Queen’s U study says government support for solar manufacturing a no brainer

A Queen’s University study in the journal Energy Policy has come out in favour of strong government support for solar manufacturing in Ontario. The study looked at six scenarios under which both federal and Ontario government support would be provided.

  1. Full construction subsidy.
  2. Construction subsidy and sale
  3. Partially subsidized construction
  4. Public ownership of manufacturing plant
  5. Full loan guarantee for construction
  6. Income tax holiday

Under all scenarios, “both governments enjoyed positive cash flows from these investments in less than 12 years and in many of the scenarios both governments earned well over 8 per cent on investments from 100s of millions to $2.4 billion,” according to an abstract of the study. “The results showed that it is in the financial best interest of both the Ontario and Canadian federal governments to implement aggressive fiscal policy to support large-scale PV manufacturing.”

The research for the study apparently began well before Ontario announced a deal with Samsung C&T, which agreed to enter the Ontario market in a big way with billions of dollars worth of investment in both solar/wind manufacturing and energy project development. The Samsung deal has been heavily criticized because of the special incentives the company is getting, including a premium on top of the province’s already rich feed-in-tariffs for solar and wind projects.  Joshua Pearce, co-author of the study and a professor of mechanical engineering at Queen’s, said if Samsung delivers on what it has promised then Canada — and specificially Ontario — will benefit greatly in the long run.  “We gave them a little bit of incentive and Samsung will give us a lot of jobs, less pollution, and a long term substantial source of (government) revenue,” Pearce is quoted as saying in a Science Daily article. “We are absolutely winning on this deal — there is no question.” He said for all the criticism of the Samsung deal, it’s important to put it into perspective. “The market is much larger than the Samsung deal. The question now is how to bring even more photovoltaic manufacturers to the province.”

I’m an optimist on this issue, so I’m happy to read the Queen’s U conclusions. And as I’ve said in the past, I believe it’s important to have an anchor tenant in the province that will attract other companies and ultimately develop into a clean energy cluster. However, I do have concerns regarding the sustainability of the situation in Ontario. The feed-in tariff program needs to be carefully managed so that this newly established industry isn’t shocked when prices for solar and wind start coming down. We’ve seen in other jurisdictions that companies can pack up and leave just as quickly as they arrived. One problem is that the feed-in tariff for solar, while perhaps not too high when it was announced, looks much too high today now that the glut in solar products has led to falling costs. The Ontario Power Authority established its feed-in-tariff prices based on an assumed return on investment, but now that costs for solar have fallen so dramatically companies rushing into the market are looking at getting a much larger return on their investment. This sets us up for a boom-bust market, something we want to avoid. The power authority says it will review feed-in-tariff prices every two years, but I think after one year it needs to review them now — and lower them accordingly, particularly for solar.