Wir entwickeln Energie und MärkteThe Ontario PV Market:Economics, Opportunities and StrategiesChristian BogueMonday February 7th, 2011Hamburg, Germany
About Ontario● One of ten provinces, largest by population with 13,167,894inhabitants as of April 2010● Home to:● Toronto: provincial capital and most populous city● Ottawa: national capital of Canada● 80 MW Sarnia PV facility: powers 12,000+ homes● Broken into Northern and Southern Ontario● majority of population and arable land located in south● Borders Minnesota, Michigan and New York states● Toronto Pearson Int‟l Airport flys to Frankfurt and London● ForEx: 1 EUR = 1.34 CAD (closely follows USD)
Ontario‘s energy mix - Mostly Nuclear & Hydro● Nuclear● 41% of generation in 2005● 16 reactors in operation at 3 different sites: Pickering, Bruce and Darlington● Total of 11,400 MW of generation capacity● Gov‟t Policy: nuclear still has a role in energy generation through to 2025● Hydro● Ranked 2nd behind China in hydroelectricity generation● Most major hydropower sites in Ontario already exploited● 2000 sites still remaining in northern Ontario that may be utilized togenerate electricity in the future.● The OPA is still completing feasibility and implementation studies formany of these sites.● currently accounts for approximately 21% of generation● estimated to rise to 30% by 2025
Electricity Prices in Ontario● Regulated by theIndependent ElectricitySystem Operator (IESO)● Half of all users in theprovince pay wholesaleprices● Lower use consumers(homeowners/smallbusinesses) pay regulatedrates● Four different pricestructures available →
Green Energy and Economy Act of 2009 – Key Points● Passed into law on May 14, 2009● Feed in Tariffs for renewable energy sources● Systems sizes less than 10kWp considered “”MicroFit” and receive:● Standardized regulations● simpler application procedure● faster turn-around time● 20 year payment from Ontario Power Authority (OPA)● providing small generators with protection against changes ingovernment policies● “Local Content Clause” for materials and labor
Additional Renewable Energy Support Programs● Aboriginal Energy Partnerships Program● provides funding for many of the key developmental stages of FirstNations and Métis projects.● Community Energy Partnerships Program● provides funding to assist community groups with the developmental costsassociated with renewable energy projects.● Aboriginal Loan Guarantee Program● Worth $250 million, run by the Ontario Financing Authority, supportsAboriginal participation in new renewable green energy infrastructure suchas wind, solar and hydroelectric.● Municipal Renewable Energy Program● The Municipal Renewable Energy Program will provide support tomunicipalities for extra costs associated with new renewable energyprojects.
About the Ontario Power Authority (OPA)● Independent, non-profit corporation● Established through the Electricity Restructuring Act of 2004.● Licensed by the Ontario Energy Board● Sets electricity rates, enforces rules, and protects consumers● Reports to the Ontario legislature through Ontarios Ministry of Energy● The OPA is responsible for:● Assessing the long-term adequacy of electricity resources● Forecasting future demand and the potential for renewable energy● Preparing an integrated system plan for conservation, generation,transmission● Procuring new supply, transmission and demand management eitherby competition or by contract, when necessary● Achieving government targets for conservation and renewable energy
Local Content Clause I● Intentions, Perceptions and Accusations● Intended as job-creation policy● Seen as Canadian protectionism● Charged by the Japanese of infringing WTO rules● 60% total requirement● Applicable to all components● Includes design, labor and other services● Can be broken down by element (see next slide)● Few major producers have finished production lines in place● Current suppliers of SunEnergy active in Ontario are restricted to:● Samsung● Schletter● SMA
Local Content Clause IIMaterial Designated Activity QualifyingPercentageSilicon manufactured in an Ontario refinery 11%Ingots /Wafers Cast in and wafers cut by an Ontario saw 13%Cells Active PV layers formed in Ontario 11%Modules electrical connection and encapsulation in Ontario 15%Inverters Assembly, final wiring, testing 8%Mounting Bending, welding, piercing, and bolding 11%Wiring Wiring and elec. Hardware sourced locally 9%Labor Construction and on-site labor 18%Services Legal, technical and accounting work 4%Total 100%
Present Market Size● 168 MW installed in 2010*● Less than California„s180 MW● More than New Jersey„s 110 MW● 2011 expected domestic supply of 386 MW● 2011 demand forecast of 694 MW● Result: Demand for Ontario-made modules willexceed supply….● …..and put upward pressure on prices in the localmarket.*DC installed power.
Current Market Segment Distribution● 732 MW of solar FIT contracts approved sinceOctober. Of this:● 553 MW were utility scale projects.● 169 MW were Capacity Allocation Exempt (CAE).● Considered a close proxy for commercial rooftops● ≤ 250 kW when connected to a line < 15 kilovolts● ≤ 500 kW when connected to a line ≥15 kilovolts● 10 MW were micro FIT projects.● market is currently dominated by utility scaleprojects--over 75% of executed solar FIT contracts
Predicted Market Segment DistributionTransmissionConstraints in 2012So:Decreased approvalspeed for utility scalecontractsAndCommercial projectsdon‟t connect to ONtransmissionsystem…….They connect tolocal distributionnetworks w/ocapacity restraintsThusON develops into alargely commercialrooftop market: 70%of installation by2015.Market orientationtowards full buildingenvelope solutions.
Grid capacity and interconnection issues● Lacking transmission capacity means FiT application enter a “reserve”pool and await an ECT● An Economic Connection Test (ECT)● Occurs every 6 months● Review application waiting in the pool● decides if costs of grid upgrades for a project are justified based on:● Already known, confirmed transmission upgrades● other proposed generating facilities● distribution system expansion plans● While there is no official cap on projects…the number of utility-scale (500kW +) projects that may now connect tothe grid has arguably reached a de facto cap for the immediate future.
Selecting the right market segment● For developers flexible in their approach, opportunities can be found whereprojects are:● capacity allocation-exempt; (commercial roof-tops)● microFIT; (systems of 10kWp or less)● In close proximity to planned transmission expansion (see next point)● Strategic project placement● Examination of anticipated grid expansion plans● Secure locations for potential projects close to major lines● Example: Hydro One has announced a new 430 km, single circuit 230 kVtransmission line in north-western Ontario from Nipigon to the PickleLake area. Projects on/near this line will see faster ECT approvals
Canadian building standards and the CAE market● Building restrictions are important constraints in thecommercial rooftop market● Neither building codes nor rooftops in Ontario weredesigned with solar power in mind● Rooftop size is a limiting factor and energy density/m2 isdesired● Thus, two primary value drivers in this market are:● low-weight equipment solutions that work well withinexisting codes and structural limitations● Technologies that maximize output
Ground Mount Projects: The Canada Land Inventory (CLI)● Categorizes agricultural land into seven classes● Maintained and managed by the Ontario Ministry ofAgriculture, Food and Rural Affairs (OMAFRA)● Class 1 soils have the highest and Class 7 soils thelowest capability to support agriculture● Ontario Power Authority does not permit projects of100 kWp or more on:● CLI Class 1, 2 or 3 soils● specialty crop areas● Does not apply to First Nations reserve lands
CanSIA 2010 – December 6-7, Toronto, Canada● 2 day annual trade fair for solar in Canada● Organized by the Canadian Solar IndustriesAssociation (CanSIA)● Attended by Christian Bogue and Eike Dehning● Planned “Gesprächstermin Programm” from theGerman-Canadian Chamber of Commerce● Individual appointments with potential suppliers,developers, contractors, investors, banks, etc.
Results of CanSIA● OpSun Panels● Heliene Inc● Photowatt Ontario● Fronius Canada Ltd● Satcon Technology Corporation● SMA America LLC● Schletter● ASI Advanced Solar Investments● Samco Machinery Ltd● JCM Capital● TD Canada● Black and McDonald● Dial One Wolfedale Electric Ltd● Avacos Solar Energy Inc● Solargy Solutions, Inc.● Green Sun Rising● Efan Green Inc● Evergreen Power Solutions● Horizon Energy Solutions● CanACRE● 9 suppliers● 2 financing entities● 2 project management firms● 5 installers● 1 service providerConclusion: We‟ve met a sufficient number ofqualified firms with whom we could worktogether in developing the Ontario market.**A full evaluation of the value of these firms by both Messrs Bogueand Dehning, including possible areas of cooperation are available infull report form upon request.
Market Entry I: Positioned as pure EPC contractor● Low risk, low yield: Sub-contract to Ontario-based developers● Minimal amount of human and financial resources● Not responsible for complete project financing● No need for an equity stake in project● Requires only a local, (possibly) externally sourced engineer● No project sales rep needed● Could yield high project revenues for large projects● But….● Slow time to market● Shallow market penetration● Engagement with limited number of firms
Market Entry II: Positioned as full project developer● Higher risk, higher yield● More resource intensive● Sales rep, internal engineer, project manager● Project financing● Greater long term return● Deeper market penetration● Active project sales, rather than EPC inquiries from otherdevelopers● Total brand name recognition, not as sub-contractor
Market Entry III: Wholesaling● Opportunity to serve the microFIT market● Could build a retail “partner” network● Entails warehousing costs (local content = not from HH)● Component price fluctuations● Insufficient understanding of core supply/demand drivers onlocation● Need to arrange new purchasing agreements w/ suppliersNote: due to the youth of the market, a wholesaling option will onlywork in a tight bandwidth – from suppliers with a floor on purchasevolumes that installers cannot reach.
Market Entry IV: SunEnergy does not enter the market● Some things to consider:● Attractive markets are not obligatory to enter● Other promising markets will also emerge● Internal capacities are the primary decision factor:● Financial: operating budget, credit limit, etc.● Personnel: additional overhead, controlling to SEE vs. SEA?● Entry should be made with sufficient resources…With the number of new firms moving into the market,SunEnergy’s historical precedence of a small one or two manteam will perhaps yield sales, but will not be sufficient forestablishing a secure position in the market place.
From a seasoned professionalDirk Morbitzer of Renewable Analytics in San Francisco and former Director of GlobalProcurement at Trina Solar as well as S.A.G. Solarstrom, offered the following inputregarding the structure of a new market‟s team:“the number of people depends on the market segment you go after. If you start asubsidiary focused on selling modules you may be ok with 3 people: one in BusinessDevelopment, one in sales (hardcore) and one in technical support. But to really rampup revenues you want to hire additional sales people…up to 4 – 6 sales reps perengineer. But you can not just hire sales people without local engineering / gridconnection knowledge.”“If you want to go into the project market you need a minimum of 3 people, one inBusiness Development / Sales, one Project Engineer and one Utility ConnectionEngineer / Relationship Manager plus several outsourced functions – with legalservices being the most crucial and most expensive function.”
Recommendations (Next Steps)● Management review of SEE 2011 business plan● contributing factors include:● Running operational costs of current business units● SunEnergy Americas● New office in Bologna?● French market business plan?● Project financing costs● Simultaneous projects in DE, IT, UK, USA, ON….● Reporting structure to Hamburg or Syracuse (SEA)● Relative attractiveness of ON compared to othermarkets
Wir entwickeln Energie und MärkteThank you for your attention.Questions?