Ontario Struggles with Solar Boom

Where’s the largest operational solar photovoltaic facility in the world? Not in California, Spain, Italy, or any other sunny location. Strangely enough, it’s in Ontario, a Canadian province known more for its long, snowy winters than its cloudless skies.

The sprawling 97-megawatt facility, located just outside the city of Sarnia and built by thin-film manufacturer First Solar, has been operating since October by Enbridge, a natural gas pipeline company based in Alberta. It’s an unusual sight in a region better known for its chemical refineries, but it’s also indicative of a solar boom that has made Ontario one of the fastest-growing markets in North America.

The growth comes at a cost. Ontario’s capital, Toronto, gets 20 per cent less sunlight per year than Los Angeles, meaning that right from the start projects are one-fifth less economical. So in 2006 the province launched a program that pays 42 cents per kilowatt-hour as part of 20-year power-purchase agreements. First Solar was among a number of developers to jump at the opportunity, seizing more than 300 megawatts worth of projects.

In the fall of 2009 Ontario replaced the program with a much more comprehensive feed-in tariff program, as part of a strategy to lure green manufacturing and investment while helping the province meet its goal of phasing out all coal-fired generation by 2014. The government maintains that the program is on track to create 50,000 green-collar jobs.

The program, modeled after similar programs in Europe but unusual in North America,  pays 44.3 cents per kilowatt-hour for multi-megawatt solar projects and up to 80.2 cents for rooftop systems below 10 kilowatts in size. (By comparison, Ontario residents pay about 10 cents per kilowatt-hour during peak times when solar panels are most productive, and when peak demand has typically been met by a mix of coal and natural gas.)

With those prices, it is little surprise that Ontario has been deluged with applications. In less than 18 months, more than 30,000 projects have filed for program approval, and so far, contracts totalling more than 1,400 megawatts have been offered, on top of 300 megawatts to be built under the older program. Not bad for a province that five years ago had less than a megawatt of grid-connected solar.

Some industry watchers worry the program will fall victim to its own success. For example, utilities are having trouble keeping up with connection requests. In January, more than 1,000 projects were put on hold because of grid-capacity constraints.

Meanwhile, the public has grown anxious about the program’s impact on future electricity rates, and opposition politicians are eagerly fanning the flames of discontent as an October election looms. The province’s Progressive Conservative Party, which is leading in the polls, has hinted that if it comes into power, it may cancel the feed-in tariff  program, creating uncertainty for investors and developers.

“This does give us cause for concern,” says Jason Gray, director of Canadian operations for solar developer SunEdison, which has more than 100 megawatts of projects built or in development. Gray says he understands the need to start reducing prices, but he warns against any reaction that will undermine confidence in the market.

It is expected that in any case, a program review this year will lead to a rate reduction. The question is how deep the cut will be. Regardless, the public perception of the impact of solar on electricity rates may be overblown. Program proponents argue that power from new plants of any kind—not just solar—is more expensive and that projected rate hikes in Ontario relate mostly to the cost of renewing infrastructure after years of underinvestment. They also say that the price of connecting solar to the grid, while high in absolute terms, is relatively low from a system perspective. The impact of solar on overall rates has so far been marginal.

Jatin Nathwani, executive director of the Waterloo Institute for Sustainable Energy, says the biggest problem with the program is that it discourages innovation by guaranteeing healthy profits for those who deploy older, more expensive solar technology. It also fails to adjust rates fast enough to account for rapid declines in the price of technology, meaning electricity consumers end up paying an unnecessary premium. “You will get a lot of solar projects and interest and some associated employment. But will it create a long-term sustainable industry with a bright future? I have my doubts,” says Nathwani.