Public subsidies are not a business model

The abrupt closing this week of Siemens’ Tillsonburg plant is hardly surprising, given the fact its business plan was predicated on the government’s promise to subsidize windturbine development in Ontario.

The Siemens plant builds wind-turbine blades and has been busy since it began operations in 2010. But the sustainability of its blade production was arguably threatened when Premier Kathleen Wynne announced last September that the province’s Independent Electricity System Operator would not be signing a second round of large renewable contracts.

The IESO operates within the structure of the Green Energy Act, which has provided the legislative authority for the development of a substantial wind and solar industry in Ontario. That industry was built on a bedrock of generous public subsidies.

But that bedrock has crumbled. Wynne’s announcement was ostensibly made because her government believed Ontario’s electricity demands were being satisfied with the existing wind and solar developments. Her decision was also politically motivated, designed to stem the public’s rising rage over skyrocketing electricity prices.

As quickly as her predecessor, Dalton McGuinty, in 2009 ushered in the Green Energy Act and the promise of an entirely new market for manufacturers, that same opportunity was undercut by Wynne in 2016.

Ross McKitrick, an economist with the University of Guelph, provided a succinct summation this week: “These plants were only set up because of subsidies and the large (government) procurement programs,” he said. “There was an artificial demand for these products. Without those procurement deals, there’s no reason to be building these turbines here.”

The fallout from Ontario’s political retreat from green energy is on display in Tillsonburg. Over 300 jobs will disappear by early 2018, when the plant closes. Observers are suggesting more jobs connected with the domestic manufacture of product for the wind and solar industries will follow.

That’s too bad, because green energy is not going to go away. Investment on a global scale is growing, especially in China. It’s also growing in Canada and the rest of North America, according to the Pembina Institute, a think-tank that examines energy issues.

That said, it’s clear the business model for green energy should be exclusive of government support, be that political or financial. Such is the capricious nature of promises built on politics and public subsidies: They are as reliable and permanent as the politicians who sponsor that activity.