Hudak’s energy strategy: throw baby out with bath water

Ontario Progressive Conservative leader Tim Hudak has vowed to kill the province’s feed-in-tariff program on the grounds that, in his view, it is leading to unacceptably high electricity costs for consumers. But when all is considered the problem, as he describes it, isn’t really with the FIT at all: it’s about FIT rates for solar PV. Take solar out of the equation and the FIT rates are quite reasonable, at least when compared to nuclear power, which is Hudak’s own half-baked solution to Ontario’s future electricity needs.

Beyond the propoganda of the nuclear industry, I haven’t seen a single credible study that calculates the cost of (new) nuclear to ratepayers below 13 cents per kilowatt-hour. Indeed, there are many reports that suggest nuke power is above 20 cents per kilowatt-hour, particularly when you choose to not hide the hidden costs and subsidies. This makes wind power, landfill gas systems, waterpower and even some large biogas systems competitive with nuclear on a kilowatt-hour basis. And, of course, under the FIT we’re not held hostage to delays or cost overruns like we have been in the past with nuclear. You pay for what you get under the FIT. No risk, no large single points of failure, no risk of meltdown, no worries about handling future radioactive waste, and very high price transparency.

Now, Hudak would have Ontario voters believe that the rate we pay today is what we should expect to pay for future generation. I don’t believe this is a naive belief on Hudak’s part; I believe it’s to intentionally mislead. Fact is, there isn’t a single form of clean (or dirty) generation that can be built new today that isn’t more expensive than the 6 or 7 cents per kilowatt-hour that Hudak (and most media, for that matter) recklessly bandies about. Now, could we get wind generation cheaper through a competitive process? Yeah, we could maybe carve a couple of cents off the FIT rate. But the FIT was intentionally designed to lower barriers to market access — to open up the market beyond the big, deep-pocketed corporate giants who can afford the upfront millions required to respond to a request for proposals (RFP) and, after participating in such a process, can afford to walk away empty handed. The province created the FIT to encourage community participation, and to stimulate the kind of growth that would attract manufacturing and jobs — and it has, despite a few spineless moments and missteps from the Liberal government.

 Now, on to solar. Hudak and his legion of backers, including National Post columnist Parker Gallant (who has somehow managed to turn his column into an official soap box for the Ontario PCs — hell, he even hands over fresh quotes for Hudak’s press releases now), always point to solar prices when talking about the FIT. After all, it’s easier to anger voters by saying generally that we’re paying 80.2 cents per kilowatt-hour under the FIT and that this is 10 times more than the wholesale market rate for electricity. Wow — 10 times more! Crazy. But the comparison shouldn’t be to the wholesale market rate, and the rate itself is far from representative of the FIT program pricing. That scary 80.2 cents, which will soon be lowered, is for less than 1 per cent of FIT contracts when measured on a megawatt-hour contribution basis. Also, that money doesn’t go to big corporate conglomerates intent on vacuuming money out of Ontario. It goes to farmers and homeowners who are taking risks to become participants in the electricity system. The thousands of people taking part are literally changing the energy landscape in Ontario and they’re creating local jobs. You can see it just driving around this province. Put into perspective, the premium being paid to them is more than worth what the province is getting back. Hudak, however, would prefer to demonize them to score votes.

Now, let’s talk about the elephant in the room — big solar. Big, multimegawatt solar projects are getting 44.3 cents per kilowatt-hour. But unlike the small solar rooftop systems, these larger systems will collectively have an impact on electricty rates over the coming years. At the same time, we have to acknowledge that it is because of these large systems that a lot of manufacturing has shifted to Ontario. Still, it’s a lot of solar and a lot to pay, and this is in my view the Achilles heal of Ontario’s FIT program. If there are going to be changes to the program, the most dramatic changes have to come here, but it has to be done in a way that balances the need to nurture an emerging industry and the interests of ratepayers. The answer, in my view, is to embrace a competitive bidding process for these large-scale projects and set caps (targets?) on the amount of big solar we want in Ontario by 2015, 2020 and 2025.

But Hudak isn’t thinking or talking that way. He wants to throw the baby out with the bath water, and in doing so kill investor confidence in the Ontario market, kill green jobs and build new nuclear plants that we’ll have to start paying for 10 years before the first kilowatt-hour is generated. His approach is reckless at a time when Ontario needs surgical, not blunt force, solutions. He’s being destructive at a time when Ontarians want our politicians to be constructive.

On a final note, let’s keep in mind that we don’t have to choose nuclear over renewables or vice versa. While building new nuclear plants may be an unwise decision economically, there is plenty of job creation to come from reburishing or extending the life of Ontario’s existing nuclear fleet — even if we retire a couple of plants, such as Pickering. Indeed, OPG and Bruce Power have expressed concerns about doing these refurbishments and building new because of the limited labour pool and the logistical nightmare of taking so much on in such a tight window. So, the message here is you can continue to aggressively build green energy and capture the associated jobs while keeping folks in our nuclear industry gainfully employed for the next 10 years, simply following through on an existing refurbishment schedule. Talk of building new nukes is a distraction — there will be opportunities in both sectors, and plenty of jobs to go around. We don’t have to choose one over the other.

15 thoughts on “Hudak’s energy strategy: throw baby out with bath water”

  1. Another great post Tyler.

    I work in the solar industry and can say that Tim Hudak’s approach to the FIT program is scary. A few of us from the office went down to a press conference at Queen’s Park to show our support of solar. Having heard him speak in person I absolutely believe he will cancel the program if elected in October.

    The fear tactics of 80.2c/kWh is where most people are being lead astray. The public is being lead to believe that huge MW sized solar farms are being paid out at 80.2c/kWh. What would be nice is if the OPA put out a set of pie charts similar to the ones that were done for the UK market. At any rate the public needs to be informed of the facts about the program and the real reason electricity prices are increasing.

    http://www.renewableenergyworld.com/rea/blog/post/2011/05/cuts-to-uk-solar-incentive-may-spread-economic-benefits

    This gives everyone an idea proportionally of how much renewable generation is for each tier of the rates. From that data it is a simple calculation to see which tiers are the most costly. As you rightly pointed out, the area for improvement is the large scale solar PV projects. By reducing these specific FIT rates, introducing competitive bidding, and imposing caps this program can continue to be a success.

  2. Ah, so this is the name of the PC Ontario Leader. Good to know.
    Unfortunately he has to get his name known so he throws incomplete and under-educated ideas/proposals such as this one out there to get press coverage. We do need to know who he is after all.
    I don’t think Ontario voters have quite forgotten Harris yet and until they do there won’t be a major power shift in provincial politics in this province.

  3. Tyler,

    Very well said. I hope the industry can figure out a way to communicate your points to the general public. It seems to me that most people are very supportive of solar energy and the industry that we could create in Ontario, but are misled by one-off facts and misrepresentations. I love the pie chart idea that K.G. has suggested – would help to explain why energy prices are really rising in Ontario.

  4. Hudak is a bloody idiot. How can anyone push for nuclear after Japan. The major problem with green energy is a lack of capacity in the transmission lines slowing it’s implementation. We’ve had to sell off energy several times due to overproduction. As for the 80.2c rate, obviously the man is lying through his teeth and doesn’t know the difference between a FIT and a MicroFIT. Early adoption will mean lower long term energy costs, not higher! But like most politicians he doesn’t care about anything but the next election. Career politicians should be banned!

  5. They just had a joint hearing on a potential new build at Darlington Mr. Hamilton.
    Why is that?
    Because of Hudak?

  6. Tyler,

    I’m curious why you are under the impression that the 80.2 cents will be lowered soon. With less than 1% of the applications in this area and clear evidence that urban participation is lacking when compared to the farmers you mentioned, IMHO, a reduction just doesn’t seem prudent at this time.

    I believe one of the main reasons for the 80.2 cents is to incent people to participate. If the vast majority of ordinary citizens are not taking advantage, it would be counterproductive to reduce the rate despite dropping costs. Participation is always a measure of risk vs reward. If participation is low then the risk isn’t worth the reward.

    Perhaps the trouble is none of the above but more about awareness. Most urban folks I talk to are either just hearing about the program recently or have no clue it exists. Or perhaps it’s about the up-front costs for homeowners. Not everyone has access to traditional forms of credit.

    Show me some stats to support a reduction and I might change my mind.

    MrC

  7. MrCannuckistan,

    The OPA has a FAQ page which begins to answer the question of pricing (at the very bottom of the page):

    http://microfit.powerauthority.on.ca/pricing-and-payment#14

    Although not specifically stated it is generally understood that FIT prices come down over time. A more important metric than the percentage of applications (not yet fully contracted or generating) is the amount of installed capacity thus far.

    The OPA’s May 13th bi-weekly report states that 41MW of microFIT solar PV have been installed and receiving the 80.2c/kWh. Whereas the total number of microFIT application capacity is 265MW.

    On the other hand there are 5829MW of FIT solar PV applications, yet only 5MW installed and generating right now.

    Application numbers can be used for forecasting but some of those may never be connected. Perhaps the OPA is looking at the amount of installed generation being paid out instead of estimates.

  8. Tyler,
    I appreciate your efforts to keep everyone informed on environmental issues. I rely on and share much of the information you provide.
    Being located in Windsor, Ontario, acting as a staffing agent for this newly developing industry, I must tell you that most people have no clear understanding of energy production or the peak periods of consumption that we are experiencing. I am currently advocating for an “Energy Sustainability Strategy” for the city of Windsor. I believe that a clear strategy will help shape our future as a progressive, eco-friendly place to live and do business. A clear energy strategy has the potential to educate residents, reduce consumption and attract new industry. Finally, I would like to add that citizens of Ontario should demand who ever gets elected in October audit the Debt Recovery Amount on our Hydro bills. Those who criticize the green sector should find out what the true cost of energy is before pointing a figure.

  9. Well, there is a two-year review expected this year, and the Libs will be keen to show that the rates over time are going to fall and are falling. They may reduce to 75 cents or 70 cents, I don’t know. On your point about participating in the microFIT, of course the vast majority of citizens are not taking advantage of it… I don’t think we ever envisioned millions of people putting solar panels on their rooftops. But tens of thousands have applied to do this, and I think that’s a huge demonstration of demand. So, to your point, I would disagree that participation has been low. Participation has been high — certainly for the FIT-scale solar, and also high enough on the microFIT to begin nudging rates lower. You wanted stats: as of May 13 nearly 30,000 applications for microFITs have been received. That, in my books, is high participation and justification to start nudging down rates and getting manufacturers, suppliers and installers to compete more on price.

  10. Thank you K.G.,

    I think you just made my point. Out of the millions of homes, buildings and farms that can take a microFIT project we have less than 5,000 generating. With almost a 37% failure rate of applications executed vs terminated, the remaining microFIT applications might amount to another 18,000 or so contracts (provided they aren’t all Hydro-One customers). Is that a fair assessment of the first two years of the program (plus the RESOP hangover)?

    Now compare that to full microFIT potential. How many roofs are viable for microFIT projects? 1 million? 2 million? 5 million? I’d like to think that the number is closer to the high side but I will admit I haven’t done any research on the potential. Regardless, in a province with a population of over 13 million people we have approximately 25,000 or so buying in over two years. That isn’t overly encouraging to me. It’s a good start though.

    Perhaps there is another metric that I am missing.

    MrC

  11. Perhaps I’m not ambitious enough, but the 80.2 cents is about stimulating the market, not about getting millions of Ontarians to put solar on their rooftops at that price. Also, not every home has an ideal rooftop for solar. If you break it down to solar-worthy rooftops that are relatively new (because it has to last for 20 years), I’d say tens of thousands of applications is a good expression of interest in the program.

    If people are hesitant, it’s not because of the price, or necessarily awareness. I was considering replacing my solar thermal panels with PV, but it is a big decision and capital commitment in a province that has proven itself to backtrack and revise as they go. And while there are rooftop leasing options out there, which eliminates upfront capital risk for the homeowner, there are other risks in the form of gray areas — insurance and liability being one of them. For example, if there’s a leak in my roof who pays to fix it, and who pays for the electricity not being generated while the roof is being fixed — is it the homeowner or the solar provider? Also, signing a 20-year contract with what are mostly new companies that can disappear as fast as they appear is also something homeowners are wary of. Remember Enwise? They went bankrupt and from what I hear are no longer honouring warranties on new furnaces and air cons.

    The FIT and microFIT was originally designed with a built-in price review every two years and an understanding that rates would fall over time, partly to force manufacturers and suppliers to follow through on promises to reduce costs and volumes increase.

    So this isn’t just about price — this is about consistency and certainty of policy and long-term risk.

  12. Is anyone debating the value of 80c rooftop solar? My understanding was that the price was in part due to how well rooftop solar reduces the load on the power grid by blunting summertime peaks through its generation being synchronized air conditioning load. So you’re not just paying for power, you’re paying for not having to run new power lines or build large generation stations in Oakville.

  13. In the government’s energy strategy, they have not talked about any incentives for REDUCING our usage of energy. The amount of energy we use and the fact that we are so poor at re-using goods is a huge problem. Clean, sustainable energy will be impossible to maintain if we consume at a rate far beyond the per capita world average.

  14. One thing that is constantly over looked in the Renewable Energy discussion is that this upfront infrastructure investment will in most cases last beyond the 20yr FIT contract and will be producing electricity without the need for subsidy.

    Over the coming 20 yrs, we will see the cost of conventional fuels rise while renewables will be locked in.

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