Montreal, May 15, 2005 • No 154

  

THE EMPEROR'S DERRIÈRE

 

Harry Valentine is a free-marketeer living in Eastern Ontario.
 
 

MALINVESTMENT AND REGULATION OF ELECTRIC POWER IN ONTARIO
 

by Harry Valentine

 

          Electric power generation in Canada is either owned or controlled by provincial governments. Large amounts of hydro-electric power are generated in Manitoba, Quebec and Labrador, much of which is exported into the United States and practically none into Ontario that faces a potential shortfall estimated at 25,000-megawatts. Ontario's nuclear power plants are scheduled for retirement within the next 15 years. Their remaining coal-fired power plants are scheduled for closure within the next three years. The publicly-owned power utility accumulated a $32-billion debt that may take decades to pay down. The cash-strapped provincial government is reluctant to spend tax dollars on new power stations as it endeavors to reduce a large provincial debt.
 

          Recently, Quebec hired a private company to build a wind farm in Eastern Quebec, with state-owned Hydro-Québec as a guaranteed long-term customer. Private companies have been hired by the Ontario government to build new electric power generation facilities at their own expense in Southern Ontario and are required to meet certain performance standards and deadlines or be subject to penalties. This type of public/private partnership arrangement can provide the private partner with protection from legitimate competition through state economic regulation as they are guaranteed a steady income from a long-term customer. But economic regulations can and do fail.
 

Malinvestment debacle

          Canada's industrial heartland in Southern Ontario is a major consumer of electric power and the industrial activity is inextricably linked into the American economy. U.S. domestic fiscal and economic policies have actually stimulated new economic growth and new job creation in countries like Canada. The recent escalation of American government spending (related to the situation in Iraq), the rise of their federal deficit and the decline of the US dollar against other world currencies, raises concern about the future of the American economy. China has undergone rapid economic growth and a rash of bad bank loans have also become a cause for concern. The Chinese and American economies have become heavily linked and both seem poised for a market correction. A major American market correction may trigger a major slowdown in Ontario's industrial heartland, reducing the region's high demand for industrial electricity just as privately funded power stations in Southern Ontario begin to generate power. The government power 'partnership' could likely become another malinvestment debacle.

          Such a debacle could be avoided in an electric power market that operated free from economic regulation and/or central state control. A multitude of unregulated small power stations that include co-generation installations (power and heating/cooling) could serve the needs of smaller communities. A new generation of micro and mini technologies that can generate power as efficiently as mega power stations is now beginning to appear. One such technology is the thermo-acoustic engine that converts heat from a variety of sources into sound, then into electricity at over 40% efficiency. Solid-oxide fuel cells that are currently under development can use natural gas to produce heat and power in buildings. A multitude of property owners could install such technologies and generate electric power for themselves and for neighbours.

          At present, government economic regulation that prevents property owners from connecting power lines across property lines prevents a proliferation of unregulated micro and mini electric power stations. This is an example of how officials can use economic regulation to manipulate the electric power market. With a looming power shortage officials can more easily initiate public debate on nuclear power and gain public support to build such installations using public funding. Federal grants or loans may even become available to ensure that there will be a customer for nuclear technology supplied by a federal crown corporation. If the expected economic downturn occurs and is followed by a prolonged period of economic stagnation as happened in Japan, the expenditure would likely degenerate into another episode of state malinvestment.
 

"At present, government economic regulation that prevents property owners from connecting power lines across property lines prevents a proliferation of unregulated micro and mini electric power stations. This is an example of how officials can use economic regulation to manipulate the electric power market."


          Worldwide, nuclear related research has directly or indirectly been controlled by government. Government funded scientific and technical research has had a long history of either being rejected by the free market over the long term or underperforming when used in public ownership. Privately funded technologies developed in an environment free from state intrusion, have had a higher success rate in an unregulated market than their state-funded counterparts. The privately funded Spaceship-One was not only developed by Burt Rutan at a fraction of the cost of a NASA space vehicle, it actually outperformed the state-funded competition in terms of operating costs. Likewise, it may be possible for privately funded research to develop safe nuclear power stations that produce electric power at lower cost than traditional nuclear technology. Events at Three-Mile Island and at Chernobyl nuclear power stations prove that state regulation and control over nuclear power is no guarantee of nuclear safety.

          Perhaps sometime in the future, Ontario will finally abandon the decrepit regime of economic regulation and market control over the generation and sale of electric power. Such a regime caused a $32-billion electric power debt, problems that plagued its nuclear power program, the projected future electric power shortage. Present and previous Ontario governments have provided free market proponents with ample evidence of the drawbacks of state ownership, state control and centralized state planning over an important resource in a modern economy. Ontario's electric power plans may result in either a glut or a shortage. A glut could see subsidized nuclear-generated power being sold at below market rates into the American Northeast, for perhaps a decade.
 

Baffin Island Power

          A future power market that operates free from government coercion could easily produce the amount of electric power demanded by the market. New technologies are now being developed that enable on-site electric power to be co-generated cheaply and efficiently from fuels like natural gas. Higher demand for natural gas will raise prices and encourage new exploration in Canada's northern territories, including Victoria and Baffin Islands. Land bridges that stretch the limits of extreme engineering could be built on private funding to connect these islands to the mainland, to provide a base upon which to build future natural gas pipe lines and provide access for land-based (tracked) vehicles.

          A land bridge between Baffin Island and Melville Peninsula could allow a tidal energy generation installation to be built at the eastern entrance to Hudson Strait, between Resolution Island and the northeast tip of mainland Canada. Such a project would push the limits of extreme engineering by requiring a narrower and shallower channel south of Resolution Island and a breakwater connecting it to Baffin Island. The project should only go ahead if it can be viable when built using private funding in an unregulated economic environment, so as to reflect actual costs and actual potential revenues. Up to 60% of the estimated 15,000-megawatts of daily potential power and a neap tide potential exceeding 30,000-megawatts could theoretically be converted into electric power.

          Perhaps this project may become economically viable after 2020 as a result of new innovative technologies being developed as well as changes in the political/economic environment. The project would require that modifications be made to a few existing hydro-electric dams to enable water to be pumped uphill for storage. The tidal power installation is likely to generate electricity at times of the day when market demand for power would be low, requiring that the energy be stored at hydro-electric installations. In a changed political/economic landscape, power from a northern tidal power facility could be sold to customers in Eastern Canada, the Northeastern USA and even in Ontario.
 
 

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