Ground Mount Compromise

Wow. The Ontario Power Authority, no doubt pushed by their political masters, backed down. They have announce a new compromise on pricing for small scale (<10 KW) ground mounted solar. The new price will be 64.2 cents/kWh, down from the original 80.2 cents, but up from the 58.8 cents announced earlier. But most importantly they will honour the original proposed price of 80.2 cents for all those who had submitted applications before the price change.

The importance of honouring the price for existing applications cannot be understated. One of the main purposes of the Green Energy Act has been to create a new industry, with the jobs that flow from it. By honouring the price for those who had applications in, a measure of confidence in the market is restored. That should help investment in new plants to make everything from racking systems, to wiring solutions, to panels and inverters. Confidence in the market is critical to investment. The OPA had suspended approval of applications for as long as 5 months while it sorted through the issues – a suspension that makes it very hard on the industry to manage. The industry needs a steady flow of approved applications, not big chunks, followed by nothing.

If the OPA had stuck with their original position, there would have been bankruptcies and layoffs. I heard of a company that 11 containers of materials on the way when the first announcement was made. No doubt their order backlog along with their cashflow would have evaporated. And they are one of many companies that would have had difficulty, with customer deposits lost, contracts broken, and inventory piling up unsold. The OPA has now reduced these problems.

Will the 64.2 cents work? My calculations with my assumptions give it a rate of return of a little over 7%. That is below the target rate the OPA has set of 11% return on equity. At a 7% rate of return, not much deployment can be expected. Of course my assumptions might be wrong. Maybe the maintenance will be less, or the cost less, or the production more, or the residual value higher. But maybe not. It is not an investment I would be rushing to make – the return is too small for the risk incurred.

Another key part of the announcement was that they are going to devise rules to deal with aggregators. These are firms that sign leases with landowners to install the groundmount solution. Creating definitions that work could be difficult. After all, if the rule says that only the account holder can receive the income, then even obtaining bank loans for purchase equipment could be difficult.

While most people will focus on the price, the announcement has an even more important item. The OPA will create an advisory panel, so they can perhaps avoid the type of mistake they just made.

My hat is off to the OPA. They have come up with a mostly workable compromise. Now they need to get to work on the next step – approving applications in a steady flow, so the industry can begin to install and grow.

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