Here comes the sun…

Harnessing the sun
Harnessing the sun

Last month, the hopeful people of the Canadian solar industry were gathered in Toronto for the Canadian Solar Industry Association’s conference. There, the audience was treated to a presentation of the German solar industry, delivered by Gerhard Stryi-Hipp, the Managing Director of the German Solar Industry Association and a 15-year veteran of the solar industry.

Some facts about the industry:

The worldwide volume of photovoltaic installations (PV) in 2007 was 2.6GW. Of this, the German market made up 1,100 MW (41%) – by far the biggest market in the world. Spain was the second largest market with 19% of the volume. The US had about 10% and the rest was spread around on a number of countries with about one or two per cent of the market. Canada was listed with one per cent. In Ontario, the installed capacity is 70MW, so to even talk about a solar industry in Ontario feels like an exaggeration at this point.

The 1,100 MW capacity that came online in Germany in 2007 was distributed across 130,000 new PV systems – most of which were installed on residential rooftops. In total, Germany had 430,000 PV systems producing 3.8 GW in 2007 – almost all of which has been built after 2003. For 2008, the German Solar Industry Association expected another 1,500 MW to come online. The well-known reason for this phenomenal growth is the German Renewable Energy Act (EEG) which was introduced in 2004 and is the envy of renewable energy proponents in most other countries. As the name suggests, the EEG includes all forms of renewable energy including hydro, wind, solar and biomass.

At the time of its implementation, the main objective of the EEG was to help create jobs in Germany. So far, the industry has created 40,000 jobs in the solar industry and an additional 190,000 jobs in other renewable energy industries (Wind is the largest by far).

The total revenue for the German solar industry in 2007 was $8B – not bad in four years for a country that isn’t exactly bathing in sunshine!

So why is the EEG so successful? The simple answer is that it has made it profitable for homeowners, farmers and commercial building owners to own and operate PV systems. Here is a summary of how the EEG works:

  1. A 1.2% premium is added to all bills for electricity distributed by the utility companies. This premium is collected and managed by the roughly 900 utility companies in Germany in a joint system.
  2. The premium collected by the utilities funds the feed-in tariffs for the various renewable energies. For a residential PV system, the current rate is EUR 0.43 (C$ 0.70) per kwh delivered to the grid. No government funding goes into the feed-in tariff. This rate is reviewed every four years, as the cost level in the industry is expected to fall with increasing economies of scale. As a result of last year’s review, the feed-in tariff for 2009 was reduced by 9.5% from EUR 0.48.
  3. Once a new PV system is connected to the grid, the current rate is guaranteed for 20 years in a contract between the producer and the utility company. This guarantee reduces the risk of investing in a PV system and makes it possible to obtain long-term financing for the investment.
  4. The EEG gives the producer an explicit right to connect his system to the grid (as long as the system is eligible within the defined technical standards). Likewise, the EEG stipulates an obligation for the utility company to connect the system.
  5. The producer sells all solar energy produced directly to the utility company (no net metering).
  6. The utility company must sell all the renewable energy produced before offering any conventional energy to the marketplace. This point guarantees that all the renewable energy produced will have a buyer. It also means that any new renewable energy delivered to the grid will displace conventional energy in the grid.

Back home, on November 22, 2006, Ontario became the first North American jurisdiction to implement a feed-in tariff for PV systems (the Renewable Energy Standard Offer Program – RESOP). The RESOP offers producers $ 0.42 per kwh delivered to the grid, which equals about 60% of the current German feed-in tariff, depending on the exchange rate. With the cost for a PV installation being roughly the same in Ontario as in Germany, the Ontario incentive scheme is not as attractive as the German feed-in tariff. Nevertheless, the Ontario scheme did attract substantial interest from the industry with applications in fact overwhelming the provincial regulatory bodies to such an extent that the RESOP was suspended for review by the Ontario Power Authority in May last year.

At the CanSIA conference last month, the Honourable George Smitherman, Ontario’s Minister of Energy and Infrastructure, told the hopeful audience that the RESOP review process is close to the end. While short on specifics. Smitherman stated clearly that the Government of Ontario is committed to developing the renewable energy industry and that the necessary legislative changes to allow for a more streamlined relationship between the industry and the Government would be forthcoming – but without suggesting a deadline. However, the Minister’s speech was very well received by the industry and the rumours on the floor said that we could expect to see Queen’s Park pass some legislation before the end of this parliamentary session. If so, that would be great news for the solar industry, for those looking to invest in PV systems as well as for those looking to create new jobs, which is what the end game is really about.

As Beatles sang, “Little darling, I feel that ice is slowly melting…”