Clouds hang over OntarioÂ’s solar

TORONTO, ONTARIO - Readers of this column will know I have been a champion of Ontario's feed-in-tariff program since its early inception, and to this day I believe it's the right way to go over the next few years to get green energy on the grid and stimulate investment in the province.

The concept of feed-in-tariffs – that is, paying generators of renewable power a fixed price over 20 years that guarantees them a reasonable return on investment for the technology deployed – is well proven in Europe and has been adopted in several U.S. states and municipalities.

The goal isn't just to get more renewable electricity flowing through power lines. It's also to attract investment and jobs by creating a reliable market that inspires investor confidence. This is achieved through price certainty, consistent policy and smart program management.

On the latter point, Ontario is beginning to struggle – though I would dispute critics' suggestions that the program is in disarray. Still, the government's announcement earlier this month that it plans to re-jig the pricing structure of its microFIT program has created quite a stir, and for good reason.

The microFIT refers to small projects that are less than 10 kilowatts in size, and for the most part this means the installation of solar PV panels on rooftops or on the ground. When the program was launched last October the Ontario Power Authority offered a rich price of 80.2 cents for every kilowatt-hour of electricity produced from these small solar installations.

That wasn't the original plan. Initially, the agency only envisioned small rooftop systems qualifying for the 80.2-cent tariff. Small solar systems mounted on the ground would only get 44.3 cents – the same rate as large multi-megawatt projects.

Under some pressure to treat small rooftop and ground mount systems equally the power authority gave in and allowed both to qualify for the higher tariff. This was to accommodate what it expected – perhaps naively-would be a small number of ground-mount systems.

It's now regretting that decision. Since last October the agency has been swamped with more than 16,000 microFIT applications and roughly 80 per cent of them are for small ground-mount solar systems.

Why the regret? The timing and impact of the harmonized sale tax on electricity bills likely has something to do with it. Rising electricity prices have become a sensitive issue for the McGuinty government, which more than ever wants to appear concerned about paying too much for green power.

The unexpectedly large volume of applications also means the power authority has been slow to approve projects.

So on July 2 – nine months after committing to the 80.2-cent figure – the agency announced it was reducing the tariff for small ground mount systems to 58.8 cents. That decision directly affects 10,700 applications in the queue 2,300 with contracts or conditional offers have been grandfathered under the higher tariff.

The industry was blindsided. Many solar installers that already ordered inventory, put down deposits, and hired and trained staff to meet expected demand are understandably furious. The business cases they had developed relied on the 80.2-cent figure, and now they were being arbitrarily told to swallow a 27-per-cent cut on future revenues.

"The power authority seeded the demand," said Ian Karleff, managing director of AS Solar Inc., a distributor and developer based in Mount Albert, Ont. "They waved the carrot in front of our noses and then slapped them when we go to bite."

Brad Duguid, minister of energy and infrastructure, described the tariff reduction as a "tweak" to an aggressive program that, being new, will need the occasional adjustment. "This is something we did very reluctantly," he told me. "We had to make the adjustment to assure the program can continue."

Duguid argued that developers installing smaller ground-mount systems were going to make a 25 to 30 per cent return on their investment for a program that considers a reasonable return about 11 or 12 per cent. I'm still waiting for evidence to back up that claim.

Most of the proposed ground-mount systems would likely use trackers to harness more energy from the sun throughout a day. This can increase the number of kilowatt-hours generated over a year by 35 to 40 per cent, meaning a proportionate increase in annual electricity revenues.

But the fact that trackers are needed to produce more electricity means the power authority is wrong when it suggests, as it has, that ground-mount systems cost less to install than rooftop projects. Trackers, in fact, add 25 to 30 per cent to the cost of a ground-mount system.

I have no doubt that the return on investment for ground-mount systems that use trackers is higher than rooftop projects. Whether it's as high as 30 per cent, I don't know.

This is all beside the point, really. The power authority committed to a price, and then it backtracked. That's what has people angry. Many of the industry folks I've talked to are quite reasonable. They understand why a new price category was needed and recognize that, yes, there's a business case at 58.8 cents for ground-mount solar.

Personally, I think the rooftop prices could come down a bit as well to reflect the falling cost of solar panels in the market.

But this "issue" isn't about price as much as consistency. If the FIT and microFIT programs were designed to assure investors by offering stability of policy and price, then this sudden price adjustment clearly undermines that objective.

"It has shaken investment in Ontario to the core," said David Watts, managing director of technical services at Solera Sustainable Energies.

I've calculated, at most, that Ontario will be saving $37 million a year by throwing out 10,700 ground-mount applications and requiring developers to reapply under the lower tariff.

Let's put this into perspective. We spend many billions of dollars a year on electricity, so $37 million – while not insignificant on its own – is chump change by comparison and hardly enough to determine whether a program remains sustainable or not.

In fact, the projects being targeted represent less than one-tenth of one per cent of total electricity consumed in Ontario every year.

Is this a fight worth picking? Is it worth shaking investor confidence? It is worth causing manufacturers to reconsider doing business and creating jobs in Ontario? Is it worth the reputation that Ontario doesn't keep its word, particularly at a time when many U.S. jurisdictions are planning their own FIT programs?

Is it worth creating a deeper rift with farmers in rural Ontario, where most of these ground-mount projects have been proposed and where many swing ridings may be on the line during the next election?

Here's a suggestion: The power authority, which set the tariffs to begin with, should take the hit. It should honour its original commitment for all 16,000 applications – both rooftop and ground mount.

At the same time, it should immediately stop accepting applications pending the outcome of a tariff review. This will give it time to get through a massive backlog of applications and properly adjust tariffs to reflect new market realities.

What's the worst that can happen from this approach? A dozen or so solar installers continue to create jobs and profit enough to expand operations, while hundreds of struggling farmers keep a much-needed source of revenue.

The program needs adjustments, sure. But knee-jerk changes can do more harm than good.