Change in Ground Mount MicroFIT Program

The Ontario Power Authority has proposed a major change to the MicroFIT program, and it has people hopping mad. The MicroFIT program is part of the Province’s Feed In Tariff program that allows people to generate power and sell it back to the grid. The OPA has proposed to reduce the tariff for ground mounted photo voltaic arrays to 58.8 cents/kWh from 80.2.

The Feed In Tariff (FIT) concept is new to Ontario – the program issued its first contracts late last year. The idea of the FIT is to pay a price that is high enough to allow costs to be recovered, and a normal profit to be made. Several other countries have used FIT programs to drive the solar business, resulting in substantial growth, and job creation. Ontario wants the same. The MicroFIT program is designed to make it easy for homeowners and business to put in small (10 KW or less) installations on their roof, or on a ground mount – either a rack, or a pole, which could include a tracker that allows the panels to follow the sun in their optimal position.

Some have criticized the tariffs for solar as too high. After all, we pay less than 10 cents/kWh to buy power from the grid – how can they pay someone 80 cents to generate? There are several good reasons to pay more. First, solar generated power under the MicroFIT is all used locally – it relieves the grid from strain, rather than contributing like large centralized generation plants do. This reduces grid losses. Second, it generates during the day, when demand and electricity prices are higher. Third, it produces especially well on long hot days in the summer, which matches the summer peaks quite well, and may well allow the system to avoid construction of peaking plants that are only required a few hours per year. So solar generated power is worth more that other power.

But the most important reason to invest in solar power is that it drives investment and growth in the solar industry. Learning curve theory says that as business expands, costs will be reduced. The estimate I have seen for solar is that every time the industry doubles, costs decrease by 20%. The industry has been growing by 40% per year for the last several years, so it doubles every 2 years. And costs have been coming down. Enormous amounts of capital have been attracted to the sector, providing funds for innovation in everything from cell efficiencies, to manufacturing methods and equipment, to inverters. And costs have come down a lot. If the cost of solar can continue to come down, we may end up in that wonderful place where we can have our energy from a non emitting and affordable source. Ten years from now, you may be teased by your neighbours for replacing a roof with asphalt shingles, and not installing solar instead.

So back to the reduction in the tariff. The OPA claims they are doing this because the 80.2 cent tariff is too rich – it allows people to earn an unreasonable profit when the price is 80.2 cents. My analysis doesn’t support this. It is true that there have been firms marketing ground mount systems and claiming high returns for the owner. Most of these claims are with tracker systems. But just because someone claims returns will be high doesn’t mean there aren’t risks, nor that the returns will indeed be high. Do the proforma number presented include maintenance cost on the tracker? After all, it has moving parts, and none of the trackers proposed have been in use in Ontario winters for the 20 year life of the contract. Do the proforma numbers include wind risk, and possible insurance issues? After all, trackers mount panels basically as a sail – will they stand up to winds safely? Again, none have been installed for 20 years in Ontario. Will inverters fail? Most people budget for a replacement every 10 years, but is that realistic? Do we have real life experience with today’s inverters for 20 years? The answer is no. So I believe the pro formas are very optomistic, and the returns less certain that the OPA seems to think. Only time will tell.

What will be the impact of the lower tariff? If my analysis is right, it is simple. There will be very few ground mount systems built. The principal of the FIT is pay enough to allow a reasonable return. I don’t think the proposed rate does. So this impact is serious enough. But there an even more important impact, and that is breach of faith.

The FIT program is designed to introduce certainty to the market. You file an application, wait for a maximum of 60 days (the service standard the OPA set for themselves), and you will be offered a conditional contract (conditional on the project being built). Once your facility is installed, you waive the condition, and you begin to receive payment. The program is set up with no limit – all applications will be approved. It is really more of a registration system than an application. Prices were to be reviewed every 2 years, with the next review due in 2011.

The program was overwhelmed. Applications submitted in February have still not been processed. As of last week, the program had received over 16,000 application, about 10,000 of which were ground mount.

I listened to the webinar and could hear distress in people’s voices. Some people trusted the OPA when they said there would be a 2 year price review. They trusted the OPA that contracts would be issued. But the OPA says they will make the 58.8 cent price apply to applications that are already submitted. While they are honouring the conditional offers they have processed, they are not honouring the spirit of the program that was so well received by the public. Because of the delays in processing applications, and because of the certainty of approval that the program seemed to offer, some people made deposits with installers, or even went so far as to install equipment. There are thousands of contracts that will need to be unwound. There will be money lost.

One man said, “I really feel I have been lead down the garden path on this.” One said that his Member of Provincial Parliament had received 100 calls so far. One mentioned that they had withdrawn funds from their retirement savings to install a system. “Why didn’t you tell us.” “We were tricked.” “They believed what you told them.” “By lowering the rate, it makes no sense whatsoever (to install a system)”. “You have lied to us. You have mislead us.”

As I listened to the webinar, I had nothing but empathy for the callers. A big part of me wanted to say “Welcome to the Ontario electricity sector.” You see, this is par for the course in this business where all that matters is government policy. Two weeks before I first produced power, Ernie Eves put in place a price cap on electricity. An election was coming – we better give the people cheap power (and we can all pay for it later). All of my prospective customers closed their doors. That was my first lesson. But since that time, the sideswipes are constant. Hydro One approves a 10 MW connection, then changes their mind, and only allows 6.6 MW. Hydro One quotes a price, and then delivers the work at 3 times the budgetted amount. The orange zone of death – an area that runs from Grand Bend to Orangeville to Meaford becomes off limits to all development for 5 years, because transmission is reserved the Bruce refurb. Samsung signs a deal allocating transmission ahead of all others, and in violation of the stated rules. Metering standards change, driving up costs. Approved points of connection are changed, resulting in the rework of contracts at considerable expense.

But there is a huge difference. This time, the policy change is hurting the citizenry, instead of just some developers. This time, the thousands of people who signed up are being hurt. They didn’t know that the electricity policy makers could treat them so shabbily. How could they? They are first timers.

There is an easy solution for the government and the OPA on this. And that is that they need to honour the 80.2 cent price on applications made prior to July 2 when they announced the price change. Would this be affordable? The answer is an unequivocal yes. 10,000 KW installed might produce 15 million kWh/year. The cost of this power at 80 cents is $120 million. The cost at 58.8 cents is $87 million. So this proposed price reduction saves the system $32 million. But this is an absolute highest possible number. The system will save from buying power elsewhere. The price is fixed for 20 years, so the savings in the system will increase. As the end of the 20 years, the projects will still generate power, trimming system peaks and reducing system losses at very low cost to the system. And the net cost to the ratepayer is less than 1 tenth of one cent per kWh. And that assumes that all the projects in the queue get built – but they won’t.

My prediction is that the government and the OPA will back down, and will allow the 80.2 cents for any projects who have submitted applications. The cost of doing that, and soon, is less than the cost of loss of confidence in the program.

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