Mixed Reviews for Ontario’s Feed-in Tariff

It’s been six months since the Canadian province of Ontario started its Standard Offer Program (SOP), which created the first feed-in tariff (FIT) in North America for renewable energy in over twenty years. The Ontario Power Authority (OPA) says the program has been a great success to date, but some solar advocacy groups are criticizing OPA for setting the solar tariff too low and not encouraging community-based renewable energy generation.

Ontario’s FIT is modeled after European tariffs, sometimes called advanced renewable tariffs, which have been successful in promoting renewable energy development. For example, Germany created one of Europe’s first FITs during the mid-90s and has since become the world leader in solar and wind capacity.

Often hailed as the best and fastest way to deploy a large amount of renewable energy, a FIT sets a price per kilowatt-hour (kWh) of generated renewable energy that is high enough to properly compensate the generator and make a project profitable. Utilities are then obligated to purchase renewable energy at that set price. Tariffs are usually lowered every couple of years based upon the amount of capacity installed.

Since last November, OPA has received applications under the new FIT for 65 wind, solar, biomass and hydropower projects totaling roughly 330 megawatts (MW) of capacity. According to OPA, those numbers are better than what was originally projected. However, there have been few applications for residential and small-scale commercial projects. This has come as a surprise to program administrators.

“I think we are actually exceeding our expectations in respect to total project capacity,” says Jim McDougall, Manager of Renewable Energy at the OPA. “We did expect a greater uptake of the smaller-scale projects. We understand that there is a lot of work going on out in the industry to line some of those projects up, but at this point we haven’t seen the number of applications that we expected.” 

Organizations like the Ontario Sustainable Energy Association (OSEA) and the Canadian Solar Industries Association (CanSIA) say that the low number of applications for small projects is due to an improper tariff price for photovoltaics (PV), set at CAD$0.42 per kWh, and for biogas, with a tariff price of $0.11 per kWh.

“Solar and biogas have been a tremendous disappointment,” says Paul Gipe, an advisor to OSEA. “In the case for biogas and for solar photovoltaics for residential and small commercial applications, the program is failing.” 

Gipe notes that the tariff must be raised in order to encourage more “community-based renewable energy development” from farmers, co-ops and groups of homeowners like is happening in Germany, where the solar tariff is $0.80. At $0.42 the tariff price set by OPA for solar is four times the price of retail electricity rates. Because utility customers pay a bit extra on their electricity bill to support the FIT, administrators say they don’t want to raise the price too high.

“We have a dual responsibility to meet the renewable energy targets for the province but also to ensure that the ratepayer value is there at the same time. So while some people might want to see $0.85 a kilowatt-hour paid for photovoltaic systems, there are certainly low income customers or industrial customers who are concerned about the bills that they will have to pick up at the end of the day,” says OPA’s McDougall.

The OPA, however, is not too worried about the lack of small-scale solar and biogas development. Because the Ontario solar and biogas industries are in their infancy, there is not enough infrastructure to support a “flood” of projects too early, says McDougall.

Not everyone in the solar industry is upset about the tariff price. Large-scale developers in particular hope to benefit since economies of scale are expected to lower the overall installed cost of a project.

OptiSolar, a company based out of Hayward, California, recently announced that it will build four 10 MW thin film solar power plants in Sarnia, Ontario and sell the electricity to OPA over a 20-year period. OptiSolar Farms Canada, a subsidiary of OptiSolar, has signed contracts under the $0.42 rate and is “quite happy” with the incentive level says Vice President Peter Carrie.

“There certainly is a debate about the rate here in Ontario. Everyone obviously would like higher rates, but for us the $0.42 works quite nicely,” Carrie says. “The renewable energy Standard Offer Program provides the financial platform to make the projects work.” 

The company says it will manufacture, install and maintain the systems, further reducing the total project cost. However, OptiSolar has not announced how much the actual cost will be and only says that the project it will come online by 2010.

Before the program began OPA estimated that they would receive applications for 100 MW of capacity per year. It has already received applications for 330 MW of capacity in the first six months, which administrators estimate will translate into about 100 MW of fully developed projects by the end of the year. Most of those projects will be wind farms and small hydroelectric dams, although one of the goals of the new program is to diversify the renewable energy mix as much as possible.

While not everyone is satisfied with the tariff prices, OPA says the program is encouraging more development of renewable energy. And because the FIT will be reviewed every two years, tariff prices can be changed based upon how the market is responding. That’s how the German, French and Spanish tariff systems are designed.

“To give the Ontario Power Authority the benefit of the doubt — Germany’s success with renewable energy was not built in a day,” says OSEA’s Paul Gipe. “It is a beginning, but there are problems with the program and we think some of the problems are serious enough that the Ontario Power Authority or the Minister of Energy should take immediate corrective action.” 

Editor’s Note: A Standard Offer sets the same price for all renewable energy technologies and project sizes. While Ontario’s program is called a Standard Offer, in application it works like an advanced renewable tariff because it sets a different price for each technology.
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I am a reporter with ClimateProgress.org, a blog published by the Center for American Progress. I am former editor and producer for RenewableEnergyWorld.com, where I contributed stories and hosted the Inside Renewable Energy Podcast. Keep in touch through twitter! My profile name is: Stphn_Lacey

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