Ontario’s clean power program is in place, but recent changes are making investors skittishBrian Gable
Ontario's feed-in tariff program elegantly kills two birds with one stone. First, it empowers the private sector to develop the clean power projects Ontario needs to meet its promise to close its coal plants. Second, it provides a big boost to green manufacturing with a target of creating 50,000 new jobs. For the FIT program to succeed, investors in projects and in manufacturing facilities need to remain confident that the program is stable and their investments won't be subject to unexpected or arbitrary rule changes.
Fifteen months after it was launched, the program is off to a good start. A total of 2,625 megawatts of FIT contracts have been signed, and many more projects are in the queue waiting for approval. A large number of international equipment makers are setting up facilities in Ontario, and many plan to make Ontario their base for North American operations.
Despite this auspicious start, recent changes to the FIT program are fraying the nerves of investors, developers and manufacturers alike. They have all spent time and money based on the assumption that the program will remain unchanged for the first two years, and many now worry that further program changes may scupper their plans.
There have been three important changes to date.
First, the Ontario Power Authority said last July it was reducing tariffs paid for power from 10-kilowatt and smaller solar systems. The OPA was swamped with more applications than expected and believed owners of these systems would earn higher-than-expected returns.
Earlier this month, the government began notifying about 1,000 homeowners and farmers who had already been offered FIT contracts that they won't be able to connect their systems to the grid because of capacity constraints. Some applicants had already begun installing their systems, so they're now stuck with significant bills and no idea when they can start to sell their power, if ever.
Finally, the government announced on Feb. 11 that all applications for offshore wind projects will be put on hold indefinitely, pending further research on their health and environmental effects. The developers behind these wind projects had already invested millions of dollars in them and were expecting a green light very soon.
Before the McGuinty government makes any more changes to the FIT program, it would be wise to note the starkly contrasting experience of two European countries.
The poster child for what to do right is Germany. The current Renewable Energy Law was passed in 2000 in the face of strong opposition. One party, the Free Democrats, opposed the law until 2009, when party members finally reversed their stand in light of the program's huge popularity and the jobs created. The Christian Democrats have argued at various times for lower rates but never for its cancellation. Germany's program has attracted billions of euros worth of investment and now enjoys the support of all parties.
The leading example of what not to do is Spain. The current program was established in 2004. In 2007, the government raised the rates significantly, leading to the equivalent of a solar gold rush and jumping Spain to first place internationally in new installations. The government slashed tariffs in 2009 and hit the brakes even harder in 2010 by introducing retroactive limits on how much power would be bought under existing contracts - a change now being challenged in court. The same governing party, the Spanish Socialist Workers' Party, has presided over all of these events. Spain's meddling with its FIT program has scared away investors, likely for years to come.
Ontario's FIT program is attracting investment, creating jobs and meeting Ontario's energy needs. Billions of dollars have already been committed to manufacturing plants and to projects. But recent events have made investors very skittish. If further changes are to be made, it would be better that they were broadcast well in advance and introduced only gradually. Investor confidence, after all, is easy to lose and very hard to regain.
David Oxtoby is CEO of CarbonFree Technology Inc., a solar power project developer based in Toronto.