Solar in Ontario: 2011 Preview

As part of our ongoing research, ClearSky Advisors has conducted more than 100 interviews with market stakeholders from every corner of the industry and regulatory system.  Through these interviews we have identified 10 key issues and their potential impact in 2011 and beyond.

1.  Public Opinion and Awareness: Because the solar market in Ontario is driven by policy, the single greatest predictor of the future growth of the market in Ontario is its acceptance by the general public.  To what extent the public understands and supports the idea of paying a small premium for cleaner energy from Solar and all of the associated economic benefits will determine the fate of this program. Positive public awareness in Ontario must grow considerably over 2011 for the market to maintain its momentum. 
2. The 2011 Ontario Provincial Election in October: The impact of the October election on the Solar market in Ontario is largely  - but not only - tied to the issue of public opinion, mentioned above.  The current governing Liberal Party introduced the Green Energy and Economy Act and associated Feed-In-Tariff program in 2009.  The opposition Conservative party, which is polling as the current frontrunner, has made rising electricity bills a major theme of its attack.  Both parties favor nuclear as a cornerstone of their energy policies and both seem willing to blame green energy on rising electricity bills.  In the lead-up to the election Tariff reductions are widely expected, but will those reductions be sustainable or too aggressive?  Would the Conservatives consider killing the program and risk backlash over killing jobs? Only time will tell.  But one thing is clear, in a province where it only takes 35-40% of the popular vote to elect a majority government, support for Solar must be broad-based enough to sway any political party that may come into power.   
3. Installed-Cost Reductions: As a very immature and fast growing market, many inefficiencies remain in the Ontario PV industry.  Expect 2011 to be a year of rapid learning for the entire industry, which will eventually bring overall installed costs per Watt peak down closer to world-market levels. 
4. Connection and Grid Constraints: 2010 brought significant uncertainty to many projects due to grid connection issues and grid constraints.  On the connection front, small-scale projects that were supposed to be exempt from capacity allocation were being told that they could not connect to they grid. Proposed changes to the program are likely to put much more power in the hands of local distribution companies and HydroOne (Ontario’s primary grid owner) than was originally intended by the FIT program.  If these connection issues cannot be resolved in 2011 they will significantly constrain the market going forward. For utility scale projects, the processes for approving connection have been delayed significantly.  Both the Economic Connection Test (ECT) and the related TAT/DAT processes have been mired in months of delay and opaque timelines.  By the end of 2011, it is likely that we will know much more about the appetite for future utility scale solar development in the province.
5. Permitting/ REA/ MNR/ ME/OPA/DC Plan/ESA/ etc.: Permitting is always a local issue.  And in Ontario, there is an alphabet soup of organizations, agencies, and permits that determine whether a project moves ahead or not (and how quickly).  In 2010 many projects were caught or delayed somewhere along the way. Many of the organizations responsible for issuing permits were not necessarily a large part of the inception of the FIT program and are still struggling to find the resources to keep up with demand.  2011 will, hopefully, be a year where permitting is streamlined (but not everyone is counting on it).
6. Program Review/Tariff Reduction: The FIT program is scheduled for its first 2-year review in mid-2011.  Because of the provincial election, this review will be highly politicized and is expected to include tariff reductions and program changes.  The governing Liberal party is likely to use the review as a chance to reign in costs to ratepayers – but they can’t afford to put renewable energy jobs at risk in the meantime. If the reductions or program changes are too severe, it will stall industry momentum and predicted jobs won’t materialize. 
7. Trade Disputes/ Free Trade Agreements: A key feature of the FIT program is the so-called domestic content requirement that stipulates which activities and equipment must be from Ontario in order to participate in the program.  Japan, and other countries, have been pressuring Canada and Ontario to remove the domestic content requirements because, they claim, it violates the WTO and other trade negotiations.
8. Defining Domestic Content: The Ontario FIT program has stringent stipulations for what development and manufacturing activities must happen in the province in order for projects to qualify for a FIT.  Specifically, module, racking and inverter manufacturers will not have their products used in FIT projects in Ontario without significant assembly occurring in the province.   The rules are clear for straightforward manufacturing processes.  But many participants have asked for rule interpretations for non-standard manufacturing such as blended-silicon or some thin-film technologies.   The overall supply of equipment in Ontario will be dependent upon the interpretation of these rules and 2011 will bring clarity to the market on these issues.
9. Financing: Financing for Solar PV in North America has never been straightforward – and the Ontario FIT is no exception.  The prospect of guaranteed rates for 20 years backed by the ratepayers of Ontario is attractive for lenders but the FIT contracts have unique characteristics that make financing difficult.  Some projects have already found financing and others are well underway.  At this point, it seems unlikely that financing will be a major stumbling block for development but only time will tell.  2011 will either be a year in which financing comes through or falls through.
10. Module Supply and Pricing: Will there or won’t there be enough modules to feed the market?  And what will the price be for that supply?  This will be an ever-changing dynamic in the Ontairo market over 2011.  A great deal of supply is expected to materialize over the coming year.  That, coupled with project delays and connection issues, may lead to sufficient supply and competitive pricing.  On the other hand, if a few suppliers do not materialize, or if a few large projects make significant headway in their permitting, there could be supply issues at various points throughout 2011. 

The creation of an entire industry in a province from scratch is no easy task – but the FIT program has been successful in attracting significant investment and employment to the province already.  Whether or not the program continues to be successful depends largely on how these issues play out over the course of 2011.