Why MicroFIT?

December 13th, 2011 by Potato

I recently was pointed to Canadian Doomer’s site, where I saw this comment:

“Ontario Hydro is paying $0.80/kwh to those who sell them electricity on the MicroFIT program. But consumers are paying $0.05 to $0.10/kwh. This makes absolutely no sense, unless Ontario Hydro knows that they will soon be charging consumers MORE than $0.80/kwh. Look at your hydro bill and imagine it multiplied by 8.”

Well, no, it’s the price they have to pay to get solar off the ground. Very few people wanted to pay ~8x the price of grid power to buy their own solar panels, so the companies weren’t making panels, so the panels were expensive, etc… By offering enough money that PV would be profitable, it bootstrapped the industry, and broke the vicious cycle. The industry has already brought the price down by huge amounts (panels now cost half or a third of the price in just 3 years), and the government is going to cut microFIT any day now (they’ve already started dragging their feet with applications).

That lead CD to ask the follow-up question:

“Why does Ontario Hydro care so much about getting solar off the ground when they’re not making money on it?”

The short answer is that it’s because it’s the right thing to do.

The longer answer is to first up realize that Ontario Hydro is not an independent company: this isn’t Capital Power or Emera or Fortis offering money to install panels, it’s the government. And sometimes the government subsidizes things for social rather than strictly economic reasons.

Consider other breaks offered recently for green technologies:

The federal government was offering up to $2000 to buy a hybrid car, until just a year or two later, they changed their minds and took that incentive away. Many provincial governments (including Ontario) also offered rebates of several thousand dollars ($2k in Ontario) for hybrid cars (and similarly, no PST on bicycles). Those rebates by our government as well as others around the world — notably the US, which had various tax credits as well as other incentives to buy hybrids like free parking and HOV lane passes — were very helpful in getting this fuel-efficient technology off the ground. Hybrids are now reasonably mainstream, something like 4% of the overall passenger car market, and still growing quickly. However back 10 years ago, a hybrid was a very difficult sell: they were more expensive than a traditional car, there was a lot of uncertainty over how reliable they would end up being (a sentiment that still persists, even with over a decade of experience), how much they would cost to maintain… and all that was on the back of gas prices that were still measured in cents per litre. So those subsidies helped level the playing field until the cost of the cars and the price of gas brought us to where we are today, where $1.20/L looks cheap, and it seems stupid to buy anything other than a Prius. And while I tend to focus on how awesomely quiet my car is and the gas savings, the fact is that the gas savings is in part a side-effect of the hybrid’s original goal, which was to reduce pollution — an important social goal in an urban country.

So back to the solar subsidy: by guaranteeing a certain return on the panels, people became interested in purchasing them. The government could stand up and say that, for at least the next few years, there would be a certain level of demand for panels, which allowed panel manufacturers to go to their investors and raise money to build factories and invest in R&D to make more efficient and cheaper panel technologies, and basically got the whole ball rolling. Ontario and Germany really lead that area*, and factories really started churning out panels to meet the new demand, and to build capacity in the hopes that a certain superpower with a lot of desert would also decide to start subsidizing solar energy in the future (let’s call it “Nerizonda”). In just a few years we’ve gone from a world where you had to be an eco-nerd and know someone at NASA just to get a panel, to one where salesmen call up on a weekly basis to let you know how much the panels are on sale this week. Indeed, the build-up has been so rapid that now we’re facing a glut (exacerbated by Germany and other nations scaling back their subsidies for new projects now that they can declare victory), and panels can in some cases be had for below cost.

Now, the solar subsidy could have come in many forms: the government could have directly purchased the panels themselves, and installed them in parks or on government buildings, or even installed government-owned panels on private homes. They could have subsidized the purchase price directly. Instead, they chose this strange scheme that involved all the overhead of metering the panels, and making regular payments (or deducting from the power bill) for 20 years running. And that decision comes down to politics: the budget looks cleaner with a long-standing trickle of money for a program than it does with a big buy over just a few years, even if the total cost is the same. Furthermore, to give Dalton a little bit of credit for being political operators, there was going to be a big delay between starting the MicroFIT program and when the bulk of the payments would start rolling out the door, and in-between was another election. So for the 2011 election, hardly any microFIT payments would have shown up on the budget, and by the ~2016 elections, the program will have ended; off the radar either way.

It’s also important to note that there were several levels to the FIT program: for large commercial solar farms, the rate was less than half what an individual could get under the MicroFIT program. So from a “this is how much OPG expects power to cost in the future” point of view, that might be the upper-end figure to use. Why pay more for smaller systems? Several good reasons:

  • In part as an experiment. People have been talking about distributed generation for years, and the government wanted some data on what that would actually look like. Which meant that you had to find some way to get people to put some kind of generator in their homes, and test out how well the load-balancing and monitoring systems worked. So getting solar out there in particular was a bit of a bonus on that front.
  • In part to raise awareness. You can give money to a big corporation like Samsung to build a giant solar farm in the middle of nowhere, and accomplish your goal of bootstrapping the industry. But if you can get it on people’s homes they’ll see it every day, they’ll talk about it with their neighbours, and it’s also nice to pay your own citizens rather than a faceless corporation. From a political point of view, that also helps make it an issue you can focus on in an election if you want to.
  • In part for long-term efficiency synergies. A giant centralized solar farm is a great way to quickly get solar power on the grid if that’s your only goal. But one of the beautiful things about solar is that its nicely correlated with peak air conditioner demand: just as the sun is beating on your house is also when your panels are at their maximum output. That benefit could potentially go away if Toronto is getting sun while the solar farm on Lake Huron is experiencing clouds. Though you need more inverters and monitors, you don’t need any transmission capacity to be built or maintained, since the generation is right at the site of demand. And on top of all that, you get the synergies that come with rooftop solar: the panel itself helps to shade a house and keeps it cooler than a typical asphalt shingle, further reducing peak power demand.
  • In part for short-term inefficiencies. The fastest, most efficient way to get X number of panels installed and tied into the power grid is to go with a giant centralized solar farm: make braces and connect panels in assembly-line fashion in a consistent, controlled environment. You can even bulldoze any hills if you can’t find a naturally flat spot. But when you’re introducing a program in the middle of a recession, maybe you don’t necessarily want to be as efficient as possible, maybe you also want a little bit of economic stimulus for good measure: help create jobs for guys to crawl around roofs and take measurements and figure out where the bolts should go.

As for that central question of why? Well, because it’s a green, emission-free, renewable energy source. It has some side-benefits (correlated with air conditioner demand, cooling synergies), but also some negatives (inconsistent, extremely difficult to plan power loads with, expensive even after the cost reductions from recent investments). It has a good image, and getting to some single-digit percent of our power mix being wind and solar is something we can do a little chest-thumping over (never underestimate the importance of chest-thumping, it’s a trillion-dollar industry). Plus, innovations that are created for stationary solar may translate to other applications (space systems, remote self-sustainability).

* – I’m going from memory here folks, apologies if I forgot any other pioneers.

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