Gloom lifted on solar prices: OPA listens and responds to applicants with its decision on the microFIT rate

On August 13th, the Ontario Power Authority (OPA) released its much anticipated decision on the proposed price cut to Ontario’s renewable energy feed-in tariff (“microFIT”) for ground-mounted solar installations that are less than 10 kilowatts (kW) in capacity.

The new rate will be 64.2 cents per kilowatt-hour (¢/kWh) and will be applied to those who submitted applications as of July 2, 2010. Originally, the OPA had proposed to cut the tariff rate from 80.2 ¢/kWh to 58.8 ¢/kWh – a steep 27 per cent reduction.

The Environmental Commissioner of Ontario, Gord Miller, applauds the OPA’s decision not to make the price cut retroactive. It will not affect the price received by microFIT applicants who submitted an application before a proposed price change was announced. Miller said, “this shows due consideration for the applicants who designed projects and arranged financing based on a price and rules that were agreed to following consultation in 2009.”

“The OPA clearly listened to the advice it received during consultations from the applicants and industry who are the first movers that will help build a green economy, and that is encouraging – the OPA’s consultation process worked”, said Miller.

In future, to ensure predictability and stability for investors watching Ontario’s renewable energy industry, the process must be transparent and open. The decision to establish a program advisory panel is a positive step.

Related:

• Ontario’s solar sector is being harmed by uncertainty around microFIT, July 21, 2010
• Rethinking Energy Conservation in Ontario, first Annual Report on the progress of activities in Ontario to reduce or make more efficient use of electricity, natural gas, propane, oil and transportation fuels.

The Globe’s editorial on the microFIT program (“Beware of solar energy windfalls”, July 26, 2010) misses the point. My big concern is that the Ontario Power Authority (OPA) is going to retroactively penalize individuals and applicants who were simply following OPA rules in setting up small-scale solar projects.

I agree the microFIT prices should be reviewed regularly. However, the OPA waited until approximately 11,000 applications had been submitted, before announcing a cut in the tariff rate that would retroactively apply to those applications. This shocked and angered applicants who had invested their time and money based on the assumption of the higher rate.

Furthermore, the OPA has not provided enough information to determine whether the new rate is fair and appropriate. My request for their financial analysis led the OPA to quietly, and without notice, revise their published rationale for the new rate. The earlier justification had talked about the “return on investment” of a hypothetical project.  Now they are using the term “return on equity,” a subtle but important distinction prompted by my intervention.

A less punitive approach on this issue would have been for the OPA to temporarily freeze accepting any new applications, and then follow up with an open public consultation using the Environmental Registry. This would have minimized cost to the Ontario government, without alienating the very people Ontario needs if it is to develop its renewable energy sector.

Gord Miller
Environmental Commissioner of Ontario

commissioner@eco.on.ca

After the OPA cut the microFIT program rate for ground solar installations, they released a rationale of their reasons. Click here to read their rationale.

I did some back-of-the-envelope calculations on their numbers (at the bottom of the page). For convenience I’ve reproduced them here:

Understanding that calculating return on investment (ROI) is a complicated matter, dividing annual revenue by installation costs can be a good quick-and-dirty measure.  Indeed, using the numbers above for 58.8 cents/kWh, we get:

$9,800 (Annual Revenue) Ă· $90 000 (Cost to Install) = .108 (or 11% ROI)

This is consistent with the OPA’s figures.

However, if we run the numbers at 80.2 cents/kWh, we find a discrepancy.

$13,300 (Annual Revenue) Ă· $90 000 (Cost to Install) = .147 (or 15% ROI).

The OPA got a result of 23% when they did this calculation.

So what I want to know is, how did they get that number?

Gord Miller
Environmental Commissioner of Ontario

Also see: Ontario’s solar sector is being harmed by uncertainty around microFIT

The Ontario Power Authority (OPA) must fully disclose the financial assumptions it used to justify the price cut to Ontario’s renewable energy feed-in tariff (“microFIT”) program, says Gord Miller, the Environmental Commissioner of Ontario. “People will lose confidence in Ontario’s commitment to green energy,” he warned. “We need the full financial details used to justify this price cut.”

On July 2nd, the OPA proposed reducing the tariff rate for solar energy under Ontario’s microFIT program. It said the change would lower the unreasonably high rates of return that project developers receive on their investment. (Click to read their rationale, released July 14.)

Interested parties have until August the 3rd to comment on the proposed changes, but Miller says “you can’t have effective consultations if all the facts are not being released.” Using the powers of investigation given to him by the Environmental Bill of Rights, the ECO requested on July 16th that the OPA fully disclose the financial assumptions and methodology it used to calculate the new lower price. “So far,” says Miller, “I have not received a response.”

With the new rate, ground-mounted solar installations would receive 58.8 cents per kilowatt-hour (kWh) for the electricity they produce. The earlier tariff of 80.2 ¢/kWh would only be paid for rooftop solar installations. This 27 per cent cut in revenue affects installations that generate less than 10 kilowatts (kW) of electricity, and typically are installed on residential properties, farms and small businesses. About 11,000 applicants proposing to install ground-mounted solar power would be affected by this looming cut.
Ontario’s solar industry has hastily called a town hall meeting to discuss the causes, impacts, and solutions to the rate change. It will take place Thursday, July 22 from 7 – 10 pm at the Hilton Garden Inn in Vaughan, Ontario. More than 200 people have already registered for the event.

For further information contact:

Hayley Easto, Communications and Outreach Coordinator
Office of the Environmental Commissioner of Ontario
Tel: (416) 325-3371 / Toll free inquiry line: 1-800-701-6454
hayley.easto@eco.on.ca