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.

We have had many requests for a summary of the Feed-In Tariff program and have had some good response to this overview. Please enjoy responsibly!

RESCo FIT Summary

A great deal of the excitement around the Feed-In Tariff program is turning to concern as people have had a chance to review the hundred plus pages of documentation over the weekend. The OPA call yesterday confirmed what we found and that is that the domestic content calculations may make doing solar photovoltaic projects uneconomical or impossible to qualify for the program for the next 6, 12, or 24 months.

The issue lies in the way domestic content is calculated. The requirement for 50% local content is tough, but understandable given that the purpose of this program is to generate green energy while keeping the economic benefit of this work in Ontario. The caluculation however is set up so that it requires new assembly or manufacturing to be set-up here in order for projects to comply by the very nature that investment grade components are not made in Ontario. This means that the industry is forced to wait, yet again, for manufacturers to commit to Ontario, finance their projects, build their factories, complete their test runs, get their products certified and then build up production to meet demand.

This creates an economic as well as a supply challenge. When companies begin producing in Ontario, they will have a virtual monopoly and this is very likely to drive prices up as latent demand is very high given the hundreds of millions of dollars of projects currently waiting to move forward.

For a summary of the FIT program please contact Kevin Monsour

The OPA has released the final program documents for the Feed-In Tariff program. They can be found on the Feed-In Tarrif website. There is an open conference call and webinar on Monday September 28th from 2pm to 4pm. The details are provided below:

Toll Free: 1.866.212.9078
www.snwebcastcenter.com/event/?event_id=565

Well I was trying to provide an update but it came so fast I have had to revise this post! All annoucements are now out. Details are pending. On Sept 30th the OPA site will be updated with the program materials and applications will be accepted starting Oct 1, 2009.

The Ten Steps as outlined by the Minister’s Office are:
1. Closing 4 Coal-Fired Plants by 2010 (Sept 3, 2009)
2. Launching the $250M Aboriginal Loan Guarantee Program for Renewables (Sept 11, 2009)
3. Launching the Aboriginal Energy Partnerships Program (Sept 11, 2009)
4. Funding 20 key Transmission upgrade projects (Sept 21, 2009)
5. Launching the Community Energy Partnerships Program (Sept 23, 2009)
6. Launching the Municipal Renewable Energy Program (Sept 23, 2009)
7. Making the Renewable Energy Approval law (Sept 24, 2009)
8. Establishing Minimum Setbacks for Wind (Sept 24, 2009)
9. Release the Local Content Requirements for Renewable Energy (Sept 24, 2009)
10. Official Launch of the Feed-In Tariff Program (Sept 24, 2009)

In part three, I am covering the issues around integrators as part of the solar market. Here the challenges centre on experience and credit. Integrators form an important part of the industry bringing together the design, equipment, permitting, installation and commissioning. There are three types of integrators positioning for the Ontario market:
1. New Local
2. Existing Local
3. New International

The New Local Integrators are working rapidly to build credibility and experience. However, without the Feed-In Tariff program the bulk of the new local integrators are still working in the theoretical. This shows up in both the overly simplified or overly complicated approach to design and the lack of critical financial modelling. This is tough for any new market as it creates confusion and fails to set appropriate expectations on either the technical or the financial risk. New integrators also lack the financial track record to apply for credit or leverage supply chains.

The Existing Local Integrators are few and far between. Unfortunately for the market some have had to retrench, leave the market or have been severely financially burdened. However, if healthy these integrators bring the project experience and the market specific knowledge necessary to design and build with strong risk mitigation. These companies have overheads and are heavily invested with many in dire need of the FIT program to realize their business plans. However, they have the ability use their existing relationships, credit histories and knowledge to respond rapidly to an evolving market.

The New International Integrators are those that megawatts of project experience in other markets like the US, Spain, Italy, Germany and France. These integrators bring balance sheets, experience, and buying power. The challenge for a new market however, is that they don’t have the local market knowledge. This creates a large risk. Building design concepts vary both north, south, east and west of Ontario. In fact the way buildings are conceptualized structurally is fundamentally different in Canada than in Europe, and the snow loading issues are not faced by most US integrators that have had the luxury of dealing in the lower states.

It will be important for all of these players to exist. The challenge will be to ensure that the market recognizes the limitations in each category and that each is able to resolve its weaknesses gracefully.

In the second part of this series I want to address the challenges around sourcing photovoltaic panels. The key challenges are related to the size of the market and the currency exchange.

A small to non-existent market constrains the choice of panels, the inability for distributors to carry inventory and longer delivery times for large orders. Lack of choice is seen by the panels that are available to the Canadian market versus other major markets. Newer panels are not launched quickly in Canada and often only after existing inventories are depleted. The ability for distributor to carry inventory is also constrained because their business relies on the ability to leverage buying power, but this can force them to hold panels that are no longer state-of-the-art, or otherwise buy on demand from other markets like the US. Naturally this creates uncertainty in delivery schedules.

The other major concern is the exchange rate between Canada and the rest of the world, but especially the US. Due to the constraints mentioned above, most panels are purchased on demand making them susceptible to the spot price of the currency as distributors are unlikely to be able to make purchases based on optimized exchange rates due to the lack of demand and throughput of their inventory. This results in variable pricing or the pricing of an foreign exchange risk.

A fast growing market alleviates both of these major concerns. However, it is critical that the role of the distributor be supported as their buying power should cover their margins to customers and the expertise they bring to the industry in terms of compatible technologies, technical support, training and equipment finance terms is a key part of building a long term market.

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!

RESCo Energy Inc. is proud to support the North American Board of Certified Energy Practitioners. Shawn Speed, VP of Purchasing and Installation, has been Certified in Knowledge by NABCEP.

NABCEP is the national certification organization for professional installers in the field of renewable energy in the United States and is recognized in many other jurisdictions for its rigorous training and certification standards.