Cloud cover hits solar power profits

Jeff Green | Jul 15, 2010

Under the Micro-FIT program the Ontario Power Authority has signed contracts with about 16,000 operators of small solar power generating systems since September of 2009.

The power produced by these small systems, which produce 10 kw of power or less, is purchased by Ontario Power Generation at a price of 80 cents per kilo-watt hour, which is then sold to Ontario consumers for about 5 to 6 cents per kilowatt hour. The 80.2 cent price is guaranteed for 20 years

The Micro-FIT program, which was introduced amidst considerable fanfare just 10 months ago, was designed to be part of an energy solution that would allow the province to mothball coal-fired plants, which has been an elusive goal of the McGuinty government.

The provincial government knew that paying 80.2 cents to producers for a product that would be sold for a lot less would lead to an increase in electricity prices, but the idea was that Ontarians would be willing to pay a bit more because the increase was linked to greening energy production. Further, the impact would be mitigated because Micro-FIT systems would only be a minimal part of the overall electricity generating picture in the province.

Apart from its environmental cachet, it turned out that the Micro-FIT program made good business sense for individuals, with substantial profits available for the initial investment. As one investor told the News earlier this year, an initial investment of $65,000 for a 10 kw system, should yield $200,000 in revenue over 20 years.

The program has been a success thus far, but perhaps more of a success that was originally planned and the province now projects that the impact on the price of electricity could cost Ontarians up to a billion dollars more over 20 years.

This cost may have been apparent to the government early in the new year. The Micro-FIT program began to slow down early this spring. Demand was not the reason for the slowdown and a number of green energy businesses had already ramped up their capacity to put in solar systems and meet the demand. The slowdown has been bureaucratic.

In order for the 80.2 cent price to be guaranteed, an offer of contract needs to be secured from Ontario Power Generation, and the time lag between receiving applications and making the offer of contract has increased from a few weeks to several months.

Then on July 2 this year, Ontario Power Generation, acting on orders from the provincial cabinet, announced they were going to change the price. From now on, only systems mounted on the roofs of already existing buildings will be eligible for the 80.2 cents. Systems that are mounted on brackets sunk into the ground, which are known as ground-mounted systems, will only be offered 58.8 cents per kilowatt hour.

According to a release from the Ontario Power Authority, the change in price is reasonable because ground-mounted solar systems are cheaper to install.

“The proposed new price category will better reflect the lower costs to install a ground-mounted solar PV project versus a rooftop project. It will provide a price that enables future project owners to recover costs of the projects as well as earn a reasonable return on their investment over the long term,” said the release.

Ron Kortekaas, of Eco Alternative Energy in Sharbot Lake, disputes that claim. “At least in rural areas, ground-mounted systems are more expensive to install,” he said. “The cost of ground-mounted brackets is 3-4 times the cost of roof-mounted ones, and the labour costs are higher.”

The real reason that ground-mounted systems are being targeted, according to Kortekaas, is to put limits on the Micro-FIT program. “About 75% of our customers have applied for ground-mounted Micro-FIT, mostly due to not having enough usable roof space, wrong orientation, and shade trees around the house that they do not want to cut down” he said. “We have already lost four customers with this change, and we expect to lose more,” he said.

A number of individuals had gone ahead and ordered equipment or even had ground-mounted systems installed while waiting for their application for the 80.2 cent price to be processed.

With this announcement, those individuals will be faced with the lower offer, cutting the amount of money they can expect to receive over 20 years by 25%, and many are finding that the investment is no longer a good one.

Lanark Frontenac Lennox and Addington MPP Randy Hillier said he has received many calls from people in this position since the change was announced on July 2. “I've responded to over 100 people from the riding about this, many of whom feel the rug has been pulled out from under them,” Hillier said. “There are even people who have gone out and mortgaged their homes for this and are faced with hardship.”

Hillier said that back in March the “government people were pumping their chests about the 450 large scale projects that had come forward. Every one of those has been approved and a contract has been offered. But for the small scale rural projects there have been delays and delays and then the price was cut.”

He said he is encouraging people to file a class-action suit against the province. He also said that he would be rising on a point of privilege when the Ontario legislature reconvenes in the fall to ask the house “to admonish [Premier] McGuinty for his contempt of parliament. It brings democracy into disrepute when the government acts in this fashion.”

Political considerations aside, Ron Kortekaas is facing some immediate business issues. “We are finding it very difficult to maintain an eco-business and maintain full time staff. There have been a series of roadblocks put in place since the program was first announced, and with this latest change in the price it is lessening people's confidence in this program and our government.

“I thought the Green Energy Act was supposed to create Green jobs, shut down coal-fired plants and clean up the environment for the long term, not just a year or two,” he said.