Submitted by Ian Howcroft, Vice President (Ontario division) of Canadian Manufacturers & Exporters:
Following the recession of 2008–2009, there has been renewed interest in manufacturing throughout North America as a critical driver of economic growth and prosperity. Other jurisdictions throughout the United States and Mexico are moving aggressively to retain and attract manufacturing investment. CME members are being targeted by US States offering generous relocation subsidies which often include significant savings on electricity. To remain a strong competitor Ontario needs an integrated energy plan to combat the pull south and ensure we retain our share of the manufacturing renaissance taking place throughout North America.
Over the past year, CME held a number of roundtables across Ontario and surveyed our members to understand the issues facing manufacturers and to develop solutions to encourage growth in manufacturing. The initiative has resulted in the creation of A Manufacturing Action Plan for Ontario which highlights why manufacturing is so important and provides a blueprint for changes necessary to retain and grow manufacturing in Ontario. Energy is a key part of the action plan including the recommendation to upgrade energy generation and transmission infrastructure and improve the competitiveness of industrial/manufacturing rates for electricity.
While the manufacturing sector has undergone a considerable restructuring over the last decade, the sector represents 13 percent of GDP, contributes over $270 billion in manufacturing shipments annually and employs approximately 2 million Ontarians either directly or indirectly. Every dollar invested in manufacturing, generates over $3.50 in total economic activity, the highest multiplier of any major sector. Ontario has a world-class base of manufacturing talent and expertise to build from. However, urgent action is necessary to retain and grow that base. A sound energy plan is a key area in which the Province can significantly improve the business environment for manufacturing.
Over 100 years ago, Sir Adam Beck’s vision of affordable “power at cost” became a catalyst for industrial growth and economic prosperity for Ontario. While the economy and the electricity system have evolved significantly over the years, the fundamental premise holds true: competitively priced power is a key ingredient for manufacturing to thrive.
The energy plan could vary greatly depending on the type of outcomes that Ontario wants for the economy and for society. CME believes strongly that manufacturing is and should be the engine of economic growth to create a more prosperous future for all Ontarians. Therefore the Long-Term Energy Plan (LTEP) should be oriented to design, build and maintain an energy system that will help improve manufacturing competitiveness and enable economic growth.
The government has taken a number of important steps to help offset rising power rates including the demand based allocation of the Global Adjustment for large users, the Northern Electricity Rate as well as conservation and demand management programming for industry. Despite these efforts, Ontario has become an island of higher cost electricity in North America. The impact of a 40 to 50 percent price increase projected over the next 5 years would have a significant impact on productivity and future investment in Ontario. Industry needs both stable and competitive prices. We cannot trade-off competitive prices for greater stability. Industry would support a transition to the “true-cost” of electricity, but only if those costs are competitive, transparent and balance environmental, social and economic considerations.
Ontario manufacturers are at an immediate disadvantage with respect to power rates. A sampling of average rates for large volume electricity users suggests that Ontario is at the higher end of the price curve for 2012.
At a minimum, Ontario must design, build and maintain an electricity system that can deliver electricity rates that are competitive with other manufacturing jurisdictions throughout North America.
In addition to the posted rates, manufacturers in other jurisdictions are being offered incentive rates that are significantly lower than the posted rates. Ontario must respond by lowering the threshold for the demand-based allocation of the Global Adjustment (GA) from five Megawatts to one Megawatt. Ontario must also recognize that there are many manufacturers that have little or no opportunity to access the savings that accrue through shifting demand (i.e. 24X7 operations). In general, government should ensure that rate relief covers all types of manufacturers.
Ontario has very aggressive targets for conservation. CME supports conservation programming provided that the benefits measurably outweigh the costs, particularly when compared with new generation. The Long-Term Energy plan should ensure that conservation drivers are carefully tracked and contingency planning is in place to avoid costly generation if conservation targets do not materialize.
The manufacturing and industrial sectors are leaders in energy efficiency and conservation. Energy intensity in these sectors has improved an average of 1.4 percent per year from 1990 to 2010 while production has increased by nearly 50 percent over the same period. Energy conservation is not only the right thing to do, it makes good business sense.
Government should orient conservation programming to those that offer the greatest return on investment. CME believes that the manufacturing sector offers the greatest opportunities for conservation where competitive pressures provide additional incentive to lower costs and drive efficiencies. Initiatives that enable manufacturers to improve energy management such as ISO 50001 and the industrial accelerator program should be given high priority.
CME supports a portfolio approach to the power supply provided that economic prudence (based on levelized unit energy costs) and total bill impact are the fundamental criteria for generation decisions going forward. Ontario should first look to optimize existing assets and plan for new generation in conjunction with robust demand forecasting and economic modeling. The Long-Term Energy plan is an excellent first step in this process and should be tied to an integrated plan to retain existing and attract new manufacturing investment to Ontario.
Generation and Supply-Chain Opportunities for Manufacturers
To the extent that investments are necessary and economically prudent, government should seek to highlight energy supply chain opportunities for manufacturers. The LTEP calls for significant investments in new generation, maintenance and upgrading of the existing system over the reference period. It is critical that Ontario manufacturers have access to these opportunities within the bounds of any obligations under the WTO. Government and energy sector participants can help by actively promoting opportunities to Ontario manufacturers and breaking down barriers to entry. Manufacturers have expressed concern, for example, that significant Feed-in-Tariff (FIT) and Co-generation opportunities have been obstructed by regulatory barriers restricting “behind the meter” generation. These projects create or retain jobs in manufacturing while providing significant system-wide benefits.
The review of the LTEP is a significant milestone and an opportunity to further orient the electricity system in Ontario to empowering a vibrant and growing manufacturing sector. Despite efforts to address rate impacts by Government and the Ontario Energy Board, electricity rates continue to be a significant challenge for manufacturers in terms of competitiveness with other jurisdictions. Therefore, the highest priority must be to offer near term rate relief to manufacturers throughout the transition to a more sustainable electricity system.