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Analysis: Ontario election sows green energy uncertainty  

Credit:  By Nicole Mordant and Susan Taylor, Reuters, www.reuters.com 14 February 2011 ~~

The outcome of an autumn election in Ontario could stunt a budding renewable energy industry in the Canadian province just as it is becoming one of the world’s hot investment destinations.

If the opposition Progressive Conservatives win power on October 6, the party has promised to scrap generous rates for renewable energy producers just two years after their launch by the Liberal government.

That could threaten a program that has lured billions of dollars in investment and created thousands of jobs.

The Conservatives, who are leading in the polls, have yet to release an official energy manifesto. Even so, the industry is privately voicing concern, especially after the party said it would scrutinize contracts already awarded under Ontario’s feed-in tariff (FIT) program.

That plan pays above-market rates for electricity produced from solar, wind and other renewable sources that is fed into the province’s power grid. Only projects that use a large, set quota of equipment produced in the province are approved.

“They are going to go through the economic viability of the energies and review all of the past contracts … I think that is going to cause a lot of delays, a lot of problems and a lot of risk to Ontario,” said Marin Katusa, chief energy analyst at Casey Research, an investor research service.

Ontario’s Liberal government launched its European-style FIT program in October 2009, with the aim of creating jobs, cutting pollution and replacing electricity production lost by closing down coal-fired generators.

The scheme, gaining speed just as similar programs are being scaled back in Germany and Italy, has lured the likes of South Korea’s Samsung C&T, which has committed C$7 billion ($7.1 billion) to build four wind and solar clusters and four manufacturing sites in the province.

There is fierce competition for such development, as governments and utilities seek to grow their green power sources. That gives investors the luxury of cherry-picking locations that offer stable, long-term policy and clear incentives, said Robert Hornung, president of the Canadian Wind Energy Association.

“Anything that introduces uncertainty, or introduces or heightens risk associated with investments, is something that does have the potential to make investments in Ontario less competitive relative to other jurisdictions,” he said.

Under the 16-month-old FIT program, about C$1 billion worth of solar or wind projects have started up or are in the process of being built in Ontario, according to government data.

“We see it as a growing sector, but it is at the whim of government policies,” said Mike Andrade, senior vice-president and general manager of Celestica Inc’s North American operations. “There is a political risk associated with it.”

Celestica, a contract electronics maker, recently said it will start producing solar panels in Toronto this summer for solar power developer Recurrent Energy.

Celestica was comfortable expanding its green energy manufacturing operations as the panels will be made at an existing factory, keeping its fixed-cost investment low.

The opposition Conservatives have said Ontario’s tariffs, which are the highest in North America, are “ridiculously” generous to developers and unfairly hit ratepayers through higher monthly electricity bills.

They have tapped into discontent among ratepayers, who are angry about rising power costs.

Some in the industry believe the Conservatives would find it hard to gut the program because it is creating jobs in a province whose manufacturing sector was hard-hit by the recession. About 13,000 jobs have been created in Ontario – Canada’s most populous province – thanks to green energy legislation, according to government estimates.

“I don’t think it’s the Conservative platform to imperil jobs,” said Jeff Jenner, chief executive of Sprott Power, which owns renewable energy assets in Ontario.

Michael Carten, chief executive of Sustainable Energy Technologies Ltd, which makes solar components, believes that if the Conservatives win power, they will reduce rates offered to developers rather than scrap the FIT program.

That may not be a big shift from what is likely under a continued Liberal government. Under program rules, a rate review is scheduled for the fall and the industry expects rates will drop along with the cost to develop renewable energy.

Others expect the program will be scrapped and replaced by a competitive bidding system for renewable energy contracts. The Conservatives have said they are not opposed to renewable energy, but to the FIT program’s 20-year contracts at well above-market prices.

“Ontario is unlikely to just stop doing green power. They are just going to do it in a different way,” Jacobs Securities power analyst Bill Cabel said.

The ruling Liberals themselves injected uncertainty into the renewable power market last week when they unexpectedly placed a moratorium on offshore wind projects in the province, saying more research was needed, after some public opposition to wind turbines in the Great Lakes.

“It must be election time,” said Tyler Hamilton, a Toronto Star business columnist and writer of a clean energy blog.

($1=$0.99 Canadian)

(Editing by Rob Wilson)

Source:  By Nicole Mordant and Susan Taylor, Reuters, www.reuters.com 14 February 2011

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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