(See also, ‘ Special Report: The energy crisis‘)
A stone’s throw from Windsor’s airport, the revolution is proceeding according to plan. Earlier this year, Valiant Machine & Tool announced it was selling its nearby plant, where it used to assemble automated production systems for the auto industry. Windsor endured years of layoffs and plant closures by GM, Ford and Chrysler. “The automotive industry has gone through a dramatic change over the last few years,” Valiant president Len Solcz observed, “and has left many companies such as ours with under-utilized capacity.”
The plant’s buyer, an upstart company called CS Wind, is now retooling to build windmill towers. This represents a minor victory for Ontario Premier Dalton McGuinty. When first elected in 2003, he promised to retire all coal-fired power plants by 2007. (He evidently underestimated the task; the deadline has already been extended twice, to 2014.) His Liberal party touted renewable sources to replace the lost capacity, resulting in wind and solar farms sprouting up across the province. But during most of McGuinty’s reign, Ontario lacked the requisite equipment and expertise to capture the investment; foreign green-tech interests won most of the contracts. In a report last year, the Conference Board of Canada summed up Ontario’s dilemma succinctly: “Either we become a leader in the development and commercialization of these technologies, or we rely on others to sell them to us.”
This became increasingly poignant as Ontario’s economy (and particularly its manufacturing sector) slumped during the recession. So, two years ago McGuinty followed Quebec’s example by trying to build much of the needed equipment within its own borders. “Those projects will need solar panels and wind turbines,” McGuinty said. “Ontarians will build them. And we will sell them all over North America.” He predicted the nascent industry would employ 50,000 Ontarians within three short years.
The new Windsor tower plant is just one of dozens of new facilities announced or operating, which according to provincial estimates created 13,000 jobs by the end of last year. (Explanations of the province’s job-figure methodology are vague, however, and critics are skeptical.) But Ontario’s tactics have irritated Canada’s largest trading partners. And the field is already crowded: Germany, Denmark, China and Spain are just a few nations aggressively building their own green-energy industries. There’s the scourge of NIMBYism that everywhere plagues green-energy projects. And now Ontario’s electricity rates are rising sharply, provoking discontent among citizens well beyond visual range. As a fall provincial election approaches, the political and economic costs of Ontario’s green-hub dreams are increasingly apparent.
Ontario is but one of many jurisdictions pursuing green energy as a salve for recessionary wounds; many governments shovelled huge volumes of stimulus funding toward renewables. And some contenders have a considerable head start. Germany, one of Europe’s green superpowers, is home to clean-tech manufacturers like wind turbine maker Siemens and solar-panel producer Solarworld; there’s hope such companies might one day rival legends like Volkswagen and BMW.
Now China is muscling in. Last year, it installed more wind capacity than any other nation — an astounding 16.5 gigawatts. In a few short years, it has already eclipsed the U.S. as the world’s leading wind generator, and it also happens to be the world’s largest wind-equipment supplier. (When the Chinese decide to export, their competitors tremble.) South Korea, too, wants a piece of the action. According to the Eurasia Group, a political-risk consultancy based in New York, its government and industry have committed more than US$36 billion to establish a clean-technology sector. (The country aims to seize 15% of the market, acquiring 110,000 jobs in the process.) “Wind power is now rapidly expanding beyond the traditional rich country’ markets, a clear sign of its growing competitiveness,” said Steve Sawyer, secretary general of the Global Wind Energy Council.
To gain a foothold, Ontario must do most or all of the following things. One: establish a strong domestic market. Two: subsidize generously. Three: sabotage foreign competitors through protectionist measures. And four: Flog better, or cheaper, gear and expertise to foreign customers. Two years into McGuinty’s green dream, the costs and challenges of doing all that are becoming clearer.
TransAlta’s Wolfe Island wind farm, near Kingston, is a product of the earlier stage in Ontario’s green revolution. Canada’s largest wind farm entered service in 2009, one of many facilities that cropped up as the province looked to replace its dirty coal fleet. According to its Ministry of Energy, more than 1,900 megawatts of renewable energy has been added to the provincial grid since 2003. In 2008, Ontario surpassed Alberta to become the province with the most wind generation capacity. The ambition continues: last November, the government published a long-term energy plan that called for 13% of the province’s power coming from renewable sources by 2018, up from 3% today.
Burgeoning local market: check.
When building wind farms, it’s common to hire local contractors to pour concrete foundations, lay wiring and build access roads. But such projects are capital intensive — the Canadian Wind Energy Association estimates gearboxes, blades, towers and other equipment comprise 70% of the total cost. When construction began on Wolfe Island, few Ontario companies could provide any of that. “You’d have to go abroad for most of it,” says CanWEA president Robert Hornung. “You were looking at maybe 15% of the total investment being in Ontario.” Siemens manufactured Wolfe Island’s 86 turbines in Germany; other developers turned to Denmark’s Vestas. Siemens boasted that in just three years it had become among the largest turbine suppliers in the fast-growing North American market. Ontario could only shrug.
The Green Energy Act aimed to change that. It streamlined the regulatory approvals process for renewable projects and promised to build the necessary transmission lines to connect them to the grid. Most important, it transformed the bidding process. Previously, Ontario put renewable projects out for competitive tender; this produced rock-bottom bids but also left projects prone to cancellation due to razor-thin margins. Inspired by Germany’s example, Ontario introduced what’s called a “feed-in tariff,” which guaranteed prices at which it would purchase electricity from designated renewable sources. Ontario now offers 13.5 per kilowatt hour for wind projects, for example, and a whopping 80.2 per kWh for rooftop solar panels — substantially above prevailing market rates. (Ontario consumers currently pay a maximum of 9.9? per kWh.)
Generous subsidies: check.
None of that guaranteed Ontario would capture most of the resulting investment and jobs. So the Green Energy Act demanded that proposed wind and solar projects source specific percentages of the total cost from within the province. By January next year, wind and solar proposals under the FIT will have to source 50% locally.
Ontario’s approach is not original even in Canada: years before McGuinty’s Green Energy Act, Quebec was already pursuing green-energy jobs as a way of rejuvenating its depressed Gasp? region. But owing to its diverse manufacturing base, Ontario is best positioned to pull it off. When it comes to investing in clean tech, “larger or more diverse economies stand to benefit more; smaller provinces, whose industrial structure is not as diverse, tend to have smaller economic multipliers,” explains the Conference Board of Canada in a report. The independent think-tank estimates Ontario generates $107 million in real GDP for every $100 million invested in climate-related technologies — the highest of any province. By comparison, Alberta reaps just $70 million in additional GDP for the same investment. None of that, however, guarantees success in cutthroat export markets.
The Green Energy Act spurred rapid development. A year ago, the Ontario Power Authority announced 180 renewable projects representing 2,400 MW of generation capacity, enough to power a sizeable city. In February it approved another 40 projects totalling 872 MW. Manufacturers are starting to appear. Ontario claims more than 30 plants have already been built or announced. Some of these are relatively small: ATS Automation Tooling Systems, for instance, vowed to create 150 new jobs manufacturing solar panels in Cambridge. Samco Machinery, an auto-parts maker, recently announced plans to install new equipment at its Mississauga plant to build racking equipment that hold solar panels and allow them to track the sun’s movements — another 60 jobs. In partnership with a subsidiary of Sharp, Celestica plans to employ 300 people manufacturing solar components at its Toronto plant. And Canadian Solar, another photovoltaic manufacturer, plans to employ 500 at a new plant in Guelph. All told, the province claims it has attracted $16 billion in private-sector investment directed toward clean energy.
The greatest coup came early last year, when Ontario announced it had negotiated an agreement with a consortium of Korean companies, including Samsung and Korea Power Electric Corp. (Details remain mysterious, but included construction of CS Wind’s turbine tower plant in Windsor, a blade manufacturing facility in Tillsonburg, and two other facilities.) McGuinty dubbed the Korean consortium an “anchor tenant”; manufacturers, parts suppliers, equipment designers, operators and other related businesses would follow. “This means that Ontario is officially the place to be for green-energy manufacturing in North America,” he crowed.
Such enthusiasm is decidedly premature. “Ontario is in competition with other jurisdictions,” Hornung observes, “be it New York state, Michigan, Ohio, Iowa, who are all trying to encourage these manufacturers to come into their jurisdictions and set up shop.” And whereas Canada’s federal government provides little support for alternative energy projects, U.S. President Barack Obama still wants to catch the green-energy wave. In his State of the Union speech in late January, he vowed to spark an R&D frenzy not seen since the space race — and named clean energy as the main goal. With so many competitors jockeying to build domestic and export markets, some observers warn a “green bubble” has formed.
The herd’s weak are already being culled. Citing concerns about the sagging European market, last fall turbine giant Vestas closed three plants in Denmark and another in Sweden, laying off 3,000 workers. American photovoltaic manufacturer Evergreen Solar recently closed its plant in Devens, Mass., terminating 800 workers. “Solar manufacturers in China have received considerable government and financial support and, together with their low manufacturing costs, have become price leaders within the industry,” the company claimed. Tom Adams, an independent energy consultant, notes many of Ontario’s new plants begin production just weeks or months after being announced. “If you can set up that fast, then you can tear down pretty fast too,” says Adams.
Major trade partners resent their exclusion from Ontario’s wind and solar bonanza. Last September, the Japanese government filed a complaint against the domestic content requirements with the World Trade Organization. (In WTO parlance, Japan “requested consultations” with Canada; the U.S. and European Union promptly joined.) Ontario could be accused of hypocrisy, as its manufacturers decried so-called Buy American provisions in U.S. stimulus efforts during the recession. Globally, green contenders are a quarrelsome lot. “This emphasis on green jobs’ has led to a rising tide of protectionist sentiment, which could in turn lead to increased trade friction,” observed Eurasia Group in a report last year. That could seal off the very export markets McGuinty covets.
Rising electricity bills undermine political support for green energy. In part due to renewable generation coming online, Ontario now predicts rates will increase 7.9% a year over the next five years, and continue rising at a reduced pace thereafter for at least another 15 years. To soften the blow, the government recently introduced a 10% rebate for the next five years. Adams says the last time Ontario experienced such rate hikes was after Darlington Nuclear Generating Station’s four reactors entered service in the early 1990s massively over budget. “That caused a gigantic restructuring of Ontario’s power system,” he says, which included the dramatic downsizing and eventual privatization of Ontario Hydro, the bulky, monolithic provincial utility. He expects today’s increases will provoke similarly dramatic policy changes. Eurasia Group predicts that whatever the election’s outcome this fall, Ontario’s days as a bright spot for renewable energy may be numbered. “The Conservatives have capitalized on growing public dissatisfaction with rising electricity prices, which are only likely to grow in coming months,” it observed in a recent report. “The Liberals are likely to make reductions and changes that would ease the burden on ratepayers. If the Conservatives win the election, however, they are likely to make changes that result in the decline of the renewable energy sector.”
None of this precludes Ontario from gaining a foothold. Other contenders also have their limits: Germany, the world’s largest market for photovoltaic generation, lowered solar feed-in tariff rates last year, and Spain retroactively altered existing solar contracts in December. Meanwhile, high oil and shipping costs are encouraging manufacturers to source more from local markets.
McGuinty’s own resolve, however, seems unsteady. Last year, Ontario slashed the purchase price for ground-mounted solar generation under the feed-in tariff and summarily tossed out more than 10,000 applications. This year brought another volte-face: in February, Ontario abruptly yanked its welcome mat for offshore wind projects, citing a need to conduct further scientific research. The certainty renewable developers crave is evaporating.
It’s one thing to grow a cottage industry of component manufacturers in a sheltered provincial market. It’s quite another to have them go toe-to-toe against European green-tech veterans and the Chinese export juggernaut. Adams thinks even Ontario’s domestic market will falter; he expects a moratorium on new projects as Ontario confronts the rate implications of the commitments already made. “The green hub is going to be a bit of baggage that gets thrown overboard,” he predicts. Proving him wrong would require resolve, not to mention costly subsidies and a flotilla of skilled international trade lawyers, for years to come.