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Ontario's search for a solar system Add to ...

Just four years ago, Paul Ghezzi bought into Ontario's green-energy dream. But today the founder of the Ontario Solar Income Fund calls the province's much-touted solar strategy "an absolute disaster." His beef is specific-narrow, even-but it joins a widespread chorus of complaint. Ontario's solar revolution has been dogged by controversy, backtracking and confusion among manufacturers, power producers and consumers-not to mention a little entity called the World Trade Organization.

Of course, a politician as experienced as Premier Dalton McGuinty knows that government initiatives can have unintended consequences. But how did a policy that seemed so perfect go awry on so many fronts?

Back in 2003, Ontario had a power problem and McGuinty reckoned he had a powerful solution. Coming to office just months after a dramatic blackout, the incoming Liberals pledged to mothball the province's emission-belching coal power plants, clearing a path for a new era of clean air and clean power.

The new premier quickly learned that reorganizing an electricity system is a tough slog. The Liberals first had to push back the decommissioning of the coal plants, from 2007 to 2010, and then to 2014. Then they realized that expanding Ontario's system of nuclear plants would be a wildly expensive process, and one that might not be done in time for 2014.

All the while, another problem also pressed the government: The province's once-mighty manufacturing base was wilting, shedding tens of thousands of jobs as long-established industries struggled to keep up with offshore competition and shrinking demand.

Environmentalists urged the Liberals to look to the renewable-energy revolution in places like Denmark, Germany and Spain. These countries had discovered that they could solve their power problems as well as create jobs by promoting wind and solar. The key step was to introduce long-term subsidies for renewable energy producers. This would generate a crowd-sourced burst of power as entrepreneurs, farmers and even homeowners got into the energy business.

Inspired, the Liberals in 2006 set preferential rates for green power feeding into Ontario's grid, the first jurisdiction in North America to take such a step. By 2009, Queen's Park had jacked up the subsidies further and added a rider: Green-power developers would be obliged to source much of their materials in Ontario. Et voilà: Manufacturers would create jobs in Ontario, and the province could even become a supplier to other markets. Ontario could be on the cutting edge of the emerging green economy.

In 2007, Ghezzi, a Toronto private wealth manager, decided to establish a private equity fund to develop solar projects on the roofs of "big-box" commercial and industrial buildings. By the time he launched the Ontario Solar Income Fund in September, 2009, Ghezzi claimed to have $100 million in debt and equity financing, as well as a long line of eager property owners ready to put solar panels on their roofs. McGuinty's green energy subsidy-the "feed-in tariff"-promised 10%-to-11% annual returns for investors.

These days, however, Ghezzi is a study in frustration. The cause of the disaster, as he calls it, is the requirement that developers source at least 60% of their hardware in Ontario. The Liberals' theory, elegant as it was, did not conjure up an Ontario manufacturer of the lightweight "thin film" modules that Ghezzi's projects require. "Everyone's feeling a little stymied," sighs Ghezzi, who describes 2011 as a "make-or-break year."

That's not an overstatement. Last year, hundreds of farmers were gobsmacked to learn that Queen's Park was suddenly cutting its generous guaranteed rates for small-scale solar farms. In urban areas, homeowners who had installed rooftop panels under the first incarnation of Ontario's green plan were vexed by rule changes that put them at a financial disadvantage compared to individuals who got into the game more recently.

Meanwhile, the global solar firms now setting up production facilities in Ontario are nervously eyeing a World Trade Organization challenge launched last fall by Japan, whose officials argue that the Liberals have erected trade barriers. The United States and the European Union have asked to be included in the process, which could well take a year or more. Ontario officials are now in formal talks with the WTO.

The problems don't end there. A backlash is also brewing over the long-term effect on power rates, which will rise steadily to cover the cost of all those green subsidies. Could Ontario's solar industry be eclipsed before it even gets on its feet?

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