Capturing the Economic Opportunity of Ontario’s Green Energy and Economy Act

A Road-Map for Developing a Successful Green Economic Development Strategy

Today Ontario is challenged like never before on what has historically been one of its most strategic competitive advantages — economical, flexible and reliable access to energy. With higher oil and natural gas costs, the need to replace electricity generation and climate change legislation, one of Ontario’s key competitive advantages is at risk of becoming a disincentive to investment.

Economic development has historically been driven by two things — reliable energy and advantageous transportation routes. And, in many regards, beneficial transportation routes are a proxy for avoided energy. Access to a highway does not ensure success, as the mode of transportation and its fuel has to be affordable. This is why the grist mill located along a river, as it was a source of energy that was typically found next to a transportation route. Without affordable energy sources, all of Ontario’s transportation routes to markets may be for naught.

The silent energy crisis has created a new reality for the province, and the North American economy as a whole, which is necessitating a push to attract and retain investments in new green economy technologies that can help build a diverse and resilient economy for years to come. The goal is not only to attract new investment and create jobs but also to lay the foundation for a low-carbon energy future, where reliable, flexible and affordable energy from renewable sources provides a long-term economic advantage for communities.

The opportunities are broad: manufacturing jobs from the production and assembly of renewable energy and energy conservation products; reduced energy costs for local companies that implement energy conservation measures; new revenues from local renewable energy installations; improved air quality; and, energy security as a result of locally sourced and affordable power that can insulate a community from global energy shocks.

Through Ontario’s Green and Economy Energy Act, the province aims to realize all of these benefits; however, how municipalities respond and develop economic development strategies to achieve these benefits will dictate how prosperous the province will be in maximizing the opportunity.

A skipping record

The traditional approach to economic development has focused on attraction as opposed to business retention and expansion. This is even though the return-on-investment for attraction activities is lower than working with existing businesses to expand operations and reach into new markets. In political terms, attracting a new auto plant is front-page news while getting a local small business to add a few thousand square feet, and a few new people doesn’t register.

With politics and headlines pushing economic development, the focus has been on attracting new plants — in Ontario, this has meant a constant focus on automobile plants. This paid off for many municipalities over the years, but with the restructuring of the economy during the Great Recession, the folly of a one-industry mindset based on high-cost energy inputs reared its ugly head.

The response by many economic development departments was typical — they went from chasing auto plants to chasing wind turbine and photovoltaic manufacturers. Municipalities that once positioned themselves as auto manufacturing heaven held out their shuttered plants as the foundation of a new green silicon valley. Much like the chasing of automobile plants, this shot-gun follow-the-fad approach to economic development is doomed to failure for all but the luckiest municipalities.

Focus on value

There is a lot of competition for green economy opportunities, both locally and globally. The likelihood of success is slim if you are a municipality looking to land a wind turbine manufacturer. However, if cities take an integrated approach that leverages all facets of the green economy — ranging from helping existing businesses meet green economic opportunities and encouraging businesses to conserve resources, to generating renewable energy and promoting green building activities — they are much more likely to realize a long-term competitive advantage in a carbon-constrained economy.

Manufacturing

While the focus of most municipalities is on landing a photovoltaic or wind turbine manufacturer, one of the most attractive elements of the green economy is that it presents an opportunity for existing businesses to meet new market opportunities.

For instance, one of the most attractive elements of solar is that it creates local jobs. A Barclay Capital Study indicated that up to 75 percent of all solar jobs result from installation. Thus the highest economic value isn’t in the manufacturing, but in supplying the services that enable installation. To illustrate, of Germany’s estimated 41,260 solar jobs, 20,000 are craftspeople — this within an aggressive market for manufacturing, but with no domestic content requirements like Ontario. If municipalities focus on installation and helping existing manufacturers meet the needs of wiring, hardware, mounting and assembly, they can not only create more jobs but also encourage local renewable energy installations.

However, unlike photovoltaic, the wind turbine supply-chain develops from the top-down, with the most significant economic opportunity being in manufacturing. Approximately 70 percent of the total cost of a turbine coming from three main components: the turbine blades, the turbine tower, gearbox, and the pitch and yaw control systems. Luckily these tend to be larger systems that are expensive to transport and need to be manufactured close to the market.

For municipalities looking to realize investments from wind turbine manufacturing, there are two strategies: 1) focus on attracting tier-one manufacturers and significant components — although this is a low-return proposition given the limited market; and, 2) most importantly, focus on connecting existing local manufacturers to the supply-chain requirements of tier-one suppliers, with a concentration on electrical components, control systems and castings.

The greatest opportunity in manufacturing, though is through energy conservation products. With a burgeoning green building movement and the push for building retrofits, local manufacturers that currently produce traditional building materials have an excellent opportunity to adapt their existing products to meet green standards, add value to their products and realize new market opportunities.

Often local manufacturers are already producing energy-efficient products but just are not marketing as such. For example, an Ontario-based heat pump manufacturer had been selling its product for over a decade, but when they realized their unit was more energy-efficient than their competitors, they began marketing it as green. On the other hand, a local garage door manufacturer could upgrade the insulation of their existing product, adding value and realizing new market opportunities. These are simple yet effective examples of how new opportunities can be achieved with existing manufacturing operations.

Renewable Energy Installations

The foundation of the renewable energy supply chain is generation. To build local demand and walk-the-talk, municipalities must identify ways to encourage local renewable energy installations. This is an essential element for the long-term success of a community, as it helps establish that competitive advantage of economic, flexible and reliable access to energy that is a pre-requisite for success.

More importantly, encouraging the use of local resources to generate clean energy — whether it be from solar, wind, geo-thermal or bio-mass — has multiple benefits for a community, including job creation from the installation and assembly of systems, new revenues for community members; potential spin-off supply-chain investments and, of course, locally sourced clean energy.

There are several ways municipalities can encourage renewable energy installations, including:

• Municipal Renewable Energy Installations — for both existing and new municipal facilities implement a policy of pursuing renewable generation opportunities.
• Green Energy Friendly Development Process — through the development process, encourage the installation of renewable energies.
• Low-Interest Loans — working with local utility companies, provide low-interest loans for renewable energy installations.
• Development Charge Rebates — provide development charge rebates for the implementation of green energy projects.

Energy Conservation

The last pillar that needs to be included in any green economic development strategy is energy conservation. Focusing on assisting local property owners reduce their energy use not only saves them money, but given that the majority of energy is produced somewhere else, it means more money stays within the local economy.

All of Ontario’s local utilities have energy conservation programming, but building stronger ties with local economic development departments offers an opportunity to help local businesses take advantage of these opportunities while encouraging them to reinvest in their operations. Much like commercial and industrial retrofits, residential retrofits are also an opportunity to reduce not only costs but also generate skilled trade jobs in the deployment of energy efficiency programming. Whether they are electricians, carpenters, engineers or plumbers, retrofits in any portion of a community’s building stock provides construction and installation jobs that help provide skill development and employment.

There are many ways for municipalities to encourage energy conservation, including:

• Green Building Incentives — to promote green building and retrofits, municipalities can provide development charge rebates and use tax-incremental financing to help boost energy efficiency.
• Municipal Green Building Requirement — to show leadership, municipalities can commit to building all new municipal facilities to a certified green building rating system.
• Residential Green Building Standards — to promote green building, municipalities can require new residential development to meet a green building standard, such as Energy Star.

Completing the picture

As Ontario municipalities grapple with the economic challenges facing their communities and the opportunities created by the Green Energy and Economy Act, it is essential they not fall into the short-sighted plant-chasing economic development strategies of yesterday. This route not only wastes resources but doesn’t help their communities leverage their many assets to reach their full potential.

When developing their green economic development strategies, municipalities should be identifying the multiple ways to benefit from investments renewable energy and conservation so that they can maximize their returns. By taking this big-picture view, they will lay the foundation to retain and build upon that critical competitive advantage of economic, flexible and reliable access to energy that is key to their success.