January 6, 2011
Despite investments being made by some of the world’s leading solar equipment manufacturers to establish production beachheads in Ontario, they are still concerned that the province’s policy environment could change, particularly as it relates to domestic content regulations, which could cause headaches for their operations.
Speaking during the What is the Future of Solar Manufacturing in Canada session at Solar Canada 2010, Rudy Wodrich, commercial VP for Schneider Electric, said that while the company has made a decision to produce three-phase inverters in Ontario, it’s hedging its bets regarding any future manufacturing investments because of the political situation.
“The rhetoric coming out of the opposition parties, both the Conservatives and the NDP, does make us nervous,” he said. “And I think it’s very unlikely we will make any additional incremental capacity investments until their positions become clearer and a true energy policy comes out of, especially, the Conservative opposition.”
Jurgen Krehnke, president and GM for SMA America, agreed that the political uncertainty is a cause for concern, but he’s hopeful that feed-in-tariff lessons from Spain will give the opposition something to think about. In Spain, after introducing a FiT program and then dropping it, many workers who flocked to the country for work were “basically stranded and a lot of people were back out on the street.”
“Germany is setting a bit of an example how to create a sustainable industry,” he added. “Now they too are turning down the feed in tariff in line with cost reductions so that I think, in my personal opinion, is a sound approach to really generate a sustainable industry.”
Market uncertainty opens the door for other types of manufacturing companies to ease the potential malaise with investing in large production operations, and Celestica Inc. is one such company with Ontario facilities that can reduce the cost of entry burden. Mike Andrade, senior VP with Celestica, noted that his company represents a solution to companies considering Ontario or other markets where there is some uncertainty.
“We don’t see this as a problem, we see this as the solution - Celestica is providing a solution to the uncertainty here,” he said. “Our entire business model really based on allowing customers who work with us to participate in markets that are quite variable and risky without having to make a lot of fixed cost investments and so that is precisely our business model. I think the customers who are working with us in Ontario have chosen to do so they can participate in this market in spite of those risks.”
Ontario solar equipment manufacturers are also concerned how recent World Trade Organization (WTO) challenges, Japan in particular, could affect domestic content regulations in the future. Silfab, an Italian solar company that is building a solar module manufacturing facility in Ontario, recently created an ad hoc group of solar manufacturers to discuss ways to fight the WTO challenges.
Wodrich said that if the challenges are successful and Ontario is forced to changed its domestic content rules, “it would cause us and everyone else at this table to re-evaluate our manufacturing strategies going forward. So it’s a very difficult situation with the trade challenges in place and it is another factor that causes us to hedge our bets in terms of investment further in the province of Ontario.”
Milfred Hammerbacher, president and CEO of Canadian Solar Solutions Inc., noted that domestic content rules have been implemented in many parts of the world “as long as there has been business” pointing to the US and other countries.
“It will be interesting to see why they single out Ontario for violating [WTO rules], so I think the important thing for all of us playing by the rules is to defend our position,” he said.
Krehnke expressed concern about the precedence Ontario’s domestic content regulations sets. He spoke of a conversation he had with a gentleman from the BC government who said the province was also going to adopt domestic content rules for manufacturing.
“I can see [countries] doing these things, but now we’re talking about regions having…regional content requirements, which is I think is driving it too far,” he said. “If now India, Japan, UK and all these countries start putting in domestic content requirements, we’re going to end up with a scenario that’s not well suited for economies of scale. It’s going to make worldwide expansion quite difficult possibly.”
While the Ontario government has put in place measures to encourage manufacturing and job creation, there are still some issues manufacturers believe need to be addressed by the government and the Ontario Power Authority. First and foremost, they say, is certifying facilities and products for domestic content rather than projects.
“We should have a formalized process in place to certify the degree to which products are fit compliant not just the projects. That would help immensely the project developers,” said Wodrich. “We would welcome an audit procedure that would come in and certify our products as being compliant and give us some way to provide that level of assurance to the project developers and the investment community.”
Hammerbacher agreed, noting that “it will be a lower cost for everybody, it would be lower for the government. It’s just a very logical thing to do rather than certify the projects as the way it’s being done now. So hopefully sanity will be [prevail] and we’ll be able to do that.”
Krehnke added a letter from the OPA, stating the company’s product complies with domestic content, would go a long way to removing uncertainty for developers and the banks.
“Come and audit us, that’s fine. We don’t mind,” he said, noting that it‘s better for the developer to have this letter rather than having to do all the legwork afterwards. Without this type of certification, “it’s going to add to uncertainty around the financing because…the banks will be the most concerned about whether this is going to fly in the end.”
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