Comparing the feed-in tariff incentives for renewable electricity in Ontario and Germany

http://www.sciencedirect.com/science/article/pii/S0301421511008676
Abstract: The development of feed-in tariff (FIT) programs to support green electricity in Ontario (the Green Energy and Green Economy Act of 2009) and Germany (the Erneuerbare Energien-Gesetz of 2000) is compared. The two policies are highly comparable, offering similar rates for most renewable electricity technologies. Major differences between the policies include the level of differentiation found in the German policy, as well as the use of a price degression strategy for FIT rates in Germany compared to an escalation strategy in Ontario. The German renewable electricity portfolio is relatively balanced, compared to Ontario where wind power dominates the portfolio. At the federal level, Canada does not yet have a policy similar to the European Directive on Renewable Energy, and this lack may impact decisions taken by manufacturers of renewable technologies who consider establishing operations in the province. Ontario's Green Energy and Green Economy Act could be benefit from lessons in the German system, especially with regard to degression of feed-in tariff rates over time, which could significantly reduce payments to producers over the course of a contract, and in turn encourage greater competitiveness among renewable power providers in the future.

Highlights
► We compare two jurisdictions that utilize feed-in tariffs to support renewable electricity.
► Complementary policy such as mandated renewable energy use in conjunction with tariffs increases certainty for investors.
► Targeted incentives in the form of adders can deliver more diversity in renewable generation capacity.
► Degression of tariff rates delivers renewable generation capacity at lower cost.
...
... To explore the ramifications of escalation vs. degression, we estimated Ontario and Germany's contract prices for comparable 10 MW biomass, wind, and solar power facilities. In the case of Ontario, the assigned contract price for biomass and wind power is escalated according to an equation published by the OPA (2011d, p. 69)
...
In the Ontario case, the total contract price (TCPBD) for a 10 MW biomass-to-electricity plant would be 14.3 ¢ CDN/kWh in the base year, assuming that the project is eligible for additional funds through community or aboriginal participation. The total contract price for a 10 MW wind-to-electricity plant would be 13.5 ¢ CDN/kWh, assuming that the contract is awarded at the base rate. The total contract price for a ground-mounted 10 MW solar-to-electricity facility would be 44.3 ¢ CDN/kWh, again assuming that the contract is awarded at the base rate. We assumed an inflation rate of 1.6% based on historic changes to the Consumer Price Index (CPI) (Statistics Canada, 2011). The percentage being escalated is 20% for wind and biomass facilities.

In the case of Germany, the calculation is much simpler. We estimate that the assigned contract price in 2011 for a 10 MW biomass-to-energy plant would be 14.59 ¢ CDN/kWh, given a base rate of 7.71 € ¢/kWh and a 2.97 € ¢/kWh adder (technology bonus for combined heat and power). In Ontario and Germany, adders were selected to create hypothetical facilities that are eligible for comparable initial incentives. The assigned contract price for a 10 MW on-shore wind-to-electricity facility would be about 13.4 ¢ CDN/kWh, assuming that the project was eligible for all available adders. Again, this puts the Ontario and Germany cases at approximately the same initial rate. For both biomass and wind facilities, the initial rate is degressed at a rate of 1% per year. In Germany, the assigned contract price for a ground-mounted solar-to-electricity facility would be about 28.8 ¢ CDN/kWh, a rate that is already significantly lower than the Ontario case. This rate is degressed at an average of 9%, ranging between 6% and 13%.
...
The estimated FIT rates start at a very similar point for each project with the exception of solar. In every case the contracted rates diverge over the life of the projects. To understand the impact of this divergence, we calculated the net present value of the total contract in each case, using a discount rate of 8% and theoretical capacity factors of 60% for biomass, 30% for wind, and 20% for solar. It is clear that even with very similar starting contract rates, the Ontario system guarantees a larger payout over the lifetime of the project. In the case of biomass and wind power, the actual difference between the value of contracts depends primarily on interest rates, but the German model consistently costs about 10% less than the Ontario model. This difference would be true for a range of specific technologies, including biomass and wind as well as biogas and landfill gas, that have degression rates at about 1% per year in the German system. The difference between project costs for solar photovoltaic are much more pronounced, but harder to compare due to the already wide difference between Ontario and German FIT contract rates. Our analysis suggests that the Ontario model would pay out between 2.4 and 3.7 times more than the equivalent German contract for solar power.

In all, these findings suggests that over the entire Ontario renewable electricity program, the full price of which is not yet known but which will be in the tens of billions of dollars, the increased cost created by the indexed price model is highly significant. The authors estimate that the nearly 2000 contracts already announced and expected to operate between 2012 and 2032 have a net present value in excess of CDN$ 26 billion, depending upon the final application of rates and adders. If the escalation factor applied to wind, biomass, and hydroelectric projects were replaced with simple rate degression at 1%, and if the rates for solar power were degressed at 9%, the NPV of these contracts could be reduced by about 30% to approximately CDN$ 18 billion. Since these 2000 contracts represent only a part of the fully envisioned FIT program, the final savings could be even more significant. It has been noted by others that unless the cost of renewables, particularly solar PV, drop dramatically, the GEGEA program might not be sustainable (Yatchew and Baziliauskas, 2011). The data shown in Fig. 3 suggest that the Ontario model bears a particularly high price compared to the German model.

by Warren E. Mabee 1, Justine Mannion 2 and Tom Carpenter 3
1. School of Policy Studies/Department of Geography, Queen's University, 423 Sutherland Hall, 138 Union Street, Kingston, ON, Canada K7L 3N6
2. Faculty of Environmental Studies, York University, Canada
3. Queen's Institute for Energy and Environmental Policy, Queen's University, Canada

Energy Policy via Elsevier Science Direct www.sciencedirect.com
Volume 40; January, 2012; Pages 480-489
Special Issue: Strategic Choices for Renewable Energy Investment
Keywords: Feed-in tariffs; Renewable electricity; Price degression and escalation

Evaluating “Cash-for-Clunkers: Program Effects on Auto Sales and the Environment

http://www.rff.org/Publications/Pages/PublicationDetails.aspx?PublicationID=21670
Abstract: “Cash-for-Clunkers” was a $3 billion program that attempted to stimulate the U.S. economy and improve the environment by encouraging consumers to retire older vehicles and purchase more fuel-efficient new vehicles. We investigate the effects of this program on new vehicle sales and the environment. Using Canada as the control group in a difference-in-differences framework, we find that the program increased new vehicle sales by about 0.36 million during July and August of 2009, implying that approximately 45 percent of the spending went to consumers who would have purchased a new vehicle anyway. Our results suggest no gain in sales beyond 2009 and hence no meaningful stimulus to the economy. In addition, the program will reduce CO2 emissions by only 9 to 28.4 million tons, implying a cost per ton ranging from $91 to $288 even after accounting for reduced criteria pollutants.

by Shanjun Li, Joshua Linn and Elisheba Beia Spiller
Resources For the Future (RFF) www.RFF.org
RFF Discussion Paper 10-39-REV; October, 2011

Canada's Boreal Forest Houses World's Largest Water Resource - Top scientists call boreal protection a global priority

http://tinyurl.com/3rz43vw
A first of its kind report by the Pew Environment Group reveals that Canada's boreal, the world's largest intact forest and on-land carbon storehouse, contains more unfrozen freshwater than any other ecosystem. As United Nations' International Year of the Forests and World Water Day coincide, world leaders are grappling with water scarcity and pollution–and scientists are calling boreal protection a top global priority.

A Forest of Blue: Canada's Boreal Forest, The World's Waterkeeper, compiles decades of research and finds that the boreal

• contains 25 percent of the planet's wetlands, million of pristine lakes, and thousands of free-flowing rivers, totaling more than 197 million acres of surface freshwater;
• provides an estimated $700 billion value annually as a buffer against climate change and food and water shortages;
• offers the last refuges for many of the world's sea-run migratory fish, including half of the remaining populations of North American Atlantic salmon;
• maintains freshwater flows critical to forming Arctic sea ice, which cools the atmosphere and supports marine life, from sea algae to polar bears; and,
• stores more than 400 trillion pounds of carbon in lakes and river delta sediment, peatlands and wetlands–more than any other terrestrial source in the world.

...
Canada’s boreal forest is increasingly impacted by large-scale industrial activities. Global demand for resources from the boreal is on the rise, with more than half of total exports of forest products, oil, natural gas and hydropower going to the United States.
...
The Pew Environment Group has worked with First Nations, conservation groups, federal, provincial and territorial governments to protect the boreal, resulting in 185 million acres set aside from development to date, including key wetland and river areas. That total represents more than 12 percent of the 1.2 billion-acre forest.

The report concludes that governments should protect entire river, lake and wetland ecosystems by preserving intact 50 percent of Canada’s boreal forest requiring sustainable practices for industrial activities taking place in the remaining areas.
...
Pew Environment www.PewEnvironment.org
Press Release dated March 16, 2011

Building Greenhouse Farms on Urban Roofs - Cash Crops Under Glass and Up on the Roof -NYTimes.com

http://www.nytimes.com/2011/05/19/business/smallbusiness/19sbiz.html
When Lufa Farms began selling produce to customers in Montreal in late April, it signaled what could be the beginning of a tantalizing new era in the gastronomic fortunes of that Canadian metropolis.

In all but the short summer season, the availability of fresh, locally grown fruit and vegetables has been little more than a pipe dream for Montreal residents.

But Lufa Farms, founded by Mohamed Hage and Kurt Lynn, turned an unassuming office rooftop into a 31,000-square-foot greenhouse that grows tomatoes, cucumbers, peppers and other produce year-round and is a working example of a developing trend known as urban rooftop farming.

... The advance of hydroponic growing techniques and innovative, cost-effective greenhouse systems, together with increasing consumer desire for organic produce, has redefined the term locally grown and spurred entrepreneurs to create a variety of greenhouse technologies and business models.

The Lufa Farms model is to sell directly to consumers through a co-op. Other urban farms are forming partnerships with supermarket chains by building large greenhouses on supermarket roofs and selling their produce to the store below.

A third concept, called vertical farming, involves growing food in skyscrapers or even warehouses using artificial light and organic growing materials. In theory, a 30-story, one-square block farm could yield as much food as 2,400 outdoor acres, and with less spoilage because it would travel less distance, according to Dickson D. Despommier, a Columbia University emeritus professor of public health and microbiology and a leading proponent of vertical farming.

TerraSphere, a unit of Converted Organics with offices in Surrey, British Columbia, and Boston, designs and builds vertical farm systems and sells its lettuce and spinach through Choices Markets, an organic grocery chain in western Canada.

... A crucial question remains: Can rooftop farmers make a profit?

After four years of developing the business, building the greenhouse and refining growing techniques, Lufa Farms has started delivering baskets of produce to local subscribers: $22 for a six-pound basket and $30 for a basket weighing about nine pounds.

With more than 400 customers signed up and more joining daily, Mr. Lynn ... says Lufa Farms can enroll a thousand customers, break even this year and reap a 15 percent profit in the future.

... A land-based farmer is restricted to a 24- to 28-week growing season while a rooftop greenhouse can produce year-round.

The capital costs to get started are higher for rooftop farms — from $1.2 million to $2 million to find a building and set up a greenhouse — but the operating costs are much lower. That is because rooftop farms require less labor, land, water, fertilizer and heavy equipment and because they all but eliminate shipping costs by selling to the local market. The result, proponents say, is a fresher, tastier, longer-lasting, more nutritious product.

Most rooftop gardens use hydroponic cultivation, a water-based growing system in which no soil is required, nutrients are carefully controlled and natural pest control using insects is favored over pesticides. These greenhouses extend the already popular green-roof concept, using recycled water and lowering energy consumption in the buildings upon which they sit. Lufa Farms says it has saved its host building 25 percent in heating costs since it completed its greenhouse.

Rooftop farms can command a similar or slightly higher price for their produce, but the biggest advantage for Lufa is that its urban location means it can attract more customers and deliver more than a thousand baskets of produce a week, compared with 200 to 300 for a typical land-based co-op. The company’s business plan calls for rapid expansion to more rooftops in Montreal and other cities with similar climates.

New York has 14,000 acres of unused rooftop space, according to Laurie Schoeman, director of New York Sun Works, a nonprofit group that promotes the use of rooftop greenhouses. Rooftop gardens abound in New York, but without an enclosed greenhouse, the growing season is limited. Ms. Schoeman said that if all of these unshaded rooftops installed greenhouses, the resulting produce could feed as many as 20 million people in the New York metropolitan area.

It is tempting to wonder why it took so long for rooftop farming to emerge. Part of the problem in Montreal was that there was no zoning for agricultural buildings, which meant that getting the permits required for Lufa Farms took time and intense negotiation with the city. Finding a suitable rooftop also took time....

... The rise of the locavore movement in the past decade began to change attitudes and desires. Rising gas prices sent transportation costs soaring, and consumers became less willing to buy mediocre fare.

In 2006, BrightFarms opened as a consulting business for rooftop growers. It advised Gotham Greens, a New York-based company that recently built a 15,000-square-foot greenhouse on a Brooklyn rooftop with the intention of producing more than 30 tons of vegetables, fruit and culinary herbs a year for sale through local grocery stores, farmers markets and restaurants. Gotham Greens expects to begin producing crops this year.

More ambitiously, BrightFarms recently created a business model and started building its own rooftop farms. Instead of embracing the co-op model or selling to restaurants, it decided to specialize in making exclusive deals with supermarkets to build and operate farms.

Paul Lightfoot, chief executive of BrightFarms, said it could build a one-acre or 43,560-square-foot rooftop farm for about $2 million. BrightFarms has signed up eight supermarket chains around the country, including three of the largest 30 national chains, he said. Four of the farms are under construction.

Mr. Lightfoot predicted each farm would generate $1 million to $1.5 million in annual revenue, and that he would sell produce for similar or even lower prices than traditional farms. He says he expects his gross margins to be extremely attractive because the company’s business model eliminates farming’s biggest expense, shipping.

For a traditional farm, he said, it is not unusual for lettuce to travel more than 1,500 miles over five or six days to a supermarket shelf, which can cost as much as $1 for a head of lettuce that will sell for $2....

“Our plan is to achieve $100 million in revenues by the end of 2015 and $1 billion by the end of 2020,” he said.

Because the rooftop farm concept is so new, a true profitability picture will not emerge for a couple of years, said David Furneaux, a venture capitalist based in Waltham, Mass.... He says a direct-to-consumer model “has the potential to be extremely profitable, generating 25 percent net income for this type of business.”
...
by Glenn Rifkin
The New York Times www.NYTimes.comMay 18, 2011
FOR FULL STORY GO TO:
http://www.nytimes.com/2011/05/19/business/smallbusiness/19sbiz.html

Split incentives and energy efficiency in Canadian multi-family dwellings

http://dx.doi.org/10.1016/j.enpol.2011.03.072
Abstract: This paper examines the energy-related behaviour of owners and occupants of multi-family dwellings in Canada, some of whom do not pay directly for electricity or heat, but instead have these costs included in their rent or condo fees. Using data from the 2003 Survey of Household Energy Use, we look at the extent to which split incentives that result from bill-paying arrangements affect a variety of activities including the setting of temperatures at various times of the day and the use of eco-friendly options in basic household tasks. Findings suggest that these split incentives do indeed impact some aspects of occupant behaviour, with households who do not pay directly for their heat opting for increased thermal comfort and being less sensitive to whether or not somebody is at home and the severity of the climate when deciding on temperature settings. Regardless of who pays for utilities, Canadian households who live in multi-family dwellings are generally unresponsive to fuel prices. Our empirical results suggest the possibility of environmental benefits from policies aimed at improving energy-efficiency in this sector, especially if targeted at reducing the impacts of the behaviour of those who do not pay directly for energy use.

by Lucie Maruejols 1 and Denise Young 2
1 CBEEDAC
2 Department of Economics, 8-14 Tory Building, University of Alberta, Edmonton, AB, Canada T6G 2H4

Energy Policy, via Elsevier Science Direct www.ScienceDirect.com
In Press corrected proof, available online 6 May 2011