Incentives to build renewable in Saskatchewan

We proposed a feed-in tariff for renewable energy resources such as wind, solar, and hydro power. What this means is basically that people or companies who produced power from these sources would be paid more for their electricity than non-renewable providers. See our proposal for more details about the practicality and effectiveness of a feed-in tariff as well as more detail on tailoring the solution for Saskatchewan. The intent of this policy mechanism is to stimulate an increase in private investment into these technologies.

What did we propose?

In our proposal we looked at the comparative energy value of some renewable energy systems as well as what specific service they offer our grid. In the case of solar power for instance, we found that while we have a very good solar resource in Saskatchewan, our use for it is minimal currently since we have a winter demand peak. That is, the most electricity demanded at once during the year is in the middle of the coldest part of winter. Mid-winter of course is when solar energy is at its weakest. We also looked at the quality of our wind resource and compared it with other jurisdictions for the purposes of creating a similar development incentive.

Why did we propose it?

We had several reasons for recommending a policy such as this. For starters, feed-in tariffs have been extremely effective in many other countries. Policy mechanisms such as these are regarded as being practical ways for a nation to decide its general course of development while leaving the details up to the market. What this means is that the government, which is an extension of the will of the people, will decide on a course of development that they deem to be most advantageous for the populace. The exact form that the feed-in tariff takes is an indication of the intent of the government. Once in place, the feed-in tariff will provide incentive for investment into those forms of energy that are most advantageous economically. The market cares most about cost and profit, so those energy sources that are guaranteed the best return on investment will be those that attract the most private capital.

The market is widely believed to be the most effective way of organizing capital to accomplish the goal of prosperity. We believe that this is true in many, perhaps most, contexts. What mattered most to us was the fact that we knew that the prevailing economic outlook of our current provincial and national governments is very much market-oriented. This is a reflection of the fact that the people of Saskatchewan and Canada are very market-oriented. This fact figured prominently into our selection of a feed-in tariff as a policy proposal for advancing Saskatchewan’s energy grid.

Public investment, another valid perspective

It should be noted that SaskPower has had a good record of providing electricity to Saskatchewan residents reliably and relatively cheaply for several decades. The existence and success of SaskPower is a critique of the market model, and a demonstration that there are other ways to effectively organize capital. The people of Saskatchewan have enjoyed success with their publicly-owned infrastructure, and generally do not want to see these crown corporations sold.

Assuming that this model was our primary framework, the bureaucratic effort of a feed-in tariff would be moot. Power infrastructure would be owned and operated by SaskPower at a minimal cost to the residents of Saskatchewan. We say minimal cost because crown corporations do not have the mandate of making maximal profits like other corporations do. They instead are mandated with providing a service.

It is thus clear than another valid proposal would be that SaskPower pursue these renewable technologies. The money required to do so could come from SaskPower ratepayers, government investment, or a combination of both. It should be noted that the subsidy of renewable energy construction would still come from the same sources: the ratepayers and government, regardless of which choice is made. In both cases, money is coming from the general public and corporations since both pay electrical rates and taxes.

What does Saskatchewan currently do for green energy?

What actually exists today is a combination of both of these options. This sort of mixed-investment might be something expected since Saskatchewan is a very notable mixed economy. SaskPower currently owns and operates most power generation that exists in Saskatchewan. Many new developments however are being drawn from applicants from the private sphere.

SaskPower will set the parameters for development, and accept applications for projects. SaskPower then goes through a process of rating the proposals against objective criteria that are well documented. From this process, the best applicant(s) are selected for continued feasibility investigations with SaskPower. Eventually, if all communication and planning is successful, these selected companies are the ones that will build and own the infrastructure. They will be paid for power produced according to the deal worked out with SaskPower during the planning stages. Typically this price will include some decent amounts of profit for the company. It seems that capital sources are a combination of public and private. Some of these projects become what are called public-private partnerships.

SaskPower has a different system for working with different sizes of proposed power plants. For the smallest personal power systems, the Net Metering program is the arm of SaskPower to contact. In this case, a power producer only has the power they produce deducted from their bill. That is, they will pay for their electricity normally, but any amount they produce for SaskPower is deducted from their bill. The best that they can thus do is to bring their power bill to zero through production; any additional power production will not earn money. There are still monthly connection fees, so the best this program can do is make the monthly bill as small as possible. It is important to note that this system does subsidize the value returned to the customer. Generally electricity that SaskPower gets from producers is purchased at about half the price that it costs retail. Retail power in Saskatchewan currently (Sept 14th, 2010) costs 10.0610 cents per kilowatt-hour. Since SaskPower is crediting the producer equal to the retail rate, they are in fact delivering a substantial subsidy. Of course, no one is going to make any actual money off of Net Metering, but they can certainly save money by reducing their bill.

For larger projects, SaskPower has the Small Power Producers Program and the Green Options Partners Program depending on the size of the proposed project. These projects also have subsidized power rates. Specifically those energy resources that are regarded as environmental or ‘green’ are given the best treatment in SaskPower’s system. In effect this is a bit of a feed-in tariff, though administered in a way that is different than in other jurisdictions.

In short, SaskPower has chosen to offer some incentives for small power producers more or less to see how many people will sign up. SaskPower is being cautious because they have little reason to be bold in this area and many reasons to be careful. The stability of the power grid is their sole responsibility, so they take steps to make sure that it remains steady. They are being careful with their deployment of renewable energy resources such as solar and wind because of the intermittent nature of these sources. They are conducting studies on what they can do about this problem, and they are adding renewable generation capacity slowly to see how things work out. Gary Wilkinson, who was then one of the Vice Presidents of SaskPower, spoke at the Saskatchewan Legislature on these subjects. He said that SaskPower is slowly increasing their incentives in these areas so that they can get a feel for the market. If they feel that more development of a certain type will be advantageous, they will increase the incentives in that area.

Political limitations on SaskPower

SaskPower has always had its hands somewhat tied by the fact that it cannot raise power rates without approval of the government. In personal communication with the then President of SaskPower Pat Youzwa, we learned in 2009 that SaskPower very rarely gets the increases that they ask for. We asked what they do in such a case, and her answer was that they basically have to scale back what they plan to do. The implication to us was that SaskPower would like to be modernizing at a more rapid rate, but they are handcuffed due to this political pressure.

We certainly think that it makes sense that the people of Saskatchewan should have some definite say in what their crown corporation does. The problem however is that the government connection with SaskPower is very political. For instance, the application process for rate increases is not available during an election year¹ . This is problematic since it introduces a hiccup in SaskPower’s ability to respond to changing economic conditions. The reason why this ability is not available to SaskPower during these years is not clear. It seems that at least some of the politicians talking with the SaskPower representatives were not aware of it prior to being told by Pat Youzwa. Our guess is that since rate raising my be a politically contentious issue, the option isn’t even available to SaskPower to apply for rate increases during an election year.

This is an example of the handcuffing that has gone on with regards to SaskPower. We believe that some political effort should be directed towards giving SaskPower greater freedom to modernize. As concerned citizens we would rather that they are able to plan for the future rather than react when it gets here.

1. Saskatchewan’s Energy Future Public Consultation, October 6th, 2009. Pat Youzwa speaking about the rate review panel process. Page 261 of the Hansard. Available at http://legassembly.sk.ca/committees/Main%20and%20Common%20Pages/Archive/Committee_Archive.htm#CCA [↩]