Stuffing Solar City where the sun don’t shine?

The Halifax Regional Municipality’s Solar City project has been widely heralded as visionary and pioneering, an inspiration not only to other municipalities in Nova Scotia, but across the country. The plan is to bring solar hot water to a 1,000 homes in the city, allowing homeowners to repay the cost on their property tax bills. It is structured to be revenue neutral for the city, and homeowners will share in cost savings through quantity purchases and efficiently organized installation. Initiated in the fall of 2010, it makes superb economic and environmental sense, and the response to the project was so enthusiastic that HRM received in excess of 1,600 applications! The plan, after the initial pilot stage, is to rollover financing to keep the project going indefinitely after the initial round of installations.

City staff estimate it will create 30-40 jobs (and 75,000 person-hours of work) in the installation phase, save residents $250-$700 each, and keep $500,000 in outside energy costs that are currently leaving HRM, in the city. Bylaws to allow the city to undertake the project have been enabled by the province and the city has established what it calls a “collaborative and constructive approach” with the Nova Scotia solar industry. It will, moreover, decrease HRM’s carbon footprint by some 2,000 tons of carbon dioxide a year. Realizing the project would earn Halifax the designation of Canada’s first “Solar City” – a public relations coup. Evidently win-win-win.

So why, at the next council meeting on Tuesday, July 10 are staff recommending that HRM jettison the project, cancel the RFP (Request for Proposal) for the supply and installation of the panels, and after a year and half of concerted work fob the project off to Efficiency Nova Scotia to start all over again? Particularly as the Minister of Energy, Charlie Parker has just reconfirmed to Mayor Peter Kelly on Thursday that the province is committed to contributing up to $1.25 million to the project in energy rebates for up to 1,000 installations. Furthermore, Parker indicated that the Departments of Energy, Finance, and Economic and Rural Development and Tourism are all onside and that, “We anticipate being able to access cost-effective financing for this pilot if that would be of assistance.” Parker also makes the point that the province  is ready to extend this offer “to other municipalities who may also be interested in pursuing innovative financing for solar projects.”

The staff report offers few clues to their reluctance. There seem to be only a couple of relatively minor stumbling blocks. The federal government’s Eco-Energy program has come to an end as of January 2012, which will result in smaller rebates to participants. However, even in the absence of these, the projected cost to homeowners – $5,574 for a single panel installation and $6,774 for a two-panel one – is still very attractive, affordable, and competitive.

The second obstacle concerns Federation of Canadian Municipalities’ (FCM) Green Municipal Fund (GMF), the venue that the city anticipated would provide both interim financing for the project (to be repaid from project revenues) and (it was hoped) a $1.0 million grant to make the program more affordable. The GMF was closed for most of 2011 and after it reopened in December 2011 HRM submitted an application in February 2012. Staff say it could be another 4-6 months before they receive the results of the application and that such a delay “is now unacceptable and could negatively impact resident’s enthusiasm for the program.” While any delay is, of course, unfortunate, this concern seems greatly overstated given Minister Parker’s timely offer for cost-effective financing (which Parker himself notes is extended as a result of “uncertain support” from GMF). This leaves (at most) a gap of $1 million in an $8 million project, hardly reason to scuttle the ship.

The staff report speaks of the potential “risk” of an “unsuccessful” project to the taxpayer and the fact that Solar City could be seen as a “duplication” of the policy mandate of Efficiency Nova Scotia. It’s hard to make sense of what appears to be a sudden disinterest in undertaking such a highly beneficial project that pays dividends to both citizens and the environment, and all this after a year and a half of assiduously developing it with considerable success and to great acclaim.

There is, moreover, a striking irony in that this staff report is being presented to Council on the same day they are being asked to give further consideration (specifically for what reason is as yet unclear) to the Rank Inc. proposal for a new Halifax Convention Centre to which HRM has already committed $56 million. My December 2010 study for the Canadian Center for Policy Alternatives-NS, Convention Centre in Nova Scotia: Economic Wellspring or Bottomless Pit?, indicated that this project, as presently formulated, is apt to lose in the vicinity of $200 million over 25 years – 50 percent of which HRM is on the hook for (the province is responsible for the other half of any loses). If the city has no qualms about making such investments, which carry very substantial risks to municipal taxpayers (and where, exactly, is it in the city’s mandate to invest public funds in public-private partnerships (3P) that benefit private developers?), why then would it hesitate in undertaking a project that has absolutely minimal risk to taxpayers risk (staff assessed it as “low risk”) and which could benefit a thousand HRM households?

Given the positive environmental aspects of the project, the many benefits to HRM residents, and the substantial national profile that would accrue to the municipality as a result of being designated Canada’s first “Solar City”, one would hope that whatever queasiness there may be in the bowels of city staff, that HRM councilors will have the intestinal fortitude to see this valuable endeavor through.

 Christopher Majka

Christopher Majka is a biologist, environmentalist, policy analyst, and arts advocate. He conducts research on the ecology and biodiversity of beetles. He is a research associate of the Canadian Centre for Policy Alternatives-NS, a columnist for Rabble.ca, and a member of the Project Democracy team.

3 comments

  1. It would interesting to see the formulas and methods used for financial returns. (There is no assumption that due diligence was not applied.)

    Simple payback is the most common method for analysing the return from an energy/housing investment. In business and economics, payback period refers to the time required for the return on an investment to repay the sum of the original investment. The simple payback has a serious drawback in that it instils a mind-set of “the quicker the better” rather than a mind-set of what is the best long-term investment.

    Relative financial returns associated with energy saving investment options can be ranked according to their Internal Rate of Return (IRR) and then compared to the next best investment alternative. For example, an IRR of 10% over 10 years house can be compared to interest on the increased mortgage principal needed for the premium to be paid (in this case cost savings from using solar thermal compared to current method of heating DHW.)

    IRR answers the question: How well is my money working for me compared to what I need to pay for it or other investments I could make.

    Simple payback or IRR need to estimate fuel pricing out (in this case 20 years) by both economic modelling and making some assumptions about fuel costs,

  2. Chris

    I’m also curious about the return on the project. I’m involved with a grid connected solar pv firm – I’d be interested in running the assumptions through my financial model. Would need gross and net capital cost, initial annual power gen in kwhrs, estimated annual maintenance costs. With these we can have payback period and IRR in a few minutes (gross & net of grants).

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