Cover Story: Solar Power - The flood of farm applications for power projects becomes 'a tsunami'
Tuesday, June 8, 2010
But with the tide of interest come questions and concerns – about the backlog of approvals, about new domestic content rules and about what equipment to choose
by Mary Baxter
In 2008, Tilbury-area farmer Bert Rammelaere waited two weeks for the Ontario Power Authority to approve his application to sell solar-generated energy to the province's electrical grid.
This year, it took the 75-year-old cash cropper two months to obtain the
OPA's conditional agreement to buy power from a unit he's installing on another property.
The reason for the wait? A deluge of applications since OPA launched its feed-in-tariff and micro feed-in-tariff programs (known as FIT and microFIT) last October. The programs, part of the provincial Green Energy Act passed last year, offer special rates to green energy providers.
The OPA was ready for a flood, says Lori Gallaugher, director of energy commodities at Guelph-based Ag Energy Co-operative. "They got a tsunami."
By mid-April, it had received 9,000 applications under the microFIT program, which provides compensation and a fast-tracked approval process to power generation projects of 10 kilowatts or less. Most are for solar power generation projects.
By that point it had also awarded 694 offers to applicants in the FIT program. Of these, 510 projects were for 500 kilowatts or less and were selected from 956 applications. The remaining 184 projects are considered large scale. Ninety-five per cent of the smaller scale FIT projects are for solar generation and include Loblaw Companies Limited, which plans to eventually install rooftop solar systems on 136 Ontario stores.
The OPA is making inroads – it had issued 3,000 conditional approvals under the microFIT program by mid-April. But the backlog remains. Farmers worry about paying anywhere from $40,000 to $100,000 on equipment and not obtaining the necessary approvals before rules kick in which will boost the mandated, Ontario-specific content of solar units. The change takes place Jan. 1, 2011, and raises domestic content for solar units in both programs to 60 per cent. Currently, the requirement is 40 per cent in microFIT and 50 per cent in FIT.
"If you apply today, you'll be lucky to get going in six months by the time you get everybody's approval and get all of your stuff," says Rammelaere.
Those selling units are concerned, too. Ag Energy has purchasing commitments with suppliers, says Gallaugher. "Many of our competitors would have done the same in order to establish themselves in the market and have ongoing relationships and supplies for the future." Those who have stockpiled panels that meet this year's domestic content requirements, but not the specifications for 2011, may find they have obsolete products on their hands, she says.
There's no question that solar is a "hot" topic in Ontario's farm community. There were so many vendors flogging solar equipment, services and opportunities at the annual Western Fair Farm Show in London, in March that visitors nicknamed the display area "solar alley."
The technology has a proven track record in Europe, and in particular Germany, which served as a model for Ontario's program. With the FIT and MicroFIT rates, there are expectations that return on investment will be high.
Rammelaere anticipates it will take him between seven and eight years to break even. After that, he expects he will have to pay for some maintenance, "but that's about it." He expects to earn about $14,000 a year with the unit that's already up and running.
Questions and uncertainties
But with the explosion of interest in solar generation come questions and uncertainties. The backlog in applications is a big one, as are complications arising from the domestic content requirements.
Sarah Simmons, an electricity resources analyst with the OPA who specializes in the two FIT programs, says people worry developers are accepting substandard technology because of the requirements. Those with applications into microFIT fear they won't be able to obtain final approval if their project is delayed because their equipment won't comply with the 2011 domestic contentrequirement.
But the OPA is standing firm. "If we start waffling about what the domestic content requirements are, the manufacturers are going to get scared and they're not going to come at all," Simmons says.
There may be some flexibility, however, for those whose project is delayed for reasons beyond their control (such as the utility's inability to connect the project because it has to deploy resources elsewhere), who get caught in the transition to next year's higher content standards, or who fail to meet the agreement's year-end deadline. "We realize these things are going to happen and we'll have to address them in a sensible manner," she says. "But I don't think we need to (leave people) high and dry if they have a system purchased and made reasonable efforts to get that project installed."
Because the program is so new, there is also the risk of changes taking place that may affect projects already underway. In April, the OPA warned that local distribution companies may decide to prohibit in-series connections, one of the options allowed in both programs. They are doing this because Measurement Canada, which is responsible for ensuring the integrity and accuracy of measurement in the Canadian marketplace, including electrical meters, does not recognize the in-series metering configuration contained in the microFIT rules. Under the two programs, power generators can connect either directly to the grid or indirectly by connecting to a building that has a grid connection. Indirect connections can be in-parallel or in-series. An OPA news release indicates that parallel and direct connections are costly and often impractical compared to in-series connections. The OPA says in the release that it is working with local distributors and the Ontario Energy Board to try to resolve the situation.
The federal authority is concerned the approach could present "an unacceptable level of error" when two meters are used to measure electricity consumed by a load customer, an update from the authority says. The OPA is working on the problem with the Ontario Energy Board and several local distribution companies.
Hidden costs represent another challenge. Some are small, such as charges to set up an account with the local distributor and monthly charges to recover costs associated with the maintenance and administration of the microFIT account. Rammelaere estimates a grid connection could run anywhere from $1,000 to $1,500 – and considerably more if a transformer and pole are necessary.
Property tax increases are something Rose McLean, director of legal and policy support at the Municipal Property Assessment Corporation, hears a lot about. But the corporation isn't assessing microFIT solar projects, she says. The 1990 Assessment Act exempts panels (whether a part of a FIT or microFIT program) from assessment.
The corporation is, however, assessing land use beneath larger solar projects in the FIT program. There is a possibility some of these will prompt a land-use change, which will in turn mean a tax increase. The corporation hasn't decided what project size will trigger a land-use change. As well, policy has yet to be decided about how to assess leased roof space on a facility whose value is based on the income it generates from tenants.
Be aware of insurance costs, advises Gallaugher. On average, these range from $400 to $500 a year and, she says, "we've heard as much as $1,000 a year."
Steve Smith, president of the Farm Mutual Reinsurance Plan Inc., says premium values for microFIT projects seem to be emerging "within reasonable norms," though bigger projects could see larger premiums.
Smith says he's heard some insurers are not renewing risk benefits to solar equipment under the microFIT program. Mutual insurance companies are "stepping in and filling that void a little bit."
Following the sun
Choosing equipment is another question with which farmers applying to the microFIT program are wrestling.
Many of those interviewed favoured ground-mounted, double-axis solar tracking systems. The models follow the sun and, during high winds or periods of low light levels, broach, which means they lie horizontally.
However, Doug Jones, president of Solartechnics Canada Inc., recommends buyers consider fixed units. The long-term effects of the Canadian climate on tracking machines have not yet been proven, he says. A tracking machine is roughly 30 per cent more expensive than a fixed unit and can't hold as many panels. Moreover, it has more electronics and moving parts that need maintaining and replacing. During windy days, it will broach, which may be a far less efficient position to capture sun if the day is sunny.
Ian Matheson says his family initially considered a fixed rooftop system for one of their hog barns. "What we found was that the roof probably was not engineered for it and also, with ammonia coming out of the barn, that area between the steel and the panels would have been a great spot for ammonia to build up in," he says. So they started looking at tracking units which they felt had higher efficiency. The family, whose farm is near Embro, also started submitting applications in January. They have obtained six conditional approvals from the OPA for different properties. (MicroFIT permits only one project per property.) But they've put their plans on hold.
"We don't see a huge rush for it," says 25-year-old Ian Matheson. If the approval lapses, they can always reapply.
Not having long-term Ontario performance numbers for the units on offer was a concern, as was domestic content. A major stumbling block was not being able to obtain financing. Matheson says one bank representative was skeptical of income projections because there was no local solar generation data. The family is also concerned about tying up equity for 10 years that could be used to generate income in the interim.
Meanwhile, many companies are finding ways to reduce up-front costs to attract buyers or investors.
Ag Energy has partnered with municipally-owned Essex Energy to offer farmers a "cookie cutter" approach that comes with one charge of $75,000. For that fee, farmers obtain a solar system – a fixed, ground mounted 10 kW system – and assistance to set up both the system and contract from beginning to end. At the end of the process, the farmer owns the equipment and collects the payment issued for the energy.
Toronto-based Hay Solar Ltd. is offering farmers a free barn that has solar panels on the roof. Hay Solar leases the property where the barn is located and owns the barn. The company pays a small annual maintenance fee, but keeps the earnings. Farmers have the option of investing in the panels and obtaining a share of their earnings or buying the system outright. Whatever the option taken, the farmer must obtain municipal approval to use the building and ensure it's in use throughout the 20-year duration ofthe FIT project.
Solar co-operation
In March, Ridgetown-based AGRIS Co-operative and Spark Solar established a new venture, AGRIS Solar
Co-operative, which will allow members to locate ground-mounted dual-axis solar units on their properties for $20,000. AGRIS co-ordinates the paperwork and the installation and will carry the insurance. The catch?
The co-operative pools panel earnings and offers members a share of the annual surplus.
In Ontario's former tobacco belt, Farmers for Economic Opportunity has created a buying group to reduce equipment and insurance costs.
Ken Tota, the company's president, won't disclose the exact price they have negotiated for the solar equipment, a ground-mounted tracker system, but says that it is less than $100,000. The group is sourcing fixed units as well.
He says their observations show greater efficiency with the tracker.
Joe Botscheller, one of the company's directors, is one of about two dozen with the company who have applied for the program. He says energy production is a good opportunity for former tobacco farmers, whose options are limited because of small farms and sandy soils. "We thought renewable energy could be as much about economic development for small rural communities as anything else," he says.
In April, he was preparing the footings for the unit in an area formerly occupied by the tobacco greenhouse that served his 50-acre farm near Simcoe.
Ted Cowan, a farm policy researcher with the Ontario Federation of Agriculture who specializes in energy issues, encourages farmers to do due diligence before entering any agreements.
He discourages lease arrangements. The rent is "paltry," and the farmer will still have to pay insurance and may face higher property taxes.
Obtain competing bids, he advises. Impacts on income tax can be favourable because of capital cost allowance provisions.
Next month, the new harmonized sales tax will apply to equipment, but those selling power can obtain a refund.
He emphasizes the importance of obtaining insurance, and locating equipment in a spot where it cannot be driven into.
When all is said and done, the venture won't make you rich, he says, "but it's going to be the best GIC you can buy – if you choose a good vendor/installer, have good components and a decent location, and if you own it and are not renting out a site," to someone. BF
Sidebar
 - Getting approval under the microFIT program
Sarah Simmons, an electricity resources analyst with the Ontario Power Authority, says that, under the microFIT program, the OPA first issues a conditional offer to buy power. The approval lasts for one year.
Those who receive the offer can then approach their local distribution company for connection.
Simmons says the companies have an obligation to connect the renewable energy projects under the microFIT program as well as capital allocation exempt projects (FIT program projects up to either 500 kW or 250 kW, depending on the voltage of the lines to the location, are called capacity allocation exempt because they are eligible to follow a streamlined application process to speed their connection to the grid). If they can't, the companies must go to the Ontario Energy Board and explain why.
The offer's conditions include obtaining an electrical safety inspection approval for the system and, depending on the panel capacity, renewable energy approval from the Ministry of the Environment. The ministry has exempted ground-mounted systems generating 10 kilowatts or less from obtaining the renewable energy approval. However, they are looking at the electrical panel capacity, not the equipment, Simmons explains.
Once the connection agreement is signed with the local utility, it will report to the OPA, which will issue the final contract. Applicants will be required at this point to describe how they have met the domestic content requirements. BF