Tuesday, November 2, 2010

Ontario's Solar Incentive Cutbacks: FITting in the Bigger Picture

Earlier this year, the provincial Government of Ontario came under heated criticism when its industry regulator, the Ontario Power Authority, abruptly proposed a rate cut to its microFIT (Feed-in Tariff) program. Coming just nine months after the program launch, the proposal was to scale back the tariff rate for ground-mounted solar PV installations from 80.2 cents per kWh to 58.8 cents per kWh. After a month-long consultation process in which industry proponents argued vociferously against the move, the Ontario Power Authority compromised and settled on a rate of 64.2 cents per kWh while essentially banning the practice of commercial aggregation under microFIT.  

There was considerable concern that the OPA's process as opposed to the actual decision could serve to  undermine investor confidence in the province's much-larger FIT program designed for big producers of energy from sources like the sun and wind. However, it is interesting to note that the OPA decision fits a wider trend affecting FIT programs on a global scale. Presumably still recovering from the Great Recession, many other governments have also reconsidered their financial commitment to renewable energy generation.  Some in a much less adroit manner than Ontario.  For example:
  • Germany:  Both the leading exemplar of how to develop a FIT program and also perhaps how to make effective adjustments on the fly, the government is teaching the German solar industry how to adapt to a much less lucrative home jurisdiction. Following an intense political debate, the German Bundestag decided to invoke a mid-year reduction to its solar FIT program. By early July politicians had agreed on a two-step reduction, with reductions taking place on July 1 and October 1, 2010. For a comprehensive summary of the changes check out the very thorough German Energy Blog.
  • Australia:  At the other end of the competency spectrum, we have the state Government of New South Wales (NSW). Overnight and without warning, NSW slashed its rates from the highest to the lowest in the country. The NSW Solar Bonus Scheme was introduced via legislation in 2009 and provided a FIT tariff rate of 60 cents (Australian) per kWh but starting October 28 is only offering 20 cents per kWh. Similar to the OPA, NSW found its program to be more popular than it anticipated and felt it needed to rein in its long-term financial obligation to renewable energy generation. And like Ontario, local industry has been in an uproar, suggesting the change will eliminate jobs and investments.
  • Spain:  On an even more serious note, the Spanish Energy Ministry has initiated a probe of over 9,000 cases with an eye to any potential fraud by proponents. It has already forced a new deal on 907 installations requiring that they accept 32 euro cents per kWh instead of the 46 euro cents to which they were originally entitled.
  • Italy:  In another sobering situation that goes beyond solar, the Italian government has become involved in embezzlement investigations of alleged criminal organizations that have attempted to take advantage of various renewable incentive programs. 
Abengoa Solar Platform, SanlĂșcar la Mayor, Sevilla (Photo by me!)
Despite all this seeming gloom, there is at least one international bright light for solar proponents. The penny-pinching coalition government in the United Kingdom announced a couple a weeks ago that it would improve the efficiency of its solar FIT rates at the next formal review. An attempt will be made to refocus tariffs on the most cost-effective technologies in 2014-15.  Leave it to the Brits to be true to their word.

One last point on the issue of FIT cuts is that proponents should keep in mind that these programs are actually designed to embed rate cuts at predictable intervals. The point of these programs is to provide the boost needed to get renewable technologies to be cost competitive with more established, but dirtier, energy options. As industry moves along their cost curves, the idea is to pass the savings on to the broader market and not have industry capture excessive returns. The question at this point is how best to provide predictability and incorporate public consultation into this decision-making process.  The partial answer in Ontario has been to create an Advisory Panel for the microFIT program which will hopefully ensure smoother price transitions in the future.

Without a doubt, there will be further incentive cutbacks as FIT jurisdictions adjust to the market responses they experience. Ontario appears to be safely applying a middle-of-the-pack approach to its adjustment process, but there is hope that it is starting to work towards being an international leader in working and communicating with its stakeholders.

Keep smiling,

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