By Lawrence Solomon, Financial Post
Across the world, unsustainable subsidies for wind and solar are being cut back. Ontario is next
Spain, France and Germany all plan to slash green payouts, ending the bubble
The Ontario government paints itself in extreme green. It has outlawed coal — the only jurisdiction on the continent to have done so. It boasts the world’s biggest solar plant. It boasts the western world’s biggest subsidies to the renewables industry. And now, it also boasts the western world’s fastest-growing renewables industry.
But Ontario’s new-found status didn’t arise because Ontario newly increased its level of its subsidies. It arose because the world’s other extreme green jurisdictions — to avert the economic and political ruin that comes of unaffordable green power — recently swallowed their pride, slashed their subsidies and backstabbed their renewables industries. Like its extreme green counterparts elsewhere, Ontario will follow suit soon enough.
On Friday, Spain slashed payouts for wind projects by 35% while denying support for solar thermal projects in their first year of operation. Spain’s renewables industry also faces a cap on the number of megawatt-hours eligible for subsidized rates. This latest round of Spanish cuts followed announcements in November that payouts for solar photovoltaic plants would be cut by 45%. Drastic as all these cuts seem — they will gut large parts of the renewables industry — they come as a relief to the industry, which had feared worse. In June, the Spanish government had threatened to renege on contracts it had entered into with the renewables industry, effectively bankrupting it.
Also Friday, France announced a four-month freeze on solar projects and a cap on the amount of solar that can be built, to nip a “veritable speculative bubble” by its rapacious renewables industry. These measures and others continue a retrenchment that saw industry payouts cut twice earlier this year, and that will likely continue as opposition grows to France’s rapidly rising power tax on electricity. Complains the French renewables industry, which predicts job losses amid the slew of projects that will disappear: “It’s a sad joke to change regulations every three months.”
Earlier this week, the German government announced it may discontinue the solar industry’s sweetheart tariffs in 2012. This latest announcement follows a surprise reduction in 2009 and another reduction to start in 2011. More is in the offing. In October, the German Energy Agency, the country’s official advisor on renewables, called for Germany’s drive toward solar to be “cut back quickly and drastically” by capping its installations of solar panels at a mere one gigawatt per year, down from the estimated eight to 10 GW being installed this year. Past cuts alone, it warned, would not avert the “catastrophe” of too much solar.
Also in October, New South Wales, Australia’s most populous state, slashed by two-thirds the revenue that homeowners who had installed solar panels would receive, from 60¢ per kilowatthour to 20¢. The state’s solar manufacturers say this will put them out of business, and those out of state shudder that other Australian states will follow suit, effectively ending the country’s solar boom. New South Wales overnight went from being Australia’s most generous to least generous subsidizer.
Also in October, the U.K. government announced that withering spending cuts were coming to renewable projects, many of which have already been withering, and not just due to government austerity measures, or to the consumer backlash against rising power rates. Because of fierce grassroots opposition from the U.K.’s 230-odd anti-wind organizations, local governments have shelved or rejected two out of three wind-farm applications that have come before them. That ratio is likely to get worse for the wind industry, thanks to changes to planning laws that will be strengthening local councils at the expense of a national planning agency.
With the market for wind shrinking, Denmark’s Vestas, the world’s largest wind-turbine company, recently announced it is closing five production facilities in Denmark and Sweden and laying off 3,000 workers, or one-seventh of its global workforce. Other wind companies are also preparing for a downsized market.
The coming collapse of the renewables industry — largely a creature of backroom lobbying for government favours by multinationals — is also evident on this side of the ocean. In the U.S., state regulators in Florida, Idaho, Kentucky, Rhode Island and Virginia have either cancelled or delayed renewable-energy projects that would raise rates on consumers, even when the rate hike that would have resulted was well under 1%. Explained Virginia’s regulators, in rejecting a contract that would have raised rates by 0.2%: “The ratepayers of Virginia must be protected from costs for renewable energy that are unreasonably high.”
With rising sentiment against renewables, new wind-power installations in the U.S. were down by more than 70% in the first three quarters of 2010, when compared with 2009. “What we’re seeing here, I think, with these across-the board rejections for [purchase power agreements] for wind is that [regulators] are saying that costs are too high,” states the Illinois Wind Energy Association’s executive director.
In extreme green Ontario, which is experiencing rate hikes 50 times greater than those countenanced in some U.S. jurisdictions, the provincial regulator, having been neutered by the government, is unable to protect the public from renewables-related rate hikes. But the Ontario government’s renewables steamroller has nevertheless lost much of its steam.
Following public protests, and in advance of an election in which power prices are expected to loom large, one major natural gas plant — needed to back up wind turbines — was recently cancelled. Other natural gas plants, again opposed by the public, may likewise fall. The wind farms that require such backups, and which are themselves opposed by dozens of community groups and their local governments, could be next in this house of cards.
But cancelling uneconomic projects in Ontario would not necessarily stop rates from rising. For one thing, many of the uneconomic projects that have been approved are not yet producing power, and so have not yet caused rates to rise. For another, cancelling projects after they have government approval would sometimes raise rates further because of the cancellation penalties involved in breaking a contract.
The Ontario battleground would then be set for a confrontation between the province’s captive ratepayers and a renewables industry that had been making off like bandits through unconscionable contracts cooked up in secret with the provincial government. The pressure on future provincial governments to negate those odious deals — not only to abort deals not yet completed but to abrogate those already signed and sealed — would then be overwhelming and irresistible.
How does a government that putatively respects contracts freely rip them up? Western jurisdictions in general, and Ontario in particular, have ample precedents to draw on. Next week, I will discuss the options before governments of the future, and before the renewables investors of today. Let the investor beware.