The Ontario Power Authority’s upcoming revamp of the Feed-in Tariff (FIT) program—the initiative that governs incentives for renewable energy producers in Ontario—comes at a time when global headlines on the state of green energy are really quite dire.
Take the example of Germany, until quite recently the world growth leader in solar power installations and solar panel technology. Riding a decade-long solar power boom, German panel manufacturers had been forced to double and redouble their production capacity to meet demand. Then, over the past year, the German government made sudden and dramatic cuts to solar power subsidies, prompting some providers to shut their doors and those that remained to downsize and cut every corner they could.
The unexpected drop in demand for solar panels coincided, to devastating effect, with a sudden influx of cheap imported panels from Chinese suppliers selling at, or even below, cost. Germany’s burgeoning panel manufacturing industry was crippled, forcing suppliers to unload panels at fire-sale prices and close down their newly built plants. Top German solar panel brands Q-Cell and Solon have declared bankruptcy, and international firms like First Solar have taken heavy losses on their German holdings. At this point it is uncertain how long it will take the renewable energy industry of Germany to recover. And the stories in Italy and Spain haven’t been much different.
It’s no wonder then that observers raise an eyebrow at the timing of the Government of Ontario’s decision to launch the second phase of its own incentive plan. FIT 2.0—as the program renewal has been dubbed—continues to subsidize green energy, though at a substantially reduced rate. But Ontario Energy Minister Chris Bentley has taken lessons not only from phase one of the program but also from observing what has and hasn’t worked for countries like Germany. Perhaps, Ontario has become a beneficiary of the solar collapse that has happened elsewhere in the world.
Yes, the subsidies are being reduced. As they should be. The goal for solar power is to be able to compete on parity with conventional energy sources. The subsidies have always been intended as a short-term incentive for growth and innovation, not a permanent crutch. By reducing the subsidized rate aggressively, but not wantonly, the government has set a stretch objective that the industry can bear, allowing market forces to drive innovation and cost reduction.
Another insulating force that has kept Ontario secure against the implosion that has happened elsewhere is a very sensible provincial regulation requiring solar power providers to purchase their materials domestically. Ontario’s panel manufacturers, however are able to take advantage of the global drop in component prices to produce high-quality panels at a much lower cost. The result is that costs shrink while the province’s nascent manufacturing enterprises and the jobs they have created remain safeguarded.
The solar power industries in other countries have also been damaged by other factors such as complicated incentive programs and governmental meddling in technological development. In the United States, for example, the existing incentive program uses a combination tax credit system that rewards solar power installation owners with incentives based on capital invested. In other words, the larger and more expensive an installation is, the greater the tax credit. Under a system like this, the drive towards efficiency and improved technology is obviously dampened. The Obama administration has also taken a direct interest in specific technologies, investing heavily in manufacturers like California-based Solyndra and Arizona-based First Solar. Solyndra has since filed for bankruptcy and First Solar’s state-of-the-art thin-film technology has been severely devalued by a 50% cost reduction in traditional photovoltaic panels. These failures have resulted in such backpedaling on the subject of solar power in U.S. government circles, that it is uncertain whether the incentive program will continue at all. What’s more, artificially propping up these particular technological initiatives may have stunted research in more profitable directions.
Ontario, on the other hand, provides incentives on a strict per kilowatt-hour basis and lets the market drive innovation. It is up to the developers of projects in Ontario to determine how best to optimize photovoltaic production with the available technologies. The balance between incentive-based policy-setting and letting market forces guide the industry is a delicate one, but the Ontario Power Authority with FIT 2.0 is walking that tightrope.
So, despite the worrisome state of solar elsewhere in the world, intelligent energy policies in Ontario have somewhat protected the province and left us well poised to move forward into a sustainable future. In fact, though we would never have wished it on them, the hard learnings of others have, by driving down prices on the fundamental components of solar panels, created a perfect climate for solar power in Ontario. With that in mind, there couldn’t be a better time for the Ontario Power Authority to roll out FIT 2.0 and set a clear roadmap into tomorrow for the renewable energy sector.
Peter Goodman is the President and CEO of Solar Power Network, a Canadian company specializing in developing distributed rooftop solar installations to increase the efficiency and sustainability of Ontario’s power generation.