Sudden solar energy price cut creates backlash across province

Several interest groups across the province continue to weigh in on a sudden announcement from the Ontario Power Authority (OPA) earlier this month regarding a 27-per-cent cut in the subsidy paid out to farmers and small businesses for producing solar energy.

The price cut, announced by the OPA on July 2, will see the rate paid for power from ground-mounted solar installations drop from 80.2 cents per kilowatt hour to 58.8 cents. The 80.2-cent rate will continue to apply to rooftop installations, as the OPA believes these are more costly to install and maintain and therefore necessitate a greater rate - coupled with a lengthier return on investment - versus the ground-mounted projects.

Both types of solar installations were initially eligible for the 80.2-cent rate under the microFIT program, a feed-in tariff program for solar projects generating 10 kilowatts or less. It was largely aimed at farmers, homeowners, and small businesses.

In its announcement, the OPA said the price review came as a result of "a glitch in the programs that was highlighted because of the unexpected popularity of ground-mounted solar projects," and the separate price category would ensure the microFIT program remains "sustainable."

The trouble, according to critics of the move, is that owners of both types of solar installations - including 11,000 recent applicants for ground-mounted projects - applied in good faith to the program and invested in the technology based on the initial rate.

Furthermore, while a price review was expected, it was believed to only take place in October 2011.

Ontario's environmental commissioner, Gord Miller, has been one of the loudest critics of the subsidy cut. His office sent a press release to media last week warning that Ontario's solar industry was being harmed by the uncertainty around microFIT, and that "people will lose confidence" in the province's commitment to green energy.

Miller has requested from the OPA the full financial details used to justify the price cut, using investigative powers provided to him under the Environmental Bill of Rights.

"[The OPA] is making a radical change which is affecting small-distribution generators, and if there is a big decision being made that will affect the amount of micro PV (photovoltaic solar) that is out there, I have to examine the reasons," he told The Review last week. "And there's enough here."

He said companies that manufacture and install solar panels have "widely disputed" the differential provided by the OPA as justification for the rate cut, namely as there are additional expenses in ground-mounted installations that might not have been considered.

"I will try to see how the OPA assumptions and business comments align, or where the differences are," he continued. "Certainly, there are some major disagreements."

The debate culminated in a town hall meeting last Thursday, July 22 at a hotel near Toronto, where OPA vice-president of communications Ben Chin listened to criticisms and concerns from representatives of the solar energy industry, the Ontario Federation of Agriculture, and about 250 people.

"You're killing the Green Energy Act with your actions," said Don McCabe, vice-president of the Ontario Federation of Agriculture, was reported as saying. Both his organization and the National Farmers Union have criticized the OPA's decision.

During a phone interview with The Review on Monday morning, Chin acknowledged he heard many such concerns at the town hall meeting.

"There was concern about the price, concern about how we made the announcement, and whether announcing the changes when we did was supporting a feeling of confidence," he said. "There were lots of questions about the fairness of the process and of the price."

He added, however, that the OPA was initially only interested in rooftop-mounted solar installations when it announced the microFIT program, and the 80.2-cent rate was based solely on their surrounding costs.

In the program's early stages, he continued, the OPA expanded the program to include ground-mounted installations, based on the same start-up and investment return costs. He said the result was two different ground-mounted business models: one with a tracking system, "which tend to be more expensive than rooftop but also much bigger, and also generate more electricity and a higher return," or pole-mounted installations, which are "more affordable."

Indeed, as the OPA announcement noted, the new lower rate for ground-mounted installations should balance the return on equity with that of rooftop installations.

The OPA describes return on equity as the annual revenue minus the annual debt repayment (at 70 per cent of the project cost), divided by the equity investment (at 30 per cent of the project cost over 20 years).

"What we're committed to is fairness, but also good value for ratepayers," said Chin, adding: "But looking at indicates of the ground-mounted systems, we were very suddenly confronted with a situation where there was a six- or seven-year payback with a higher return on equity. This is one form of energy that Ontario depends on, but whether inside the room or outside the room, there are people participating in it who are paying for it. And, rightly or wrongly, the balance was determined to be an 11-per-cent return on equity and an 11-year payback."

Miller said he disagreed with the numbers provided by the OPA, and that industry representatives have equally challenged the mathematics behind the power authority's rationale. He also noted the OPA changed its wording from a "return on investment" to a "return on equity."

"What's not in here is that [solar projects] have a capacity factor, and that gets you an annual capacity," explained Miller. "It seems to be the OPA's own numbers. The thing is, the capacity factor declines over a 20-year period, these things don't work at full efficiency over their lifetime, plus there are the inverters that don't last, plus shading, and so on."

While Miller said he expects the data to be released in due time, Chin told The Review the OPA "is going to try and be as transparent as possible," noting the power authority would share "as much information as it can," depending on what is fair to release, and that commercially-sensitive or proprietary data would be carefully considered.

I sort of welcome the commissioner's interest in this," Chin added. "I think it's entirely appropriate for him to weigh in."

One of the commissioner's suggestions was that applicants who had submitted their projects for consideration to the OPA by the necessary due date, under the previous price schedule, be granted the original price rate.

"It would be consistent with everything [the province] has done so far," he noted, in terms of approval processes. "For example, in a subdivision plan, if the planning rules tighten or change subsequently, you are judged by the date you apply.

However, that suggestion is not likely, according to Chin.

"That is one of the more popular suggestions that have come in during the consultation period," he noted, adding: "We're not considering changing that, and we don't think we will change it, but we are continuing to listen to it and do the math on it. [...] The amount of money that it would impact on everyday bills would be quite large, and that's really where this policy decision is coming from, so that we don't put pressure on people's hydro bills."

Miller said he only hopes that the microFIT program continues to move forward - a notion that Chin said they both share - but said he will wait to see the OPA figures before making a final report.

"If, at the end of the day, a case can be made that the returns were too high, then fair enough," said the environmental commissioner. "Right now, though, we're still not at full transparency and we're still not at that state."

Noting many early media reports focused on the high price paid for solar energy projects, Miller said the reality is that all newly-constructed power options are paid with purchase-power agreements or guarantee prices, including nuclear or gas.

"Yes, 80 cents is a high price, but we're trying to build a solar industry in this province," he stressed. "How else do we get people online, engage personally, get all the machine shops to support the ground-mounted installations, all those secondary spin-offs, the wiring and inverter companies?

"In the grand scheme of things, [the ground-mounted projects in question] are not a big source of power. We're talking 10,000 projects at a maximum of 100 megawatts (100,000 kilowatts)... and we have 29,000 installed megawatts of capacity across the province."

"The price is going to come down, but Ontario wants to jump into the lead and that's what we're paying for. Eventually, Canada will have to put a price on carbon."

For more information on the OPA price cut, view the complete announcement at http://www.powerauthority.on.ca/Page.asp?PageID=122&ContentID=7288.