Treasure trapped

Short-term thinking is the bane of the energy world. It has been so since the early days of the oil business, and it remains so with today’s market for solar photovoltaic power generation. In the former case, oil producers were guilty of the flawed thinking. In the latter, it is the producers of public energy policy.

An oil reservoir is typically found in a permeable stratum sandwiched between two impermeable ones. As the oil is extracted, the pressure it exerts on the layer above is reduced. As a result, the overburden subsides.

At some locations in the reservoir, the stratum between the two impermeable layers may be quite thin. The subsidence phenomenon may be pronounced enough that the impermeable layers squeeze off the flow of oil at some points. Entire sections of the reservoir may be cut off in this way, leaving pockets of oil that are too small to merit a dedicated well, but large enough that their loss is painful to the producer.

There is a solution, literally and figuratively. The producer can inject water into the reservoir some distance from the well. The injected water displaces the oil, forcing it toward the extraction borehole. It can also provide enough pressure to keep the adjacent strata separated, preventing portions of the reservoir from being choked off. This is called secondary recovery.

There are a few of reasons why secondary recovery hasn’t always been used. For one, the methods were only developed in the 1930’s, so any oil extraction prior to that was possible only while the reservoir pressure remained above a certain critical level. Even after secondary extraction techniques were developed, some oil production companies simply did not bother to invest – once the well stopped producing, they simply moved on.

Here’s the rub. If they didn’t use secondary extraction during production, there is often no going back – the oil is trapped irreversibly. For each barrel of oil extracted, one to six barrels were left in the ground, forever out of reach.

In the movie Dances with Wolves, Lieutenant John Dunbar and his Cree friends come across a scene of heartbreaking carnage. Dozens of dead buffalo litter the prairie, killed by white hunters only for their hides, leaving the massive skinless carcasses to rot in the sun. The Cree are devastated at the horrific waste of their most precious food source.

Like the buffalo corpses, mismanaged oil wells are a grim monument to greed and short-term, get-rich-quick thinking. And history is repeating itself with the solar energy market.

In Ontario, a Feed-In Tariff (FIT) program implemented in 2009 has offered property owners the opportunity to generate their own electricity, feed it into the grid, and receive (at least until recently) lucrative compensation for it. However, built into the FIT program was the incentive to recreate the same waste as oil well mismanagement and wanton buffalo slaughter.

In this case, the resource is not oil nor buffalo, but rooftop space. The highest FIT rate was for rooftop solar photovoltaic generation projects. However, the rate dropped off dramatically once the installation exceeded a generation capacity of 10 kilowatts (kW). The rate structure was such that once the generation threshold was exceeded, the lower rate applies for the entire project.

Hence, the FIT program contained a built-in incentive to keep a project under the 10kW threshold.

The result is easy to see. All across the province are rooftop solar arrays which cover only a fraction of the available space. For example, the array on the roof of Dublin Street United Church in Guelph leaves a considerable margin of bare roof on all sides. The array as installed has a capacity just under 10kW.

Like the oil reservoir, once the array is built, the die is cast. Nobody is going to go back to a completed installation and make it bigger. The wasted space will remain wasted. Yet another resource is left to sit idle, unused, and unusable.

There is another way.

The perverse incentive to stop just short of 10kW could be removed if a blended rate were used. Until the program was frozen in October 2011 for a review, the top rate for rooftop PV was 80.2¢/kWh.  If the installation exceeded 10kW capacity, the rate dropped to 71.3¢/kWh. It would have been a simple matter to make the higher rate apply to the first 10kW of capacity, and the lower rate for capacity above that (at least until 250kW, the next rate break point).

It’s all a moot point now. As a result of the FIT review completed last month, the rate for rooftop solar will be slashed to 54.9¢/kWh for arrays up to 10kW, and 54.8¢/kWh for arrays from 10kW up to 100kW. A tenth of a cent is not going to affect decision-making very much. The days are over when FIT (well, to be terminologically correct, MicroFIT) projects would sneak in just under the 10kW limit to secure the higher rate.

In fact, the days of MicroFIT projects may be over altogether. It remains to be seen whether industry players can still turn a profit now that rates are nearly one-third less than they were.

In any case, there is a clear message to any jurisdiction that may be considering a FIT program: You have a valuable resource in rooftop space. If you don’t set up your rate structure correctly, you could be setting yourself up to waste an awful lot of that resource.

From buffalo, to oil, to solar rooftops – you’d think we’d learned. Clearly we haven’t yet.


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