Our thoughts on the Ontario Power Authority’s intention to cut the ground-mounted microFIT rate from 80.2 cents per kilowatt hour down to 58.8 ¢/kWh:
1. A subsidy regime cannot be changing from day to day. Investors, businesses, and land owners will shy away from participating if the rules of the game can change so suddenly. The OPA said it planned to evaluate its FITs every two years; many developers who will be affected by this rate change applied for ground-mounted microFITs as early as January, 2010 – only several months after the microFIT rates were set. Many likely took out loans assuming the 80.2 ¢/kWh return. The month-long consultation period before the OPA formalizes the rate cut should act to mitigate the quicker than expected rate change, and the uncertainty that now surrounds the FITs.
2. That said, it’s more important to have a regime that’s sustainable, versus one that’s consistent. The fact is that this type of subsidy regime is relatively new, and it’s difficult to make long-lasting rules without complete knowledge of installation costs, industry participation, future electricity prices and demand etc. An illustration of this challenge is provided by the first Feed-In Tariff program, the Public Utilities Regulatory Policy Act signed by Jimmy Carter in 1978, which is now widely taken as a failure. While responsible for the development of 1,200 MW of non-hydro renewable energy capacity, the Act also guaranteed 1970s oil crises energy prices to project owners through the oil price dips of the 1980s and early 90s. Once the exorbitant returns of PURPA were realized, the program was gutted.
In all likelihood, energy prices are not going to come down over the next years. However, considering the number of microFIT applications received (out of 16,000, about 10,000-11,000 were for ground-mounted systems), continuing the 80.2 ¢/kWh would likely have resulted in unsustainable payouts and consequent electricity rate increases for the province. According to a Toronto Star article, the OPA estimated that the 80.2-cent subsidy could cost Ontario ratepayers an additional $1 billion over 20 years.
We thought that the microFIT rates were overly generous when they were drafted. It may sound self-serving, but flooding the market with cheap, inefficient solar panels will not foster a strong, sustainable domestic industry (think Spain), or represent the most effective use of resources (land, capital, etc.) in bringing down GHGs and other air pollutants.
Sun Simba panels will be viable nonetheless; we are planning the deployment of several microFIT projects for testing and demonstration later this year. Certainly, we’re well aware of the distress and uncertainty that this has put on the Ontario solar industry, and don’t mean to discount the challenges that the rate change brings. But this challenge also helps lead the way to solving a much more important one: bringing down the levelized cost of solar energy to be competitive with conventional generation such as coal.
As cuts last week to FITs and other solar subsidy regimes in Germany and Italy indicate, these programs are only meant to be springboards, to help markets transition – aggressively – to much more efficient, cost-effective technologies.
As usual, Tyler Hamilton has come out with a thoughtful review of the microFIT rate change. His opinion is that the lack of consultation and retroactive timing of the rate reduction sends investors in Ontario a shaky message. For this reason, he suggests the Ontario Government should honour its original price commitments, but put all new applications on hold until completing a tariff review.