RESCo Energy Inc.

It has been an interesting two weeks. If we harnessed the amount of energy that has gone into building this industry, helping create policy, and rapidly adjusting to political direction, we would have no need for new sources of energy! We are now happy to say that there is some significant light at the end of the domestic content tunnel. We can now guarantee access to supply for 2010 that meets Ontario targets and are significantly down the path of being able to do the same for 2011.

Pricing does not appear to have suffered for 2010. 2011 numbers are still being finalized but are more dependent on the number of options available and the currency exchange rate than anything else.

There is still a huge challenge and that is that designs are significantly impacted and that ability to optimize a project for a specific location and building are very limited by what is available with Ontario content.

That said, it looks like this policy may drive new businessess to Ontario, assuming that they can get assurances of longevity in the FIT program.

I am going to mini-series this for a few blogs as it is a critical part of the fledgling market that is Ontario. As a market we have been serviced by very few companies that have the ability to complete commercial-grade installations. This requires professionalism, experience and knowledge. RESCo recently completed an interesting exercise for a 150kW project. The idea was to help build the industry by tendering a portion of the work and allowing multiple installation companies to win parts of the work. This ensured that no one company was over taxed, and that multiple companies could lay claim to their involvment in the largest rooftop solar project in Canada.

We carved out the panel and racking portion only. All the structural and electrical was tendered to established trades in those fields. We asked firms to prequalify with us, and to our surprise we found very few that were capable of working on commerical buildings with the appropriate insurance, WSIB, and experience to ensure a quality installation. Over 15 firms were not qualified, and only 4 made the cut. A few declined politely based on existing workload.

As a labour force this sector has been underserviced. It is important that all groups work together to ensure that this part of the capacity building accelerates and that sufficient margins are allowed to ensure they can grow.

In the last two months since this exercise, we have seen the development of labour conglomerates and cross training that has given us access to many more installation-ready labour forces. RESCo is also actively engaged with training organizations to create hands-on experience for their graduates. Together with our installation partners and these new labour pools we are now confident that we can support the 10+ fold growth anticipated in 2010.

Though not originally intended to help compensate for the effect of the global meltdown, the Green Energy Act has become a key economic driver in Ontario. Unlike many stimulus dollars that are not yet released, this program serves to bring private dollars into the market place rather than public ones. The program creates an investment climate and by doing so has created an industry ready to explode with the actual launch of the Feed-In Tariff (FIT) program.

For months now, companies have been preparing, financiers have been doing due diligence, and building owners have been crunching numbers. Though it is unlikely much will get installed this winter (costs, safety, etc) a great deal of design, permitting and financing will. This lead time will give companies time to budget, train, hire, and prepare for what proves to be a very busy 2010 for Ontario!

September looks like it might still be the release of the Feed-In Tariff program in Ontario. There are more than a dozen related announcements pending in September around the Act. Additionally, it looks like the local content requirements may be addressed using a different legal mechanism to avoid the 30-day consultation period.

For an industry on the verge of expansion this can’t come fast enough. There has been significant industry consolidation and restructuring as a result of the 16 month program freeze. A few companies are well positioned to capture the relatively instaneous market that will develop with the release of the program, and others are struggling to stay in the game long enough to capture at least some of these benefits.

Decision making certainty has been the issue for the last 36 months. If properly handled this month, the Ontario Government and the Ontario Power Authority have the opportunity to create that certainty and that will create the type of positive impact that is necessary to get one step closer to distributed green energy.

Last night at Convocation Hall at the University of Toronto there was a celebration of the Green Energy Act currently before the Ontario Legislature. It struck me how appropriate the venue was especially as Denis Hayes (the founder of Earth Day) was addressing the crowd. Along with David Suzuki and Preben Maegaard, Denis provided a context rich in history and a vision filled with direction. That is the material of convocation speeches. Though Denis didn’t get the standing ovation that Suzuki got (and deserved), I thought he took the time to impart the wisdom that four decades in the environmental movement while leading major US reseach instutions truly demonstrated how the industry had grown, become educated, and was poised to take on the world.

We sit on the verge of the first North American feed-in tariff program. One that rivals those that perfected it in Europe. This morning at a subsequent event, John Geesmann, the former California Energy Commissioner, echoed that all jusidictions are now recognizing this is the Best Practice - the most cost effective way to get renewables into the mix.

To all those in the ‘Green Graduating Class of 2009′ in Ontario may all your hard work pay off going forward!

This is a bit Ontario-centric, but a review of pricing pressures for 2009 suggests to me that we are unlikely to see the installed cost of PV drop in 2009. Though panel prices seem to be dropping in the US the dollar exchange is substantially off from last year. Last July, we were at par and now we are in the 81 cent range. Additionally, the market that will be created as a result of the OPA’s Feed-In Tariffs will generate a significant spike in activity taxing a number of supply chain areas including experienced installers who are likely to be overbooked going into the third and fourth quarter of the year. Given that many projects are still pending the final approval of the program the pent up demand is all going to sit in the last six months of 2009.

I expect that by 2010 we will see some of this pressure alleviate, though I am not making any assumptions on the exchange rates. But I think we will see capacity develop in the labour market and more wholesalers comfortable buying at favourable exchange rates and storing inventory. We should also see more companies developing scalable solutions and improve their ability to price project risk. However, I don’t expect that we will see significant cost reductions unless we see the Canadian dollar gain ground against the greenback. We are still a long way from the more mainstream markets in the US, and without solar farms driving purchasing power, the Ontario market will not rank in the top three PV markets.

Let’s just move on past the Beijing games which are less than a month away. What’s done is done. But next up is Vancouver 2010, and with less than 18 months until the Winter Games, we need to understand how the city known for it’s ‘green factor’ is going to showcase sustainability to the world. Unfortunately, all the hard work being put in by the Sustainabiltiy Team at VANOC may miss the mark. Linda Coady, the VP of Sustainabilty has worked hard to integrate sustainability into the way VANOC develops the games, but who will know?

Athens had the same problem. They were the first to truly manage sustainabiity but the closest thing I saw was the olive branch headpieces. What the Olympics need is a pan-away. The shot that the networks use as they go to, or come back from, commercial. It has to spin, be shiny, or otherwise capture the camera, or it will be relegated to a late night CBC Passionate Eye episode, and miss the opportunity to engage the world in a discussion, in a showcase, and in a proud moment for Canada.

I have been making this pitch unsuccessfully for two years. Here is a simple solution. Five vertical axis turbines, coated in a reflective paint, put together like the rings. Simple right? It gets better. There isn’t enough wind in Vancouver to support them, so each one is bequeathed to a First Nations community up the coast where the wind regime is perfect! Now you have legacy, but more importantly you have a pan away. Now you have a statement.

The chance to host a world class event in a city brings out the classic return on investment pitch, “by investing X millions of dollars, we will see Y jobs, and Z benefits over the next 20 years”. Why then do we not see the same benefit when it comes to something like being the World’s First Solar City. The commitment to such a feat is comparable to a major event. The benefits are enormous!

The world wide positioning of a city such as Toronto would vault it to the top spots. Industry, in the largest growing manufacturing and venture capital segment, would flock to the surrounding areas. The reduction in greenhouse gases would exceed our Kyoto targets. The saved costs in transmission (new lines to support growing loads) would be directly felt by the Province. The abilty to attract conventions and corporate headquarters looking to cash-in on the green-powered facilities would jump! Tourists and delegations from around the world would come to see what was happening. This is sustainable. It creates jobs and industry, it reduces greenhouse gases from fossil fuel-based generation while positioning Toronto as a premier destination for talent, tourists, investment, and environmental leadership. Can we make it happen?

For renewables in Ontario, it continues to be a rollercoaster ride. The recent pause in the standard offer program, a new minister, large nuclear announcements…all throw uncertainty into a delicate industry. I tend to look for the bright spots. The appointment of a Minister of Energy and Infrastructure suggests a long term thinking that should translate into investment to support future distributed generation. Smitherman is known, from his Health portfolio, for getting things done, being emotionally connected, and supporting the Premier’s agenda. With the nuclear announcements at Darlington out of the way, I believe that we will see the kind of leadership in renewables that will bring programs inline with policy. That to me has been the major stubbling block. If Minister Smitherman, can find a way to align the OPA, Hydro One, with the Premier’s mandates, we may finally see an end to the finger pointing allowing for real programs to connect renewables.

The work that is being spearheaded by the Ontario Sustainable Energy Association on a Green Energy Act, may result in just such a piece of legislation for the Minister to accomplish this task.

A common misconception is that solar photovoltaic electricity is viable in Ontario under the OPA’s standard offer contract. At $0.42/kWh we have not yet created a financially viable market. However, we already have a viable market, especially in urban centres. Peak power costs far more than $0.42/kWh if you are an industrial user. It can edge up closer to $2/kWh. Urban centres, are planned around peak power use. This in turn is a function of air conditioning now. The need for this peak power coincides with the generation of electricity from photovoltaics…high midday sun in the summer. For cities committed to renewables, such as Toronto that have a strong solar resource, this should be a simple equation. The cost of additional transmission and local power plants is not just a financial consideration; it is the concern of the voting public. The ability to provide an offset price of much more than $0.42/kWh for this type of peak power generation is one that cities should embrace.

Solar photovoltaics are a key technology in the fight to reduce carbon and pollutants in the urban environment and are an easy extension of the built environment. They are not a base load power option, they are a peak load option, and as a result the value from a kWh or solar photovoltaics in the city is worth far more that $0.42.