Concessions and New Restrictions for Ontario’s Solar FIT Program

Aug. 17, 2010 - PRLog -- On Friday the 13th the Ontario Power Authority (OPA) finalized its Feed-In-Tariff (FIT) rate for small Photovoltaic (PV) solar ground-mount systems at 64.2 ¢/kWh, down from the original 80.2 ¢/kWh (http://microfit.powerauthority.on.ca/Program-updates/ground-mount.php). In so doing, the OPA conceded ground on its original proposal to cut rates to 58.8 ¢/kWh.

Perhaps more significantly, the OPA reversed itself and will not force this rate change retroactively on the roughly 11,000 pending ground-mount applications submitted prior to the proposed cut. Given the retroactive nature and severity of the original proposal, these concessions are positive news for the eleven month old FIT program. In announcing the final tariff rate, the OPA also recognized the extensive input it has received since the proposal.

While the OPA has shown welcome flexibility and responsiveness to feedback, new restrictions to the FIT program have been announced. Participation of project facilitators described as Commercial Aggregators has been barred from involvement in any MicroFIT (10 kW and under) project. There has been no comment from the OPA on how many FIT contracts and applications have been affected by the exclusion of Commercial Aggregators.

Ontario Ratepayer Burdens

When the rate cut was first proposed, Ontario Energy and Infrastructure Minister Brad Duguid expressed concern over cost implications of the original tariff rate. Minister Duguid was quoted by various news sources (e.g. Macleans.ca: A Solar Program Overheats) as stating “(It) would have been irresponsible for us to have let it continue,” while estimating a CAD$1 Billion cost to Ontario taxpayers. The rates were “out of whack”, he further observed, noting that applications had “swamped the program”.

Rather than being taxpayer financed, however, one of the strengths of the Ontario program is that the costs of the FIT program subsidies are born by ratepayers (http://d-bits.com/ontario-german-fit/). Paradoxically, representatives from the Ministry of Energy and Infrastructure (MEI) as well as from the OPA have frequently cited the number of applications as a clear indication of the strength of the Feed-In-Tariff program. Concern over ratepayer impact appears related to strong concerns expressed over the recent Ontario 9.6% electricity hike along with the imposition of the new HST tax.  

Commercial Aggregators Hit the Soup Line

A target of 50,000 jobs has been promoted as a core objective of the Ontario Feed-In-Tariff program. Representatives of the Ministry of Economic Development and Trade (MEDT) have been working overtime to successfully secure commitments from global manufacturers. That effort has helped generate the many recently announced manufacturing commitments. Delivery and retention of the FIT-enabled jobs, however, is ultimately contingent upon a strong, sustainable FIT program.

Based on lessons learned in other solar markets, there has been ongoing concern within the PV industry that high tariff rates in the Ontario program could lead to unanticipated rate and program changes. This industry anxiety is further catalyzed by the Ontario Domestic Content requirements that force project suppliers – in a highly competitive, global, commoditizing industry – to establish new manufacturing operations in Ontario. Retroactive rate changes – as originally proposed – signals an authority that may not honor agreements which does not help promote a positive business environment. In fact, well before the ground-mount changes were proposed, the Wall Street Journal on June 17 quoted Marc van Gerven of industry leader Q-Cells as saying that “(we) can live with the (Domestic Content requirements) … (but) from an industry perspective, we don’t like rules to be changed.”

Exclusion of Commercial Aggregators from participation in the Ontario PV market (according to the OPA, Commercial Aggregators are “businesses that lease land or rooftops from individuals for multiple renewable energy projects”) directly impacts the number and type of jobs that will be created, as well as access to the program by individual residents who may require their assistance. If Commercial Aggregators make it easier for MicroFIT applicants to take advantage of the FIT program, they would fundamentally catalyze market acceptance of the FIT Program and benefit participating Ontario residents directly.

Exclusion of financial players – from one of the world’s leading financial centers – in the form of ‘Commercial Aggregators’ is arguably inconsistent with program acceptance, job growth goals and expertise leverage. The TSX and TSX Venture exchanges, for example, are global leaders in clean technology – and almost certain facilitators and beneficiaries of a successful Ontario FIT program. Commercial aggregation represents an opportunity for Ontario’s finance community to provide financial products that promote MicroFIT program access for residents of Ontario. The Ontario finance community is in one local area of strength where development of further expertise can be leveraged outside of the country – especially with a US market poised to take off.  

At What Cost?

Program costs to Ontario ratepayers has been a featured topic in the rate cut dialog. What is the total cost to Ontario taxpayers of not making the tariff cuts retroactive?

Highest PV FIT payments occur where the sun shines the brightest. Ontario’s insolation hotspot is the ironically named Town of Rainy River with roughly 1,000 inhabitants. If all 11,000 pending applications were located in Rainy River, the difference between applying the original tariff rate and the new rate represents incremental MicroFIT tariff payments of $445 million over twenty years. Should those same projects be located in Toronto, the cost difference would be $409 million over the twenty year contract period. This is an average of about $20 million per year.

Strong arguments have been presented to the OPA that maintenance costs and one-off installation charges fully justified the original tariff rates.

While significant, a $20 million potential ‘savings’ is modest when compared to other Ontario ratepayer costs – like the recent 9.6% electricity rate hike. Similarly, the cost overrun alone for OPG’s Niagara tunnel (National Post 4 March 2010: Ontario's power trip: Big Becky goes bust) is projected to be $615 million. Amounts for the PV MicroFIT ground mount program also pale in comparison to FIT projects for other renewable sources like the 2,000 MW Wind Farm, which is expected to cost ratepayers $460 million per year (National Post 20 April 2010: Ontario's Power Trip: A megaplex of costs).

The rush of MicroFIT applications had been hailed as an endorsement of the success of the MicroFIT program. Let’s hope that success continues under the new FIT rates.

If we don’t see strong continued demand, then the new manufacturing commitments and the jobs that come with them will be at risk and these rate changes will not add up.

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Dunnison & Associates Inc., D+A, is a management consulting firm that is actively engaged in the Ontario solar market. D+A specializes in strategy, disruptive innovation, marketing and business development for cleantech and high tech organizations. D+A comments on the Ontario Green Energy Act and FIT Program along with tech business issues at http://d-bits.com.