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It's a cloudy day for solar investors;

Landowners feel blindsided after OPA wants to cut 80.2 cents a kilowatt hour first proposed

Toronto Star: John Spears - July 30, 2010

Unhappy would-be investors in solar generating schemes continued to vent their anger Thursday at provincial officials who want to slash the price they'll pay for solar-generated power.

"The fact is, people are going to be seeking justification and compensation for the losses which they are going to incur if this proposal goes ahead," one eastern Ontario farmer warned Ontario Power Authority officials in a conference call.

Landowners were blindsided July 2 when the power authority (OPA) announced that it won't pay 80.2 cents a kilowatt hour for power from the solar project.

That was the price it had first proposed for what is known as the "microFIT" generating program, intended to encourage small-scale renewable energy projects.

But after about 16,000 applications flooded in, the OPA said 80.2 cents would pay too rich a return to those who install solar generating panels on the ground. It proposed cutting the price to 58.8 cents for systems mounted on the ground, as most rural panels would be.

It set a 30-day consulting period for the proposed price cut, which ends next week. Would-be solar developers have been flooding the OPA with comment - as well as bombarding rural Liberal MPPs with criticism.

OPA vice-president Ben Chin said the authority hopes to announce its final price decision no later than Aug. 13.

Chin said the OPA has to consider the interests of consumers and of other players in the electricity market when it sets the price for solar powered generation.

The original price of 80.2 cents "is not a fair price based on the investment being made and the revenue that can be generated, and based on the principle of a reasonable rate of return," Chin said.

The province figures it could deliver investors a return of up to 30 per cent on their equity, instead of the target of 11 per cent.

The average wholesale market price for power in Ontario in July was about 5.5 cents a kilowatt hour.

The OPA had assumed that most solar systems would be mounted on rooftops, he said. Instead, many were mounted on the ground and were equipped with a tracking system that turns the panels as the sun moves across the sky, keeping them in direct sunlight.

That boosts the amount of power and revenue they generate, he said, which means investors can recover capital and enjoy a reasonable rate of return with a lower price. But callers said the price cut has destroyed confidence in the system. Some said they've already bought solar panels or prepared foundations for panels to rest on.

"We have numerous customers who have offers at the 80.2 cents and they're not going to move forward," said one caller whose firm supplies solar generating equipment.

"They don't trust the OPA and they don't trust the government."

"A lot of lenders are very nervous; we're having to supply a lot more paperwork," he added. "People are starting to have trouble with financing, based on how this is being handled so far."

The OPA estimates that a typical solar system under the program would cost about $90,000 to install. Their economic model assumes investors will borrow 70 per cent of the cost.

One caller said paying the higher price for solar power from small-scale projects would cost a typical consumer only an extra 25 cents a month, but slashing the price puts $1 billion worth of investment in jeopardy.