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Will the Liberals reverse their decision about on farm solar power generation MicroFIT rates?

Blindsided by the light

August 2010 Rural Voice column by John Beardsley

Solar power is electricity made by capturing sunlight. It is just one of many clean energy sources needed by the province to replace dirty coal fired plants. The Niagara Falls hydro electric project would never have been built without government subsidies. In order to get a large number of small solar projects installed quickly (and produce an estimated 25,000 new jobs) the Ontario Government wisely provided an incentive program in November called the Micro FIT program. Consumers are currently being charged less than ten cents per kilowatt for electricity. The government has undoubtedly heard a lot of negative comments with the apparent disparity between this price and the 80 cents per kilowatt being offered for solar power.

On Friday July 2nd energy and infrastructure minister Brad Duguid’s Ontario Power Authority slashed contract energy prices for ground based solar power systems. This change in payment from 80.2 cents per kilowatt to 58.8 cents has thrown the fledgling solar power industry into a tailspin. The hundreds of companies selling solar power systems had just started up in the fall of 2009. It is extremely uncertain how many will survive this body blow. One of the biggest obstacles to selling these systems was the lack of trust in the 20 year government contracts. Nothing has actually happened to change any of the Micro FIT contracts already approved by the Ontario Power Authority. However the uncertainty caused by the reduction has people running to their lawyers to double check whether the government can weasel out.

The injustice in the approval of some ground mount systems and not others is astounding. It appears extremely arbitrary as to when and how people were able to get approval.

What is worse is that many companies went ahead and started building projects to get something accomplished in the summer building season assuming that it was a mere formality to get the approvals. All the interested solar power companies ramped up production and invested money in numerous areas to be able to meet the demand for the systems.

Farmers were the majority of the buyers of these systems as they had the equity in farmland to be able to raise the capital necessary to buy a $95,000 ground mounted tracker system. Most previous financial aid programs for farmers were at the taxpayers’ expense with less measurable returns. This solar energy initiative was an opportunity to add stability to farming operations. Solar power generation installations were to provide over $14,000 gross annual income. Is it any wonder that the FCC and other financial institutions were prepared to finance these projects?

Most government farm programs are set up with a fixed basket of money which is available on a first come first serve basis until it is used up. In contrast, the application window for this program was to stay open until November 2011 .What probably caused Ontario power authority bean counters’ ulcers to flare up was when they looked at the applications flooding in, and calculated the amount of money needed to pay for the power for the next twenty years. But this needs to be put into perspective. The limits to the number of systems that would be approved were originally stated to be 1-2 % of Ontario power needs. This means the Ontario Power Authority should have been prepared for over 40,000 projects. When the government pulled the plug there were only 15,000 applications.

The last minute change in the rules has been defended by minister Duguid as a cost savings in order to plug a loophole that was giving investors in ground mounted tracking systems huge windfall profits. Returns of 25 to 30 percent are being thrown around by the minister. In actual fact the returns were a much more modest 15.4 percent. These sun tracking systems cost almost twenty thousand dollars more per system to install than a roof mounted system. Seventy percent of the applications for a Micro FIT contract were for ground based tracker systems because farmers quickly realized that these systems produce 40 percent more power. While this will cost the government and the taxpayers more money in the first 20 years it will also produce 40 percent more power in the second 20 years after the contracts have finished and the solar panels are selling electricity back to the grid at world prices. The main thrust of the green energy act is surely to produce more green energy, not less.

Caught up in this whole debacle are the fixed ground based systems, which, though cheaper to install than a roof mounted system, do not get the extra power generated by a tracker system. They do have a lot of advantages in that they are easier to service and maintain and don’t require an engineering assessment for structural safety for a system to be mounted on the roof of an existing building.

Ironically, if the decision is reversed and the tariff is returned to 80.2 cents per kilowatt the damage to the fledgling Ontario solar industry may have already been done. I think everyone in the solar energy industry is hoping Minister Duguid will follow the example of his cabinet colleague energy minister Gerretson who scrapped a plan to charge consumers ECO-fees on a variety of products.

Entering into a long-term commercially sensitive contract requires confidence and trust. Whatever the shortcomings or apparent excesses in the current system I think prior consultation with the stakeholders in Ontario’s solar industry could have led to a more equitable solution. Unfortunately this recent development has allowed many farmers once more to say “You can’t trust the government!”

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Comment by Joe Dales on July 28, 2010 at 4:21pm
Good review of the solar situation John:
I think the decision to reduce the solar price is unfortunate when you consider that the industry will be stunted as you point out with distrust.

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