Feature: OPA backlog threatens to slow down solar applications

Monday, August 9, 2010

With 15,000 applications received by June, the Ontario Power Authority is struggling to process approvals for solar power generation. That, in turn is slowing down credit approvals and equipment sales

by MARY BAXTER

In April, Joe Botscheller was pouring a concrete foundation on his 50-acre Simcoe-area farm for adual axis tracking solar system. Two months later, the former tobacco grower was confident his system would soon obtain final approval from the Ontario Power Authority (OPA) to sell green power to the province's electricity grid.

Botscheller is a director of Farmers for Economic Opportunity, a company created by former tobacco growers to promote green energy production as an alternative crop in the Norfolk, Haldimand and Elgin region. "So far it's been fairly clean," he says of the installation process and accompanying paperwork. But he applied early to the micro feed-in-tariff (microFIT) program and quickly received conditional approval. "Some of the guys who applied in February are still waiting," he says.

That's still the main hurdle facing this promising program, announced by the province last year as part of the Green Energy Act. Administered by the OPA, it offers rates of 80.2 cents per kilowatt-hour to those who provide 10 kilowatts or less of solar generated energy. Interest is keen. By June, the OPA had received 15,000 applications, mostly for solar systems. So overwhelmed is it by applications that it has set August as the target to respond to those who applied before March 31 and September for those who applied before May 31.  

Many in the province's fledgling solar industry say the approvals bottleneck is slowing sales. ArntjenSolar NA Inc. is the Canadian partner for DEGERenergie, a German firm which manufactures active tracking systems. By June, the company had installed 400 units in Ontario through its own service. Add in systems sold through other integrators (companies that assemble systems using different components and provide installation services for customers), and the company has "well over 1,000 microFIT contracts in place," writes company vice-president Rolf Maurer in a June 16 e-mail.

But the majority of these stemmed from applications processed soon after the program was introduced in 2009. Since February, only a few customers have received conditional approvals. (OPA only issues a final approval after the project is complete; other necessary approvals are obtained only after the applicant has met a mandatory domestic content requirement – 40 per cent this year and 60 per cent in 2011).

Brian Jackson, a Dresden-based sales representative for Copperhill Solar, an integrator, says the delay is creating an atmosphere of caution among lenders. Farm Credit Canada and the banks want to have the approval before they dispense money, he says. "So that's something that stops the businesses in their tracks."

Bob Argue, executive director of ecoPerth, a non-profit environmental organization that sells Canadian Solar Inc. systems in Perth, wonders if some may have held off buying to take advantage of the harmonized sales tax. The tax came into effect in July and provides exemptions not available to farmers under the former provincial sales tax.

With 4,000 applications already approved and promises to deal with the bulk of applications by September, there could be thousands of projects ready to proceed by fall. But, by then, it may be too late to complete these in time to meet this year's domestic content requirement.

Argue, like many others, wonders what impact applications gushing into the market will have on the availability of equipment that meets next year'sdomestic requirement.

Moreover, next year, microFIT project developers will compete with feed-in-tariff (FIT) project developers for panels. The FIT projects "just overwhelm these microFIT operations," he says. The FIT program applies to green power generation of more than 10 kW and must fulfill similar domestic content requirements.

In June, SunRise Power Corp. of Peterborough was one of about two manufacturers that offered inverters which met the programs' domestic content rules (California-based Enphase Energy was another). SunRise opened its factory in December and already there's a scramble for products. "On certain inverter sizes, we're finding that we can't keep up with demand," says Scott McDonald, the company's vice-president. That includes the company's 5 kW inverter, a popular size for microFIT projects. Lead times have been extended to six from four weeks; stock isn't always on hand.

Kitchener-based Canadian Solar Inc.'s panels have also been popular with microFIT project developers.

Currently, the company manufactures the panels in China but, in 2009, it announced plans to build a $24 million, 200-megawatt module manufacturing facility in Ontario. (SolGate Solar PV Manufacturing of Woodbridge, one of the few that was manufacturing solar panels in the province in June, has a 6-megawatt manufacturing facility.)

Milfred Hammerbacher, president of Canadian Solar Solutions, a subsidiary of Canadian Solar, says the goal is to begin production by year-end but the plant is three to four months behind the original schedule. "Our company is quite experienced in rapid ramp-ups," he says.

Hammerbacher says the company did not want to build a factory "until we felt comfortable that the government was going to deal in a timely way with the application approval cycle." He says the industry has been pushing for the government to certify companies for the domestic content they produce instead of projects. "It's a critical change that needs to happen."

However, Ben Chin, a spokesperson for the OPA, says pre-qualifying companies for domestic content would create a conflict of interest. "We are a contracting party on behalf of all of the ratepayers of Ontario," he explains.

"We can't assume the risks of a project developer."

Elizabeth McDonald, president of the Canadian Solar Industries Association, says it has recommended that the province's economic development arm take on the role. The precedent of having separate arms of government certifying companies and running provincial programs has already been established for other sectors, she says. And, right now, manufacturers coming from otherjurisdictions are "scratching their heads, saying 'what guarantee do I have'" that they will meet OPA requirements for domestic content.

In June, concerns about the impact of delays on a group of smaller, fast-tracked projects in the FIT program prompted the OPA to extend its completion deadlines by 120 days.
At that time, there were no plans for a similar extension for microFIT projects.

"You don't want to be doing things before there is an issue," says Chin. "What we're concentrating on right now is making sure that our newresource plan to process microFIT applications works more smoothly and that we get all of these contract offers out." The plan has included adding more staff to process applications.

Many integrators say they are confident they can obtain qualifying equipment once the higher domestic content applies. "We've pushed some of our suppliers to set up lines here in Ontario," says Warren Abar, president of Isolara Solar Power, an Ottawa integrator. The company purposefully aligned with others it knew would be building installation facilities in Canada.

Some companies, such as Essex Energy Corporation, are establishing cutoff dates for initiating projects for this year. The company is partnering with Guelph-based Ag Energy Co-operative to sell and install units to the farm community.

"We'll be able to physically install all the way into November," depending on weather, says Steve Ray, the Essex Energy's business development manager. But, by the end of June, the company would no longer undertake projects for this year if the customer had not submitted an application.

For its part, ArntjenSolar is also looking ahead. In June, Rolf Maurer wrote: "For anyone who has not already filed their application with the OPA, we do not believe they are in a position to go ahead with their projects until 2011." They would have to prepare to acquire a system that met the new domestic content requirements, he said. The company plans to build tracking systems that meet the new requirements by October.
Agris Solar Co-operative will install systems beginning in September. Morgan Cowl, vice president of operations with SparkSolar, an integrator partnered with the fledgling farmers' co-operative, says they will use equipment that meets the 60 per cent domestic content requirement.

Chris Weissflog, president of EcoGen Energy Inc., a Kemptville integrator, says he has offered systems that meet next year's requirements since the program has started. Not only does it help solar developers manage risk through the transition period this fall; it reflects a buy-local philosophy that's in tune with the business' environmental conservation principles, he explains.

Weissflog predicts that, as the domestic content requirement is introduced, prices will rise and ArntjenSolar's Maurer estimates the increase could add as much as 10 per cent to the price of installing a system.

Abar says that, so far, Isolar has been "trying to hold our pricing stable in the marketplace for people." What will happen when the demand pent up by the approval process reaches the marketplace? "We'll have to wait and see what the impact is on that."

Cowl says he hasn't seen much change in prices. The arrival of so many new companies in response to the domestic content requirement, however, is making the co-operative's lenders "somewhat cautious" about the vendors selected. If a warranty claim is made, there would be "potentially thousands of pieces" in the co-operative's equipment base that could be affected.

Manufacturing in Ontario will be more expensive, says Canadian Solar Solutions' Hammerbacher.

"We are going to try very hard to reduce costs in other areas to make up for the increased cost of manufacturing locally. We'll see next year if we're successful in that."

Elizabeth McDonald says the possibility of equipment shortages is likely to be of short duration and will be resolved as the fledgling industry finds its feet. That might be in time to accommodate FIT project developers working on longer-term schedules, but not microFIT project developers seeking to make the most of a business opportunity whose payment terms may change in the future. BF