STABILITY MATTERS – NEW ENERGY IN ONTARIO COULD BE A NORTH AMERICAN STANDARD OR NOT ENOUGH COMMITMENT

Leaders around the world are touting New Energy’s potential to reinvigorate their listless economies and they are bringing forward incentive programs to ignite New Energy growth. In Ontario, Canada’s most populous province, Premier Dalton McGuinty and Minister of Energy and Infrastructure George Smitherman are set to push through Bill 150, the Green Energy Act, which they believe will not only reverse the province’s dreadful job losses but will become the template for New Energy development in North America.

While many in the New Energy community think McGuinty and Smitherman are right, a wind power study by academics Guy Holburn and Charles Morand finds the plan, though substantial, may have a serious flaw.

Because McGuinty and Smitherman control the majority vote in Ontario’s parliamentary government, Bill 150’s passage – following respectful debate with the loyal opposition – is virtually guaranteed. Proponents believe it will jet Ontario, which has been losing jobs by the tens of thousands as a result of a failing auto industry closely tied to the Detroit industry right across the border, to New Energy leadership in North America.

By establishing priority access for New Energy to the province’s transmission system, establishing a feed-in tariff that will make building New Energy a sure bet and by guaranteeing opportunity for community cooperatives and native peoples, Bill 150 appears to offer every incentive to growth. Studies suggest it could drive the development of hundreds of thousands of New Energy economy jobs.

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The problem, according to the academics, is that too much is left in the hands of elected officials. This leaves New Energy vulnerable to the vagaries of larger political forces.

One thing is clear from 4 and 1/2 years of disappointing Ontario New Energy growth, not to mention a decade of rising and falling production in the U.S. wind industry due to inconsistent policies: Government policy must be consistent if it is to drive consistent growth.

One thing is not clear: Does Bill 150 increase or decrease New Energy's vulnerability to political infighting?

The government and the academics agree Bill 150 has lots of good things. Perhaps the most important immediate provision is that it amends the provincial Electricity Act and requires utilities to provide priority access to the grid for New Energy. Like the Feed-in Tariff (FiT) it supports, priority access is one to the keys to the success of Germany's Renewable Energy Sources Act, the law that underpins Germany’s rise to world leadership in solar energy and wind energy generating capacity.

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A Feed-in Tariff (FiT) is a guaranteed above-retail rate (a tariff) paid to anyone who generates New Energy. The much more common Net Metering programs in the U.S. and elsewhere typically reward system owners at market rates for the energy they generate up to, but not beyond, the energy they consume.

With an FiT, those whose solar, wind, geothermal and biomass systems qualify are rewarded at above market rates for all the energy they generate. In its initial stage, the FiT is guaranteed over an extended 15-to-20 year period but drops off (degresses) at a fixed rate (degression rate) as capacity grows and economies of scale drive costs down and the profitability of New Energy up independently of the need for incentives.

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Ontario introduced its first FiT in 2006. 1500 megawatts of New Energy were promised but flaws in the program’s design and implementation resulted in the development of only 75 megawatts of new capacity. Ontario’s redesigned FiT is expected to be in place ahead of the one Hawaii is scheduled to implement in July 2009. These will be the only North American states with FiTs, though the municipality of Gainesville, Fla., has established one and many other U.S. states are beginning to seriously think about such a program because of the success it has shown in Germany, Spain and France.

In hopes of avoiding the failures of the province’s first FiT, the McGuinty/Smitherman Green Energy Act is short of concrete provisions for its FiT. Instead, it leaves the writing of the specifics to the premier and his ministers.

When Bill 150 passes, Ontario’s Minister of Energy will "direct" the Ontario Power Authority to develop an FiT with rules, contracts and pricing according to "…energy source or fuel type, generation capacity and the manner by which the generation facility is used, deployed, installed or located…" The redesigned FiT more resembles the successful European programs, suggesting the province has learned from its past mistake.

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Will it work this time? Is it a template for U.S. states or for the United States?

In "Regulatory Risk and Private Investment in Renewable Energy Technologies: A Study of the Ontario Wind Power Sector," Holburn and Morand surveyed 63 wind developers and made a thorough study of Ontario’s preceding incentives.

The basic question: Why did 4 and 1/2 years of efforts produce less than 50% of the province’s targets?

The basic answer: Policies have been implemented not by legislation and regulation but by politicians that come and go and have therefore been inconsistent.

The obvious question: Does Bill 150 rectify the situation?

The academics’ answer: No.

Holburn: "Ontario has been considered a risky jurisdiction for renewable energy investors. The new Green Energy Act removes some of the uncertainty around municipal permitting and grid connection policies…However, the Act does not establish long-term targets for renewable capacity. Instead it leaves key decisions on targets and power pricing in the hands of the Minister, who can easily change policies if political priorities shift."

Under the Green Energy Act, the Ontario Power Authority is responsible for implementing policies but the Minister of Energy and Infrastructure, who comes and goes with parliamentary leadership, has extensive control through unlegislated directives. The Green Energy Act unfortunately broadens previous Ministerial powers, potentially exposing New Energy to political vagaries.

On the other hand: Alloting some measure of control over New Energy policy to the executive branch could be a way of offsetting the ability of a minority of conservative legislators to interrupt consistent support for New Energy as a recalcitrant minority of Republican fossil fools in the U.S. Senate did in 2007 and 2008.

The U.S. wind power industry, the nation’s most successful New Energy sector, has for the last decade persistently sought policy consistency in the form of a long-term Production Tax Credit (PTC). The U.S. Congress has rewarded its efforts, intermittently, with 1-year extensions of the PTC. Wind's resultant performance substantiates the Holburn and Morand critique of Bill 150. Despite demonstrating enormous growth potential during periods when it was receiving policy support, U.S. wind power capacity growth dropped off 75-to-90% when incentives were withdrawn.

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The moral is clear: Consistency may be, as the wit noted, the hobgoblin of small minds, but consistent policy support is the cornerstone of New Energy expansion. Ontario’s leaders had best take notice.

The question: Does Bill 150's design increase or decrease the impact of politics on the growth of New Energy? That, as much as any other issue, is what Ontario's parliamentary debate must consider. It will be what the effectiveness of Ontario's Green Energy Act teaches.

Footnote for New Energy but a potential Headline in Human Rights: Bill 150 includes a provision to "facilitate the participation of aboriginal peoples." This is described as by one source as “…a groundbreaking development for First Nations and Métis communities in Ontario…” Considering how much wind power potential there is on U.S. Native American reservation lands in the Midwest and Pacific Northwest and how much solar energy potential there is on U.S. Native American reservation lands in the Southwest, this is a provision of which U.S. legislators might want to take serious cognizance.

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Green Energy Act Introduced to Ontario's Provincial Parliament; Feed-in Tariffs Key Implementation Mechanism
Paul Gipe, February 24, 2009 (Wind-Works.org)
and
New wind power sector study finds Green Energy Act not bold enough
February 26, 2009 (Your Renewable News)

WHO
Ontario Premier Dalton McGuinty; Ontario Minister of Energy and Infrastructure/ Deputy Premier George Smitherman; Ontario Power Authority; Ontario Sustainable Energy Association; Associate Professor Guy Holburn and researcher Charles Morand of Ontario’s Richard Ivey School of Business

WHAT
Ontario’s Bill 150, the Green Energy Act, may be a breakthrough in North American New Energy incentive programs. "Regulatory Risk and Private Investment in Renewable Energy Technologies: A Study of the Ontario Wind Power Sector" by Holburn and Morand say it may be flawed.

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WHEN
- The McGuinty government expects Bill 150 to be passed by the end of May.
- Because it is almost certain to pass, the government started a parallel process February 10 to work out administrative details.
- Hawaii will implement an FiT in July.
- The Holburn and Morand study covered Ontario New Energy initiatives over the last 4 and 1/2 years.
- Since mid-2008, Ontario has lost tens of thousands of auto industry jobs.
- Ontario introduced its first FiT, the Standard Offer Contract, in Fall 2006.

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WHERE
- Germany, France, Spain and several other EU nations have very successful FiTs.
- Ontario has the first North American FiT.
- Hawaii will have the first state FiT but Gainesville, Fla, has its own FiT and several other states (California, Florida, Inidana, Illinois, Michigan, Minnesota, New York, Oregon, Rhode Island, Washington, Wisconsin) are studying the concept.

WHY
- Bill 150, the Green Energy Act, includes provisions for New Energy, energy efficiency, building codes and project permitting. It I expected to create 50,000 new jobs in Ontario in the next 3 years.
- Before the financial crises, there were more people employed in the auto industry in Ontario than in Michigan.
- It is hoped Bill 150 will turn now idle auto industry factories into New Energy manufacturing (wind turbines, solar panels, etc) facilities.
- Ontario Power Authority will manage the FiT program.
- Ontario Sustainable Energy Association has been pushing for an FiT since 2004.
- The original Ontario FiT included only two rates, one for solar, and another for everything else. The new law will have rules, contracts and pricing by energy source/fuel type, by generation capacity, by how the generation facility is “used, deployed, installed or located…"
- Holburn and Morand surveyed 63 wind developers and all previous Ontario initiatives. They found the biggest source of failure was policy inconsistency and argue the Green Energy Act has the potential for even greater political pressures.
- Holburn specializes in utility regulation and stakeholder management.
- Provisions of Bill 150: (1) Priority Access to the Grid, (2) Community Renewables, (3) Aboriginal Renewable Development, (4) Allows Municipal Governments To Participate, (5) Creates a Renewable Energy Czar and (6) Orders Development of a Feed-in Tariff.


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QUOTES
- Frances Beinecke, President, Natural Resources Defense Council: “Addressing climate change requires a coordinated effort not only continentally but globally. Through this legislation, the Government of Ontario is moving the agenda ahead on the key issue of our time and we look forward to working with our neighbors to the north on tackling global warming.”
- Jenny Clad, Executive Director, The Climate Project: “Premier McGuinty's new Green Energy Act represents the change in thinking we need. Its far-reaching ecological and economic intent reflects Ontario's ambitious commitment to fight climate change and promote renewable energy. The promise of the Green Energy Act is clear - to transform Ontario into a low carbon economy and create tens of thousands of new green jobs in its wake.”
- Holburn: "Developers rate regulatory policy stability as one of the weakest aspects of Ontario's business environment…Concerns over policy stability and regulatory risk have led developers to invest in other jurisdictions or to price in a risk premium here in Ontario - implying higher rates for consumers. The Green Energy Act should go further by delegating more policy-making authority to independent agencies and limiting the scope for Ministerial directives.”
- Detailed presentation (1) on FiTs from Paul Gipe
- Detailed presentation (2) on FiTs from Paul Gipe
- Detailed presentation (3) on FiTs from Paul Gipe