The carnie explains the game… “Spin the wheel. Pick a colour. If the wheel lands on your colour, you win.”

Standard game. But looking at the wheel you’re shocked… 95% of the wheel is red and there’s a single thin 5% blue slice. You look over at the other patron. He looks at you holding the biggest wad of cash you’ve seen.

“This is every penny of my kids’ and grandkids’ education savings,” says the man.

The man spins the wheel. He puts all his money on blue. The wheel keeps spinning… click, click, click, click, click….

You scramble to comprehend what you’re seeing. You try to think of some rational motive for the man’s actions. You think to yourself, “This guy must be idiot.”

Click, click, click, click….

You can’t keep it in.

You yell, “WHAT THE HELL ARE YOU THINKING!!!??? ARE YOU ABSOLUTELY CRAZY!!?? YOUR KIDS ARE GOING TO KILL YOU!”

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This is how this article makes me feel.

There’s so much noise around the climate change debate. It’s easy to get distracted. People will play whatever side of the debate that will get the most exposure or will make them stand out. Some people want to take the unpopular view just because it’s the unpopular view. Some people like to stir the pot.

We cut down trees. We put endless amount of carbon into our atmosphere from our factories, our power plants, our cars and trucks. No rationale person can see this going on and not think that it has an impact. Our climate is changing. Plain and simple. Independent scientists world wide agree that it is 90% to 99% likely that our actions are causing these changes in our climate.

That Senators and MPs in my country think there is something else causing this change or worse, that this change isn’t happening, and that they are willing to sabotage our future on this belief (for whatever personal/political gain they can muster), makes me sick to my stomach. It is an embarrassment and an injustice that these people are in the positions they in.

Please, don’t be a idiot. Don’t bet on blue.

Another key issue causing delays in connecting projects are legitimate infrastructure deficiencies – i.e. the grid doesn’t physically have the thermal or short circuit capacity to handle all this new distributed generation that the FIT and MicroFIT programs have stirred up. This shouldn’t have been a shock to government or those in the industry. The government’s Renewable Energy Standard Offer Program identified these issues years ago, read here.

What is compounding these issues is the fact that eager salespeople have been pushing solar PV panels and grid-tied inverters, using the incitement of the MicroFIT payouts, without properly disclosing or advising their clients on the risks and uncertainties associated with getting into the MicroFIT program and obtaining a lucrative 20 year MicroFIT contract.

So what we have is a large amount of prospective project proponents that have made a significant investment in solar PV equipment and left by their salesperson, holding the bag. Waiting for a connection, in some instances that will never happen, while tens of thousands of dollars in equipment gets rusty in a field or on a roof.

From some of my other posts, I am adamant that all this wasted investment could have been avoided with a trip to a real professional before such large projects were undertaken. Installers say… “You don’t need a lawyer. Its a standard form contract!”. Well so is a mortgage. What is really frustrating here is not that investors didn’t seek legal advice, they relied on people that held themselves out as ‘experts’. No, what is frustrating is the con that has and continues to happen. Companies selling complete solar PV projects, using the MicroFIT program to lure unsuspecting investors in, and then ignoring or intentionally neglecting the fact that actually getting a MicroFIT contract is never guaranteed. From the cases I’ve seen, that is almost always the case. No disclaimers. No caveats. No discussion whatsoever on the uncertainties that exist when trying to actually make the money that these salespeople promise.

The lawsuits have begun. If you’ve been caught, if you have an investment in a renewable energy project that is wasting away because you were led to believe that a MicroFIT contract is all but inevitable, visit www.MicroFITlawyer.com and talk to a lawyer about your options.

Questions abound now about what this means… What will happen to all those conditional contracts? Will the Tory’s move to suspend or cancel any final contracts? Will they continue infrastructure improvements needed to fulfill existing contracts?

A vague and ambiguous announcement today that brings nothing but more uncertainty and legal problems to those trying to participate in Ontario’s green boon. Check back soon for more! And check out www.microfitlawyer.com if you’ve got legal problems with your FIT or MicroFIT project.

Consulting the right lawyer before entering into these contracts or beginning these projects will give you the knowledge and security you need to make a successful investment in this very profitable renewable energy program. From buying the right technology and equipment to ensuring you know all your contractual rights and obligations, the right FIT or MicroFIT lawyer can be a solid, unbias advisor in what is turning out to be a very competitive and aggressive renewable energy market.

There are examples of MicroFIT applicants starting projects and incurring significant costs before they even have their contract in hand. There are even fears now that if a Conservative government were elected in November, they could claw back some or all of the contracts leaving project owners with litigation as their only recourse.

If you’re looking to set up a FIT and MicroFIT project, or if you’re concerned about the legal issues and risks associated with the FIT or MicroFIT contracts, call the MicroFIT lawyer.

Call Graystone Environmental for solid, informed and knowledgeable advice and consult on your renewable energy project.

Focusing on the U.S. action…

On January 2, 2011, the Prevention of Significant Deterioration (PSD) requirements (under s.160 of the Clean Air Act) began applying to GHG emissions. These requirements result in source-specific emission limits for the biggest new and modified sources. Emission limits are based on what is achievable given the best available control technology (BACT) for the source. So new and modified sources need to build using clean technology and operate under an emissions limit associated with that technology.  The fun here, comes from the numerous and ongoing litigation, a Congressional vendetta, and Texas, who has refused to incorporate new GHG requirements in their PSD regulations.

On December 23, 2010, the EPA announced that in addition to the PSD requirements for new and modified GHG sources, there will also be national ‘sector-based’ performance standards – New Source Performance Standards (NSPS) – (under s.111 of the CAA) for GHG emissions from new (and modified) electricity generators and petroleum refineries. These standards are a question mark right now in terms of how they will be set out and what, if any, work standards or techniques will accompany the NSPS. In terms of stringency, the NSPS acts as a ‘floor’ for any PSD BACT-based standard – meaning the PSD emission limits will not be any less-strict than the NSPS.  The final standards are due by the end of 2012.

Also of interest here is that action under s.111 by the EPA for new sources, requires States to address existing sources in these sectors. To help fulfill that requirement, the EPA will release guidance for States. This specific requirement for States to regulate existing sources in a sector for which an NSPS has been set, has a narrow application (only for pollutants that don’t have a National Ambient Air Quality Standard (NAAQS) and aren’t addressed as a hazardous air pollutant (HAP)) and has rarely, if at all, been used… this is for all intents and purposes, new ground. Some even say that the NSPS provisions give just enough room to for the EPA to start an emissions trading system. EPA guidelines are due at the same time as the NSPS but won’t likely be required any earlier than 2015.

What is interesting here as well, is how this move to address GHGs using NSPS provisions came about. Various States and environmental groups were in the course of litigation with the EPA to force them to include GHGs in new/existing NSPS. As part of two settlement agreements to end the litigation, the EPA agreed to include GHGs in NSPSs for electricity generators and petroleum refineries. Read the settlement agreements here.

So in addition to the current and no doubt forthcoming PSD litigation and the new chapter of the decades-old Texas v. EPA battle, there will be lots of discussion around NSPS and layered over all of this will be a congressional attempt to block any EPA action. For Canadian emitters, the key here is the fact that the US is poised regulate GHGs from new, modified and existing sources using middle to low stringency performance (read intensity) standards, primarily based on energy efficiency improvements rather than ‘step-change’ technology improvements. There might even be a push for emissions trading, making the US picture eerily similar to Canada’s 2007 Turning the Corner plan.  Now this is all tempered with a new Republican-led Congress in the US that is bent on stopping (or at least delaying) the EPA from acting on climate change regulations so stay tuned for more updates as things progress.

The guidance is part of an attempt by the EPA to regulate GHG emissions from stationary sources under the existing provisions of the Clean Air Act (CAA). Specifically, the EPA interprets the CAA as requiring the inclusion of GHG emissions in the requirements under the Prevention of Significant Deterioration (PSD) program. The PSD program requires new and modified sources to be built using BACT. A new or modified source applies to the State and shows that it is built using BACT. The State then issues a construction permit allowing the source or modification to be built. The permit contains an emissions limit that the source must operate under once built.

The guidance released yesterday is two part: (1) general guidance on determining if a source is covered and how to determine BACT for that source; and, (2) source category specific guidance on GHG emissions control technologies. The sector specific guidance was released for 7 sectors: Coal-fired Electricity Generation; Industrial, Commercial, Institutional Boilers; Pulp and Paper; Iron and Steel; Cement; Petroleum Refineries; and, Nitric Acid Plants.

The guidance helps permitting authorities (States) and regulated sources to determine BACT. In the first instances, BACT determinations may be difficult and will be likely settled in court. There is a good chance that if the PSD GHG requirements become a reality (which is not certain in any way given the lawsuits currently filed), there still won’t be a source operating under a PSD GHG emisssions limit until well into 2012 if not later. While the guidance does list out and discusses a variety of emission control technologies, the focus by far is on energy efficiency… and rightfully so, there are few if any add-on technologies that reduce GHG emissions (with perhaps a hopeful placeholder for carbon capture and storage) the BACT is not supposed to be cutting edge experimental tech – its supposed to be proven in practice and applicable to the specific source. This, combined with the fact that PSD only applies to new and modified sources, does not bode well for achieving the US’s 2020 target for a 17% reduction in emissions from 2005 levels.

This is the latest in a long-running  series of steps that the EPA has taken towards regulating GHGs under the existing provisions of the CAA.  Here is a quick history…

April 2007 – The US Supreme Court determined that GHGs are ‘air pollutants’ as defined in the CAA and order the EPA to determine whether or not GHG emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision. (Massachusetts v. EPA)

July 2008 – The EPA released its Advanced Notice of Proposed Rulemaking on regulating GHGs under the CAA outlining possible courses of action and seeking public comment.

December 2008 – The EPA Administrator issued a memo that interprets how and when the PSD requirements for GHG emissions are triggered (aka Trigger/Timing Rule) — EPA interprets the PSD provisions as requiring the inclusion of GHGs in the program as soon as other CAA requirements for GHG emissions (i.e. regulations on GHG emissions from vehicles) come into force. The final memo was confirmed earlier in 2010.

December 2009 – The EPA issued 2 findings: (1) that GHGs threaten the public health and welfare of current and future generations; and, (2) that GHG emissions from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas pollution which threatens public health and welfare. These findings are a statutory requirement for the EPA to regulate emissions from mobile sources under s.202 of the CAA.

May 2010 – The EPA released its final rule ‘tailoring’ the PSD thresholds (aka Tailoring Rule). The rule adds a second tier of thresholds to the existing thresholds set out in the CAA. This second tier is required to limit the application of PSD GHG requirements to only the largest sources.

May 2010 – The EPA finalized regulations on light duty vehicles (aka Tailpipe Rule). These regulations are the first instance of GHGs being regulated under the CAA. The EPA has interpreted the CAA as requiring the PSD program to include GHGs on the date that the light duty vehicle regulations come into force (January 2, 2011).

Again, there is no certainty that the EPA will be successful in its attempt here to regulate GHGs under the PSD program of the CAA. There are court challenges that question almost every decision that the EPA has made here, and the arguments against the EPA are strong. If a court issues a stay (halting the EPA’s action) the matter may take years to resolve… maybe Congress will have something substantive figured out by then! UPDATE: The District Court of Appeals unanimously rejected the challengers’ motion to stay… read the decision here. So barring any congressional action to block EPA authority, the EPA will introduce GHG requirements under the PSD program on January 2, 2011. But by no means is the court battle over. The case will now be heard on its merits and some think that the EPA is still in trouble… read an opinion here. Expect this case to last well into 2011 if not longer.

The program is coming up on a year old and should soon be ready to decrease rates for rooftop projects as well. In Germany, rates of their FIT program decrease between 8-11% per year. This ‘degression’ is controlled by the growth of the solar market, which is targeted at about 15% per year. In Ontario growth has been pegged at over 250% in 2010 from 2009 (see here) so people in Ontario can likely expect a significant rate cut in the next 6 months.

The other big news is the trade complaint launched by Japan against Ontario for its FIT program. This issue here is not the subsidy for solar electricity, but the domestic content requirement for eligible solar projects. Right now, that requirement is at 40% but is set to move to 60% in January 2011. The big deal is that Japan makes solar panels. At the 60% content requirement, projects are basically forced to but panels made in Ontario… and Japan does not like this. This issue was brought up in Ontario back in June but with little attention. You can read Japan’s WTO complaint against Ontario’s feed-in-tariff program here. UPDATE: On October 1, 2010, we got word that both the U.S. and Europe have joined battle. This is shaping up to be a pretty big deal, and maybe not the greatest news for solar manufacturers in Ontario.

So if you’re thinking of getting in while the rates are high, now is the time, particularly with rooftop solar PV. First step, talk to Graystone Environmental. Knowing the technical and legal sides, you’ll get the best advice to point you in the right decision for you and your project. Graystone Environmental does not sell or install projects – you’ll get sound technical and legal advice, honest and unbiased. Services range from initial project scoping to professionally project management from conception to final contract. If you’d like to know more about the FIT program and how Graystone Environmental can help get your project ‘off the ground’, read a quick primer here.

Admittedly, I’ve been a big supporter of the FIT and MicroFIT programs that Ontario has implemented in order to promote local distributed renewable energy generation. I just don’t see why people are all in a knot over the government’s decision to change the price paid for ground mounted solar from 80.2 cents to 58.8 cents per KWh. This decision to drop rates has angered some people, particularly farmers, but a bit of professional advice prior to heading out on this type of project could have save people a lot of the pain they’re feeling now. About 16,000 applications were sent in for solar projects with the large majority being ground mounted. To my knowledge no conditional contracts have been sent out yet in this latest group of MicroFIT applications – i.e. the price change won’t impact those who received conditional/final ground mounted solar contracts. The change really only impacts those who began construction BEFORE receiving a conditional MicroFIT contract from the government.

How things work (check here for a more detailed explanation)…The project proponent applies to the government for a contract to sell renewable power based on a description of the project (that’s the stage this thing is at right now). Once applications are reviewed, some will receive conditional contracts. At that point (and only that point) people should move forward with the project. So lesson learned number one… talk to a lawyer to make sure you have a sound understanding of how the MicroFIT contract works. MicroFIT applicants are engaging in a project that costs tens of thousands of dollars and that includes a twenty year contract. If you starting building a solar project before you got a conditional contract and now your conditional contract won’t be as much as you thought it would be… you’re in a pickle. You should have sought some professional advice first. I’ve told everyone I’ve worked with on these types of projects to stay away from the small (<10kW) ground-mounted solar as possible, for this reason exactly – the preference will always be to put panels on existing buildings rather than taking up vacant land (or worse, farm land). Some of those who have jumped into the MicroFIT marketplace will try to sell as many projects as possible and may not be that forthcoming in the realities of contracting with the government… but you can trust that a lawyer will – its our job.

To put this into physical perspective, a 10kW system (the type of project impacted here) takes up only about 1000 sqft. Second, the rules only allow you to put one of these projects on a property – if you own 20 acres you can’t put more than one project on your property without first formally subdividing the property into different addresses/properties. But again, nobody should incur significant costs towards setting up a project without first getting the conditional contract.

But at the end of it all, is the rate cut fatal to the MicroFIT program? My opinion is a no… it helps preserve the program for bit longer and helps homeowners install some energy generation in hopes of offsetting the coming energy price increases. Lets not forget who’s going to get crunched at the end of the day, electricity rate payers. Anything a homeowner can do to offset or decrease electricity costs should be actively pursued and this program lets that happen.

If you went forward constructing a project without a conditional contract, you got duped. If you didn’t get a lawyer before, you should get one now.

If you’re thinking of applying for a microFIT or FIT project, same recommendation, get a lawyer.

Lastly, get a lawyer. This stuff is a big deal folks, you’re entering into a 20 year contract with someone, get the right people to do the job right. Lawyers and engineers are what you need for this type of project… buyer beware if you move forward on the cheap without talking to the right people first.

Graystone Environmental does FIT and MicroFIT project differently than others. I’m both a lawyer and engineer. I don’t sell anyone anything. I give clients unbiased and trustworthy guidance from application to project completion. Graystone Environmental provides clients with turnkey renewable energy projects installed by professionals and designed with the equipment that best meets the client’s needs. I help clients apply, choose the right equipment, choose the right installer, and make sure the project goes ahead properly.

If you want help with your current FIT or MicroFIT application or want to move forward with a new project, talk to a professional. In Northern and Eastern Ontario, call me, Roxie Graystone at Graystone Environmental, 705-255-2208 or visit www.microfitlawyer.ca.

Coverage The bill covered essentially the same entities but covers emissions differently. Instead of making fuel producers and importers being responsible for emissions from all the fuel they produce or import, the APA makes ‘refined product providers’ (RPPs) liable for all emissions for the fuel they are, at some point, responsible for except those emissions from fuel use by regulated entities. This makes more sense because regulations should aim to regulate at the point of emission where practical – if these entities already are responsible for some emissions, then it doesn’t make sense to carve some out and make others responsible for them (as the other congressional bills did). Covering RPPs will allow emissions from the millions of consumers (commercial and residential) to be brought into the system without actually covering each point of emission. One last note is that the bill wouldn’t take effect until January 2013, delaying application for manufacturing industries and natural gas distributors until 2016.

Targets The bill proposes an economy-wide emission reduction target of 17% by 2020 from 2005 (same for the target for reductions from covered entities). This is lower than the Kerry-Boxer senate bill, but in-line with the President’s pre-Copenhagen announcement.

Allowance distribution The new bill has no ‘pre-distribution’ set-asides. Allocations for  covered entities haven’t dramatically changed; emission extensive and trade exposed industry getting 2% in 2013-2015 and 15% per year out past 2020, natural gas distributors will get 9%, but refiners have been given a big boost in their allocation averaging about 4% per year out past 2020. I’ll note here also that in previous bills, there was a provision that limited the EITE allocation to the percentage allocated in the bill, despite that industry may qualify for a greater number of allowances by way of the distribution methods in the bill – if industry qualified for more than what was allocated, then each entity would receive a pro-rated share of the allocation. This limit doesn’t seem to be there anymore. With this missing (which I’ll assume for now is a mistake), it leaves the EITE allocation a bit uncertain.

But the big kicker with allowance distribution is the ability for the EPA Administrator to borrow allowances from the following year to ensure an adequate supply for the current year. What this does is effectively lower the cap in that following year, having the same effect as a ‘set-aside’ – e.g. the 15% for EITE would be of a smaller cap number so their absolute allocation will be less than if the borrowing hadn’t occurred. All of this is because of the unique way the bill provides allowances for the ‘refined product providers’ (i.e. commercial and residential gasoline, diesel, heating oil suppliers). The Administrator is required to sell to the RPPs all the allowances they need to cover their emissions obligations at a set price – and the RPPs are forced to buy those allowances (i.e. a fancy fuel tax). The Administrator gets these allowances from the amount of allowances that will be available for auction. If the allowances available for auction are less than what’s needed for the RPPs, the Administrator can borrow the necessary amount of the allowances from the following year. By rough estimates, this could happen as early as 2016. This means two things, by 2017 there would be no allowances available to be auctioned to other covered entities (therefore they’ll need the 2 billion offsets the bill creates), and the absolute allocations in the following year are lowered. All this will likely drive the price higher in future years, spurring the offset market and in-house reductions.

Compliance options With alot of the same options available as in previous bills, there’s not much new in terms of compliance. The bill has a reserve of allowances similar to the Market Stability Reserve in the Kerry-Boxer bill – the new bill allocates a certain percentage of allowances under the cap in each year to be sold at a fixed price starting at $25 for 2013 vintage allowances, but no banking of these allowances is permitted. This mechanism will help keep the average overall allowance price at a reasonable level but will only provide about 70Mt of allowances (1.5% of the cap) in the first years – the full ‘price collar’ impact that some are speaking of doesn’t really happen until much later (2040 – 2050). For most other allowances banking, trading, and borrowing is permitted along the same lines as other bills… unlimited banking and trading with free borrowing 1 year into the future and borrowing at 8% upfront interest for 2-5 years into the future. However, allowances sold to RPPs cannot be banked or traded.

2020 Effective reductions The allocations provided directly to covered entities in 2020 can be expressed as a percentage of their 2005 emissions, giving us a rough idea of what level of reductions are being required from each sector by 2020 in order to meet the 17% reduction target. Here are those effective reductions… with all numbers derived from EPA 2005 emission values for covered entities. These numbers also take into account estimates for system-wide borrowing to accommodate RPP allowance needs – estimating that about 2400Mt of allowances will be needed for RPPs in 2020.

Electricity: ~90% reduction (only industry allocation is to Merchant Coal and Long Term Generators)

EITE industry: ~10% reduction  (from all direct and indirect emissions)

NG Distributors: ~35% reduction

Refiners: ~20% reduction

The trick for the Province has been a) high premiums, but also b) domestic content requirements. These requirements ensure that some or all of the work done in manufacturing or installing solar projects is done in Ontario. This is the backbone of modern environmental change…. changing our provincial economy from coal burning, mining and steel making to a renewable energy leader. These domestic content requirements are low right now, only 40%, which allows projects to meet the requirement with only some ancillary pieces of equipment/services being supplied from Ontario. But in January 2011, they bump it up to 60%… essentially meaning you will have to buy solar panels from an Ontario-based company.

Its still to be seen whether the Provincial program has enough resources (staff and money) to meet the coming demand. The first round of applications they received had 12,000 projects, but only 700 got processed. In Germany, this program was start some years ago. There, the government ramps the program up for couple years, then back down once they meet their desire renewable energy content (or once they run out of funding!).

This summer is looking like it will bring a surge in projects to the Province… the incentive is just too big. The investment is about $70k for the largest of the MicroFIT solar projects, with about a 7-9 year payoff depending on equipment and financing costs. Even with financing, the average returns are typically greater than the loan payments, making it attractive for almost anyone with the roof space and access to financing.

Rooftop solar in Ontario is literally a once in a lifetime opportunity. We haven’t seen something of this magnitude before… who knows how long it will last.

Graystone Environmental provides a one-stop shop for all things environmental, including turnkey FIT and MicroFIT projects. Find out more here.