Wednesday, May 16, 2007

Proposers of Ontario solar energy project see the light but feel some heat

Photovoltaics (solar electricity) offer just about everything you would want from a renewable energy technology. The modular panels are durable and reliable. They can be adapted to fit atop roofs, attached to awnings or mounted on utility poles. They operate silently without emissions. There is one problem, however. Photovoltaics are very expensive not only in comparison with its fossil fuel alternatives, but with other renewable energy technologies as well.

Therein lies a frustrating dilemma for many renewable energy advocates. At this point in time wind energy clearly offers the best hope for delivering utility-scale clean energy at costs (under the right conditions) that are comparable with those of coal and natural gas. However, siting wind farms continues to pose a big problem in many areas, especially as the wind turbines increase in size (which has helped them achieve cost competitiveness). Solar, on the other hand, presents far fewer siting issues. (GW)

Clean, but very expensive, electricity

Is the proposed Sarnia solar farm just more political hot air?

The plan unveiled last month to build an enormous solar farm has drawn its share of critics, who say there are far better ways to cut our dependence on coal-fired generating plants.

May 12, 2007

How bright is Ontario's solar energy future?

Dazzling, according to the recent announcement that a massive electricity "farm" is to be built near Sarnia.

Its numbers are impressive: The project is to contain 1 million solar panels and cover 365 hectares, or the equivalent of 491 football fields.

It would be, say the province and the California-based proponent, OptiSolar Farms Inc., one of the world's largest installations of photovoltaic cells – the ones that convert sunlight into electricity.

The project is likely to figure prominently in the coming election campaign whenever the Liberals tout their environmental accomplishments.

There is, however, much about it that puzzles many in the renewable energy industry. Under current and foreseeable conditions, unless OptiSolar has a technological marvel up its sleeve, the project doesn't make financial sense, they say. Some wonder if it will ever amount to more than political hot air.

The contrast between rhetoric and reality will be crucial to watch next month when the government announces a long-awaited climate change plan expected to focus on alternative energy and efficiency.

First of all, the Sarnia farm is advertised as producing 40 megawatts of power. That's not a lot, considering the land and money involved. It amounts to a mere 0.2 per cent of Ontario's average demand; enough to supply up to 15,000 homes, the company and province proclaim.

In fact, though, the solar fields will generate that much power only under the best and brightest conditions. Less will flow into the provincial grid on cloudy days; none at all at night.

OptiSolar officials aren't saying much about the project.

"We're trying to be very quiet," after the splashy announcement, says co-chief executive Marv Keshner. "There's so much hype in the solar business."

But Canadian spokesperson Peter Carrie did note that in Ontario, the typical output for a solar array, averaged over a year, is 14 to 18 per cent of its peak.

At that rate, the Sarnia project would generate, on average, no more than 7.2 megawatts. The 15,000 homes shrink to just 2,700.

Which brings us to the economics of the project.

The province pays a sizeable premium for electricity generated by solar cells. The price, 42 cents per kilowatt hour, is nearly four times higher than it offers for wind power and other renewable sources, and more than seven times above the current market price.

Even so, the subsidy might not be enough.

"When I run the numbers, it doesn't come out," one industry insider says.

Consider the arithmetic.

A year contains 8,760 hours. If the project generates an average of 7.2 megawatts of electricity, over a year it would produce a total of about 63 million kilowatt hours. That would bring in $26.5 million in payments for the power.

OptiSolar won't say what the project is expected to cost.

The Ontario Sustainable Energy Association says the installed price must be less than $5 million per megawatt if producers are to be paid 42 cents per kilowatt-hour.

The current rule of thumb for small solar installations in Ontario is $10 million. The OptiSolar farm should be cheaper: It would benefit from economies of scale and the company also says it has a more economical production process.

Assume it matches the world's current lowest price. In Germany, which leads in solar installations, a big project costs about $8 million per megawatt.

At that rate, the Sarnia project would cost just under $300 million.

If all the revenue could be applied to that expense, the deal would look pretty good. Everything could be paid off in 12 years.

But that's not the real world. The company would need to borrow most, if not all, of the $300 million. Lenders or investors would want a return. These days, 5 per cent is low. But even at that level they'd take $15 million a year out of the revenue.

The company must also pay for the use of the land, along with taxes and minimal operation and maintenance costs. It might also want to earn a little profit.

How, then, does it begin to knock down the $300 million debt?

The Ontario Power Authority, which awarded the contract to OptiSolar, didn't examine the financing, just as it doesn't scrutinize the accounts of any project, says spokesperson Tim Taylor. "We were told early on that requiring a business test ... was an unnecessary step. So, we do not assess the economic robustness of the projects."

It's very simple: A proponent says it will produce power. The authority agrees to buy it for a set price. If electricity is never generated, nothing happens.

OptiSolar plans to make its own equipment and is banking on a new, less expensive photovoltaic (PV) technology, not yet proved. It might subsidize the Sarnia project if it can build and sell solar panels to others.

"OptiSolar has technology, including manufacturing techniques, that will lower the cost of PV solar farms to levels that are economic with the OPA pricing," says executive vice-president Phil Rettger. "We agree ... that the projects would not be economic at the $8 million per megawatt attributed to general industry average costs. The technology and manufacturing systems are based on proven techniques and are ready for production."

Rettger also says the company won't ask the power authority for a price increase.

A factory hasn't yet been constructed. Sarnia is OptiSolar's only current project. The "products" link on its website states only, "stay tuned."

It is possible the power authority will increase the amount it pays for electricity from solar projects, Taylor says. The price is to be reviewed every two years.

When the authority decided on 42 cents, it had no idea what rate would be required to ensure projects are developed, he says. "We struck a compromise. It may well adjust over time."

Solar power is enjoying its miniboom in Germany only because the government pays the equivalent of 80 cents for it. Companies can also get low-interest loans, and repayment needn't start until three years after a project starts to generate revenue.

The Canadian Solar Industries Association would like a price between 65 and 80 cents, says vice-president Richard Thorne.

Critics argue that's too steep: Promoting energy efficiency and conservation is a much better choice, says Chris Winter, of the Conservation Council of Ontario. "Clearly, it's a no-brainer."

Solar supporters say a higher subsidy would be worth the cost if it helps to grow the industry in Ontario. But will the jobs and skills be here? OptiSolar hasn't said where it plans to produce its solar panels. The company is, however, reported to have acquired land in its Hayward, Calif., home but, according to Rettger, is also looking at several other sites.

This is not to say the Sarnia project will never be built. Eventually, the cost of solar power is likely to fall, especially now that China is erecting solar-cell factories. As well, the cost of power is certain to rise. At some point, the two trends might combine to make solar economic without a massive subsidy.

That prospect might be enough to keep investors happy.

For now, though, many industry people wonder why OptiSolar would even bother to build the farm. Because of the subsidies in Germany, as well as in California and Japan, demand for solar cells is strong. Why not just make the equipment and sell it to others?

Some predict that's what will happen.

The industry association likes the Sarnia announcement, if only because it generates interest and excitement about solar power, Thorne says.

"In all of the discussions with investors, there's money there. They want to put it in environmental areas, and solar is a hot topic." But, "we're still waiting to see the rubber hit the road."


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