Policy Risk and Private Investment in Ontario's Wind Power Sector

Guy Holburn, Kerri Lui and Charles Morand

Canadian Public Policy, 2010, vol. 36, issue 4, 465-486

Abstract: Even though governments may adopt favourable regulatory policies for renewable power generation, their ability to encourage private sector investment depends also on the presence of regulatory governance institutions that provide credible long-term commitments to potential investors. In the case of Ontario we contend that, despite large market potential and comparatively strong regulatory incentive policies, weak regulatory governance is one factor that has accounted for the challenges in attracting and implementing large-scale private investment in power generation at a reasonable cost. A unique survey of 63 wind power firms that assessed private sector opinions about the investment environment for renewable energy provides empirical support for our arguments. Firms rated the stability of regulatory policy, compared to a range of factors, among the weakest aspects of Ontario's business environment. However, policy stability ranked among the most important factors in firms' assessments of the attractiveness of alternative jurisdictions in their location decisions. Subsequent interviews revealed that firms have responded to this risk by explicitly pricing it into wind project financial models in Ontario - implying higher wind power prices for ratepayers - and by directing investment funds to other jurisdictions. We argue that policy stability in Ontario may be improved by devolving greater decision-making authority to regulatory agencies in the energy sector and by strengthening their institutional independence.

Date: 2010
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