For years, the interest in the development of clean technologies in Canada has been hobbled by cost concerns and the unwillingness of Canadians to lead by example through the adoption of novel technologies. That was the consensus from participants at this year’s second annual Green Business / PricewaterhouseCoopers (PwC) roundtable. However, industry experts also offered strategies to harmonize the interests of environmental sustainability and economic growth in Ontario and the broader Canadian market. The key to that harmonization is government leadership through tax incentives, making an example of their facilities, and helping to educate the public.

The impetus for such a conversation was the passing of the Green Energy Act, 2009 (GEA) by the Ontario government in February. John Whitehead, Assistant Deputy Minister, Regulatory Affairs & Strategic Policy for the Government of Ontario, played the role of ambassador for the government and the GEA during the roundtable discussion.

“We are interested in engaging broadly on the Act,” explains Whitehead. “We think it is a great opportunity on a number of levels. We hope this is a good business opportunity, but we also think it is important for the environment, for health, and for our Aboriginal communities. We have allocated a lot of money over the next few years — $32.5 billion in capital spending — and a good chunk of that is going to be, one way or another, green.

“It is a balance for government,” he continues. “We have to demonstrate value for the taxpayers. We have to balance that against a lot of other competing demands that the government deals with. But this was a big, big consideration for us over the past year. We too are seized with the notion that what we are building, with respect to power generation particularly, is going to stand for the next 20 or 30 years, so what we build in the next few years needs to be carefully thought out.”

According to Whitehead, governmental rule changes will be the most fundamental component for enabling a greener economy. He describes new feed-in tariffs for the province’s electricity grid as being “competitive with anyone in the world” and says that when it comes to electricity distribution, current rules will be stood on their heads. With regards to buildings, the GEA has “tried to make adjustments to the building code to make energy efficiency and renewable generation or renewable energy sources something that has to be taken into account.”

All changes, says Whitehead, are meant to “set the table for as much renewable energy sources as we can buy.” That means the government is “trusting that technologies like wind, solar and others are going to fill in the gap” created by taking coal-generated power off the grid by 2014. (Another step in the process of taking coal off the Ontario energy grid in early September when Ontario Power Generation announced it will close two of eight units at its Nanticoke station near Simcoe and two of four units at its Lambton plant near Sarnia by October 2010.)

Amidst the optimism, Whitehead acknowledges that the current economic climate is not ideal for radical changes in policy.

“This is a very tenuous market, so how far can we push the green agenda? It's always a balance,” he notes. “You have seen our budget—we have a little bit of digging to do to get out of deficit.”

On the whole, the attendees lauded the government’s efforts to stimulate a green economy. Albert Behr, President and CEO of Behr and Associates, describes the provincial government’s efforts as “very ungovernmental” and predicts that “there is going to be a huge interest from companies that want to participate” in the new model green energy market. Other attendees see the GEA as establishing the government’s commitment to energy efficiency and climate change mitigation and providing important opportunities for the cleantech industry.

“From my perspective, I hope we are going to see a lot more activity in the alternative energy space, where it has been a little bit quiet waiting for the Act to be implemented,” says Lana Paton, Partner with PwC’s Corporate Tax group.

The announcement on September 24th of the new Feed-in Tariff rules are likely to make that happen as they create the stability in the Ontario market that many renewable energy developers have been waiting for.

Lana Paton, Partner, PwC's Corporate Tax Group

Small wind
Tony Verrelli, CEO of Cleanfield, a small wind turbine developer, appreciates the government’s effort in moving cleantech forward; however, when it comes to new regulations, he is not without reservations.

“I think there are a lot of positive aspects about [the GEA] and I think the government is doing a great job,” he says. “However, with every great move forward, there are other concerns raised. In our case, there are new setback regulations being proposed that are affecting urban wind turbines, and it's related to noise concerns. We developed our wind turbine so that it would not generate noise. When you have to set a turbine back 550 metres from any residential facility, it really hurts the potential for small wind.”

As Whitehead acknowledges, in terms of wind turbine regulations, the shift from around 400 municipal standards to one provincial standard is not without consequence. Nevertheless, he assures Verrelli that if Cleanfield can establish that its turbines produce noise under 40 decibels, there may be an opportunity for the devices to be located closer to residential facilities.

Verrelli also raises the issue of supporting local business in what he perceives to be an unjustified favouring of solar over wind. “In terms of the feed-in tariffs, you have solar, which receives substantially higher financial support than wind—an 80 cent tariff versus 13 cents for wind. Meanwhile the content of a solar installation is under 40 per cent Ontario-made, including installation; whereas wind installations have about 90 per cent of their equipment made in Canada. So there are a lot more green jobs being created through wind than solar. Why such a huge difference in pricing?”

 “We have tried to strike a balance that we think will respond to where the market is right now,” Whitehead responds. “Obviously, over time that may shift. We have to watch the markets. We are for all forms and sizes of renewable sources. As long as we are not creating externalities that are intolerable to the neighbours, then we are for it.”

The local content rules announced for renewables on September 24th seem to take into account Verrelli’s concerns about solar power receiving a better deal on price, but it maintains a fairly low threshold for wind. Developers will be required to have a certain percentage of their project costs come from Ontario goods and labour at the time they reach commercial operation.
•    For wind, the requirement will start at 25 per cent and increase to 50 per cent on Jan. 1, 2012.
•    For micro solar PV (10 kW or smaller), the requirement will start at 40 per cent and increase to 60 per cent on Jan. 1, 2011.
•    For larger solar PV, the requirement will start at 50 per cent and increase to 60% on Jan. 1, 2011.

Local support
Behr believes that, beyond simply renewables, the provincial government’s regulations could be refined to better support companies that are committed to operating locally.

“I have got three companies right now that are building technologies that can assist building owners — both commercial and industrial,” Behr says. “It is only because we are proud Canadians and Ontarians that we are building these technologies here. My costs are 20 per cent higher by doing so. If we were hardnosed businessmen, I don’t think we would make that decision. For Ontario-built products, built by Ontarians, there should be some sort of adjustment or benefit for us to sell at commercial levels in the province. That would offset the fact that I am losing 20 points on building the technology here, rather than stamping them out in Taipei—which was actually a consideration. That would help soften the financial blow—it would not need to be a lot of money, but it sends the right message that you are serious about helping us.”

Whitehead stressed that the Ontario government is very mindful of encouraging local production, noting the feed-in tariff contracts’ requirement for local content.

However, other attendees suggested that government should be taking its commitment a step further by committing to being a key buyer.

“The government should be the first customer because these small companies can’t find other companies in Canada that will pick up their technologies,” says Jacoline Loewen, Managing Partner with Loewen & Partners. “If you can get the government to be the first customer – even if they see it as a loss leader – small, innovative Canadian companies will really benefit.”

Philip Ling, VP of Technology at Powersmiths, would agree. “It is the psychology of ‘I’m not going to be first,’” he notes. “People talk about the Green Energy Act, but if it is that great, then why don’t I see solar on any government buildings? It’s on my house, but it’s not on any government buildings. We received an award from Queen’s Park for green leadership, but I haven’t got a call saying, ‘We want to use your technology on our buildings.’ What does it take?”

Wendy Potomski, VP, PwC's Climate Change and Sustainability Practice

Mandating performance
Ling believes that the cost of being first compared to lifecycle cost has to be rethought, as noted in the first article of this series. Part of the solution is respecting technologies that are ahead of the curve — not allowing specifications to be dumbed down because no one else can reach that same level of performance.

Wendy Potomski, Vice-President in PwC’s Climate Change and Sustainability Practice, has worked with government creating tendering processes, and she believes that in addition to ensuring that companies meet a certain minimum standard, the government could reward those that have proven themselves to be ahead of the curve. “If you give more points in an evaluation of your technology because your technology is that much better, it could be a way to help mobilize and get technologies out in the public eye sooner.”

In discussing the role of government, Whitehead raises the question of whether or not certain initiatives ought to be enforced by law. Seatbelts, for instance, have become ubiquitous largely because the government requires that they be installed in every car. Likewise, Whitehead asks, should the government mandate particular green initiatives or merely hope that the public will, on their own accord, take advantage of incentives?

Ling, an engineer and partner at Powersmiths, acknowledges that regulation may be necessary for certain energy-saving measures. “Part of the problem is that from a knowledge point of view, the average homeowner hasn’t got a clue. The energy savings available for a house is very complicated. You are not selling an iPhone, you are selling insulation; it is stuff that has no appeal whatsoever. You are saying ‘I’m going to put this stuff somewhere you’ll never see and it’s going to save you some money over some time.’ That is not really interesting, so it is naturally more regulation-oriented.”

If Ling is right, the solution, as ever, is both mandating certain levels of performance and education. If the public were more green-savvy and curious about what green technology can offer, such mandates may not be as necessary.

Education from all sides
Ling builds on that thought by offering up the idea of something similar to California’s grid neutral schools initiative as another effective approach Ontario could take. The California initiative mandates that all schools become grid neutral.

“That is a state initiative, and it could be an Ontario initiative,” Ling explains. “You say, ‘we’re not forcing you to buy a particular technology, it’s up to you to figure out how to do it.’ All of a sudden you have got a whole lot of people thinking about new technologies because they have to reach that goal.”

Jacoline Loewen agrees that the public is by and large unaware of the cost-saving incentives of green technology, and without the public’s buy-in it will be impossible to drive purchasing habits in a green direction. To remedy that, she proposes a Toronto-based demonstration project and reality TV show supported by the government that would document the construction and maintenance of four different houses, each implemented with various green technologies. Viewers would then be able to see first-hand the cost saving benefits of technology that, at the moment, they don’t understand. By doing this, a demand from buyers could help boost the adoption of these new technologies.

“There is a psychology of green,” says Loewen. “You want to get the Canadian public driven to ask, ‘what’s inside this house? I want to have Bullfrog Power. I want to have [innovative insulation products]. I want all those products.’ It is branding. It is attractive.”

While the general public may not be aware of the specifics of what cleantech has to offer, “green” as a brand is nevertheless a compelling label. Loewen argues that companies that take on the green brand have a competitive advantage. However, its potential has not yet been fully realized and cannot be without a greater public awareness.

Investor support
While government at all levels can mandate performance and buy green products, other investors are still required to create a sustainable industry. One way that the government could stimulate the cleantech industry is by providing investors with tax credits. Albert Behr believes that such a program has been sorely missing from the cleantech space.

“If the federal government were to offset the risk by giving you a 50 per cent credit on any investment, it would dramatically change the mindset of individual investors,” says Behr. 

Currently, cleantech investors are risking 100 per cent losses if their investments are not successful. By offering tax credits, the government could reduce the risk of investment and thus motivate potential investors to reach for their checkbooks. Lana Paton cites the investment system of the Canadian mining industry as an instructive model.  

“In the mining industry,” she says, “you can realize a 50 per cent tax savings on your investment in flow through shares.” Flow through shares, a concept that the attendees say is not widely understood in the cleantech world, is a process by which companies can pass on governmental tax deductions to their shareholders. It is a common practice in the oil and mineral exploration sector, but it is, to varying degrees, also available for cleantech investments.  

As it stands, however, the system is imperfect. “The problem is when you start listing out the kinds of expenditures that qualify for the potential use of flow through shares,” Paton says. “For a solar project, the deduction may only be one or two per cent and for a wind project it might be about ten per cent. That may be nice for some investors, but ultimately it is not going to have a broad application.”

Were the tax credits more generous, argues Behr, “you would have more enthusiasm from investors. It would encourage them to invest $100,000 instead of $50,000, which would really help these little cleantech companies that are desperate for that kind of funding.”

Ontario’s Green Energy Act creates an opportunity for the province to become a leader in cleantech development. The steps taken recently in firming up the rules for renewables, including requirements for local content, are an important step forward in the provinces journey and again demonstrate how innovative the Ontario government is becoming in this space.

With the adoption of some of the ideas shared at this year’s Green Business / PricewaterhouseCoopers executive roundtable, that market development could proceed even faster. At the provincial level, at the very least, there is a sense of urgency around the issue. It is hoped that we will see yet more information on the implementation of the Green Energy Act in the coming months. Check in at Green Business and on the PricewaterhouseCoopers website regularly for updates.

Robert Colman is Editor of Green Business. Lenny Talarico is an intern with CLB Media.

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