Solar Fever

Reading Time: 5 minutes

Published: June 18, 2010

Before the solar fever took hold, Bert Rammelaere caused some local rubbernecking in 2008 when he built a solar photovoltaic (PV) tracking system on his farm north of Tilbury in southwestern Ontario. Since then, the gawking has only increased.

Rammelaere’s system produced 18,000 kilowatts last year. “I thought I’d try something different,” he says. “Lots of things I try and at 42 cents a kW, it paid better than a lot of things.”

Thanks to the Ontario’s new green-energy legislation, that rate jumped to 80.2 cents. Like other existing solar projects, Rammelaere’s panels were grandfathered into the new rates, making his venture even more financially sound.

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“Since the rates went up to 80 cents (per kW), I’ve had probably 500 people stop by or call to ask questions about it,” says Rammeaere. “The interest has been unbelievable.”

It began with Bill 150, Ontario’s Green Energy and Green Economy Act. More precisely, it started with the news that under the bill, the province would essentially guarantee

an eye-popping 80 cents per kilowatt hour for farm-sized solar projects — for 20 years.

That’s 10 times more than the province currently pays for electricity from its network of hydro, nuclear, coal and natural gas generating stations. And — did I mention this already? — it’s for 20 years.

Equally impressive, however, is the sophistication of the business analyses that farmers are using to evaluate return on investment for solar projects.

The cornerstone of the Ontario legislation is its focus on using feed-in tariffs to encourage farmers, home owners, co-operatives and First Nations to invest in renewable energy. These tariffs are the prices that such groups will get for electricity that they pump into the Ontario network.

On its own, the feed-in tariff structure isn’t unique. More than 20 countries in the world use a similar approach, including world-leading Germany, and soon to include California. The Ontario legislation, however, is more aggressive than anywhere else, and is being carefully watched around the globe.

In rural Ontario, the guaranteed-by-the-government, 20-year contract with an estimated 11 per cent return on investment has got farmers’ hearts all a flutter. The Ontario Federation of Agriculture worked with Ontario Power Authority (OPA) to help them understand and encourage the on-farm applications. It worked. OPA started accepting applications on-line in October and by May had more than 10,000 applications.

“The farming community has always been innovative and enterprising and often on the margins of success,” says Ben Chin, vice-president of communications for OPA. “We’re seeing a tremendous take up of this program by farmers.”

As of May 1, about 3,200 conditional contracts had been issued by OPA for the purchase of renewable power generated from wind, water, biogas and biomass systems — and from the sun. The standard contracts set a fixed price for

the electricity the projects produce for 20 years, (except for waterpower which has a 40-year contract) for two different categories. The microFIT program is for renewable energy with projects having the capacity to produce 10 kilowatts (kW) or less and the FIT program is designed for larger projects. As of March, 99 per cent of all microFIT applications were for solar photovoltaic applications.

“Someday there may be more solar tracker units in some pockets of Ontario than there are silos,” says Don Hilborn, by-product engineer with Ontario Ministry of Agriculture and Food. “It’s amazing that it’s taken this industry less then half a year to adapt to this idea.”

The first of the larger FIT Capacity Allocation Exempt contracts were issued in March. OPA announced contracts for 694 mid and large-size FIT projects, which could generate more than 2,500 MW — enough electricity to power 600,000 homes. The operating dates for these projects vary but most of them will be generating electricity within three years.

It’s all in ROI

If it seems that Ontario farmers have suddenly gone green, it’s simply the colour of cash flow.

The small solar-produced electricity under the microFIT program pays 80.2 cents per kilowatt hour and should generate $15,000 to $16,000 gross income per year for a panel that costs up to about $110,000.

The payment rates for other green energy sources are slim in comparison. For example biogas is guaranteed 10.4 to 19.5 cents per kWh, and wind gets 13.5 to 19 cents.

Ted Cowan, research person with Ontario Federation of Agriculture, is touring the province talking about renewable energy and answering a lot of questions about solar PV. He says the prices for different power types are set to give each about the same rate of return, about 11 per cent.

With the solar PV microFIT, there’s no marketing and little maintenance but it does take significant capital up-front. Considering loan principle and interest payments, increased income tax on earning, and some relatively small other expenses like insurance, most companies are estimating a pay back of seven or eight years.

The 80.2 cents a kWh microFIT contracts for solar PV are only available for farmers and others who sign their contracts within the first two years of the program, which started last fall. For anyone with such a contract, that price is good for 20 years. After this initial two-year sign-up period, Cowan believes next-generation contract rates will be chopped in half.

Before the fall, the standard contract for microFIT solar was about 40 cents per kWh, and those projects were grandfathered in to the current rate. Farmers are limited to one microFIT contract per farm.

“The tariff rates are designed for a fair rate of return on the capital investment, not the price of electricity,” explains Chin. “Solar panels are coming down in price. We’re going to have to adjust our prices to better reflect what the capital costs are.”

A small solar panel project has a much lower entry cost than other technologies,

gies, starting at about $70,000. “That’s much lower than the $350,000 for small wind or $600,000 for a biogas digester,” says Cowan.

That level of capital financing is manageable to more farmers. Moreover, the small solar PVs are almost labour free and take little space. Most importantly, solar provides a guaranteed stable income, a rare thing in agriculture.

Both the contract and the systems are long-term. A typical silicon cell solar module will last more then 20 years and many panels have 20-to 25-year warranties. However, the electric generating capacity may decrease gradually, up to 20 per cent over its useful life. The inverters and mechanical components have various warrantees ranging up to 20 years on everything.

Insurance rates also vary, starting at about $200 per year. There are also extra startup costs, such as hydro inspections and hook-up fees and permits, and you may have face extra municipal taxes.

In the next 20 years, the OPA plans to buy about 15,000 kWh of power a year from about 20,000 microFIT installations, says Cowan. “In the following 20 years, no price is set, but the panels will still be there and working, and any money coming in will be gravy.”

Putting the solar income into the farm corporation will ensure that the income is taxed at a lower rate. Others farm operations are splitting income with ownership. Some are rolling part of the income into AgrInvest account, a RRSP or an RESP. “Treat the investment like any other and make sure it fits you and your farm,” advises Cowan.

Some lending institutions are suggesting accessing funds through the Canadian Agricultural Loans Act (www.www4.agr.gc.ca/AAFC-AAC).

Farmers who use a lot of electricity are considering this investment as a way to hedge continuing increases in electricity costs. “Pricing is continuing to go up,” says Chin. “At least (with the standard offer contracts) industry and the agriculture are now able generate revenue from electricity production.”

Electricity prices in the province are expected to increase 25 per cent by the end of 2011 and continue rising in 2012 as Ontario moves away from subsidized electricity rates and grapples with the costs of repairing and replacing transmission lines and power sources. “Ontario has not paid full cost for the power it uses in approximately 30 years,” says Cowan. CG

About The Author

Maggie Van Camp

Contributor

Maggie Van Camp is co-founder and director of strategic change at Loft32. She recently launched Farmers’ Bridge to help farm families navigate transitions and build their businesses with better communication. Learn more about Maggie at loft32.ca/farmersbridge

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