Business and green power in electricity transformation: Markets and policies

A research project based out of the University of Waterloo and the University of Alberta.

Project description

For nearly a century, the structure of the electricity industry around the world remained relatively constant - in terms of both physical layout and market characteristics. Large power stations generated electricity, high-voltage transmission lines connected generation sources to demand through integrated networks and local distribution wires delivered the electricity to end-users. Moreover, most of these systems had, at their core, a series of vertically-integrated, regulated monopolies.

Although this structure helped to generate unprecedented levels of wealth among industrialised countries during the twentieth century, it also led to a number of problems. Rising financial costs, significant environmental (and sustainability) impacts and security of supply (reliability) challenges are perhaps the three that have most occupied decision-makers during recent years. For these, and other, reasons, the structure of the electricity industry has increasingly come under scrutiny, and calls for change to the status quo have grown.

In response, many ideas regarding both the means and the ends of electricity transformation have been advanced. While it is widely accepted that the global US$1.4 trillion a year electricity industry needs to be fundamentally changed, there is less agreement regarding the best way forward. As a result, the issue of electricity transformation - a term we use to refer to a fundamental shift in the way in which the electricity industry is physically-laid out and socially-structured - is a new subject of inquiry, one which requires insights from technology, policy, business and environmental studies.

In this project, we propose to investigate one significant part of this new issue - namely, the relationship between business and green power. Because business constitutes the largest single consumer segment of electricity (both globally and within Canada), it has a particularly influential role to play in shaping the electricity industry. Moreover, green power - that is, electricity that is generated by more environmentally-friendly means (e.g., solar, wind, small hydro or biomass) - has the potential to reduce electricity-related environmental impacts, enhance grid security and advance local economic development.

More specifically, this project is investigating two specific themes:

  • 'business interest in green power markets' - why and how might businesses be involved in green power markets as consumers and/or producers of green power?
  • 'business interest in green power policies' - why and how might businesses be involved in green power policies as proponents (or advocates) and/or targets (that is, the focus) of green power regulation?

These themes are identified in order to structure, initially, the investigation. Working through four stages of the research - that is, academic literature review, survey, environmental scan of industry and interviews - the two themes will serve to inspire research questions and activity in a variety of directions. The research will be carried out by a multidisciplinary research partnership based out of two provinces (Alberta and Ontario), between August 2004 and July 2006.

Researchers

  • Project lead: Professor Ian Rowlands, Faculty of Environment, University of Waterloo, 519-888-4567, ext. 32574; irowland@uwaterloo.ca
  • Alberta lead: Professor Joseph Doucet, School of Business, University of Alberta, 780-492-4257; joseph.doucet@ualberta.ca
  • Collaborator: Professor Paul Parker, Faculty of Environment, University of Waterloo, 519-888-4567, ext. 33610; pparker@uwaterloo.ca

Research partners

Funding supporters:

Research supporters:

Note: 'Business and Green Power' is an independent research project. While the support of our funding supporters and research supporters is very much appreciated, research findings and results do not necessarily represent the views and/or opinions of these organisations.

Project results

The voluntary adoption of green electricity by Ontario-based businesses, by Thomas Berkhout

Abstract:

This thesis explores the contextual factors that promote and inhibit firms' motivations to adopt a voluntary environmental initiative that is good for the environment but does not provide a clear competitive or legitimating benefit to the firm itself. Using green electricity (e.g., wind, solar, small hydro, and biomass) as an example of such an initiative, the study uses qualitative research to investigate the willingness of 20 Ontario businesses to voluntarily adopt green electricity for at least a portion of their total electricity requirements.
Although the corporate ecological responsiveness literature reveals that external factors (e.g., economic, government, infrastructure), organizational factors (e.g., industry cohesion), and individual factors (e.g., leadership, individual interest, manager discretion) can all affect the types of environmental projects that firms will adopt, in the case of green electricity the external factors were the more significant obstacles to it being perceived as a viable means to improve corporate environmental performance. In firms currently using green electricity, these obstacles were largely overcome by the successful efforts of an internal champion motivated primarily by individual values. An important aspect of the champion's success is her ability to attach her personal interest to a tangible business issue. This task is in turn aided by proactive or sustaining corporate environmental strategies that formalize continual environmental improvement processes and are predisposed to evaluating the success of an initiative on more than its financial or legitimizing contribution to the firm.
Based on these findings, the thesis concludes that the two most important factors associated with the willingness of firms to adopt an initiative that is good for the environment but not necessarily good for the firm are the development of decision-making criteria that extend beyond the bottom-line and the capability of concerned individuals to legitimize the initiative within the firm.

The development of renewable electricity policy in Ontario: Progress and prospects, by Ian H. Rowlands

Abstract:

Electricity systems are, as currently structured, not sustainable. While it is indisputable that they have helped to deliver unprecedented levels of prosperity for numerous people, it is still the case that large, centralised electricity systems, largely powered by fossil-fuels and/or uranium resources, have a variety of economic, environmental and social challenges associated with them. Greater energy conservation, higher levels of energy efficiency and increased use of renewable resources are all required if electricity systems are to become more sustainable.

The province of Ontario is no exception to this general observation. For more than a century, Ontario’s electricity grid has developed and helped this province reach significant levels of economic and social development. A range of recent events, however, have focused attention upon the sustainability challenges arising from this structure. More specifically, rising spot market prices for electricity, smog events and voltage reductions during the summer of 2005, in particular, highlighted the economic, environmental and reliability challenges involved.

To promote the sustainability of Ontario’s electricity system, increased use of renewable resources is, many argue, required. The purpose of this paper is to examine the debate surrounding the proposed greater use of renewable resources – for example, solar, wind, biomass and water – in the generation of electricity in Ontario. To do this, the paper is divided into seven parts. Following this brief introduction, the context is set by briefly describing the resource, structural and political settings for electricity generation in Ontario. In section 3, the relative role of renewables in Ontario electricity system from the early 1970s – a time at which, many argue, Ontario first had an energy strategy – to the mid 1990s – the proposals of the Rae Government – is reviewed. In section 4, the focus turns to the Conservative Governments of Mike Harris and Ernie Eves, examining the movement from a ‘laissez-faire attitude’ with respect to renewables (predominant in most of the discussions regarding electricity market restructuring) to support for a renewable portfolio standard (or, more specifically, a ‘Green Power Standard’) during the latter part of this period. In section 5, the Liberal Government of Dalton McGuinty is considered, with much attention devoted towards the changes in strategies, slowly moving away from a ‘renewable portfolio standard’ towards a ‘long-term contract bidding’ system and finally a ‘feed-in tariff’. Section 6 begins to reflect upon the possible explanations for why the history of renewable electricity policy in Ontario has unfolded as it has. Finally, section 7 identifies outstanding issues in this policy-area, and offers some tentative conclusions.

Read The development of renewable electricity policy in Ontario: Progress and prospects (PDF), in the form that was presented at the 2006 Annual Conference of the Political Science Association of Canada in Toronto, ON (June).

The development of renewable electricity policy in the province of Ontario, by Ian H. Rowlands

Abstract:

This article examines the development of policy to promote renewable electricity in the province of Ontario (Canada) between 1995 and 2006. Drawing upon both a ‘multiple streams approach’ and the role of ideas in policy development, it is argued that changes in the problem, policy and politics streams – and their coupling by a key political entrepreneur – account for two significant shifts in Ontario’s efforts to promote increased use of renewable electricity. The first shift occurred on 3 July 2003, when the Ontario Commissioner of Alternative Energy, Steve Gilchrist, announced that sole dependence upon free markets to support renewable electricity was being displaced by a new commitment to a renewable portfolio standard. The second shift occurred on 21 March 2006, when the Ontario Premier, Dalton McGuinty, announced that dependence upon a bidding system to promote renewable electricity was being supplemented by a commitment to feed-in tariffs. A focus upon the evolution of ideas, combined with an appreciation for timing, continues to provide the explanation for the development of renewable electricity policy in Ontario.

(Note that this is a significantly revised version of the paper above. There is much more focus on recent events in this paper, and these events are placed within a theoretical framework.)

A revised version of this paper will be published in the journal, Review of Policy Research (scheduled for May 2007). A copy of this article for private use may be requested from the author, Professor Ian Rowlands (irowland@uwaterloo.ca). The definitive version of this paper will be available, upon publication, from Blackwell Publishing.

At what cost?: A comparative evaluation of the social costs of selected electricity generation alternatives in Ontario, by Bryan Icyk

Abstract:

This thesis examines the private and external costs of electricity generated in Ontario by natural gas, wind, refurbished nuclear and new nuclear power. The purpose of the assessment is to determine a capacity expansion plan that meets the forecasted electricity supply gap in Ontario at the lowest social costs (i.e. the lowest aggregated private and external costs). A levelized unit electricity cost (LUEC) analysis is employed to evaluate private costs under both public and merchant perspectives. Computable external costs are monetized by adapting estimates from the literature that were previously developed using a primarily bottom-up damage cost method.

The findings reveal that social cost estimates for nuclear refurbishment are the lowest of the generation alternatives studied regardless of the evaluation perspective. Therefore, if the capacity expansion decision were based solely on these estimates, nuclear refurbishment should be utilized until its capacity constraints are reached. The generation alternative with the second lowest social costs depends on the perspective from which private costs are evaluated: from a public perspective, the remainder of the supply gap should be filled by new nuclear generation and from a merchant perspective, which is assumed to be more reflective of the current Ontario electricity market, natural gas-fired generation should be used.

Due to inherent uncertainty and limitations associated with the estimation of social costs, the estimates obtained in this thesis are considered to be context and data specific. A sensitivity analysis, which is employed to attempt to mitigate some of the uncertainty, shows that changes to key variables alter the capacity expansion plan. This reinforces the observation that methods and assumptions significantly affect social cost estimates.

Despite the limitations of this kind of evaluation, it is argued that a social cost assessment that is consistent, transparent and comprehensive can be a useful tool to assess the trade-offs of electricity generation alternatives if used along with existing evaluation criteria. Such an assessment can increase the likelihood that actual social costs are minimized, which can steer electricity generation in Ontario towards a system that is more efficient and sustainable.

Wind power in Ontario: Its contribution to the electricity grid, by Ian H. Rowlands and Carey Jernigan

Abstract:

The purpose of this article is to investigate wind turbine production, the variability of that production, and the relationship between output and system-wide demand. A review of the literature reveals that a variety of measures (and methods) to explore the variability of wind power production exist. Attention then turns to the province of Ontario (Canada), and the performances of four wind farms are examined for 2006 and 2007. Key conclusions include that the wind farms’ capacity factors vary from 27.6% to 35.6%, with higher values in winter as compared to summer; wind power performs better than the seasonal average during peak periods; wind is a better “partner” for the Ontario electricity system in the winter as opposed to the summer; and the increased geographic distribution of wind farms decreases their collective variability.

A copy of this article appeared in Bulletin of Science, Technology & Society, Volume 28 Number 6, December 2008, pp. 436-453.

Voluntary environmental decision-making in firms: green electricity purchases and the role of champions, by Travis Gliedt, Tom Berkhout, Paul Parker and Joseph Doucet

Abstract:

This study investigates the corporate decision to voluntarily purchase premium-priced green electricity by examining the internal and external factors which influence environmental decision-making. In-depth interviews were conducted with eight paired firms in Alberta, Canada. Firms purchasing green electricity typically employed a top-down decision-making process, while firms characterized by a participative process did not. An internal driver (environmental champion) was more significant than external factors (regulations, stakeholder pressure) at influencing firms to voluntarily adopt green electricity purchasing, while organizational culture was found to moderate the effect of drivers. Cost is a common inhibitor to green purchase decisions, but customer (oil industry) perceptions and government regulations were also identified in some cases.

A copy of this article is forthcoming in International Journal of Business Environment.