Solar energy giants discovering Ontario

ONTARIO - A coming green-energy law and the promise of long-term incentives for producers of renewable power have put Ontario on the radar of some big-name solar companies looking for certainty in a volatile marketplace.

This month alone, Tempe, Ariz.-based First Solar Inc., one of the world's leading suppliers of next-generation solar modules, and solar power supplier Recurrent Energy Inc. of San Francisco have acquired and plan to develop multi-megawatt solar projects in Ontario.

Meanwhile, San Jose, Calif.-based Nanosolar Inc. tells the Toronto Star that it is seriously eyeing Ontario as the location of a regional assembly plant for its thin-film solar modules. Nanosolar is also working with French energy giant EDF Energies Nouvelles to map out project potential in the province.

"The Ontario policies are very promising and we are now actively tracking this," said Nanosolar founder and chief executive Martin Roscheisen. The new prices the province is willing to pay for solar power, he said, "could tip the balance in favour of investment in Ontario."

The Star has learned that at least two other firms - one of them domestic - are planning to set up solar-cell manufacturing operations in Ontario.

It's the early response the McGuinty government was hoping to get when it tabled its Green Energy Act last month and, more recently, announced a new renewable-power purchase program that offers a generous premium for green power - electrons that flow from solar panels, wind turbines, hydro facilities and biomass systems.

The Ontario Power Authority has proposed European-style "feed-in tariffs" that would see it pay, as part of a 20-year contract, 80.2 cents for every kilowatt-hour of power that comes from a residential rooftop solar photovoltaic system.

As systems grow larger the feed-in tariff declines. The power authority would pay 71.3 cents for rooftop systems up to 100 kilowatts, dropping to 63.5 cents for systems up to 500 kilowatts and 53.9 cents for anything above that. Such systems would likely be found on the rooftops of schools, commercial buildings and big-box stores.

The lowest tariff, 44.3 cents, applies to "ground mount" systems that don't exceed 10 megawatts. This would apply to the massive solar farms that sprawl across acres of empty fields.

All prices replace a fixed 42-cent tariff that applied to all system categories that existed under a previous program, which itself was a continental first when introduced two years ago.

Arno Harris, CEO of Recurrent Energy, said the new tariffs make Ontario an attractive market for his company, which yesterday purchased a project pipeline totalling 350 megawatts from Chicago-based UPC Solar.

Harris said Recurrent and other large developers are taking advantage of the economic downtown to consolidate the market. The "vast majority" of projects acquired from UPC, he said, are based in Ontario.

"Adding a pipeline like this to our business increases our bargaining power," said Harris, explaining that economies of scale allow the company to lower costs by placing bulk orders for solar modules. "Our goal is to develop over 100 megawatts and get it into commercial operation by 2012."

In early March, First Solar purchased a pipeline of more than 2,000 megawatts of solar projects from Hayward, Calif.-based OptiSolar Inc. in a stock deal valued at $400 million (US). About 10 per cent of those projects are based in Ontario.

Not all developers, however, are convinced that the tariffs are high enough to lure the kind of investment and green-collar jobs the government is counting on. Though praising the rooftop tariffs, some say the tariff for the large ground-mount systems is too low in the current market environment, where the cost of capital is simply too high to make such projects economically feasible.

"It's just a bit low at this point," said Ron Mantay, country manager for SunEdison Canada, which hopes to build several large rooftop and utility-scale ground systems in the province.

"It's the utility scale projects that are the key to job creation and cost reduction, and the current proposed rules might not be enough to motivate manufacturers to shop here in Ontario."

Other developers that have contacted the Star say they would need a tariff of 50 cents to get their projects financed and built in the current market climate, or, alternatively, loan guarantees that would lower their cost of borrowing.

"No fields, no factory," said one backer of a manufacturer that wants to lay roots in Ontario.

The power authority says the tariffs have only been proposed and could change after eight weeks of consultation with industry players. "Anyone having concerns with the proposed pricing should provide their feedback to the agency," said energy ministry spokeswoman Amy Tang.

The trick for the government, experts say, is to find a price that doesn't overly reward developers but doesn't block development, manufacturing and ultimately job creation.

It's a difficult balancing act in a turbulent economy when credit markets can ease just as quickly as they tighten, and when today's scary cost realities likely aren't a reflection development costs one or two years from now. Solar module prices, for example, are expected to fall dramatically this year and into 2010.

Roscheisen, for one, said the 44 cents proposed for ground systems was "wisely chosen" because it will weed out the strong, which have an easier time raising capital, from the weak, which as riskier bets end up paying more.

He also said that offering long-term contracts under a feed-in tariff model is superior to U.S. approaches that tend to be based on upfront tax incentives that create short-term sales spurts.

A feed-in tariff, said Roscheisen, "makes the market predictable and thus investible for the kinds of long-term, fundamental technology improvements and investments that will ultimately make solar a mainstream energy source.

"We congratulate Ontario for its forward-looking thinking," he said.