Rich Ontario incentives woo green power investors

OTTAWA/VANCOUVER Tue Oct 6, 2009 4:07pm EDT

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OTTAWA/VANCOUVER (Reuters) - The Canadian province of Ontario is positioning itself as one of the "greenest" locations in North America, and investors are starting to take notice of its rich incentives for renewable power projects, analysts say.

Taking a page from Europe's playbook, Ontario launched the most comprehensive and generous set of feed-in tariffs in North America this month. The incentives guarantee sellers of electricity produced from the sun, wind, water and biomass fixed, above-market prices for 20 years.

"Ontario is well ahead of the U.S. and even California that claims to be so green," Mehdi Hosseini, an analyst at FBR Capital Markets in San Francisco, said on Tuesday.

"I am beginning to hear how attractive the feed-in tariff is in Ontario. In the U.S., we don't have those mechanisms in place," Hosseini said in a telephone interview.

Feed-in tariffs have proven wildly successful in Germany and other European countries like Denmark and Spain, where they are credited with the much greater adoption of wind and solar power there than in the United States.

The premium prices that utilities are obliged to pay help developers recoup startup costs, particularly for power projects such as wind, where technology remains costlier than for solar. The rate certainty reduces risks for developers and increases banks' comfort level to make loans.

"It's fine to put up a windmill or a solar panel and produce electricity, but if you can't sell that electricity, and you can't sell that electricity at a profitable price, then nobody else is going to do it," said Paul Gipe, a former executive director of the Ontario Sustainable Energy Association.

Under the feed-in tariff scheme, Ontario will, for example, pay 80 Canadian cents (75 U.S. cents) per kilowatt hour for electricity from small rooftop solar systems of less than 10 kilowatts. The tariff decreases for bigger installations but remains the highest in North America, according to Gipe.

On-shore wind power producers will get 13.5 Canadian cents per kilowatt hour, also the highest on the continent.

Steering this "green drive" is Ontario's Liberal government, which campaigned and won the 2003 provincial election partly on a promise to close the province's coal-fired power plants on the grounds they produced too many greenhouse gas emissions and were a health threat.

Canada's most populous province and biggest energy consumer has pledged to eliminate power from coal by 2014, the only jurisdiction in North America to make such an ambitious commitment.

At one time, a quarter of Ontario's electricity was generated from coal but the province -- which relies heavily on hydroelectric and nuclear power -- unveiled a detailed Green Energy Act last year in a bid to cut greenhouse gas emissions, and now sees a future in wind farms and solar installations.

Ontario started accepting applications under the feed-in tariff scheme last Thursday. In the same week, two substantial green energy acquisitions in the province were announced, including the purchase by Canadian Hydro Developers Inc of a site in Lake Erie that could become the largest offshore wind farm in the world.

"This could reasonably be the start of a series of targeted acquisitions and partnerships in the province," Haywood Securities' renewable energy team said in a research report.

Arise Technologies Corp, which makes solar power technology, said it expects to benefit from a surge of clean-energy projects sparked by the feed-in program.

"Judging from the numbers of solar feasibility studies that Arise has recently conducted for prospective customers, interest is expected to be particularly strong in the small- to medium-sized residential and commercial systems," Ian MacLennan, president of the company's systems division, told Reuters.

Gipe, who is the author of several books on renewable energy and now lives in California, says Ontario's Green Energy Act is North America's most progressive legislation in three decades, shaking up policy on both sides of the border.

In what one of his colleagues calls a "feed-in tariff frenzy", some electric utilities in the United States are voluntarily proposing feed-in tariffs for renewable power in the hopes of avoiding legislated, higher rates, Gipe said.

($1=$1.06 Canadian)

(Reporting by Nicole Mordant and Susan Taylor; editing by Rob Wilson)

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