One of the eternal debates of public administration has been the tension between the market and the control imposed by the government. The people, represented by the government are often interested in introducing restrictions on the free play of the market to protect their interests. The intervention of the government is usually with the goal of increased stability. The present work describes a case in which the government attempts to lead the market in a new direction by providing incentive rather than ccooercion.
In the area of electrical infrastructure, Saskatchewan has empowered a crown corporation to oversee its management. Presently, Sask Power is facing a period of tremendous development, upgrading, and repairing of its power infrastructure. In the next ten years, several billion dollars will need to be invested in order to meet the rising demands for electricity in Saskatchewan. It is in this context that the government chose to conduct a series of public consultations on the subject of Saskatchewan’s Energy Future.
From the perspective of a resident or organization looking to recommend policy changes that will achieve these targets, there are actually a number of other constraints. The government currently in power in Saskatchewan, the conservatively-oriented Saskatchewan Party, has been known to be critical of the crown corporations. Recommending large government capital investments into Sask Power may not be a viable strategy due to the political orientation of the ruling party. This political orientation also leads them to be more market centred in their approach than the preceding New Democratic Party government.
With the addition of ‘environmentally-sustainable’ to the list of requirements for recommendations to the committee, renewable technologies were one of the primary subjects of discussion. These clean, low-carbon technologies were constantly juxtaposed with the heavy use of coal and natural gas for Saskatchewan’s power. Recommendations to the committee would have to take into account all of these constraints in order to contribute meaningfully to the discussion. To effectively serve the mandate of the consultation, and to cater to the interests of the incumbent government, a feed-in tariff was proposed.
The feed-in tariff is a well known policy mechanism in the area of electricity generation. It has been applied in many countries with the intent of encouraging the development of renewable power generation. Such a policy typically involves guaranteeing to desired types of generation both subsidized long term prices for electricity and guaranteed grid access. This policy has been well utilized notably in Germany and Spain, where residents have seen very stable electricity prices coupled with tremendous growth of the renewable energy sector of their economies 2.
This is a market solution in that there is competition among companies and individuals to create power infrastructure that can tap into these subsidies. This is also a public solution because it must be centrally led. The public, either through government or through a crown corporation makes a set of priorities clear, reflected in a feed-in tariff designed to distort the market in ways that make investment in the renewable energy industry in Saskatchewan more desirable. The intent is to harness the natural competition and resource distribution of the market, while keeping some control of the direction of development in public hands. In this way the people can ensure that development happens in the directions that they desire, and the powers of the market lead to increased efficiency of the provided solutions.
Feasible prices for the feed-in tariff subsidies can be easily derived from other jurisdictions who have implemented such a scheme. These subsidies would be catered to the Saskatchewan situation with domain knowledge. For instance, Saskatchewan’s wind energy resource is of higher quality than that in Ontario or Germany, two notable examples of jurisdictions who have implemented a feed-in tariff. A subsidy in Saskatchewan would not have to be as high in terms of dollars per kilowatt in order to provide an equal incentive for development as compared to these other locations.
Another interesting example is Saskatchewan’s possible use of solar energy. While Saskatchewan has much better solar resources in the form of hours of direct sunlight per year than either Germany or Ontario, Saskatchewan has less of a need for solar energy. The yearly peak of electricity usage in Ontario is in the midsummer, when solar energy would be very valuable because natural gas units would be in use to meet the tremendous electricity demand. Saskatchewan on the other hand has a winter peak, which makes solar power unsuitable for helping with the expensive peak energy demand. Solar energy is at its minimal effectiveness in midwinter due to the position of the sun in the sky, as well as generally greater cloud cover. Without the peak-matching aspects evident in Ontario, the desire for solar is greatly reduced. Thus, incentive for solar would be geared to be much lower in Saskatchewan as compared to Ontario.
These examples demonstrate how a publicly-led market solution can unlock opportunities for industry expansion. With the long-term guarantees on pricing, investors can commit capital with confidence. The power of the market would be unleashed on the problem at hand, with the public directing the general path of development that it sees fit. Domain-specific knowledge, and customized solutions bridging the technical, political and regulatory aspects of policy analysis should prove very effective at promoting growth and prosperity.
Benjamin Harack B.Sc. B.A.
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- Order of Reference for the Standing Committee on Crown and Central Agencies, Government of Saskatchewan, 2010. [↩]
- de Miera, G. S.; González P. del Río, Vizcaíno, I. (2008) “Analysing the impact of renewable electricity support schemes on power prices: The case of wind electricity in Spain.” Energy Policy (36, 9) pp. 3345-3359 [↩]
