By Michelle Stern, Research Analyst

Latin America has some of the best solar resources in the world, and as a region its GDP is expected to grow by 4% in 2012 while GDP growth in advanced economies is expected to remain comparatively low. With growing electricity demands, a commitment to sustainable development, and targets for renewable energy adoption, solar PV is expected to be an important part of the future energy mix in Latin America. Mexico recently passed a climate change bill that put several measures to fight climate change into place, including a mandate for 35% of energy to come from renewable sources by 2024. This bill, which was passed on April 19^th, makes Mexico the 2^nd country in the world to adopt long-term climate targets through national legislation.

Mexico’s economy, which grew by 3.8% in 2011, is one of the two largest economies in Latin America and globally ranks 12th for GDP.  While Mexico’s total installed grid-tied solar PV capacity has been limited to date, it is expected to supply an increasing amount of the country’s energy needs in the future.  Based on ClearSky Advisors’ proprietary solar PV forecasting models – which incorporate market fundamentals such as Mexico’s high solar insolation, net metering rules, and a wide range of financial parameters – there will be moderate growth opportunities for developers in the commercial sector in the next 4-5 years.

Utility Scale PV Will be Driven by Policy

However, the vast majority of solar PV market growth will be in the utility-scale sector and will likely be driven by political ambition and will. The Mexican National Electricity Commission has recently begun developing solar PV pilot projects with their own budget to test technologies. Several of Mexico’s provinces have also indicated interest in developing the sector to foster employment growth.  All members of the Senate voted in favor of the recent climate change bill, demonstrating a commitment to a green economy by all political parties. With a presidential election expected later this year, it is anticipated that more rigorous policies will be implemented to develop the renewable energy sector. The private sector in Mexico is also investing in utility-scale projects, and to date at least 5 international firms have either developed or received contracts to develop projects.

Future Market Potential

Future growth in the market will depend on a few key factors, including the results from the planned pilot projects, procurement of solar PV to meet renewable energy targets, continued cost reductions for solar PV and the political will to implement solutions to their 35% renewable energy mandate.   Failing that, the Mexican solar PV market is expected to experience only modest growth at least until the cost of solar PV falls to a level that is competitive with conventional energy sources. However, the Mexican solar PV market will likely be an important one to watch going forward as crucial political decisions are expected following the presidential elections in the fall. The private sector should be prepared to engage with the government as the market continues to develop.

Through extensive research with industry players and leaders, ClearSky Advisors provides continuous coverage of existing and future market opportunities for solar PV markets in Latin America and the Caribbean.

Photo by Theodore Scott

by Justin Malecki, PhD
Analyst

It has been over a week since the conclusion of Ontario’s Feed-In Tariff (FIT) program review and many of those involved in the development of renewable energy are left with more questions than answers.  To help provide direction and clarity, ClearSky Advisors has discerned several clear trends that are likely to emerge assuming that most of the recommendations are followed.

In this article, we highlight some of these trends in advance of a quantitative and detailed update to our Ontario PV and wind market forecasts which will be conducted over the coming weeks.  This is not an exhaustive discussion of our analysis, rather, a summary of the most salient trends that are expected to emerge.

Tariff Rates Present an Achievable Challenge

The most precise recommendation that resulted from the FIT review is a new schedule of tariff rates for photovoltaic (PV) and wind projects.  For all installations except for PV projects less than 10 kW and wind projects with less-than optimal wind resource or expensive complications, we estimate that the new tariff rates can provide investment returns of approximately 10%-15% or higher for projects installed at a cost near the low end of what is currently present in Ontario’s market.

As a result, while there is currently a wide range of installation costs in the province, such a situation cannot last.  Equipment costs have fallen significantly over the past few years so that balance-of-system costs are now the largest component of an installation.  Those installers and developers who are able to reduce their total installed cost the fastest will emerge as market leaders at the expense of those who are slower to reduce costs.  Furthermore, projects with higher installation costs due to structural, land, or connection issues may no longer be viable.

Industry players generally agree that plenty of opportunities remain given the new tariff rates.   Based on feedback from preliminary interviews with a range of PV installers and wind developers, most are pleased with the new tariff rates and optimistic about the future of their businesses.

Challenges for MicroFIT, Opportunities for Larger Rooftop Installations

The short-term outlook appears challenging for microFIT PV installations of 10 kW or less.  We estimate that the lowest installations costs currently available must fall by a further 5-6% before an 11% investment return can be realized.

The situation is especially challenging for groundmount microFIT projects.  ClearSky Advisors has already been predicting a move away from such groundmount installations and several FIT review recommendations will only accelerate this trend:

• A 31% reduction in tariff rate, from 64.2 ¢/kWh to 44.5 ¢/kWh
• Restrictions on building projects on class 1, 2, or 3 agricultural land
• A prohibition on groundmounted PV projects in or bordering residential areas
• A limit of one microFIT project per individual (further clarity will be required to determine the full impact of this recommendation)

On the other hand, tariff rates for commercial rooftop FIT projects remain attractive and the introduction of the 100 – 500 kW category paves the way for larger rooftop projects than we have seen in the past.  Whereas before there was an emphasis on projects close to 250 kW (the upper limit of a previous tariff tranche), we now expect to see more projects closer to 500 kW.

Increase in Community and Aboriginal Involvement

The FIT review recommended that points be awarded for projects with local and Aboriginal ownership and support, points that are to be considered by the Ontario Power Authority in the application evaluation process.  With so much competition for FIT contract awards, both wind and solar developers will likely be attracted to projects with such equity participation in order to gain priority access to the grid.

Furthermore, recommendations to continue the tariff rate “adders” for projects with local and Aboriginal ownership will further incentivize such projects.  These adders are especially attractive for wind projects where an increase of up to 9% – 13% in tariff rates is possible.

Continued Growth

Ontario’s renewable energy markets have seen significant growth and development since the introduction of the FIT program.  Given the government’s renewed commitment to the program in the FIT review, we expect growth to continue at least through 2013.  Over the coming months, ClearSky Advisors will be conducting an in-depth update to our Ontario PV and wind market forecasts to validate our preliminary analysis described above and to quantify Ontario’s market dynamics going forward.

Photo credit: C.G.P. Grey

After much anticipation and no little impatience on the part of those involved in Ontario’s renewable energy industry, the Ministry of Energy has announced the results of their 5-month review of the province’s Feed-In Tariff (FIT) program.  In this article, we summarize the most significant recommendations and changes as well as highlighting those elements which will remain the same.

Summary of Key Recommendations

 We categorize the key recommendations from the review in three broad categories.

 Tariff Rates

There will be significant reductions to tariff rates for photovoltaic installations and wind projects.  These decreases are generally in line with cost reductions achieved by each of these industries since the original FIT program was announced in Ontario.

• For rooftop photovoltaic (PV) systems
  • 53.9-54.9 ¢/kWh for rooftop projects between 10-500kW
  • 48.7 ¢/kWh for rooftop projects greater than 500kW
• For groundmounted PV systems
  • 44.5 ¢/kWh for groundmount projects less than 10kW
  • 38.8 ¢/kWh for projects 10-500kW
  • 35.0 ¢/kWh for projects 500-5,000kW
  • 34.7 ¢/kWh for projects greater than 5,000kW
• For wind projects
  • 11.5 ¢/kWh for projects of all size
• An annual price review will be announced every November and implemented the following January
• A portion of the tariff rates on bioenergy and wind projects will be increased in proportion with inflation rates

Streamlining Project Implementation

• There will be various changes to the Renewable Energy Approval (REA) process to reduce timeframes
  • A 25% reduction in REA timeframes is targeted
  • A Renewable Energy Committee of senior officials is to be created to help drive progress of projects through the REA process
• The commercial operation date required for Capacity Allocation Exempt (CAE) FIT projects is to be decreased to 18 months from 3 years
• The Economic Connection Test (ECT) for FIT projects will not proceed
• The FIT transmission availability tables will be published periodically, at least with each round of FIT contract award
• Best practices are to be established for improved communication between local distribution companies, transmitters, and the Ontario Power Authority

 Incentives for Community Involvement and Addressing Public Concern

• A point system will be introduced to prioritize those projects with greater local community or Aboriginal ownership and support
• At least 10% of contract awards will be set aside for local community and Aboriginal projects that have more than 50% equity participation
• Contract launch meetings will be required for large FIT projects among community and project stakeholders
• PV groundmounted projects greater than 10kW will no longer be allowed on prime agricultural land (soil class 1, 2, or 3) and cannot directly border residential areas
• Recommendations will be requested to improve funding to community groups through the Community Energy Partnerships Program which will be re-launched by July 1, 2012
• Support funding will be extended for Aboriginal groups through the Aboriginal Energy Partnerships Program

 Other recommendations include

• The development of a Clean Energy Economic Development Strategy to promote continued growth of Ontario’s clean energy industry, both provincially and internationally
• Domestic content rules will be updated to allow Ontario-made concentrated solar PV to be an eligible technology for FIT and microFIT projects

 FIT Program Components Left Untouched

 Although numerous changes to the FIT program have been recommended, it is interesting to look at key elements that have been recommended to remain the same.

•  Tariff rates for hydro, biomass, biogas, and landfill gas remain the same
• The Ministry of Energy reiterated their commitment to the goal of bringing 10.7 GW of renewable capacity online by 2018
  • The entirety of this capacity is to be procured by 2015
• Hydro One’s technical limit for connecting microFIT projects (the “7 per cent rule”) will remain, pending the results of additional studies
• A commercial FIT program to allow the aggregation of multiple microFIT projects under one contract will not be implemented
• There will be no RFP system for large-scale solar projects as some had speculated

Further Analysis

These recommendations promise to have a significant impact on renewable energy market dynamics in Ontario.  ClearSky Advisors will be publishing the results of our analysis of these proposed changes within the next several days to anticipate the impact on industry stakeholders and to advise companies on how best to position themselves going forward.

Photocredit: Liz West

by Justin Malecki, PhD, Analyst

Next to California, New Jersey has the most active PV market in the US.  Generous rebate programs in the past and aggressive policy goals combined with some of the highest electricity prices in the US have given rise to a thriving marketplace for commercial and industrial PV installations.  However, this rapid growth has caused the state to recently overshoot its solar energy generation goals as mandated in New Jersey’s Renewable Portfolio Standard (RPS), signaling a dramatically different PV market environment in the years ahead.

The primary driver of solar installations in New Jersey is the Solar Renewable Energy Credit (SREC) market.  For every MWh of electricity produced by solar PV, one SREC is awarded to the owner of the installation.  SRECs are a tradable commodity that utilities must purchase to demonstrate their compliance with the state’s solar-specific RPS targets.

Prior to Energy Year (EY) 2012, the New Jersey SREC market has been undersupplied in that there was insufficient capacity to produce enough SRECs to meet the annual generation targets of the state.  Such a state of undersupply meant high SREC prices in excess of $600 on average, fueling demand that led to a record number of installations in 2011.  (The schedule for RPS compliance in New Jersey is mandated for each energy year running June-May; EY 2012 runs June 2011 – May 2012.)

But just how oversupplied will be New Jersey’s solar market in the years ahead?   The following graph shows the expected PV generation in the state based on ClearSky Advisors’ 5-year forecast compared with New Jersey’s RPS solar targets.

With more than 600 MW of approved projects scheduled to be built, there appears, on the surface, to be little slowing of the state’s solar market in the next two years.   Not all of these approved projects will be built, however.  Yet even if only a fraction of these projects are built (as assumed in ClearSky Advisors’ New Jersey forecast) the consequence will be an oversupplied market until 2016 and SREC prices significantly lower than those seen in the past.

Indeed, there has already been a 38% drop in the monthly average SREC price since the beginning of EY 2012, from $610 in June 2011, to $376 in January 2012.  The widening gap between actual and targeted solar generation will only drive this price even lower.

The dramatic change in PV market conditions has not gone unnoticed by the state’s legislature which is currently considering increasing the solar RPS goals over the next three years.   By increasing the number of SRECs that utilities must purchase, it is hoped that prices will continue to remain at a level that allows for a reasonable rate of return for project owners.  Under the current rules, the earliest the RPS targets could be increased is EY 2016 (such an increase is included in the graph above).

While market-based incentives such as SREC trading are meant to provide a reward mechanism that will automatically adapt to market conditions, such automatic corrections can come as a shock in such a new and rapidly growing solar industry.    Unless legislated changes are made to the current solar policy, industry players should expect a significant cooling of New Jersey’s historically hot PV market in 2013 and beyond.

Photo credit: Kimco Realty

A Year Of Change in Ontario’s PV Marketplace With More Change To Come

 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.

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

Continued overcapacity in the solar supply chain will see the cut-throat competition in the solar PV supply-chain continue, with average selling prices for modules continuing to fall at least for the first part of 2012. Not until 2014 will market conditions improve markedly for those equipment suppliers that have managed to continue to cut costs, as solar power will become cost competitive even without state level incentives in some areas.

In the short-term, the analysis performed by ClearSky Advisors points towards opportunities in carefully targeted markets. The diversity of state-level solar policies means that the US market must be treated as many local markets – each with its own set of policies and conditions that determine the magnitude of the local opportunity.

“In 2012, the US PV market belongs to those equipment suppliers who are able to effectively target their market and calibrate their offering to local market dynamics” says Brennan Louw, Senior Analyst at ClearSky Advisors. “Simply having a presence in the California and New Jersey markets will not cut it going forward”.

Key highlights from the forecast:

• Driven by state-level policies, especially states with renewable portfolio standards with solar carve-outs, market growth in 2015 will be increasingly dominated by utility scale projects.
• Continued decreases in equipment prices will make solar power cost competitive in certain areas toward the end of the forecast period.
• The West will remain the largest regional market for the foreseeable future and California and New Jersey will be the single most important states for some time to come, even if both states will face intermittent market disruption.

All facts and figures are reported in the US PV Market Forecast 2011-2015, published by ClearSky Advisors Inc. The report contains market forecast scenarios, pricing, market volume, regional analysis and an analysis of emerging states. The market forecast is based on an analysis of the PV markets and the key market policies in each of the 50 US states.

For inquiries and interviews contact:

Tim Wohlgemut
+1-(647)-297-0045
tim@clearskyadvisors.com

Press Release posted on PR Buzz

Illustration photo by Hamed Saber

Photo credits: stantoncady and David Blaikie

The OPA Announces FIT Review as PV Installation Costs Continue to Fall

On October 31, the Ontario Power Authority (OPA) formally announced the commencement of what many in the Ontario renewable energy industry already knew was coming: a comprehensive review of the rules and rates governing the province’s Feed-In Tariff (FIT) program.    Although no date was set for when the results of the review will be announced, the OPA indicated that the new program rules and rates would be developed to “balance the interests of ratepayers with the need to encourage investments in new clean energy in Ontario”.

This review has long been expected yet some have been unpleasantly surprised by the announcement that existing FIT applications that have not yet been awarded a contract will be subject to the new rules and tariff rates set by the review.   In the case of microFIT applications, only those applications submitted after August 31, 2011 will fall under the new rules and rates.  As a result, no new contracts will be awarded until after the review.

In other words, proponents of almost 7GW of outstanding PV contract applications are now faced with the likely possibility of receiving a lower rate than originally expected.  For projects applications submitted as long as one year ago, this could be a bitter pill to swallow.

The announcement of the OPA review comes at a time of dramatically decreasing total installation costs for PV projects.  For example, according to research conducted by ClearSky Advisors, the installation costs for both utility-scale and residential rooftop projects have dropped by 10-20% over the first 6 months of 2011.  Commercial rooftop projects, whose long connection approval delays have made it more difficult to capitalize on falling equipment prices, had installation costs drop by only 2-5% during the same time period, though this cost is expected to fall further if projects begin to be built at a faster pace.  Overall, the cost of components, particularly the cost of panels, has dropped much faster than the reduction in the total cost of installation.

In the face of such rapidly falling installation costs, there is clearly room to lower tariff rates to minimize the cost to ratepayers while still ensuring a reasonable profit for owners and developers of well-managed PV projects.   The OPA has mentioned the possibility of considering a rate digression model as part of the FIT review, indicating that tariff rates may be set dynamically in order to accommodate changing installation costs or other factors.

Nevertheless, the imposition of yet-to-be announced rules and rates to existing contract applications is another manifestation of the primary criticism that has been leveled against the Ontario FIT program:  uncertainty.  The frequent and often unexpected changes made to the rules and rates governing the FIT program have been one of the most common concerns raised by industry stakeholders.  While a certain level of uncertainty and change may be a necessary element of any nascent and evolving government program, the FIT review could and should be an opportunity to provide more stability and transparency than has been characteristic of the program in the past.

ClearSky Advisors has been actively interviewing industry stakeholders for their opinion on the FIT review process.  Based on this research, the following guidelines would help to ensure that the FIT review will be of the most benefit to the renewable energy industry:

• The review should be conducted and the results announced as quickly as possible; even if it only takes 2 months, that is two more months of inactivity that could hamper the industry. From an industry perspective it would be desirable to have the OPA commit to an end-date for the review process as soon as possible.
• The review should clearly state goals (preferably in MW) and show how those goals align with the Long-Term-Energy-Plan or other such directives
• The review should count on changing market conditions going forward and implement rules that will automatically and predictably account for such changes in order to achieve the desired program objectives
• The review should streamline the contracting and permitting process to reduce delays in contract approval and project connection; more than anything else, this could significantly reduce installed costs and thus reduce the cost to ratepayers

Clearly, FIT and MicroFIT rates should be reduced, but unless those reductions are combined with increased transparency and predictability, it will be very difficult for the industry to grow and prosper.

Constant change has been one of the defining characteristics of the PV industry in Ontario and ClearSky Advisors will continue to provide in-depth insight to our clients on the impact of the FIT review as the process goes forward.

Photo Credit: Alexander Henning Drachmann

The purpose of this article is not to pass judgment on the election outcome, but to contribute to a discussion about the role green energy policy played in the outcome of the Ontario election. Were their respective positions on green energy either positive or negative for the election results of the two main parties in Ontario, the governing Liberals and the opposing Progressive Conservative party (PC)?

Let’s consider McGuinty first – the man behind the Green Energy Act:

Recent reporting suggests that Carol Mitchell and possibly John Wilkinson – both ministers in McGuinty’s previous cabinet – lost their seats because of the Liberal party’s policy on renewable energy. An article in the Globe and Mail also mentions Leona Dombrowski as suffering the same fate in addition to the two aforementioned candidates. The same article goes on to say that because of those three losses, McGuinty lost his majority, which, given that he is now only one seat short of majority, is an accurate statement. But, does that also mean that we can attribute McGuinty’s loss of majority to the Liberal’s green energy policy?

Let’s consider the following facts:

• The Liberals lost 19 seats in this election
• Three of the losses have been attributed to the green energy policy
• That leaves 16 other lost seats, each of which could have given McGuinty a majority, if only one of those Liberal candidates had won their riding

In other words, there are many reasons why McGuinty lost his majority, and green energy policy may be one of them – but in a year with strong conservative winds blowing across Ontario, it surely is not the only and perhaps not the most important reason. Conversely, there is evidence that McGuinty’s green energy policies may have helped him greatly in some parts of the province even if it didn’t in others.  Moreover, evidence also suggests that Hudak’s aggressive stance against green energy policies may have hurt, more than it aided his cause.

It is worth noting that in none of the three ridings mentioned by the Globe and Mail as costing McGuinty his majority can the voting be characterized as landslide victories for the PC party and their particular stance on renewable energy:

• In Perth-Wellington, the PCs made a gain of 1,981 votes, just slightly more than the “green friendly” NDP’s gain of 1,674 votes. Given that John Wilkinson lost his seat by only 630 votes, one might just as well attribute his loss to the “orange wave” as to the Conservative’s opposition to the current green energy policy. With both the Liberals and NDP supporting a progressive green energy policy, the popular vote in Perth-Wellington was clearly in favour of a green energy policy.
• In Huron-Bruce, the shift from Liberal to the PC party was more pronounced as the PCs gained 5,560 votes compared to the 2007 election and beat the incumbent Liberal candidate by 4,463 votes. However, the majority of the popular vote still favoured parties with a progressive green energy policy.
• In Prince Edward – Hastings the PC party gained 3,909 votes versus the Liberals’ loss of 5,294 votes. Even so, if this election was indeed a vote on a progressive green energy policy, it is still the case that a clear majority of the votes in the riding went to parties with progressive green energy policies on their programs.

Looking at the examples above, it is clear that it wasn’t green energy policy that contributed to McGuinty’s loss of a majority; a more likely reason is a continuation of the voting trends seen in the federal election both towards NDP and towards the conservative party in rural Ontario; another is the general wear and tear of having been in power for two terms. However, as long as the popular majority in all of these ridings is clearly in favour of progressive green energy policies it is hard to pin McGuinty’s loss of majority to the introduction of the Green Energy Act.

But what about Hudak: Did he lose this election because of his negative stance towards green energy?

We can’t know for certain, but two pieces of evidence suggests that the PC party would benefit from a more pragmatic approach to green energy in the future:

1. The PC party did not gain a single seat in 11 ridings with significant new green energy manufacturing facilities, suggesting that green energy policy might actually have saved McGuinty from an overall loss. PC did win Haldimand-Norfolk, the location for one of the much-publicized Samsung facilities in Tillsonburg, but that was a strong PC riding in 2007 as well. The table below lists the ridings with the associated manufacturing facilities and election outcomes referred to here.
2. Tim Hudak announced on May 10^th that he would end the “expensive and unsustainable Feed-in Tariff (FIT) program and [McGuinty’s] sweetheart Samsung deal”. Prior to that, polls had pegged the PC support at around 40-41%, whereas the Liberals were at 34%. For Hudak, that was the high point in terms of support – his announcement to end current green energy policies did not appear to attract any new voters to PC. Instead, his support started withering away and on election day the PCs ended up with 35.4%  of the popular vote (a loss of 5% since May) and the Liberals with 37.6% (a gain of 3.6%) for a swing of 8.6% since the May announcement. As a result, Hudak failed to make any inroads where he needed it the most – suburban ridings in the GTA.

While the PCs’ loss of support can’t be solely attributed to Hudak’s aggressive stance on green energy policy, it is clear that he made no gains by taking such a negative position.

Green Manufacturing Ridings and Election Results

(it should be noted that in addition to the above list of companies there are many more manufacturing facilities benefiting from domestic demand for solar and wind equipment; such as existing machine and tooling shops, suppliers of electrical components etc., but we have left those out because those companies existed before the Green Energy Act was introduced which makes it harder to attribute any effects to it’s introduction than is the case for the listed companies )

In brief, these are our main conclusions on the Ontario provincial election:

• There are many reasons why McGuinty lost a majority. While green energy policy might have contributed, the reality is likely more complex.
• It is probable that the Liberal’s green energy policy actually prevented an outright loss for McGuinty by shoring up support in most ridings benefitting from green energy manufacturing facilities and in suburban ridings.
• It is impossible to conclude that Hudak lost the election because of his negative stance on the current green energy policy, but he certainly made insufficient gains because of that position.
• Given that the majority of the electorate supports a party with a progressive green energy policy, any party that is looking to win in Ontario in the future would be wise to enter an election with a positive program for green energy expansion in order to attract voters.
• As Ontario’s renewable energy industry is breathing a collective sigh of relief, they should not feel beholden to McGuinty’s government: Without the private investment and efforts of the solar and wind entrepreneurs to create businesses and jobs in Ontario, McGuinty may not have returned to Queen’s Park. Furthermore, the industry should be aware that any political party that is looking to get elected in Ontario in the future must incorporate a progressive green energy policy in their program.

Toronto, Ontario (September 30, 2011): Ontario’s inverter market is highly fragmented with enphase energy, SMA Solar Technology and Power-One leading the market according to a recent survey of Ontario installers performed by ClearSky Advisors.

Overall, SMA Solar Technologies was the brand installers were most likely to recommend, but Power-One and enphase energy also rate highly among Ontario installers. That none of the players have a dominating position in terms of market share, means that all competitors in the industry still have work to do both on the product and the marketing side.

“Should the pack of current leaders fail to strengthen their position, players such as Fronius, Solectria, Kaco and Satcon and others have positions of strength that they could leverage for increased market share,” says Jon E Worren, President and co-founder of ClearSky Advisors. “Careful targeting of specific market segments will be critical for success in Ontario’s installer market going forward”.

Other highlights from the Ontario Installer Survey:

• Market segmentation is key – installer buying behaviour and preferences vary significantly between segments
• An effective channel strategy is critical for success in the inverter market
• Warranty is decreasing in importance as a buying criteria
• Installers are reporting a significant increase in the share of rooftop projects compared to groundmount microFIT projects. Unless some inverter brands re-position their products this change will impact their market shares in Ontario’s inverter market

The Ontario Installer Survey included responses from 66 installers representing 48% of the Ontario PV market for microFIT and small commercial installations, (based on reported installation numbers for the first six months of 2011).

The survey covers installers’ buying preferences, buying behaviour, channel preferences, pricing, market outlook and recommendations to inverter manufacturers.

For inquiries and interviews contact:

Jon E Worren

+1-416-670-6780

jon@clearskyadvisors.com