How Does Government Policy Impact Solar Investments?

Solar panels sitting on an empty field
Solar energy has gained significant market share over the last decade

Growth in solar energy has exploded in the last decade, largely because of the technology’s price reduction. While market trends make it clear that solar energy is here to stay, the growth of the industry has varied substantially across Canada’s Provinces. This is primarily due to differing levels of government support for renewable energy.

The high upfront capital costs of solar technology often results in consumers depending on subsidies, tax write-offs and other government-funded incentives to utilize the technology. As a result, consumer-oriented incentives are incredibly useful to boost the growth of the solar industry. Government contracts with solar energy providers have a significant impact on the market, as these contracts set the investment atmosphere for the industry. Kathleen Wynne, the former Liberal Premier of Ontario, developed the Feed-in-Tariff (FIT) and Micro-FIT program. Through these programs, solar energy produced on “host” lots (private property contracted with the government) was fed into the electrical grid, with the government paying a fixed rate per Kwh. The FIT and Micro-FIT programs led to explosive growth in Ontario’s solar production, as the Liberals offered rates far above the market. While this policy did encourage thousands of government solar contracts to be ratified with households and firms, the overly subsidized rates meant the program was massively inefficient. Both of these programs have since been cancelled. The electricity generated through the FIT and Micro-FIT programs makes up a small fraction of Ontario’s electricity generation, yet it will cost billions of dollars due to lengthy government contracts. The FIT programs were riddled with errors, but they did spur important growth in green energy.

In contrast with the overly generous Liberal policies, Ontario’s current Conservative Premier, Doug Ford, has seemingly made it his mission to damage solar markets. In his first year, Ford canceled 758 long term renewable energy contracts, both the FIT and Micro-FIT programs, as well as the GreenON program, which offered rebates for solar panel installations. The result of these cancellations has been a dramatic decrease in the strength of Ontario’s solar market. Ed Knaggs, Vice President of HES PV, a solar company stationed in Ontario, stated that the changes will lead the solar industry towards Western Canada and the United States, instead of Ontario.

The strength of solar markets is closely tied to government policy, suggesting investors should note which political parties are most supportive of renewable energy. Until the political sphere comes to the inevitable consensus that renewable energy is the future, government policy will continue to create a “solar coaster” in Canada.

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