Bloomberg News

Renewables Face Cuts as Conservatives Bid for Ontario Power

September 29, 2011

(Updates with details of lawsuit in third-last paragraph.)

Sept. 29 (Bloomberg) -- Next week’s election in Ontario may come to be remembered as the day Conservatives took power in the province, and the solar and wind generation industries lost it.

Opposition Conservative leader Tim Hudak wants to end a Liberal subsidy for renewable-energy projects known as a “feed- in tariff” he says is increasing household electricity bills. He also pledged to cancel a contract with Samsung C&T Corp. that would see the company invest C$7 billion ($6.8 billion) in solar and wind power.

One winner, besides Hudak’s Conservatives, may be Montreal- based SNC-Lavalin Group Inc., which could benefit from a push toward nuclear power.

“The entire industry is on the edge of their seats,” said Anthony Kim, a solar-industry analyst with Bloomberg New Energy Finance in New York, referring to renewable energy.

Recent polls have conflicted, with either the Conservatives or the Liberals under Premier Dalton McGuinty holding a narrow lead in voter support. The data suggest the Oct. 6 vote could yield Ontario’s first minority government since 1985, when the Liberals formed a coalition with the New Democratic Party even though the Conservatives won the most seats.

The emergence of energy as a campaign issue in Canada’s most-populous province mirrors debates elsewhere over renewable- energy subsidies, as slowing growth leads to lower oil prices and governments grapple with budget deficits.

The collapse of Fremont, California-based solar manufacturer Solyndra LLC, which received a $535-million loan guarantee from the U.S. government, has raised questions about that country’s support of clean-energy as a potential source of growth and jobs amid strong competition from Chinese firms.

Green Energy

While the Liberal platform touts manufacturing jobs tied to “Green Energy,” both the Conservatives and NDP have questioned the policies and pledged to cut electricity prices.

Under the 2009 Green Energy Act, Ontario has bought power from renewable-energy producers at a guaranteed price. A rooftop development producing solar power can earn a subsidy of between 53.9 Canadian cents ($0.525) and 80.2 Canadian cents per kilowatt hour, depending on the size. The average wholesale price for electricity in September was 3.22 cents per kilowatt hour. The policy has made Ontario the second biggest solar market in North America, next to California, Kim said.

Japan and the European Union have complained about the policy to the World Trade Organization, calling it an illegal subsidy.

‘Shell Game’

Hudak, 43, called the tariff a “shell game,” saying the Liberals haven’t delivered on their promise to create jobs. “You promised us we’d pay higher hydro rates, and we’d get all these jobs in new power,” Hudak said in a televised leaders’ debate Sept. 27. “We got the higher hydro bills alright, but the jobs never came.”

The Liberals estimate renewable-energy will replace many of the almost 130,000 manufacturing jobs lost during the 2008 recession. Factory employment remains 92,000 jobs below pre- recession levels, Statistics Canada data show. Projects funded under the Green Energy program have already created 20,000 direct and indirect jobs, Ontario energy minister Brad Duguid said in an e-mailed statement.

Hudak has said the Conservatives would continue to rely on nuclear power, which accounted for 52 percent of Ontario’s electricity in 2010, and may build new reactors. This could benefit SNC Lavalin, which agreed in June to buy the commercial- reactor division of Atomic Energy of Canada Ltd. in June. AECL had bid on a contract to build two nuclear plants in Ontario before the Liberals scrapped the plan.

Renewable Sources

The Liberals forecast renewable sources such as wind, solar and biomass will produce 12.8 percent of the province’s energy by 2030, up from three percent last year.

“I want us to be number one in North America when it comes to producing clean-energy,” McGuinty, 56, said during the debate.

He said canceling the Samsung contract, which Hudak called a “sweetheart giveaway,” would send the wrong message to companies looking to invest.

Seoul-based Samsung signed an agreement in January 2010 to develop solar and wind-power projects that will produce 2,500 megawatts of electricity by 2016, enough to power 600,000 Ontario homes. The company is building four plants to produce wind towers, blades, solar modules and inverters, creating 16,000 direct and indirect jobs, said Hagen Lee, Samsung’s manager of government relations and business development.

“The idea is to create a brand new supply chain for wind and solar,” said Lee, adding the company has already spent over C$100 million.

Smaller Producers

The election has affected smaller producers such as Potentia Solar Inc., a Toronto-based company launched by Conundrum Capital, a private-equity firm. Potentia plans to produce 100 megawatts of solar power within five years by installing solar arrays on rooftops of commercial buildings.

“We’ve got all the ingredients, except one, which is a politically stable environment,” said Lorne Stephenson, director of stakeholder relations. The company has been cautious in approaching new clients before the election, he said.

The Conservatives’ promise has created “tremendous uncertainty” among investors and manufacturers, said Robert Hornung, president of the Canadian Wind Energy Association. Investors “are waiting to see what kind of market there will be for wind power in Ontario,” he said by phone. If the tariff is canceled, “that market would shrink significantly.”

Legal Challenge

The province may face legal challenges if it reverses its support for renewable power. Trillium Power Wind Corp., a company that planned to build offshore wind farms in Lake Ontario, has sued the government for C$2.25 billion, claiming the province acted unfairly when it postponed offshore developments in February to study their impact, the Globe and Mail newspaper reported today.

The Conservatives and NDP have campaigned on lowering energy bills, promising to remove sales taxes on home electricity. Conservative candidate Simon Nyilassy said voters in his Toronto-area district are worried about rising living costs.

“People can’t afford to stay in their houses anymore,” Nyilassy said. “That’s the day-to-day impact for the people on the street that Dalton McGuinty has lost touch with, with his green-energy experiment.”

--Editors: Paul Badertscher, John Simpson

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net.

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.


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