Wednesday, December 8, 2010

How to end FIT and not get sued

The FIT program has to end. Not only does it have to end, but the current contracts have to be changed. It's killing the economy. Better those few now who have swallowed the lure from the government than the entire economy.

Problem is, not only would current contract owners sue the government for breach of contract, companies who are ramping up production here in Ontario to sell solar panels are threatening to sue the government if they stop the FIT program in the future.

A new government coming in on Oct 2011 isn't going to want to break contracts as that would be a bad precedent to set. But the costs of the FIT program is prohibitively expensive -- for the next 20 years!

So how do you get out of these contracts? The Czech Republic has a solution. A surtax on FIT contracts. The government can slap a 25%, or more, surtax on the gross revenue that solar and wind owners get for power. This is before they pay anything else, like the loans for the equipment and income taxes to the levels of government. Thus making their contract unprofitable. Not only would this kill future FIT contracts, but also existing contracts.

Best of all there is nothing the FIT contract owners can do about it. Governments can't be sued over imposing taxation measures.

The money, while it lasted, could be used to offset higher electrical prices with rebates to consumers. Once the FIT contracts are all gone, the price of power would fall.


  1. You are right. Seeing as it is the PCs who will likely have to clean up this mess, a little political messaging along these lines would be very helpful.

    Hudak should suggest that while he supports competitive renewable energy, Ontario FIT rates will be adjusted to prevailing international norms. Spain did it, recently retroactively reducing the rates it pays on solar. Of course, this has effectively shut down the industry because it cannot compete without huge subsidies.

    Project proponents might then proceed a little more cautiously if their business case rests partly on the legal remedies they might receive if the taps are turned off.

    The domestic content rules should also be revisited. Canada will lose at the WTO, and under its rules the federal government will have to pick up the tab. Ultimately, though, Ontario will pay.

    Building renewable energy technologies businesses behind protected walls is not the way to succeed in international markets. To truly succeed, firms will have to be globally competitive. Otherwise, all the jobs "created" will be hanging on government subsidies, making the rest of us worse off.

    Right now, all the investment is going into assembly facilities to service the Ontario market. Once the subsidies are removed, the industry will die. Just look at Spain.

  2. Chris F:
    I read about this happening in the Czech Republic awhile back and was hoping someone would pick up on it. Hudak needs to be made aware of this.

  3. I will be seeing him this Wed, he will be made aware of it for sure.

  4. You are all correct.

    Unfortuntely I work in this industry and have the privlage of seeing first hand where our dollars are going. All but a few of the dollars invested are going into the pockets of US utilities that have come north to take advantage of our foolish incentive programs. They boast job creation and the like however, don't be fooled these jobs are TEMPORARY at best. These companies (Unnamed but feel free to look them up) will pack up and get out of Ontario before the ink dries on the stamp that ends this incentive.

    The FIT program requires local content...Jobs here right. I guess so, but has anyone heard of a new factory actually opening here yet? Yes there is 6N Solar, but even they would rather see the FIT progam abolished. Local content is fulfilled by rental of assembly line hours already in existance. A couple hours at a time are rented for the final nuts and bolts of inverters and modules to be assembled. Most companies use the same few shops.

    Then the safety, oh the safety... I am refering to rooftop PV here. There is a mad dash to put systems on roof not designed to hold them. FIT contracts are secured, paid for and committed to. Then its time for the engineers to make the roofs work. One, then another, than another, eventually one will sign off on it... (bold statement there, a PEO couldn't do that (knowingly) But hire a PE that designs beams for a living, or one that does small residential buidlings, or foundations, etc. The work seems simple but if you are not a designer experienced on commercial roofs, you are missing a few very important peices of the puzzel. Examples please - Deflection of the roof system changing roof drainage and operation of control flow drains. The uplift caused by wind arching over a roof. Ice and snow damming.

    SO we pay more, send the profits down south, create unsecure jobs, and cause safety concerns.

    I'm not all pesimistic, these projects can work and are worth funding but the ownership model needs to be looked at.

  5. 80% of Ontario's power infrastructure has to be replaced over the next decade. The government has two choices: 1) put up the money themselves, or 2) get private investors to do the work for them. Electricity prices reflect this expected capital expenditure. There will be no change to the fact that electricity prices are going to rise substantially over the next 10 years regardless of whether private funding is used to develop green energy in Ontario and the government has to pay higher unit prices for electricity, or if the government decides to invest tens of billions of dollars into nuclear energy. The cost is passed on to consumers no matter what. At this point the FIT program accounts for less than 1% of Ontario's total electrical generation mix. Considering the government has not even had to pay for the capital costs of installing these projects, the effect on the market price of electricity is negligible at best, yet people like you still gripe that they know exactly where the higher prices are coming from. Get over yourselves and accept the fact that electricity is expensive and will continue to be no matter what course we take or whichever political party is in power.

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