ANALYSIS: Should Ontario Pursue Third-Party Ownership for Solar Modules?

Between Kathleen Wynne and Doug Ford, Ontario has now experienced two government’s vastly different approaches on how to handle the rapidly growing solar industry. The former Liberal government introduced the Feed-In-Tariff (FIT) and Micro-FIT program, which offered highly subsidized rates for homeowners who bought residential solar panels. In contrast, the current Progressive Conservative government has argued for less government intervention in the industry, eliminating subsidies, contracts, incentives and a host of other measures aimed at boosting solar energy production. This back and forth has created a rather unpredictable market for Ontario solar energy. However, the choice doesn’t have to be between expensive and bureaucratic policies or the abandonment of government support altogether. Rather, Ontario’s government should look South to the United States to learn how implementing market-friendly, consumer-oriented policy can benefit both the solar industry and Ontario’s residents.

Consumers who want to switch to solar energy are often driven to do so by the social benefits of the technology. Unfortunately, the upfront capital cost of buying solar panels can be too burdensome for many Ontarians. While subsidies can help offset the initial price of the technology, and tax credits (among other incentives) can soften the blow to a family’s wallet, this still leaves consumers responsible for self-financing their solar installation. Even the overly generous FIT and Micro-FIT programs still required self-financing. For Ontario to achieve a greater capacity of solar energy in its electrical grid, the barrier of upfront capital must be overcome.

Enter third-party ownership, a market-friendly system which eliminates the need for consumers to self-finance solar modules. This system is already in place in certain regions throughout the United States and has a relatively simple premise. A private solar company installs panels on a residential property, encompassing all of the installation fees. The solar company will continue to own and operate the equipment, essentially using the residential property as a host lot. The company charges a fixed rate for the monthly electricity produced on the lot, keeping the rate below that of the local utility distribution company (LDC). This ensures the consumer is saving money on their electrical bills, while simultaneously promising a long-term captive market for the business undertaking the job. This kind of payment plan between the homeowner and the solar company is typically known as either a solar lease or a purchase power agreement plan (PPA). Electricity which is generated and exceeds the homeowner’s consumption is fed into Ontario’s electrical grid, with the homeowner receiving energy credits which carry over into the next year, and go towards covering energy costs.

Third-party ownership allows consumers more freedom when it comes to their electricity demands. The monopolistic nature of LDCs results in high costs for consumers, even as the government continues to set price restrictions. Enabling homeowners to choose between different options for powering their homes will have a positive impact on electrical bills. The greater the diversity in the market, the better the price for consumers. This could even lead to utility companies reducing or freezing their rates, as to compete with solar companies undercutting them. At a time where one-quarter of Canadians are struggling to pay their monthly bills, implementing consumer-oriented policy is especially important. Currently, the potential for third-party ownership in Ontario is being squandered due to a lack of specification in policy. The regulation regarding net metering (reg. 541/05) doesn’t indicate or establish any guidelines for third-party ownership business models. This makes it difficult for investors to support companies promising to deliver third-party ownership, as there is a great deal of uncertainty involved.

The main consumer benefit of third-party ownership would be its ability to enable homeowners that fall within varying income brackets to access solar energy. By allowing for more choice in the electricity market, third-party ownership can lower bills, all while providing the social benefits solar energy is known for. There is also built-in consumer protection with third-party ownership, as the homeowner is not responsible for maintaining the equipment. By keeping the solar module under the ownership of the solar company, the risks associated with hardware failings is transferred onto the supplier. This allows for a convergence of interests from both the supplier and the customer, providing both parties with greater confidence.

Third-party ownership represents a major opportunity for Ontario to help remove barriers preventing homeowners from utilizing renewable energy. It’s a cheap, easily implemented and market-friendly policy which should be taken advantage of by the current Progressive Conservative government.

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