By Justin Malecki, PhD, Research Analyst
Stability, predictability, and transparency. These are three items on the Christmas wishlists of almost everyone involved in the solar photovoltaic market in Ontario. After a year that has been characterized by the incongruent combination of rapidly changing global market conditions, government policy attempting to adapt, and the uncertainty of a possible change in political leadership, it is hard to blame industry stakeholders for such a request.
But will they get what they ask for? In this article, we take a look back at the salient characteristics of PV development in Ontario in 2011 and a look ahead at what 2012 will bring to an industry hungry for a stable marketplace.
More related to this article:
- Article: Insight and Future Trends Resulting from Ontario’s FIT Review
- Article: Ontario FIT Review Recommendations Announced
- Research Service: Canadian PV Markets and Buyers
2011: Challenge and Growth
Ask anyone working in Ontario’s PV market about the challenges facing their business and you will often be met with an exasperated sigh or an ironic chuckle followed by a litany of complaints. Some of the most common challenges that were communicated throughout the year as part of ClearSky Advisors’ ongoing information gathering service include:
- Frequent and often unexpected changes introduced to the program throughout the year;
- The ongoing and seemingly unnecessary delays associated with the environmental Renewable Energy Approval (REA) process for utility-scale projects;
- Continued constraints due to grid capacity limits imposed by local distribution companies such as Hydro One;
- Fierce competition among module manufacturers in the province resulting from both an oversupplied market as well as dropping cell prices that fell more than 40% over the course of the year;
- Market uncertainty that came about because of the October election and its heated renewable energy rhetoric that cast doubt on the future of the Feed-In Tariff (FIT) program; and,
- Further uncertainty associated with the announcement of a review of the FIT program that is currently ongoing, deciding on new, yet-to-be-announced rules and rates that will be applied to most new contract awards.
Judging from the results of over 200 in-depth interviews and surveys with key industry stakeholders conducted throughout the year, it is not an understatement to say that many in the province’s PV industry are weary with frustration.
Nevertheless, despite such a tumultuous environment, the Ontario PV market has experienced significant growth and maturation in 2011. The total volume of installations in the province is expected to be just over 300 MW (dc), an increase of roughly 130 MW (dc) over the previous year. This growth was driven primarily by the completion of utility-scale projects awarded under the Renewable Energy Standard Offer Program (RESOP) together with a microFIT program that took off in 2011, especially among rural residents installing 10kW groundmount systems.
The previous year also saw significant improvements in terms of market efficiency. Installation costs have decreased by 12-28% over the course of the year as a result of both the significant decline in module prices as well as increased installation efficiency.
Underlying this growth and development is an increasingly efficient local value chain that has truly blossomed in 2011, able to produce more than enough equipment to meet current market needs.
2012: More Growth and Stiff Competition
The most significant trend in the forthcoming year is that growth is expected to continue at its current pace. ClearSky Advisors predicts 80% growth in the volume of installations in 2012 over that seen in 2011. This growth is predicated on the fact that over 2,000 MW (ac) of RESOP, FIT and microFIT contracts are currently under development, a substantial fraction of which are expected to be built and connected in 2012.
The bulk of this installation volume will consist of the first batch of utility-scale groundmount FIT projects coming online along with a commercial rooftop market that is expected to increase substantially. This increased activity will be in addition to the province’s thriving microFIT market which is expected to see a move away from 10kW groundmount installations and towards more residential rooftop projects.
The previous year saw a significant increase in the number of module manufacturers entering the Ontario market, more than doubling production capacity of domestic content compliant modules over the course of the year. As a result, production capacity of modules as well as inverters is more than sufficient to meet 2012 demand despite the significant expected increase in the volume of installations.
Combined with the fact that module prices are expected to continue to fall and even more new players are expected to enter the market, manufacturers will find little reprieve in the new year from the fierce competition that has characterized the Ontario market in the latter half of 2011. Indeed, the existence of many Ontario manufacturing facilities will be threatened if they fail to find new export markets in the US or elsewhere.
One positive trend for manufacturers, however, is that there will be a significant increase in demand for equipment requiring 60% domestic content (DC) compared with 2011 demand. Specifically, although overall demand is expected to increase by 80% in 2012 over 2011, demand for locally assembled modules is expected to increase by more than 550%. This should mean a very large increase in activity for Ontario manufacturing facilities in the coming year.
What will shape the Ontario PV market in 2012?
The issues surrounding the REA process and distribution grid have not been resolved. It is not clear if, how, or when these issues will be addressed though many stakeholders within the industry are hoping that the bureaucratic process, from contract application to grid connection, will be accelerated and streamlined as a result of the FIT review. Currently, these delays are adding significant costs to both developers and manufacturers and are one of the primary concerns within the Ontario PV marketplace.
Another element of uncertainty is the rate at which new contracts will be awarded. All new FIT and microFIT contract awards have been suspended since October 31, 2011 until the conclusion of the FIT review, leaving many to speculate on how future awards will be handled. Several factors will affect the number and rate of new contract awards:
- Attrition. It is clear that not all currently awarded contracts will be built and the volume that are cancelled and abandoned will free up additional room for future contract awards. For example, an increase of 10% in the attrition rate of awarded contracts would result in an estimated 335 MW (ac) of additional contract awards.
- Categorization of MicroFIT. Many people within the industry have advised the FIT review to consider removing microFIT installations from the solar carve-out described in the government’s Long Term Energy Plan (LTEP) and considering these projects as a form of conservation instead. If adopted, the 372 MW (ac) of microFIT contracts expected to be awarded by 2018 can be awarded as additional FIT contracts instead.
- How Samsung Fulfills Its Contract. Samsung currently has a contract allowing them to develop 500 MW (ac) of PV projects. The number of projects that Samsung chooses to purchase from existing contract holders to fulfill this volume will need to be compensated to fulfill the LTEP goals, increasing the volume of future FIT contract awards.
Although many questions surround the award of future contracts, this will have little influence on project development in 2012 which will be dominated by existing contracts.
Ongoing trade disputes are sure to play a significant role in shaping the 2012 Ontario PV market. Directly, Japan’s WTO complaint and Mesa Power’s NAFTA complaint could call into question the province’s domestic content requirements, putting even further pressure on beleaguered manufacturers who may still be depending on the existence of a (shrinking) premium for Ontario modules.
Indirectly, escalating rhetoric between China and the US over solar trade practices may have a positive effect for the Ontario industry, making imports from Ontario look more attractive than those from China. On the other hand, such heated talk may simply increase US trade protectionism overall, making it harder for Ontario manufacturers to enter US markets.
How these trade issues play out remains to be seen but the outcome is sure to have an effect on the industry, both psychologically in the short term and more substantially in the long term.
Conclusion: Stability requires a period of change
With so many questions remaining unanswered and with a market and policy still in flux, industry stakeholders can take a little comfort in knowing that such a period of change must necessarily precede any period of relative equilibrium. So, while stability, predictability, and transparency will not come to the market in time for Christmas, many are hoping that the results of the FIT review will usher in a new phase of public policy early in the new year that will be structured to promote a sustained, predictable, and stable PV market in Ontario for many years to come.
Photocredit: Wayne National Forest