MicroFIT Price Review 2014

The government has instructed the Ontario Power Authority to review the prices it pays for both the FIT and MicroFIT programs. The OPA plans to post its new price schedule by the end of September.

The FIT program is currently for projects from 10-500 kW, and the MicroFIT is for projects < 10 kW. Both programs have caps that limit how much can come on line. MicroFIT can be thought of as the solar residential and small rooftop program, since it is overwhelmingly a solar program.

The MicroFIT program limit for this year is 65 MW. So far, contracts have been issued for only 15 MW. In total, contracts have been issued for just 156 MW since the program began. The current price for MicroFIT is $.396 per kWh.

Why is the MicroFIT program failing to deliver anywhere near to the program cap? After all, this failure would seem to indicate that the price is too low, and needs to be adjusted upwards. But the problem with deployment lies not with the price, but with the restrictive program rules, and excess costs.

Financing is one of the big problems. The current contracts are not transferable to a lender who is exercising their security. This means if a bank has to seize a home due to a defaulted mortgage, they will not be paid for electricity produced. The result is banks will not lend against prospective electricity revenue, but rather, treats a solar asset like a new kitchen, which doesn't generate revenue. You can get a loan/line of credit if you have enough equity in your home, and if you have high income, but if you are already stretched, you can't get low cost bank financing, even though a solar installation pays for itself.

I have taken advantage of this hole in the lending market by making 7.5% interest loans, with flexible repayment terms to a small number of area homeowners. The loans can be repaid at any time, or are repaid back solely through solar revenues. I have a 100% repayment rate, but clearly this is expensive financing compared to what is available through banks. The cost of capital is one of the biggest costs for solar.

Fix the financing problem, which is a contract problem, and the cost of solar will go down, and many additional parties will be able to participate. The contract language in the FIT program works for lenders, but language in MicroFIT does not work.

Fixing the financing problem isn't just a matter of changing contract language. The OPA or Ministry should convene a summit of lenders to the mortgage market, use language that satisfies them, and ask for their active participation in financing the program. After all, there is more that $500 million invested in the program today, and the potential is far larger than this.

The current program is not eligible for small business. Businesses were excluded because of fears the program would get too big. The result is that restaurants, motels, self storage firms etc. cannot participate except in the larger FIT program. Why wouldn't we want to encourage the adoption of solar on fast food outlets, strip malls, gas stations or Mom and Pop emporia? The exclusion of businesses is not justifiable.

New buildings are not currently eligible. When the program was first rolled out, the price was far higher, and a few firms built buildings specifically for solar, which was basically an end run around the limits on ground based solar. But the problem arose in the first place due to a very lucrative price, which clearly does not exist now. New buildings should routinely eligible for MicroFIT.

It is not enough to just make new buildings eligible for the program. The OPA or Ministry should convene a summit of builders, to explain the program, and ask for builders to consider offering the solar option on new homes and commercial properties. Over time, builders will orient their offerings to the best solar exposure, and will offer the solar option just as they offer granite countertops. This is already occurring in the US. Combine this with today’s low interest rates, and you have major potential for cost reduction, and further price reduction.

Government fees on solar installations are out of control. When I installed solar on my home roof a few years ago, Hydro One charged $1150 to connect me. It took them less than 10 minutes, as they require all the work to be done by my contractor. Yes, there is the cost of the meter, and the cost of setting up the account, but the fee can only be considered gouging. Utilities must have learned about how to charge from the roaming fee profit centers of the wireless carriers. The OEB should set standardized rates, and force utilities to manage their costs, while maintaining a decent service level.

The Electrical Safety Authority fees are also excessive, at $250, again for a 5 minute inspection on standardized equipment. Instead of requiring an inspection, it would be more sensible to certify solar electrical contractors, and do spot checks instead of 100% inspections. This is how they ensure safe installations in Germany.

Rolling back the fees to reasonable levels will of course take some time and consultation. One of the purposes of Ontario’s FIT program is to position the province for the coming solar future, by gaining experience and a supply chain, with its associated employment, today. Fixing this problem will allow lower prices for ratepayers in the future, while still moving the province into the future clean energy economy.

Utilities have acted as a barrier to deployment through the implementation of arbitrary rules about how much solar can be installed in a given area etc. This is especially problematic in the Hydro One area. Hydro One is owned by the government, and should be ordered to lift restrictions on MicroFIT. After all, if California, Hawaii and Germany can do it, so can we. A summit or taskforce of utility engineers, including both the solar industry, OEB and utilities might be an approach to solving this one. While they are at it, perhaps the 10 kW limit should be reviewed. Projects > than 10 kW require CIA’s, which are costly, and very likely unnecessary for projects of 15 or 20 kW.

The current program limits MicroFIT installations to 10 kW DC. In the past, you were limited to 10 kW AC, but had no DC limit. The result was that many people would install 12 or 15 kW DC, with only 10 kW AC. A 12 or 15 kW DC system will produce much more power than a system limited to 10 kW, by “broadening the shoulders”, where the system peak is achieved earlier in the day, and last later. It also improves production on cloudy days, improving the likelihood of hitting peak output. With today’s low panel costs, increasing the DC capacity, if you have roof space, is cheap. More production with only a little more cost improves system economics, thereby increasing deployment. An easy change.

The program currently allows only one installation per property. This was put in place due to concern the program cap would be filled to quickly. Many rural properties have multiple buildings. Allowing multiple installations on one property is again an easy change.

Past actions by the government have hurt the solar installation business severely. When contracts aren’t issued for over a year, while the government figures out what its next step is, businesses close. Good people leave the industry. And the gains in know how and cost reduction are lost. Pauses in issuing contracts must never occur again.

The MicroFIT prices today are inadequate to overcome the added cost and restrictions imposed by program rules. But rather than increase the price to encourage deployment, it is the rules, and costs that should be reviewed. Fix these, and you will see deployment rise to reasonable levels, and costs decrease. In the long run, this will allow lower prices for solar for ratepayers.

Finally, there are those who question if we need solar at 39 cents/kW. But clearly solar is where the future of electricity is heading. In 2012, over half of new electricity capacity added was from renewables, and solar was a big and increasing part of that. Putting in place programs that work now ensures Ontario will have a leading role supplying products for the future.

Installing solar on rooftops is the most environmentally benign source of energy production available. Done properly, the program can drive costs down so that in just a few years, it will be as cheap or cheaper than other sources of supply, without toxic waste, or climate gases.

The benefits of solar on rooftops include local generation, with no line losses, no environmental impact, and of course jobs and economic development. It matches demand well – today, demand is increasing from a low of 13,250 MW last night, to 19,000 MW by 3PM. Solar is a good match with system demand. In the long run, as costs continue to decline, solar will be the least cost solution. Ideally, every rooftop with a solar exposure should have solar installed.

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