due to what we have previously defined as the free-rider problem associated with subsidies. According to NRCan (undated), "where a renewable electricity generation project is developed at a site where no previous electrical generation existed, it would clearly be considered ‘incremental’." This does not, however, constitute an appropriate definition of incremental generation for the purposes of evaluating policy-induced emissions reduction. In order for emissions reductions to be clearly attributed to increased renewable generation under the RPPI, it must be demonstrable that either:

1. The production facility would not have been built absent the subsidy, and the new facility replaces an existing one with a higher rate of emissions; or,

2. The production facility would have been added absent the subsidy, but the facility would have been more emissions-intensive.

Discussions with NRCan for the purposes of this evaluation confirmed that all new renewable energy production eligible for financing under the RPPI would be considered as contributing to emissions reductions. This approach effectively ignores the potential for policy free-riders, who benefit by receiving the subsidy for projects which would have been built irrespective of it.

An important distinction must be made between policy design and policy evaluation. NRCan has made significant efforts to design the program to minimize free-ridership. Power projects for which rates of return exceed defined thresholds must return any subsidies paid to them, and the regulation does have a strict definition for incremental, renewable generation. However, this does not preclude a case where the subsidy is paid to a project that would have occurred even in the absence of the subsidy. This is an evaluation issue: if it is assumed that every financed project is caused by the subsidy, the subsidy will appear to be more effective on a GHG reductions-per-dollar basis than it actually is, and the role that the policy will play in moving Canada away from its business as usual forecast will be lower than predicted.

Conclusions

The sources of overestimation cited in the 2007 and 2008 NRTEE responses remain in the 2009 Plan for this program. Figures in the Plan do not fully represent incremental reductions in GHG emissions that will occur as a result of the policy. Rather, they represent an estimate of the difference in emissions occurring as a result of all government-financed renewable power in Canada, assuming that none of this would have been built absent the subsidies, and that the same amount of power generation would have been built using an average mix of generation fuels (i.e. gas, coal, hydro). While some emission reductions will occur due to this initiative, the amount stated in the Plan is a likely overestimate.

<< Previous page | TOC | Next page >>