Perspective adjustment

In previous posts, I’ve talked about the problem with the Ontario Green Energy Act (GEA): Around 40,000 FIT or MicroFIT applications have been submitted, but less than 5,000 contracts have been actually executed. In any FIT or MicroFIT project, three key players must give approval – the local municipality, Hydro One, and the Ontario Power Authority (OPA). The application-execution disconnect has arisen because the priorities of these three players are not aligned with those of the GEA. However, with just a slightly wider perspective, their priorities are much better aligned than they appear at first glance.

First, let’s take a look at municipalities. In some parts of Ontario, the building permit is a rubber stamp. In others, applicants encounter a huge headwind during the permitting process. The National Building Code of Canada, as the name suggests, is national. Ditto the Canadian Electrical Code. These governing rules don’t vary from one town to the next. Each municipality has its own bylaws, but none of these are likely to account for much of a difference in permitting. So what it comes down to is the permitting office, and the inspectors.

If these parties are conservative (or, dare I say it, lazy), they will be sceptical of new ideas, new practices, and new technologies. They will scrutinize applications for solar panel installations in a way they wouldn’t dream of for, say, a homeowner building a new deck on the back of her house. They will drag their feet. They will resist.

Where a fly-by-night installer is involved, one that has never contracted in the municipality before, and one whose work may be of suspect quality, this approach is prudent. It is the responsibility of the municipal bureaucrat to protect the homeowner, present and future, from the depredations of such swindlers. However, where the installer is reputable, experienced, and has a demonstrated track record in the area, this nitpicking approach is not warranted. By making a judicious distinction between new and established installers, and focusing scrutiny on the newbies, the municipality can actually provide a higher level of care and ensure closer compliance to code than if they treat everyone the same. So it is in the best interests of the municipality to fast-track the low risk cases.

Now, let’s discuss Hydro One. Their mandate is “the safe, reliable and cost-effective transmission and distribution of electricity to Ontario electricity users”. The key word is “reliable”. Currently, all indications are that Hydro One does not welcome the migration from centralized to distributed power, and views it as detracting from, rather than adding to, reliability.

If the folks at Hydro One believe that centralized power is inherently more reliable, they’re forgetting their training in failure mode analysis. Reliability comes from redundancy. Conversely, the single point of failure is the anathema of reliability. In our legacy centralized system, we have a very small number of generation facilities. Each of these is then connected to the grid via a small number of transmission and distribution lines. The chain is only as strong as its weakest link, and where there are single points of failure, a seemingly innocuous event can have catastrophic consequences. For example, the northeast blackout of 2003 was caused by a tree being too close to transmission lines somewhere in Ohio. The failure affected 55 million people across nine states and provinces.

In distributed generation, the electricity is produced and consumed at the same location. If there is also on-site energy storage (for example, in the form of the battery in an electric car), any excess electricity can stored for later use. Drawing power from the grid becomes the exception rather than the rule. If there’s a failure, it affects one site rather than millions.

If you multiply that many times over, the purpose of the grid gets turned on its head. Instead of being the primary power source (and one so failure-prone that many customers are forced to buy diesel backup generators to ensure they don’t get left in the dark), the local generation system is the primary, and the grid is the backup. Customers are generally self-sufficient, and even sell a bit of their excess to help out neighbours when there’s a temporary problem.

In other words, a distributed power system is far more fault-tolerant and reliable than a centralized one ever could be. If Hydro One faces this reality head-on, they will recognize that to fulfill their mandate, they must take immediate steps to ensure they are geared to embrace as many FIT contracts as possible, as quickly as possible.

Finally, there is the OPA. According to their website, their mission is to “ensure that electricity needs are met for the benefit of Ontario both now and in the future.” In other words, their job is to make sure there is enough electricity supply to meet demand. And one source of electricity supply is core to the OPA mindset: nuclear.

This is not fiscally prudent. Nuclear has the technical capacity to meet Ontario’s energy needs, no mistake. But the financial aspects of the technology are hugely off-putting. The down-payment, which you and I are obliged to pay, is huge. It is also virtually guaranteed to rise (by up to 250%, given past experience). All this before the plant produces its first watt of power. Once the plant is in production, there’s the risk of accident, and the huge attendant cost of damages and cleanup (the bill for Fukushima is expected to top $130 billion). And finally, there’s the long hangover after the party is over, where nuclear waste has to be stored and protected for generations to come. This cost profile has scared off most potential private sector investors and insurers, meaning that the work will have to be funded from, and ensured by, the taxpayers.

Contrast this with renewable energy. You and I don’t pay a cent until the system starts generating power. The costs of any repairs and maintenance are well-established, and in any case it’s the supplier that pays, not you and me. The systems (at least in the case of solar) are guaranteed to supply power reliably for decades. And we’re not beholden to one corporate giant that can threaten to shut off the juice if we don’t ante up – instead, there would be a vast number of individual suppliers, any one of which could disappear without leaving a ripple.

US oil billionaire J. Paul Getty once said, “I’d rather have one percent of the efforts of 100 people than 100 percent of my own efforts.” If the OPA hedges its bets and vigorously builds out a robust, small-scale renewable energy infrastructure, underwritten not by the taxpayers of Ontario, but by the suppliers themselves, the result will be a much more reliable, long-term energy supply with lower cost and lower risk.

In renewable energy, Ontario municipalities, Hydro One, and OPA all have the means to fulfill their mandates. They just need to adjust their perspective.

P.S. BrighterTomorrow was a day late this week, as I was working mightily to clear out my house before the closing date. That’s all done now, so we’ll be back on schedule henceforth! Thank you for your patience.

Grey skies, grim faces

Canadian electrons, or Danish?

This week I went to Community Power 2011, a conference presented by the Ontario Sustainable Energy Association (OSEA).

It felt like any of the bazillion conferences I’ve attended. Nametags dangle from lanyards adorned with sponsor logos. Keynote speeches – even from the mouthpieces of much-reviled organizations – are greeted with polite applause. Audience members queue up to speak their questions into faulty, intermittent microphones. People shuffle past slick trade show booths as they nibble bland and repetitive buffet lunches. Smiling schmoozers sip cocktails at the social hour and awards ceremony.

The attendees were an eclectic mix of equipment manufacturers, university professors, labour unionists, First Nations band council members, lawyers, engineering consultants, construction contractors, financiers, farmers, and bureaucrats. Their common purpose is to take our current paradigm of energy production and use – archaic, inefficient, environmentally destructive, and the exclusive preserve of massive corporations – into a new era where communities harvest and use their own energy efficiently, cleanly, and without bequeathing future generations a crippling debt and ruined planet.

This aspect lent the conference a feeling of purpose, of mission, of manifest destiny that I hadn’t experienced in any other. Everyone I spoke to shared a sense that the future of the world is in our hands, the solution to the world’s most pressing problem is within our reach, and we need to get on with the job.

However, the gathering had another novel aspect. Lurking just below the surface, creeping into podium speeches, popping up each time I struck up a conversation, was a pervasive sense of gloom. Developers are watching their contracts sit in limbo, so they are trimming their staff and wondering how long they have until they run out of capital. Manufacturers are shutting down production lines and hoping to sell off accumulated inventory. Potential customers have waited so long for their MicroFIT applications to be processed, they despair of their dream projects ever seeing the light of day.

Ontario’s Green Energy Act had promised to usher in a brave new world. This ain’t it.

The reason is clear, but the cause is not. Everyone knows that the FIT and MicroFIT programs – which allow individuals and organizations to produce and sell green power in the province – are horrendously backlogged. One speaker gave the figure of 43,000 applications submitted, but only 5,000 contracts actually executed. Somewhere in Hydro One, or the Ontario Power Authority, or both, a bureaucratic bottleneck is strangling an entire industry.

An industry in deep trouble is never a pleasant thing. But this isn’t just any industry. The future of our economy, our race, and our planet is at stake. If we get this wrong, we have ruined everything. So along with gloom was intense frustration. We are not just citizens of Rome, we are the firefighters, forced to watch the majesty of our city disappearing in flames while Emperor Nero plays his fiddle.

Who is our Nero? Is it Hydro One? Is it the Ontario Power Authority (OPA)? Is it some other player? Theories abound, some reminiscent of the daft conspiracies spouted by Internet trolls, others depressingly credible.

I spoke to one person who blamed the line workers of Hydro One. Many are approaching retirement, and will have to relearn their trade if they are to work effectively in a world of distributed rather than centralized power. They are the very people doing the connection assessments and then making the hook-ups afterwards. So, my conversation partner theorizes, they are dragging their heels for all their worth. The only solution is to clean house in a radical way, ditching the worst offenders and putting the fear of God in the remainder.

Another fellow conference-goer accused Hydro One engineers of over-the-top conservatism. Like all from this profession (I am one, so I know whereof I speak), they take the limiting parameters – voltage, current, resistance, etc. – from exhaustive laboratory failure testing, then add an arbitrary safety factor large enough to make them comfortable, then they use that as a rule for field practice. Trouble is, the Hydro One safety factor is much larger than that used elsewhere, particularly in places that have already deployed distributed power generation successfully on a large scale. Canadian electrons behave the same as Danish ones, so the discrepancy is hard to justify. This is especially galling to developers when it means the difference between Hydro One approving or rejecting their project.

Then there is the Customer Service Epic Fail camp. They point out that Hydro One has a certain mindset when it comes to all the little people out there at the end of the wires – they are ratepayers, they receive their electricity and pay their bills, period. Suppliers are another player in the Hydro One world, but they have always been large and few. FIT and MicroFIT have produced legions of small suppliers (actual and aspiring). The Hydro One people deployed to deal with this new beast are ill-equipped and too few in number. As a result, nobody can find out where their application is in the process, and odd things are happening – one applicant had a neighbour apply after they did, found out that the neighbour got connected, and then was told that there was now no room on the grid segment for any more projects. It’s enough to make a person throw a…to make a person go berserk.

My view is that while each of these theories has merit, there are two other big-picture explanations. First, although the GEA set targets for how much solar and other renewables would be in the province’s energy mix by certain milestone dates, it did not include a triage mechanism to expedite the highest-value projects (namely city rooftop installations – see this previous post). It also included no mechanism to regulate the flow of applications. The response from the public has been far larger than the program authors imagined, and both Hydro One and OPA were woefully unprepared. Now, instead of starting with the most beneficial projects and working down the pile, all projects are treated the same – and at the same glacial pace. As a result, the program will not yield all the benefits to the public that it could.

Second, and most importantly, the key players have not been given the right incentives and the right mandate. Hydro One is focused on grid reliability; anything that might interfere with that is the enemy. OPA is focused on long-term large-scale supply, so – in spite of huge public opposition arising from stranded debt and the Fukushima disaster – nuclear is their most attractive option. Dealing with a myriad of tiny suppliers is as delightful a prospect as being stripped naked, smeared with honey, and staked down on top of a fire ant colony. And local municipalities are concerned with safety, so that generally means approving the same way of doing the same things, and looking with deep suspicion on anything new or innovative, like, for example, solar panels or wind turbines.

Nobody has the mandate to ensure the GEA does the most public good, as measured by the most watts of usable green energy brought online to replace brown energy. Nobody has the mandate to rethink safety factors devised before most Ontarians were born. Nobody has the mandate to treat FIT and MicroFIT applicants like human beings.

Until these incentives and mandates are put in place, and backed up by an institution and/or legal framework with real teeth, the GEA will not live up to its promise.

And there will be more glum faces at Community Power 2012.

This too will pass

Earlier this week, the Globe and Mail described the tribulations facing several players in the solar photovoltaic (PV) industry (Solar power boom hits a wall, November 6, 2011). Cited in the article were the insolvency of Arise Technologies Corporation’s German subsidiary, the bankruptcy of US solar panel manufacturer Solyndra LLC, and the difficulties that Automation Tooling Systems Inc. has faced with its Photowatt division.

The article solicited nearly 200 reader comments. Most of these either decried the practice of feed-in tariff (FIT) programs as corporate welfare for the solar industry, or scoffed at the possibility that solar energy could be economic. When the issue of the Solyndra bankruptcy is discussed in the US, the banter goes in a similar direction, but worse so given that the policies of the Obama administration assigned half a billion dollars in loan guarantees to the company.

What do these tales of corporate woe really tell us?

One fallacy is that the solar industry as a whole is in deep trouble. The Canadian heartland of the industry is Ontario, thanks to the provisions of that province’s Green Energy and Economy Act (GEA). The opposition Conservative party took aim at the GEA in the lead-up to last month’s provincial election, casting a pall of uncertainty over the future of the program. When the ruling Liberal party secured only a minority government, it did little to allay industry concerns. Another blow was the regulator’s decision to grant Hydro One a reprieve from the GEA-mandated time limits for processing of FIT and MicroFIT applications; the Hydro One backlog has reduced the flow of new solar installations to a trickle. Finally, the in-progress FIT program review will likely reduce the rates OPA pays for electricity; this will render marginal projects uneconomic. How many remains to be seen.

This triple whammy – political uncertainty, the connection backlog, and the imminent reduction in rates paid to solar energy producers – has taken its toll on the industry in Ontario. Beyond the province, the picture is not all sweetness and light either. Worldwide, too many manufacturers have rushed to build capacity for PV cell and panel fabrication, and now there is a glut on the market. Prices for solar cells have fallen precipitously over the past year. Again, players that are on the edge of profitability are being pushed out of business.

If you’re an investor, this should give you pause. It is hard to tell which players will emerge intact from the current production glut. That is the key message of the article, but most readers appear to have missed it. The fact that a few players are struggling does not mean that the entire industry is doomed.

In the 1980s, electronics makers of every stripe rushed into the personal computer market. Stores were flooded with mutually incompatible machines from Texas Instruments, Coleco, Commodore, Radio Shack, and many others. Few could have predicted that in the end, only two platforms would survive: Mac and Wintel. The Coleco Adam and its ilk were relegated to the rubbish heap of history, many companies were bought or went bankrupt, and it was a nightmarish time for investors – but the industry as a whole not only survived, but boomed.

Another fallacy is that solar energy is not economic. It is true, in fact – in the same way that it’s true that my daughters aren’t earning any money. They’re still in high school, so it’s absurd to expect them to be earning their keep. But in a few years (I fervently hope) they will be on their own, thriving, and no longer dependent on me to support them.

Feed-In Tariff programs which stimulate investment in solar energy are the same way. The rate is high to start, all kinds of people decide to install solar panels to take advantage of the investment opportunity, and many competitors enter the market to meet that demand. The industry moves up the learning curve, and costs are driven down. Then the authorities can reduce the FIT accordingly. Some companies will be unable to stay profitable at the reduced rate, and they will struggle or fail. Others will find ways to improve efficiency and remain competitive. All the while the price per watt will continue to fall. Before long, solar will eclipse other entrenched sources of energy, and the FIT will be eliminated altogether. That trajectory is already built into FIT programs in Ontario, Germany, and Spain.

In some parts of the world, the sun has already taken its inevitable place as king of energy sources. Where the price of electricity is high, or the solar resource is abundant, or there is no existing grid infrastructure to supply artificially cheap fossil fuel or nuclear power, solar is already the best choice. No FIT required.

A final fallacy is that it is somehow wrong and corrupt to redistribute taxpayer dollars to one favoured industry. If that industry were harming the public, that logic would be sound – and, in fact, public harm is precisely the reality for the Alberta oil sands. Favourable tax treatment, lax enforcement of laws governing pollution of groundwater and rivers, and most of all the fact that the price of fossil fuels does not reflect societal harm they inflict (more frequent and damaging extreme weather conditions, coastal inundations, crop failure, and desertification), all amount to subsidies to this industry.

All Canadians (indeed, all people the world over) are currently subsidizing companies like Syncrude while they earn record profits and contribute directly to public harm. Ontarians are also subsidizing companies like Arise and Photowatt which struggle to turn a profit while they are busy building a clean, sustainable future for us all.

The solar industry is facing struggles. Solar energy is more expensive than non-renewable alternatives. Through FIT programs, solar energy companies are being subsidized.

For now.

Why don’t you stick that solar panel where it’ll do the most good?

In George Orwell’s Animal Farm, some domestic animals overthrow their masters and take control the farm for themselves. Their porcine leaders announce the farm’s new motto: “All animals are equal”.  However, the pigs gradually assume special status, revising the motto to read: “All animals are equal but some animals are more equal than others”.

In my October 5^th post entitled Power to the People, I spoke of solar power bringing about a new era of democratized electricity production. In a democracy, each vote carries the same weight (in theory, at least). However, when power generation is distributed rather than centralized, it cannot be this way. Much as it may irk rural dwellers, the urbanite matters more.

If a farmer sticks a ground-mount solar array in the corner of her field, the electricity it produces will go in part to offset the power that the farmer herself uses. The rest must make its way through the wires to the next consumer, with the inevitable transmission and distribution (T&D) losses. However, if a city dweller puts solar panels on the roof of their home, the resulting electricity will suffer almost no T&D losses before it gets consumed.

The authors of the Ontario MicroFIT program wanted to create a higher incentive for people in the city than in the country. They used the rooftop array as a proxy for urban producers, and ground-mount as a proxy for rural. That’s why, when you look at the rates offered to small-scale electricity producers, the rate is higher for rooftop solar compared to ground-mount solar.

That approximation is a bad one, for five reasons.

First, a person living in the country has a roof, too. That roof is less likely to be obstructed by other buildings, and hence is an optimal location for solar panels. Unless the power then has to travel over hill and over dale to get to market. So the MicroFIT program designers unwittingly created a big incentive for country folk to put solar panels on their rooftops.

Second, people who live in the country – farmers, especially – are very resourceful when it comes to squeezing every possible penny of value from what they’ve got. They have land. They want to get the most of it. So even though the rate for ground-mount solar is lower, putting a solar array in an unproductive corner is a no-brainer. Especially if a developer is willing to take care of all the heavy lifting to design, build, and finance the project.

Third, consider real estate turnover statistics. Rural properties often stay in the same family for generations. By comparison, houses in the city change hands far more frequently. A solar array is a big investment, and not one you’re likely to make if you expect to sell your house again in a few years.

Fourth, the urbanite’s key resource is not land, but money – and there are many competing investment opportunities. I calculated that the congregation of Guelph’s Dublin Street United Church should expect about a 13% return on the money they invested in their rooftop solar array. That’s not too shabby. But finance-savvy people know that improving energy efficiency has a really good return as well, especially since the otherwise eco-brainless federal Conservatives extended the EcoEnergy benefit. You can also get a very good payback on other measures with no environmental flavour, like debt reduction.

There is one more consideration. Rural folks have a pioneering, “git ‘er done” mindset that has little interest in, or respect for, bureaucratic policies and procedures. They are less likely to follow the established steps to the letter. And, if things go off the rails, they aren’t going to take it lying down (as exemplified by the uproar that happened earlier this year when Hydro One notified thousands of MicroFIT applicants that they would not be connected).

All of these factors have conspired to deliver far more rural MicroFIT applicants than the program authors anticipated, and to make those applicants a much bigger headache to those administering the program.

How did this happen? The Ontario MicroFIT program was based on a similar program in Germany. There’s a clue.

Although Ontario has a lower percentage of the population living in rural areas (15% compared to Germany’s 26%), those rural people are a lot more spread out – the population density in Germany is more than fifteen times higher than Ontario (229 people/km² in Germany compared to 13.8 in Ontario).  So, a kilowatt of electricity from a Canadian rural producer has to travel much further to get to market than its German equivalent. The problem presented by rural producers is an order of magnitude larger in Canada than Germany.

It’s time for a rethink.

First, the rooftop/ground-mount terminology in MicroFIT program rules and documentation must be abandoned. It encourages the wrong kind of solar installation. The program should say what it means, and offer preferential rates to urban applicants only.

Second, there must be more active encouragement of urban installations. Groups like Our Power, which helps urban neighbours to collaborate on evaluating installers and obtaining financing, should receive incentives such as fast-track project approvals and priority grid connection.

Third, the construction permitting process should be revised to encourage urban real estate developers to include solar energy production as part of new builds.

These measures will help concentrate solar power development where it will do the most good – in the cities. And MicroFIT applicants from urban areas will find their rightful place. A place where they are more equal than others.