Sand in the Vaseline: Part III

This is the third installment of a series looking at the Ontario MicroFIT program. Part I looked at the Ontario Power Authority and the shortcomings of its online application system. Part II looked at the way each Local Distribution Company (LDC – your local electricity utility) handles MicroFIT applications, and suggested how it could all work much more smoothly. This post will zoom up to cruising altitude and look at the FIT rate itself, and how it makes the MicroFIT program what it is: less than what it could be.

Policies flow from objectives, and objectives flow from some overarching goal. According to the OPA website, “The primary goal of the Green Energy Act is to further enable and promote energy conservation and renewable energy development.” The site also states four expected benefits, which you could also view as objectives – more renewable energy, more conservation, more jobs, and less climate change. The Feed-In Tariff program speaks to items one, three, and four.

In fact, you can sum these up in one simple objective – a healthy and growing renewable energy industry. Such a creature will automatically create jobs, and lots of them. Such a creature will also automatically mitigate climate change, or at least this one province’s contribution to it, since renewable energy more-or-less by definition is energy that does not produce climate-changing greenhouse gases.

In a perfect world, how would you create a thriving renewable energy industry?

There are a number of policy options, but one of the best is the Feed-In Tariff (FIT). This measure offers a premium price for renewable energy, partially in recognition of the massive subsidies – explicit and implicit – that traditional energy sources like coal, oil, nuclear, and natural gas receive. It is also partially in recognition that, in the case of rooftop solar at least, the energy is more valuable; solar provides the most energy exactly when it is most needed, exactly where it is most needed – high noon in summer, when urban air conditioners are cranked, the grid groans under the weight of peak demand, and power may have to be purchased at extortionate rates from neighbouring states and provinces.

But the main reason for the premium is the same reason parents accept the expense of raising children – it is a commitment that won’t last forever. As each unit of renewable energy comes online, the cost of the next unit is slightly lower. Over time, these cost reductions really add up. A good FIT correlates the buy rate for new power contracts with the capital cost to produce that power (since operating costs are close to zero), with a little extra to allow for profit. As the capital cost drops, so can the FIT. Eventually, or so the theory goes, the FIT will reach the prevailing price of electricity from other sources, and can be abandoned altogether.

The primary focus of the program, therefore, should be to monitor the cost of renewable energy installations continuously, and to realign the FIT rate to that cost as frequently as possible. This downward path of the FIT rate is called regression. Ideally, regression would be in realtime – this would provide the least-cost path to bring the price of renewables in line with that of traditional energy sources.

The most critical piece of information for making decisions in any industry is the price. With good price information comes good decision making about matters like when to add production capacity and how much to add. Therefore, another focus of the program should be to make the FIT regression as transparent as possible.

Since the Ontario FIT program began, the highest rate has been for rooftop solar photovoltaic (PV) systems with a nameplate capacity of 10kW or less. When the program launched in May 2009, the rate was 80.2 cents per kilowatt-hour. In October 2011 the OPA froze the program, reopening it after a ridiculously drawn-out review in July 2012 at the rate of 54.9 cents. The adjustments came without warning and, although extensive consultations were held, the process for setting the rates was utterly opaque.

RegressionThe chart at left shows in red what an orderly, linear regression on a biannual schedule could have looked like. The blue line represents what the OPA has actually done. The area above the red line and below the blue is wasted money – cash given away in the form of MicroFIT contracts with parties who would have accepted less. The area below the red line and above the blue is…well, the best name for it is Death Valley. No contracts, no revenues, no profit, no industry.

For 18% of its existence, the MicroFIT program didn’t exist at all.

How could the OPA have done better?

Simple – every time a contract is issued, require the program participant to name the price they paid for their system. This is competitively sensitive information, but it would be simple enough to anonymize it so that nobody can get an unfair edge over rivals. If every MicroFIT contract issued since July 2012 was for the maximum system size of 10kW, this would yield 5,000 data points – more than enough to track trends in system pricing while weeding out any statistical anomalies.

It would be child’s play to take this data and present it for the industry to scrutinize, and set out the rules for how and when the data would drive FIT rate adjustments. This would render the process completely transparent. Everyone would know where the price was headed. There would be no attempts to play the timing game, waiting until the gap between expenditure and expected revenue was the widest – there would be no point.

If a review of the program were required, there is no reason it would necessitate shutting down the program altogether. It’s not like every car had to be taken off the roads for the better part of a year while the Province formulated the law prohibiting use of handheld cellphones while driving. The OPA’s decision to freeze MicroFIT for nine months did immense damage – like breaking a child’s legs while she is just learning to walk. It was no way to meet the objective of a healthy and growing renewable energy industry.

Oh, there are other things that could be done differently to minimize the cost of the program and maximize the speed at which we convert to a post-carbon economy. Eliminate silly rules like the one that prevents a person that owns more than one property from putting up solar panels or a wind turbine on as many of those properties as they wish (with due consideration for the feelings of the neighbours, of course, which municipal zoning rules already handle quite nicely, or should). Allow projects to be built on a property regardless of whether it is owned by a person or a corporation. And most of all, eliminate the 7% feeder rule.

But that’s a topic for another day.

 

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Sand in the Vaseline – Part II

Image courtesy Wikipedia
Image courtesy Wikipedia

Last week I spoke briefly about the simplicity of the German Feed-In Tariff (FIT) program. I contrasted it with the unnecessary complexity of the Ontario MicroFIT program – a program modeled, if you can believe it, on the German one. I elaborated on just how simple the process of applying for a MicroFIT contract could be, and how far from that ideal the actual application process is. But the maze doesn’t end when you finish your application, submit it to the OPA, and receive initial approval – far from it. There are many other players on this particular field.

MicroFIT is a program that crosses jurisdictional lines and corporate boundaries. However, once again escaping to the perfect world I described last week, it wouldn’t be that difficult to make the process simple without robbing anyone of their sovereignty or trampling on anyone’s rights.

The data you enter would flow auto-magically to all the various players involved – the Ontario Power Authority, the local electricity utility, the local municipality, and the Electrical Safety Authority – without you needing to know who they are or what role they play, and certainly without you having to provide the same information over and over again to each party (and even multiple times to the same party). It wouldn’t matter in what part of the province you happen to reside – your experience, including the time the process takes and the costs you incur, would be the same if you were in Kenora, Cornwall, or Camlachie.

Sadly, that’s not how it works.

After you submit your application, wait several weeks, and finally receive approval from the OPA, you move on to the next player in this process – your local electric utility, or more formally your Local Distribution Company (LDC).

All of the LDCs require a bunch of information that you already entered earlier in the process. For example, exactly 50% of the fields on the Hydro One form are also on the OPA application. Entering this data a second time is a waste, and provides an excellent opportunity to make mistakes.

Of course, someone will defend this by saying that it protects the privacy of applicants. That’s a crock. Most applicants see no difference between the LDC and the OPA, and couldn’t care less anyway. They certainly aren’t going to raise a stink if the OPA shares the information already provided. If the OPA is worried about that, all they need do is add the simple step of requesting permission to share the information for that one specific purpose.

The fees charged by each LDC to install a new electricity meter and hook up a new MicroFIT installation vary dramatically. Hydro One charges $1,500. Guelph Hydro charges $1,000. On the one project I’ve done with them so far, Waterloo North Hydro only charged $464.66 +HST. Is Hydro One really providing an extra $1,000 worth of value?

So much for data redundancy and value for money. Now let’s move on to inconsistency.

There are 76 LDCs operating in Ontario. That means – let me do the math here – 76 different possible experiences you might have as a MicroFIT applicant. I’ve only dealt with five LDCs, but each one is different and each one is an adventure. Interestingly, when I pointed out the inconsistencies in the process to an administrator at one LDC, she told me with some surprise that her company had collaborated with several others to come up with one consistent approach. I have no reason to disbelieve her, but after devising this standard, each one of the other participants must have gone home and gave their newly standardized business model a complete overhaul.

The best of the lot is Hydro One. This is a bit surprising, considering how much flak they typically get from the renewable energy community. The Hydro One process is completely web-based. That is wonderful –the other four LDCs all rely completely on paper forms. One other labour-saving feature of Hydro One’s process is that I don’t need to collect another signature from a prospective customer – that only happens if and when we get a contract offer. Hydro One is unique in that they request the transformer pole ID, but once I learned that, I got in the habit of grabbing this on my first visit to any customer in Hydro One territory. Mind you, although they ask for it, they only use it in a minority of cases. It would be helpful if the system only requested this information if it was actually necessary. Oh, and one more thing – if I’ve submitted the application and Hydro One informs me that I made a mistake, I can’t go back and correct the specific issue. I have to start all over again. You take the good with the bad.

Each LDC has its own quirks. Guelph Hydro asks for a Single Line Drawing, which in our case is identical for every job except for the number and wattage of the panels – information you’ve already supplied on the application form. Why bother gathering it on the SLD as well? Hydro One simplifies this – they ask you to pick from a list of three possible kinds of connection you’re planning, and that dictates which of the three possible drawings is the right one for your case. It would save us some unnecessary extra work if Guelph Hydro would do the same.

Waterloo North Hydro requires that you provide some proof of identification from the applicant. They suggest we use their driver’s license number. Apparently Waterloo is rife with people stealing someone else’s identity and promptly rushing out to apply for a MicroFIT contract under false pretenses. I, for one, would rather not have this information in my possession. I value my customers’ privacy and I wish WNH would accord their prospective suppliers the same respect. Every other LDC we work with does.

Centre Wellington Hydro asks for details regarding our insurance coverage. When I quizzed their contact person, she informed me that it wasn’t really necessary, which begs the question: Why ask for it if you don’t need it?

Here’s an idea: Start with the Hydro One online form. Pass the collection plate among all the remaining 75 LDCs to pay for a data interface that pre-populates the Hydro One form with the information already entered on the OPA website. Then get every LDC using the same process.

How sweet would that be?

Next week: Rules and regulations, and making them work for the benefit rather than the detriment of green energy in Ontario.

Sand in the Vaseline – Part I

Vaseline_Opened
Image courtesy Med Chaos, Wikimedia Commons

I haven’t experienced Germany’s Feed-In Tariff program directly, but I’ve heard all about it. It’s easy. If you decide you want to participate, you go through a perfunctory application process and you’re in. You get whatever rate is in effect when you apply. Painless.

In a perfect world, the Ontario FIT program would be just as simple. The most obvious case crying out for simplicity would be the small-scale residential part of the program, called MicroFIT.

If you wanted to take part, you would register online – that always makes life easier, right? If, like my company, you work on behalf of a customer, you would only have to register once for yourself, and once for each customer, and you would have one place to go to see the status of every one of your projects. Your customer would have their own account that would let them see just their own project.

Of course, there is a 20-year contract involved, and it relates to a piece of real estate. There would have to be a way to ensure that everyone registered as an owner of the property in question was a party to the MicroFIT contract. But since the Ministry of Natural Resources already has a database which contains exactly the required information, it would be a piece of cake to use the free interface available to other provincial ministries to look up the property and return the names of the owners – and even to make an automatic correction if you hadn’t entered the legal name that is on file. Then the system would simply require that each owner give consent, and that’s that.

However, in the real world, things are very different. The process is fiendishly complicated, and there are reams of seemingly arbitrary rules. You’d almost – almost – think that someone was doing their level best to limit participation to the lowest level possible.

The online tool that the OPA has provided is so much less than it could be. As a contractor, I do not get my own account. Instead, I have to create a new one each time I have a new prospective customer (including collecting and then inputting sensitive personal information that I’d rather not have to handle, and that they are perfectly able to enter themselves), enter my own contact information every such time, and share the login and password information with the customer. If the customer neglects to click the confirmation link in an automated email, or decides to change their password, it can stop up the whole application for days.

This is to say nothing of the fact that sharing passwords is the Single Deadly Sin of information security. It simply isn’t done. The designers have put those annoying “captcha” tests in at every opportunity, but left the most glaringly obvious security hole right in the middle of everything. It is astounding that any self-respecting web developer would have put their name to this beast.

If I want to see how each of my potentially dozens of applications are doing, I have to log in to each one individually – no bird’s eye view for me. It is incredibly simple to lose track of where a particular application is in the process, and to miss the window of opportunity to complete the next step. Then it’s back to square one.

If there is more than one person on title, you have to enter their first name, last name, and date of birth on the web page, and then you have to enter that all over again – along with their address, phone number, and email address – on a PDF that you then attach to your application. An OPA employee must open that form to confirm everything is correct, since the web site can’t do that automatically.

To make sure you haven’t missed anyone that’s on title for the property, you have to visit your local Land Registry Office and pay for a Parcel Registry form (or pay an additional $20 plus HST to get it online). Then you have to upload this document to the OPA website. After you submit your application, an OPA employee has to open the document and manually check that there is contact information in the application for each person on title. They also check that the name on the parcel form is an exact match to the name on the online application. If you goofed by omitting a middle name, or using a married name instead of the registered maiden name, or using a commonly used name instead of the legal name, the OPA will gleefully toss your application back at you or just terminate it outright.

And after all that effort, how does the system ensure every party that is on title for the property has agreed to take part? You check a box on a web page. That’s it.

Again, if you’re a contractor, you have to get each person on title to sign a form giving you permission to act on his or her behalf.  If the name on that form is not an exact match with the name on the Parcel Registry form, the OPA will once again kick it back at you or terminate the application. Oh, and to make life interesting, they sometimes issue a new version of the form, forcing you to re-do every form for every application that is still in progress. Nice.

The OPA’s only real concern in this process is to ensure that this contract will not be the one that pushes them over their self-imposed Annual Procurement Cap. That and to ensure their contract will be legally binding. With a decently designed web application including an interface to the Land Information Ontario database, they could make the application process simple, automatic, fast, and foolproof.

Instead, they’ve made it byzantine, labour-intensive, glacially slow, and massively error-prone.

That’s to say nothing of the total lack of decent flow-through of information to the other parties further along in the process. I’ll take a dive into that quagmire next week.

Moore’s not here

Chart - Price of Chinese C-Si modules
Price in C$/watt. Data courtesy Solarserver.

Late last summer, I was walking the neighbourhood near where a rooftop residential solar PV system was about to be installed. People tend to be more interested and less sceptical about solar when their neighbours are getting into it, so it’s good policy to pound the pavement in the hopes of drumming up some business. I had already had several great conversations, and had some promising leads jotted down on my smartphone.
I saw a gentleman sitting on his porch, engrossed in the notebook computer on his lap. His roof was a good candidate, so I introduced myself. He obviously wanted to escape the conversation as soon as possible and get back to his surfing, so I did my best to keep it brief. I explained that his home had a good roof for solar, that some folks down the street were about to get a system, and there was good money to be made in generating electricity from sunshine.

The man clearly believed he knew all he needed to know about solar, and even more clearly demonstrated that he knew next to nothing about it. He explained that he worked in the information technology field, and IT equipment is typically amortized over three years. He had no intention of making a 20-year technology commitment when whatever he installed would doubtless be obsolete before, say, a politician could complete one term in office.

I won awards on my high school debating team, so I can make a persuasive argument. I’ve trained people in the corporate world on things like email encryption tools and document management systems, so I can explain things. I’ve also had to make sales pitches to C-suite executives, so I can convince people that what they’ve just learned from me is, in fact, simply something they knew all along.

However, I’m also a reasonably good judge of character. I could tell that with this guy, I’d be wasting my time. That he knew IT cold, I have no doubt. But he greatly overestimated the similarities between his field and others. Microchips and solar cells both depend on silicon, but concrete does too, and the three have about as much common ground. I wasn’t going to convince him that he was missing out on a great opportunity. Better to mosey on over to the next likely house and hope for someone with an open mind.

Nonetheless, the fellow was wrong. Dead wrong. Moore’s Law does not apply in the world of solar photovoltaics. If you look at cell efficiencies, nothing terribly exciting is going on. Certainly nothing like a doubling every 18 months, which is something that has become an article of faith in IT circles.

Oh yes, every time you turn around there’s another breathless announcement by some university research team that has made an astounding breakthrough in efficiency. However, these innovations seem to disappear on the road from the lab to the marketplace.

There are plenty of reasons. The devil is in the details, so maybe the process to manufacture the new-fangled device is too complicated, and cannot scale to mass production. Solar panels have to be able to take a lot of abuse, so maybe the end product isn’t robust enough to withstand shipping, installation, and two decades of weathering in every earthly climatic zone. Efficiency is useless if it comes at too high a price, so maybe, as in the case of solar cells known by the acronym CIGS (Copper Indium Gallium Selenide), three of the four key components are so rare that manufacturing large volumes with that stuff would use up the entire global supply and send the price into the stratosphere.

If you look at mainstream solar PV installations, most are the breed known as C-Si (crystalline silicon). The processes for transforming silicon into ingots, ingots into cells, and cells into modules are well established, simple, and efficient. The finished product is solid and easily able to put up with 20 years of whatever Mother Nature can throw at it (while still remaining fully functional, and retaining 80-90% of its capacity at the end of that time). The materials aren’t terribly exotic. The principal element happens to be the second most common in the earth’s crust after oxygen. On every Caribbean beach, you see tons of it – sand. We won’t be running out of that any time soon.

This time last year, most of the panels being sold were 245 watts. This year, most are 250 watts, with some 255-watt units thrown in. A 4% increase in efficiency over an entire year is not going to impress anyone, especially my IT-schooled front porch friend. You can rest easy knowing that if you install a solar array on your roof this year, the ones being installed the following year won’t be dramatically different.

That doesn’t mean that the industry is static – far from it. However, the big news is not gains in efficiency; it is reductions in price. These come from scale economies, meaning that the more units you produce, the cheaper each unit becomes. It’s not as sexy as press releases touting scientific breakthroughs, but it’s here and now rather than pie in the sky.

Let’s take Chinese C-Si modules as an example. If you look at Solarserver data from September 2011 to January 2013, the price per watt in any given month is between 50% and 65% of what it was a year earlier. At no time during that time period did prices rise. Cell efficiency did not play a significant role in that downward pricing trend. It’s all about economies of scale.

In personal computers, it’s easy to make the argument that you should wait until next year’s model, because it will be cheaper and more powerful. You could make the same argument in solar PV. Why buy this year, when next year the cost of panels (and, as it turns out, the entire system) will be lower? The problem with that rationale is that you never end up buying a computer, or a solar PV system.

The real question you need to ask is whether it makes economic sense to buy today, based on prices today, and based on benefits today. The fact that a newer, shinier, more powerful product comes out next year has no impact on the validity of that decision.

Even for Mr. Porch Surfer, tomorrow never comes.