Doubts hit Ontario's green energy plan
By Financial Post
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Several factors are stirring marketplace jitters, including unhappy noises from the opposition Conservative party, international opposition to buy-local provisions in the plan and increasing hostility to wind turbines in rural Ontario.
“There is uncertainty out there,” says Dan Gormley, a Toronto-based lawyer who leads the green energy practice at Goodmans LLP. “And I think a good part of the uncertainty comes from people wondering how much longer the government can spend the sort of money that’s involved in handing out these contracts.”
OntarioÂ’s feed-in tariff FIT program, introduced in 2009 as part of the Green Energy Act, offers heavily subsidized long-term contracts to renewable energy developers who use a portion of domestic materials in their projects.
The program, a first of its kind in North America, was designed to work on two levels. Potential wind and solar developers would be enticed by the generous rates — as high as 30 times the current market price for electricity — offered by the province. Once the generators jumped, manufacturers, buoyed by rules forcing as much as 60 of projects to be made in Ontario, would spring up across the province.
Government promised the policy would create 50,000 new jobs by the end of 2012, filling a void left by an exodus of manufacturers.
While the FIT program has achieved some success 15 projects are now in service, adding 10.6 megawatts of power to the grid it is not nearly the panacea many had believed.
Interest on the part of developers and financers is substantial. Manufacturers, however, have been slower to enter the market.
“I don’t think that has developed as quickly as the government would have liked,” Mr. Gormley says. “And that’s probably because nobody could be certain that five years from now this program is going to be demanding the volume of solar panels, wind turbines, etc., that it is today.”
More than halfway towards its target date, the government claims 13,063 jobs in total 1,244 of them in manufacturing have been “created or supported” by the legislation. Those numbers appear, at turns, both exaggerated and vague.
Four manufacturers contacted by the Citizen for this article, for example, reported employing far fewer people than the government reports.
DMI Industries, a Fort Erie-based turbine tower manufacturer, has 165 employees, 44 fewer than the 238 listed by the government.
SunRise Power Corp. employs 15 people, according to its president, 133 fewer than the 35 listed. Satcon, a Burlington-based manufacturer, was established eight years before the Liberal legislation and estimates it has added 40 jobs to accommodate the additional business in Ontario. The province claims 150 jobs at Satcon flowed from the Green Energy Act.
“Obviously, the numbers are overinflated,” says Sean Moore, CEO of Unconquered Sun Technologies, a Windsor company that employs roughly half the 20 claimed by government. “It’s almost a virtual market. Everyone’s coming out with these announcements. But until you have actual brick and mortar, no one’s actually employed.”
Furthermore, a vast majority of the jobs the government claims it has created — 9,436 categorized as “conservation” jobs — are totally unaccounted for. A ministry spokesman said many are attached to a home retrofit program that predates the Green Energy Act.
The news is not all bad. Both Moore and SunRise president Paul Pauze are prime targets of the strategy — engineers who lost their old world auto and engine manufacturing jobs when plants in Windsor and Peterborough downsized.
Moore estimates demand is outstripping supply for photovoltaic panels by a margin of roughly eight to one and plans to expand his operations in 2011.
Several manufacturers have recently announced their intention to set up shop in the province, including Siemens AG, Celestica and SunEdison Co.
However, Moore says it takes years to go from announcement to production. By then, the generous incentives underpinning the marketplace may have changed drastically.
Tim Hudak, leader of the opposition Conservative party, has called the green energy plan economically unsound. He blames it for soaring electricity bills, which rose 16 in 2010 to an average monthly total of $114.
“The subsidies are too high,” he said in an interview. “They’re driving up hydro rates and killing jobs in the broader economy. Our party supports renewable energy, but it has to be at rates that are affordable for families that pay the bills at the end of the day and in communities where it’s welcomed.”
Mr. Hudak has also criticized the legislation, which centralized approvals processes to prevent NIMBYism, for taking decision-making power away from local municipalities. He says he would reverse current rules by allowing municipalities to have a say in siting decisions — a potentially devastating blow to wind developers in particular.
On the other aspects of the program, the Progressive Conservative party leader is noncommittal.
“We’ll have more to say on this in the time ahead,” he told the Citizen.
Mr. HudakÂ’s position is being taken seriously, especially because he leads the Liberals by a slim margin in the polls.
“If that political uncertainty could be removed, there would be much more investment, no question,” says Mr. Gormley. “I would hope Hudak could declare himself.”
Mr. Pauze estimates there is currently about four years worth of manufacturing work in the green energy pipeline, a fact sustaining companies like his. Beyond that, the future is uncertain.
“We’re certainly watching what’s going on very carefully,” he says.
Other factors are undermining the industry as well.
Japan launched a challenge to the domestic content provisions in the law in September and was quickly joined by the European Union and U.S. And grassroots opposition to wind power is growing. One group recently launched a legal challenge in January that could result in rule changes surrounding siting.
In a candid admission, Brad Duguid, the provinceÂ’s energy minister, acknowledges the pace of investment in the sector is not happening as quickly as he would like.
“I think there’s enough groundwork being done that’s allowed investment to come in, albeit slower than would be if Tim Hudak wasn’t standing there as a threat,” he says. “From my perspective from talking to investors and businesses, I think it’s had an impact.”
