When Ideology Drives Economic Decisions

Do most government decisions make sense?  Probably, but you must understand they get to define what makes sense.  Most of that ideological.

The continuing saga of green energy in Ontario provides fodder for the thought.

  1. Several years ago the province embarked on a system that encourages the development of both wind and solar.  Not a bad idea if you believe the carbon story.  Not a bad idea if you can see the economies that result from solar.  Wind is a little problematic yet.  In all there is a reasonable course of government action.
  2. If you or I did it we would be immediately restrained by the cost.  Governments don’t have that problem yet.  Secondary effects are safely ignored too.  They call them unforeseen consequences but there is a big difference between unforeseen and unforeseeable.  Stupidity is excusable but willful ignorance is not.

The consequences are plentiful:

  1. Paying 15 to 21 cents a kilowatt hour for electricity is unconscionable when you must sell it for less.  Like 10% of the cost.  That speaks to a mismatch between demand and supply.  Economics 101 suggests that supply should meet current and anticipated demand.  Creating costly surpluses makes no sense.
  2. The grid cannot accept all that is available.  Lots of power on sunny days means not everyone can ship from their solar farm.  Pay them for what they could have produced but were “curtailed” from shipping because the grid is overloaded. Why add more?
  3. On days when there is less sun, other forms of generation are needed.  Balancing the load demands more than making the grid better.  It also demands that someone consider the source of the power and where it comes from.  A very challenging problem.  It is difficult to imagine a more complex system than the electrical grid.
  4. By pricing the oversupply into the going rates, demand falls.  Energy intense businesses go away.

Why are more developments coming on line? Year old data suggests that the curtailed generation is five times bigger than the new production appearing soon.  When I have a surplus of jelly beans I tend to not buy more.

Governments and perhaps all people do things for reasons that make sense to them.  Sometimes suspending rational thought is required to see their point.  Sometimes you can learn to value what they already see.  It is worth a little intellectual exercise to come closer to the truth.

Can these policies lead to a better energy future?

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact: don@moneyfyi.com  705-748-5181

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