Is First Solar gaming the system? Getting $456 million U.S. loan guarantee to develop low-risk Ontario projects indicates as much
I had to do a double-take. The world’s largest maker of thin-film solar modules, a company approaching $4 billion in annual sales and with a market cap of $8 billion, is getting nearly half a billion dollars in loan guarantees from the Export-Import Bank of the United States to develop seven solar projects totaling 90 megawatts in southwestern Ontario, Canada. According to the bank, the transaction constitutes the “largest financings in history supporting U.S. solar-energy exports to any country.”
“The Bank’s support was needed because viable long-term financing for these projects was not otherwise available in the commercial marketplace,” according to First Solar’s press release.
Wha? What a load of crap. There’s low risk to First Solar in doing these projects. It’s a large company with a strong balance sheet. It already has built more than 100 megawatts of solar in Ontario so it now has a track record. And, on top of that, it is being guaranteed 42 cents per kilowatt-hour under a 2o-year power purchase contract secured through Ontario’s older Renewable Energy Standard Offer Program (RESOP). As history indicates, it is building these projects then turning around and flipping them for an immediate profit, yet it will have 18 years to pay off the low-interest loans secured with the help of these loan guarantees. This company doesn’t need the help. If I were a U.S. citizen, I’d want these guarantees directed at companies that did need it or at least to projects in regions that carry less certainty and more risk.
This deal also highlights a big problem in Ontario. First Solar, when it’s done, will have built more than 200 megawatts of solar in Ontario but not as part of the feed-in-tariff program. You see, it hates the feed-in tariff program and supports protests from Japan, the EU and the U.S. against Ontario’s local content rules. Yet, ironically, it has been the most to benefit in the Ontario solar market. You see, all of its contracts were secured under the older RESOP program. This program had no local content rules, so First Solar brings very little with respect to job creation in Ontario. It’s painful to see at a time when Ontario has lured 18 solar module manufacturers with its newer FIT program but has failed to turn huge demand into finished projects connected to the grid. The Ontario Power Authority has offered contracts to more than 1,300 solar projects in Ontario but so far only 10 megawatts are in operation because of footdragging by Hydro One, an overly bureaucratic environmental permitting process, and political uncertainty — no thanks to Tim Hudak’s pledge to kill the program if elected.
Behind the scenes, however, First Solar continues to build away, using solar gear manufactured across the border in Michigan and apparently under no time restrictions (unlike conditions of the FIT program). Meanwhile, First Solar’s costs have dropped dramatically in the four or five years since it secured its power-purchase agreements under the now-discontinued RESOP program, yet it will continue to rake in 42 cents for every kilowatt-hour it produces. Its profits will be huge, thanks to a poorly designed RESOP program that didn’t build-in time restrictions for projects and local content requirements.
On both sides of the border, somebody is being had. Ontario boasts having the largest solar PV installation in the world in Sarnia, but that site has absolutely nothing to do with the FIT program. It was built with little Ontario content, it was sold to a natural gas company (Enbridge), and now that construction is done there is little to tout in terms of local job creation.
The FIT program, by comparison, is a gem with respect to the conditions it places on developers. The RESOP, at least with respect to solar, has proven a disaster in retrospect. First Solar is laughing.