Ontario’s cap-and-trade to have limited short-term benefits for solar

On Thursday the government of Ontario released final cap-and-trade greenhouse gas regulations, as the fourth Canadian province to regulate CO2 emissions. Ontario’s first carbon auction will take place on March 2017, and the province expects the program to generate CA$1.8-1.9 billion annually which it will invest in programs to further reduce emissions.

The auction will have a floor price based on the clearing prices in California and Québec’s CO2 auctions, and will be linked with those two programs.

And while these regulations were celebrated by environmentalists, putting a price on CO2 may not have a big short-term impact on renewable energy uptake.

“There are a lot of things in there that are positive, but maybe not immediately positive,” Canadian Solar Industry Association (CanSIA) Director of Policy & Regulatory Affairs Ben Weir told pv magazine. “Cap and trade itself, in terms of direct and very near-term impacts, won’t be as impactful on the solar industry itself, but it sets up that long-term input on the cost of carbon.”

Weir notes two mechanisms under which cap-and-trade could impact the electricity system in the long run. First, a price on CO2 emissions will effect the marginal cost of electricity, tilting the balance in favor of renewables and nuclear as zero-carbon generation. Second, the additional cost will impact future decisions about what electricity generation sources to build to meet future electricity demand.

Weir says that CanSIA is also hopeful about the province’s Climate Action Plan, pieces of which were leaked in the Globe and Mail, stating that there is a “lot of good stuff in there”. “People are becoming more cognizant that cap and trade won’t get us there on its own,” explains Weir.

Among these, distributed solar PV under the province’s net metering program has been listed as one of the potential recipients of revenues from the cap-and-trade program. Weir says that he expects additional incentives to net-metered PV in the province through these revenues.

The primary vehicle for supporting distributed PV in Ontario is the MicroFIT feed-in tariff, which is limited to systems under 10 kW and capped at 50 MW annually. Furthermore, MicroFIT was suspended in April, which CanSIA says could have a big impact on the province’s distributed PV market.

And while the net metering regulation is currently in place, Weir says that it is mostly useful for customers in special circumstances, such as those in rural areas with high demand charges and large electricity users.??

Come 2017, the MicroFIT program will be shut down, and the province will rely on net metering as the primary policy support for distributed PV. This could make additional incentives very important for this market segment.