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Powerhouse Solar responds to the OPA

Powerhouse Solar comments on the OPA Gound Mount microFIT price change

Released July 28th, 2010

OPA Proposed Ground mount price for solar PV for microFIT program.

Powerhouse Solar has a number of concerns and comments regarding implementation of the OPA's July 2nd proposed rate for ground mount solar and the OPA's methods for calculating the proposed rate:

1. The OPA had ample information on the number of applications for ground mount solar PV and did not act on this for months. This delay in action has allowed the number of applications to rise even higher. In addition, the OPA continued to process applications where it was clearly indicated that the project was for a rooftop solar PV system, even though there were applicants that were in the application queue over 3 months that did not get processed. Furthermore, on June 4, 2010, the OPA announced that they had a new plan to process the applications and committed timelines for those who had applied before Mar 31 to be processed by August and those who had applied by May 31 to be processed by September. This signal to the market did not indicate any concern about the number or type of applications, but indicated that the program was moving forward.

OPA Management Teleconference June 4, 2010:

"we weren't prepared to be able to process the number of applications that we received. We have rectified that now. We have bumped up the staff required to deal with the applications .. we now have a plan to expedite these applications ..

"if your application was submitted by March 31, 2010, you can expect to hear back from us by August. If you application was submitted by May 31, 2010 it will be processed by September."

"We are starting to clear a great number of applications. Hopefully you will hear soon".

Ben Chin VP Communications

The OPA should honour it's commitments publicized on June 4 and provide retroactive approval to those applicants who applied throughout the time that they had posted their commitment on the microFIT website, that is, up to July 2, 2010.

For more details of the timeline of release of information from the OPA relating to microFIT applications and processing timelines refer to Appendix A.

2. OPA is underestimating the operations and maintenance costs of a ground mount tracker system in the proposed price calculation. Tracking systems also use power to operate the motors used for tracking. In addition, there is maintenance and repairs for operating mechanisms of these tracking systems. Many of the applicants installing microFIT systems are not experts in Solar PV technology and need professional assistance in operating and monitoring their systems to ensure that it is producing at optimal production levels, adding to the cost of operations. Because microFIT is distributed throughout the province, there are higher operating costs for tracker systems for microFIT than for tracker systems for FIT. The OPA should use local industry based operations costs that relate to small distributed solar PV tracker systems.

3. The capital cost to install a ground mount tracker system is higher than installing a roof top system. Not all systems are created equally and those that are designed for long term operation have higher costs. In addition, not all trackers meet the Ontario Building Code. Warranty costs for these types of systems also add to the capital cost. Our typical sell price for a standard Solar PV tracker that meets the Ontario Building Code and has Professionally Engineered foundations and built in wind security systems is based on a list price of $98,650 including surge protection option. In addition some sites require additional surcharges depending on soil load bearing capacity, cable length, and connection configuration. LDC connections fees are also much higher than expected. Hydro One Networks charges $1000 for a standard microFIT connection plus $35 account setup.

4. The OPA uses the wrong debt/equity split for the microFIT price calculation. The OPA does not allow microFIT suppliers to enter into a Secured Lenders Security Agreement as it does for FIT suppliers. This rule means that applicants must obtain their financing using their OWN equity. This means that the equity investment by the applicant is more than the 30 % investment that the OPA uses in their pricing model. Canadian banks will not take the solar PV system equipment as collateral therefore applicants are purchasing the system with 30% investment PLUS 70% of the investment secured with their OWN assets, making the total equity invested by the applicant 100% of the capital cost and they still have the interest expenses. Therefore, the OPA's calculation should be based on 100% capital investment for microFIT prices.

5. The OPA uses the wrong term for financing assumptions. The OPA considers that the financing term for microFIT suppliers is 20 years, however the finanicial institutions in Ontario will not finance microFIT suppliers with terms longer than 10 years. This makes the annual payments higher and results in negative annual cash flow during the financing term. The OPA should use 10 years as the term for financing microFIT projects.

6. The OPA processing delays will increase project prices. The domestic content deadline is approaching quickly, yet there are applicants that have been waiting since February to be approved, and still they are waiting to be approved. The OPA's delays in processing applications has delayed the installation schedules of many projects, moving the projects into later in the year when shorter days and winter weather will cause increased installation costs for these projects. The OPA should extend the domestic content deadline by the duration of the delay that the OPA has taken to approve the application.

7. The price for domestic content compliant hardware is higher than the prices that are available to the global market. So far Powerhouse Solar has received quotes for Ontario made solar modules that are 25% to 200% higher than today's global market price. Even with the 40% domestic content, there are components that must be made in Ontario that cost more than the global market price. Domestic content compliant solar tracker prices are also approximately 25% higher than the global market price for the same equipment from the same manufacturer. The OPA should consider the prices for domestic content compliant hardware when they calculate the capital costs. The OPA stated during the April 7, 2009 Stakeholder session #4 that it "assumed that domestic content requirements would be phased in a manner that there is no adverse impact on project costs". The OPA also stated that "final Ontario government direction on domestic content may require recalculation of some, if not all of the proposed prices". The OPA should consider the 2011 costs for systems. Typical Solar tracker systems are expected to rise in price by 10 to 15%.

8. The OPA's announcement has had a negative impact on the numerous solar manufacturers that were working on plans to bring manufacturing jobs to Ontario. In Powerhouse Solar's direct communication with international manufacturers, we have been informed that they are very concerned about the retroactive nature of this proposal, and the instability of the OPA and the Ontario government. They are very concerned about changes to the FIT program and are delaying their efforts in Ontario. The MEI and OPA should very seriously consider how they can provide stability to the program so that they manufacturers bring production to Ontario. Otherwise the supply and demand for domestic content will drive the domestic prices even higher than the global prices putting Ontario at a disadvantage to the rest of the global market. In the end we will end up with fewer jobs created and a higher cost to our economy and electricity ratepayers.

9. The OPA/MEI is discouraging innovation and optimization. If the OPA/MEI changes the prices retroactively whenever a technology provides a better investment for those who utilize the technology, then innovation, research and development will be virtually eliminated. Those who innovate need to have a market for their advances in technology to cover the costs, risks, research and development, that they have invested, otherwise they will stop innovating here in Ontario. The OPA should consider allowing innovation and technology advances some time before reducing the prices.

10. The FIT and microFIT programs seem very unstable at this time largely due to the unplanned, sudden, and retroactive nature of this proposed price change. In the OPA's rules, they have indicated that they would provide notice of price changes for their regular program reviews, and although by their rules they can change prices at any time, the OPA should use the planned approach for price changes. A possible approach would be similar to the Germany FIT program where the price decreases were planned for a 5 year period. This allows the industry to plan for the changes and provides a more stable and sustainable environment.

11. The MEI is making public statements that are overstated and inaccurate. The OPA should provide accurate and complete information to the MEI. The grossly inaccurate statements that Minister Duguid is stating are damaging to the OPA's credibility in running the program.

12. Applicants have invested much time and energy in the microFIT program. In the OPA microFIT Program Overview, applicants are advised to do their homework before going ahead with a project. Our customers have done their homework to research the program, obtain financing approval with their other equity, researched insurance premiums, researched the equipment, researched vendors, etc before committing to go ahead. Essentially those applicants who followed the OPA's advice in the Program Overview are being penalized. The OPA should recognize the applicants efforts and make every effort to offer these applicants the conditional offers they have been waiting for.

13. The Cost impact of 11000 tracker applications is largely overstated. It is reported that this change will save a billion dollars for ratepayers over a 20 year period. When you take the time to do the math, 80.2 - 58.8 = 21.4 x 13300 kwh per year = $2846.20 per year x 11000 applicants = $31,308,200 per year x 20 years = 0.626 billion dollars over 20 years. 0.626 billion dollars spread among the approximately 6.5 million employed individuals in the province over 20 years, the cost is less than $4.82 each year per employed person. Yes that is less than $5. The OPA and MEI should just save some credibility and approve the 11000 applications that they had received prior to July 2, and then continue with a sustainable price going forward.

In conclusion we at Powerhouse Solar are respectfully requesting that a reasonable approach to the price change for ground mounted solar be adopted. Renewable energy is very important to the future of our province and the ratepayers for a sustainable energy supply many years into the future. Ontarions want the OPA and MEI to succeed with this world leading program and Powerhouse Solar is proud to be part of the renewable energy industry. Much damage will be done to the Ontario economy, confidence in the OPA and the MEI if this price change is implemented as proposed. The best method going forward will provide the OPA and MEI with the support of both the ratepayers and the domestic solar industry. Our suggestions for an implementation strategy include:

1. Sustainable price going forward for applications received after July 2

2. Applications received before July 2 be approved at the original 80.2 cents /kWh

3. Postpone implementation of the revised domestic content requirements for applicants who had applied prior to the July 2nd announcement.

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