Solar panel manufacturer Siliken opened its Canadian manufacturing facility in Windsor, Ont., last spring. The Spanish company hired 120 staff and expected to add more as it ramped up production of photovoltaic panels over the next year. It was a good news story for Windsor, hit hard by the recession and layoffs in the automotive industry, and it suggested Ontario’s ambitious plan to replace traditional rust-belt manufacturing jobs with those in the emerging “clean tech” sector was bearing fruit.
But barely 12 months later, Siliken decided to close its doors and fire workers. It blamed the Ontario government for luring it to Canada with rich incentives, only to suddenly turn off the taps. “I compare it to being invited for dinner, but when you turn up there is no food,” says Paco Caudet, Siliken Canada’s general manager, referring to the province’s Feed-In-Tariff (FIT) program. It was introduced in 2009 and promised to pay some of the highest rates in the world for electricity generated by solar, wind and other renewable resources. At least that was the case until the province slammed the brakes on the program last fall, announcing a review and, later, sweeping proposed changes that included a more than 20 per cent cut in the price paid for solar power.
It was a setback. But the real damage was yet to come. With no new contracts approved since Oct. 31, and no official word on when the program will be restarted, many in the once-roaring industry have suddenly found themselves struggling for survival. In addition to Siliken, a wind turbine company called WindTronics shuttered its Windsor plant earlier this year, while Guelph, Ont.-based Canadian Solar, which has operations in Asia and Europe, is trying to cut costs. And installers of solar panels and other equipment across the province are dropping like flies (although many are reluctant to point a finger at the province lest it harm their chances of snaring a future contract).
“The government isn’t entirely to blame, but the stops and starts in the program have put a lot of additional pressure on folks who are trying to make businesses work,” says Fidel Reijerse, the president of RESco Energy in Mississauga, Ont., which builds solar arrays for commercial and institutional customers.
Nor is it just a Canadian phenomenon. Bankruptcies of solar and wind outfits in the United States and Europe are becoming increasingly common as subsidies dwindle amid shifting political and economic winds. While paying top dollar for renewable energy seemed like a good stimulus tool during the depths of the recession, and kept the industry in a heady buzz, it suddenly looks more like an unaffordable extravagance in an age of austerity. A green hangover has set in.
Ontario’s stratospherically high prices for green power were designed to lure investment and to ensure enough generating capacity to compensate for the shutdown of the province’s coal-fired power plants in 2014. The top price paid for electricity for small rooftop solar arrays was, until recently, 80.2 cents a kilowatt hour. By contrast, the market price on a recent afternoon was 2.06 cents per kilowatt hour. (Homeowners would pay closer to eight cents because of the way the province’s regulated energy pricing system works.)
Not surprisingly, the rich subsidies worked—possibly too well. A stampede of solar, wind and other operators descended on Ontario beginning in 2009, when the province’s Green Energy Act came into force. So far, some 2,500 projects have been approved, enough to power 1.2 million homes. The program has attracted some $27 billion to the province and created more than 20,000 jobs, according to the Ministry of Energy.
But critics say the gains are more than offset by forecasts that Ontarians’ electricity bills will jump by eight per cent annually over the next five years. And they point to studies which suggest for every job created through renewable energy programs, another two to four jobs are lost elsewhere. “At just the time when we need to make Ontario more competitive, the current policies are driving up the price of electricity,” Tim Hudak, the leader of the provincial Conservative party, recently quipped. Premier Dalton McGuinty’s government responded earlier this month by offering big companies investing in Ontario a 27 per cent cut in their hydro rates. The debate is being followed closely in other provinces, many of which have yet to heavily invest in renewable energy sources.
South of the border, green energy has also become a political flashpoint. Republican presidential hopeful Mitt Romney recently stood in front of Solyndra’s shuttered plant in Fremont, Calif., and tried to link the company’s bankruptcy with President Barack Obama’s record on the economy. Solyndra was the first renewable energy producer to receive stimulus cash in 2009, about US$528-million worth, and has since become an embarrassment for Obama, who once visited the factory to tout the program. Meanwhile, a glut of solar panels in the U.S. has pushed down prices and led to accusations of dumping by Chinese firms. The U.S. government put in place new tariffs on Chinese solar panels earlier this year.
Even in Europe, where being green has long enjoyed significant voter support, the bloom is coming off the rose as the region grapples with a deepening debt crisis. Spain’s government effectively pulled the plug on the industry last January when it ended its lavish subsidy programs. And Germany is slowly backing away from commitments to the sector, which was supposed to help fill the void as nuclear plants are phased out by 2022. Critics say the eurozone’s strongest economy is at risk of getting sucked under if it continues paying exorbitant amounts for renewable energy because it makes businesses less competitive. Some estimates suggest solar subsidies alone cost German consumers nearly $130 billion annually. Nor are Germans getting much bang for their buck. A report in Der Spiegel suggested that Germany’s 1.1 million solar power systems went weeks without generating any power last winter, causing members of Chancellor Angela Merkel’s own staff to call the projects a massive money pit. Jürgen Grossmann, the head of German power company RWE (which sources a quarter of its energy from nuclear plants), was equally as blunt. He compared subsidizing solar power in Germany to “growing pineapples in Alaska.”
With government priorities shifting, green tech companies everywhere are now facing a double whammy: declining demand for their products and stiff competition from increasingly desperate firms. The results aren’t pretty. In Germany alone, three solar companies—Solon, Solar Millennium and Solarhybrid—have filed for bankruptcy since December. Jean-Louis Bal, the head of France’s Renewable Energy Association, recently noted that production capacity in the photovoltaic industry is “about double the estimated market size, and inventories represent about one year of sales,” adding that “there are a lot of manufacturers, including large Chinese players, in financial difficulties.”
There is little doubt many green energy programs burned too hot, too fast, with one observer calling the past few years in Ontario “a sort of Wild West.” Now, with the province dialling things back—rooftop solar will be priced at 54.8 cents per kilowatt hour instead of 71.3 cents for systems producing around 100 kilowatts, according to a set of draft rules released in April—many fear the pendulum is about to swing too far in the other direction, knocking over the industry in the process.
Caudet says a combination of wavering political support and a blanket of red tape caused Siliken to sink in Canada. He argues it takes longer to get project approvals in Ontario than it does in Greece, a country known for its stifling bureaucracy. He also blames a lack of public awareness in Canada about renewable energy. “People believe that solar costs 80 cents (a kilowatt hour), and that we live off subsidies. But they don’t know what nuclear is costing us,” he says of the cheap electricity it produces and the costs associated with safely disposing of spent fuel.
Clearly the green party is over—at least for now. The question is whether governments in Canada and elsewhere will let the industry die on the vine. Though the proposed changes to Ontario’s FIT program will still offer above-market rates, the mounting frustration over the drawn-out review process serves as a reminder of just how dependent the industry is on government subsidies to survive. A spokesperson for the Ontario Power Authority says the final revised rules will be “released shortly.”
Rupp Carriveau, an associate professor in the University of Windsor’s department of civil and environmental engineering, calls it a “critical time for the industry” and urges Canadians to take a long-term view. Sure, clean sources of power look overly expensive right now, he says, “but by the time the market indicators tell us it’s affordable, people will be at each others’ throats for the last tank of gas.”