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By Tyler Hamilton

Ontario’s new Energy Minister Chris Bentley has much to learn over the coming weeks about the province’s complex energy file, and hopefully with that learning will come some genuine listening.

It’s tempting to think that the Liberal win earlier this month was a vote of confidence in the government’s green energy strategy, warts and all.

But one could just as easily argue that the outcome of the election would have been very different if PC party leader Tim Hudak hadn’t taken such an extremely negative position against the Green Energy Act, the feed-in tariff (FIT) program and associated initiatives.

Voters, by and large, are supportive – and many quite proud – of Ontario’s green energy vision. They see that it’s the direction we must take. They also see economic opportunity by heading in that direction, if done properly. For this reason, it appears most voters weren’t prepared to let Hudak hit stop and press the rewind button.

At the same time, the fact that the Liberals only squeaked ahead in the popular vote seems a clear message that the approach behind the vision needs some fixing – and fast.

For one, the ball has been dropped on energy conservation. We know that the cost of programs that help us reduce energy consumption is much less than building new power supply. We know that investment in energy efficiency has a much faster payback, represents a permanent reduction in carbon emissions, and is a significant job creator.

We also know that widespread support for energy conservation is the best way to help ratepayers cope with rising electricity rates. After all, who cares if the rate goes up if the monthly bill stays the same?

Yes, the smart grid will help us take control of our energy use, and smart meters can encourage us to shift when we use electricity. All of this helps, but it doesn’t encourage us to use less electricity. It’s not true conservation. And trust me, we waste a lot of energy. There’s much to conserve.

The Liberals have also paid a lot of lip-service to helping seniors and those on fixed-income cope with rising energy bills, but what’s lacking is meaningful action. The Clean Energy Benefit temporarily slapped on everyone’s bills is not an answer, nor is an end-of-year tax credit on a bill that’s paid monthly.

Another fix is needed with the FIT program itself. The rate structure is terribly out of date, and the Ontario Power Authority is already late in launching its two-year review of rates paid out for solar, wind, small hydro and biomass projects.

The rates under the FIT program were first announced in early 2009 and designed to assure a “reasonable” return on investment – about 11 or 12 per cent—for developers. The problem is that technology costs shift over time, sometimes dramatically. Solar is a case in point.

A recent report from the U.S. Department of Energy’s Lawrence Berkeley National Laboratory concluded that the average pre-incentive cost of residential and commercial solar PV systems fell 17 per cent last year and a further 11 per cent in the first half of 2011.

“Solar cell prices around the world have gone down significantly,” Paco Caudet, general manager of solar module maker Siliken Canada, told me this summer. “We have brought down costs over the last five months alone by almost 30 per cent.”

You hear the same story over at Celestica, which is manufacturing solar panels and inverters in Ontario for other companies looking to comply with local content rules.

Mike Andrade, the company’s senior vice-president, echoed Caudet’s view. He said the original solar FIT rates were based on a price for panels and inverters that is now 30 to 40 per cent lower. “Developers can make a fine return on investment at a much lower FIT rate than we have now,” he said.

Yet we continue to wait for rate adjustments. In retrospect, the two-year review was a mistake. Rate structure reviews should be done annually so the program can more quickly adapt to a changing marketplace.

We might also want to ask: should developers of multi-megawatt solar projects and large wind farms be booted out of the FIT program entirely?

After all, the program was created so community cooperatives, small businesses, farmers and homeowners could participate more easily in an electricity system previously dominated by the big developers, who were the only ones with the resources to take part in a competitive bidding process.

The level of community participation hoped for just hasn’t happened under the FIT, and this may explain why the McGuinty government had such a poor showing in rural Ontario ridings. People in many of these ridings are feeling like big projects are being imposed on them and that they have little say in the process.

European studies show that there is less resistance to projects when those in the community feel they have part ownership and a voice that will be heard. The FIT needs to move in that direction.

Not to say we still won’t need the big projects. But developers of these should be required to bid against each other so that Ontario ratepayers are assured the best deal.

And that, in a nutshell, is the problem we have so far: a great green vision, but not necessarily the best deal.

There’s much room for improvement, but first the government has to recognize the need.

Tyler Hamilton, author of Mad Like Tesla, writes weekly about green energy and clean technologies.

California-based market research firm iSuppli came out with a report today that forecasts rapid growth of solar PV installations in Ontario, though warns of a bottleneck in production during the first half of 2011 as developers struggle to meet stricter local content requirements. In 2009 Ontari0 had 69 MW of installed PV, but iSuppli said that will grow by 272.5 per cent to 257 MW in 2010. Stricter rules requiring 60 per cent local content will kick in next year, however, and that will create a supply crunch that slows down growth until the last quarter of 2011 when local manufacturing catches up with demand. As a result, we’ll see growth of 75.5 per cent in 2011 as installations climb to 451 MW. In 2012 we’ll see that number climb past 600 MW.

Mike Sheppard, a PV analyst with iSuppli and author of the report, says companies that have set up local manufacturing in Ontario will benefit the most during the 2011 crunch. According to an iSuppli press brief, “Firms like Canadian Solar, SMA, Fronius and Silfab are stepping in to meet the demand for local solar components, building module and inverter manufacturing facilities in Ontario.”

Sheppard acknowledged that Ontario’s decision to shut down all coal plants by 2014 and its introduction of a Green Energy Act and feed-in-tariff program are driving the explosive growth in PV. He called Ontario’s FIT program “North America’s first comprehensive guaranteed pricing structure for electricity production from renewable fuels sources including solar PV, bio-energy waterpower and wind.” The program, according to iSuppli, “could have a major influence throughout North America.”

This is a positive evaluation, but I don’t think it’s as positive as it could be. As I outlined earlier, module manufacturers alone are setting up local production facilities with a combined annual capacity of more than 1,000 MW. Not all will be built, but iSuppli seems to think that actual installations will be limited to between 150 and 200 MW a year. If that ends up the case, we could end up having some major oversupply issues in Ontario by the end of 2011. But given the huge volume of FIT applications being received by the Ontario Power Authority and amounting to potentially several thousand megawatts, I’m wondering if iSuppli is low-balling its forecast.

After a brief consultation period it seems the government and Ontario Power Authority took the industry’s complaints to heart, even though my own sources told me just recently that the government was being pig-headed and planned to stick with its proposal. In the end, they caved in to pressure — a very smart face-saving move, I might add. The price reduction will still take place, but it will be reduced to 64.2 cents, not 58.8 cents, and it won’t apply to anyone who applied to the program before July 2, 2010, meaning the OPA plans to honour the original 80.2 cents for those who meet that cutoff. This decision is a big gesture, because the plan under the original proposal was to only honour the 80.2 cents for those minority of projects that had already received a contract or conditional offer. That means the more than 10,000 applications that were going to be tossed out (with project proponents forced to reapply under the new rate) will now be honoured at the 80.2 cent rate so long as they applied before July 2.

There’s a small catch, however. Commercial aggregators will no longer be allowed to participate in the microFIT program, but will still be able to participate in the larger FIT (10 kilowatts and up) program. The government didn’t like the idea of aggregators merely leasing rooftops and then building and owning the systems, saying it defied the spirit of the program, which was to get households, farmers, communities, First Nations, etc… to participate directly on their own. I have to say, I *completely* agree with them there.

The OPA also announced it will be establishing a new advisory panel that will provide advice on program evolution, including the two-year FIT review process. The advisory panel will be made up of industry, academic and other stakeholders. I should point out that an attempt will be made to accommodate commercial aggregators of smaller projects, but it will be done outside of the microFIT program using a different set of rules to be established partly by the new advisory panel.

“The OPA has received almost 19,000 microFIT applications since the program was launched less than a year ago. More than 6,100 conditional offers have been sent to applicants and almost 800 microFIT projects are now feeding clean energy into Ontario’s grid,” according to the agency’s release today. “The OPA is working to respond quickly to microFIT applicants. Most ground-mounted applications that have been submitted will be processed by the end of September.”

Kudos to the government and OPA for putting meaning back into the word “consultation.” Showing a willingness to listen and change direction restores confidence in the process and the program, and the fact an advisory body has been set up to avoid future surprises can only help.

Now, I predicted the CIBC announcement would encourage other major Canadian banks to follow, but TD’s effort is rather half-hearted. The company put out a press release yesterday pointing out that its lending businesses are financing a number of green energy projects approved under Ontario’s feed-in-tariff program. “Small business owners, schools, retailers, agricultural businesses, solar panel manufacturers and installers, utilities, and others are encouraged to talk to TD about their financing requirements for solar power and other renewable energy systems,” the bank said in a statement.

TD is focusing here on the microFIT — that is, projects under 10 kilowatts — so this is an appeal to small business specifically. There’s no indication yet whether TD is prepared to tackle financing for larger projects in a coordinated, targeted fashion. And even with this release, all the company is saying is “come talk to us, we’ll listen.” The first sign this is a half-hearted effort is that TD offers up a quote from its chief environmental officer, Karen Clarke-Whistler. A senior executive, yes, but a person you’d expect to weigh in. What I’d like to see is the president, chief operating officer, etc… somebody at the very top that’s signalling the bank’s commitment to this area. I’d also like to see a sign that TD is preparing to develop a group or team or whatever that’s focused on the opporunities — both small and large.

TD is going to have to do better than this.

Ground-mounted solar represented 76 of the projects and amount to more than 600 megawatts. Northland Power, a company normally associated with building natural gas plants, has 13 solar projects totalling 130 MW. Onshore wind projects number 47 and waterpower projects number 46. The Ontario government called this the “single-largest green energy initiative of its kind in Canada,” while environmental and pro-green industry groups called the contract approvals historic. No doubt, criticism will follow from the usual suspects who continue to crap on any green-energy programs.

Significantly, 264 MW worth of projects have been identified as “community power”: projects developed, owned and operated by Ontario landowners and groups comprised of First Nations and energy co-ops — in other words, not by corporations.

The province said this latest round of projects will create 20,000 direct and indirect jobs, though I’ve always found it a mystery how they come to those numbers and take them with a grain of salt. It also estimated it will result in $9 billion in private investment, a figure that’s boosted by local content requirements.

The big surprise: a contract was issued for a 300 megawatt offshore wind project in Lake Ontario, near Kingston’s Wolfe Island. It’s sure to be a controverial project, but it represents the first time *in the world* that a power-purchase contract has been granted to an offshore wind project in the Great Lakes. It’s also the largest single approved project under this entire FIT round. Click here for a breakdown of the 184 projects.

The company behind the Wolfe Island Shoals Windfarm is a company called Windstream Energy. Don’t know much about them, but they’ve got their work cut out. They would have had to put up more than $3 million in security deposits to participate in the FIT, so I’m assuming they’ve got lots of wind data and have done the necessary studies (bird, bat, etc…) to move the project forward. But even so, they’re going to face the wrath of an angry Wolfe Island residents association, which is having a hard enough time accepting the onshore turbines there. “If they’re directly in front of Wolfe Island it’s going to be a firestorm,” said one industry observer. Got that right.

More to come later…

I had a feature this weekend in the Toronto Star about the cap-and-trade system coming to Ontario and the likelihood an offsets market will be created a year or more before the 2012 launch of the program. The government here is working hard to align our own provincial system with the Western Climate Initiative, in which it is a member, as well as the Waxman-Markey bill under consideration in the United States (which will likely set the North American standard). The idea of allowing a carbon offsets market to emerge in advance of the cap-and-trade launch is a smart one, as it gives industry a way to prepare and it stimulates offset project development before the final cap-and-trade rules go into effect.

But here’s the problem: A good portion of offset projects are also electricity generation projects, such as wind, solar, biogas and hydroelectric. But in Ontario, if you want to sell your electricity to the power authority you sign a 20-year deal under a new feed-in tariff program. The tariffs are generous, but most developers are also hoping to keep the carbon credits they would qualify for so they can be sold as offsets.

Unfortunately for them, the Ontario Power Authority’s contract for power purchases stipulates that it — and by “it” I mean the Ontario government, which is ultimately the Ontario ratepayer — gets to keep all environmental attributes. This raises a number of issues:

First, by keeping the credits will this discourage green-energy development, which would be ironic given that the government’s new Green Energy and Economy Act was created — and highly touted, I should add — for the sole purpose of stimulating such development and the jobs that come with? It’s certainly possible, since it’s tough these days for developers — particularly smaller local developers — to raise capital for projects.

Second, what does the government plan to do with these credits? Will it sell them on carbon markets and throw the cash in the general treasury? Will it sell them and dedicate the revenues to a special clean energy fund aimed at stimulating further green power development? Or, will it simply retired the credits?

Personally, I think it has no choice but to retire the credits. The whole justification for having Ontario electricity consumers pay a premium for their power over the coming years is based on the idea that we must do our part to tackle climate change, and we must set an example for other jurisdictions to follow. But if the government, say, sells the credits to Ohio or Michigan so those states can go on burning coal, how is that fair to Ontario ratepayers — i.e. How can you explain to Ontario ratepayers that they’re paying a green premium so that other jurisdictions can go on polluting? Sure, the money from the sold credits would come back to ratepayers (maybe), but then what would be the sense in the end of pursuing green energy in the first place?

Finally, what carbon credits are the Ontario Power Authority justified in keeping? I can understand — and generally support — the reasoning behind keeping carbon credits related to indirect electricity displacement. That is, the amount of carbon that’s avoided when solar or wind power or any other renewable displaces fossil-fuel-based power generation. It’s here where Ontario ratepayers have the right to keep those credits and see them properly retired. But some renewable power developers, such as those collecting biogas from anaerobic digesters and landfills, have a strong argument for keeping at least a portion of the credits.

Here’s why: Biogas-based power generation both displaces fossil-fuel-based electricity and it destroys methane, a greenhouse gas that’s 21 times more potent than carbon dioxide. You can earn carbon credits from methane destruction, even if you just flare the biogas instead of burn it to produce electricity. Given this, why should the power authority have the right to those credits? The agency’s reach, one could argue, should be limited to the portion of a project that deals directly with electricity generation.

Biogas projects are important to Ontario. They can supply dispatchable renewable power that displaces fossil fuels. Anaerobic digesters can kill bad microbes from livestock manure that can contaminate water systems (remember Walkerton?). And they keep methane from slowly creeping into the atmosphere.

They should be encouraged, not discouraged. This means flexibility of policy, and a recognition that not all projects and technologies are created equal.

NOTE: If you want to keep up to date as the Ontario government develops its cap-and-trade program, visit www.carbonomics.ca (the URL is mine, which I forwarded to the government site because it had an insanely long URL. I’ll likely keep the link in tact for at least a few months)

NOTE II: I’m not a fan of cap-and-trade, because it’s complex to set up and it adds another thick layer of bureacracy to government. It also creates a new class of lawyers, accountants, etc… who take their cut of the action, and it’s so complex that there’s room for abuse — not unlike the abuses that set off the derivatives crisis that helped plunge the global economy into recession and almost led to a collapse of Wall Street. I’d much prefer to see a carbon tax, which is more efficient and transparent and less open to abuse. But cap-and-trade seems to be the way the world is going, so who am I to question it?

Highlights:

• 80.2 cents per kilowatt-hour for rooftop solar.
• 19 cents for offshore wind of any size (first jurisdiction in N.A. to set price)
• 13.5 cents for onshore wind of any size
• 14.7 for biogas under 5 MW.
• 44.3 cents for 10-MW-plus solar, sliding to 71.3 cents as projects scale down to 10 kilowatts.

The government will commence eight-week consultation process and expects to have the prices in effect this summer. More to come….

UPDATE: Here’s an article I just filed to the Toronto Star’s Web site. It contains more info regarding the proposed tariffs. Ontario introduced basic feed-in tariffs two years ago under its standard offer program, but project size was capped at 10 megawatts. The new advanced feed-in tariff program lifts the cap (though solar is still capped at 10 megawatts). It also offers higher prices for smaller projects, such as community-based wind and solar projects or residential solar. Most groups seem happy with the pricing with the exception of large solar developers, who despite getting a 2-cent increase to 44 cents per kilowatt-hour still argue it’s not enough to make projects economical (especially if you factor in poor Canadian-U.S. exchange rate and persistently tight credit markets).

Of course it remains to be seen whether this new feed-in tariff structure, despite being generous and being first on the continent, will be enough to attract investment, development, manufacturing and jobs. Curious to hear viewpoints on this.  Michigan introduced a bill last year that proposed similar advanced tariffs but it never got passed. Hawaii has proposed less ambitious tariffs, but Ontario’s will be first to go into effect and will be the most ambitious to date.