Barriers to Alternative Energy Systems

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In June, 2011, the ECO released volume 1 of its 2010 Annual Report on the progress of activities in Ontario to reduce or make more efficient use of electricity, natural gas, propane, oil and transportation fuels. Click here for more information on this report, including videos and communications materials.



Contents

Alternative Energy Systems

The ECO has a responsibility under the EBR to examine “barriers to the development or implementation of measures to reduce the use or make more efficient use of electricity, natural gas, propane, oil and transportation fuels.” The ECO first examined barriers to energy conservation in the Annual Energy Conservation Progress Report - 2009 (Volume One). This year, the ECO has focused on barriers to conservation within a single topic area: the uptake of alternative energy systems.

Alternative energy systems reduce the need for non-renewable resources, such as oil, coal and natural gas, and reduce the GHG emissions associated with conventional energy systems. In addition to environmental benefits, alternative energy systems may also ease energy costs for consumers, stimulate the creation of “green-collar” jobs, and help establish sustainable communities with an improved quality of life[1]. Despite these many benefits, the uptake of alternative energy systems has been low (with the exception of solar photovoltaic [PV] installations as a result of the microFIT program) due to various obstacles. In this section, the ECO examines barriers that exist for newly constructed homes and neighbourhoods, as well as discusses a unique barrier for installing solar thermal in existing homes.

Examples of alternative energy sources or energy conversion systems include passive solar, geoexchange, solar thermal and solar PV systems. Homebuilders or owners can use a combination of these and other sustainable technologies to maximize efficiency and reduce energy use. For example, a homeowner can use passive solar to reduce overall energy requirements, geoexchange or solar thermal to supply low-grade heat for water and space heating, and solar PV to generate high-grade electricity for lights and appliances[2].

These technologies can also be integrated on a neighbourhood scale to further support resilient energy for communities[3]. At a community level, an alternative approach to the current energy system is district energy – a system for distributing heat generated at a central plant to residences and businesses to heat space and water for multiple buildings in a neighbourhood.

Current district energy systems typically obtain heat from cogeneration plants that burn fossil fuels, but renewable sources can be used. Cogeneration systems recover heat that would normally be wasted in electricity generation, and save fuel that would otherwise be used to produce heat or steam in a separate unit.

For additional information on these technologies, please see Appendix A of this report.

Barriers to Alternative Energy Systems in New Homes and Neighbourhoods

Energy efficient houses can yield significant lifetime cost savings for homeowners[4]. On the other hand, if buildings and neighbourhoods are built without energy efficiency in mind, inefficiencies can be “locked in” to the building stock for decades. Thus, it is important to avoid lost opportunities during the design and construction of new buildings and to adopt energy-efficient technologies. Retrofitting for alternative energy systems can be expensive and, depending on the initial design of the building or neighbourhood, may not be practical or even possible. With some 60,000 housing starts a year in Ontario,[5] the lost opportunities are enormous.

Why are passive solar design, geoexchange, solar thermal, solar PV and district energy technologies still achieving relatively low penetration in new residential developments? The key barriers, which are often interlinked, include regulatory, financial and capacity considerations.

Policy and Regulatory Barriers

The potential for policy and regulatory barriers exists at several levels, in part due to the variety of agencies and levels of government involved in energy planning. This includes the provincial government, gas and electric utilities and municipalities. The most comprehensive solution would be for the province to amend the Ontario Building Code to make alternative energy systems mandatory rather than voluntary. Partial measures to use the Building Code to promote alternative energy systems are also possible. A proposed change to the Building Code would require new homes to be built with at least one conduit to facilitate the future installation of a solar PV or solar domestic hot water heating system (solar “rough-in”), however, this change would not come into force until 2017.[6] The Building Code could also be amended to make it easier for houses with alternative energy systems to demonstrate compliance with the whole-house energy efficiency levels that the Building Code requires. For example, the “prescriptive packages” that builders use to meet the Building Code’s energy efficiency requirements could include alternative energy systems, which they currently do not[7].

Regulated utilities could also play a role in promoting the uptake of alternative energy systems, but it appears this role has been limited by OEB rulings and approvals. In 2009, the then Minister of Energy and Infrastructure issued a directive to the OEB noting gas utilities should be allowed to own “assets related to solar thermal water and ground source heat pumps,” among other technologies.[8] However, the Board’s ruling in a recent hearing on Enbridge’s rates suggested that costs of such technologies should not be recovered from ratepayers – the cost and risk will have to be borne by the utility and its shareholders[9].

Like gas distributors, electric utilities can develop custom conservation programs that promote alternative energy systems. Government policy, however, restricts the benefits that programs developed by electricity distributors can claim. As directed by the Minister, the OEB must consider load reduction from initiatives such as geothermal heating and cooling and solar heating in its definition of CDM[10] However, as these programs must demonstrate cost effectiveness prior to OEB approval, the relatively higher capital costs and lower electricity cost savings may be an interlinked financial barrier prohibiting uptake of alternative heating and cooling technologies. Consequently, OEB approvals may currently be restricting the role that LDCs can play in promoting the uptake of alternative energy systems. The government should seek the advice of the OEB and OPA, who are responsible for the application of cost-effectiveness tests used in Ontario, on how this barrier could be addressed.

Pilot projects have shown that permitting and approvals processes within municipalities and other governmental bodies can be cumbersome or act as roadblocks to the successful incorporation of alternative energy systems. For example, a pilot project in Toronto for solar thermal retrofits found that high municipal permit costs and Building Code compliance requirements were barriers impeding uptake.[11] In many cases, the barriers may result from conservative practices among inspectors unfamiliar with the new technology, rather than the legal requirements within the Building Code itself.

Moving beyond individual houses to the neighbourhood level, the Provincial Policy Statement, 2005 states that planning authorities shall support energy efficiency through development patterns which promote design and orientation that maximize the use of alternative or renewable energy, such as solar.[12] To this end, the Ministry of Municipal Affairs and Housing (MMAH)has produced guidance documents for municipalities wishing to encourage energy efficient design.[13] However, MMAH does not have any performance indicators to determine whether this direction is achieving any effect on the ground[14].

Financial Barriers

One of the most commonly cited barriers to the use of alternative energy systems in new homes is the up-front costs for the homebuyer. These capital costs vary depending on the technology chosen, but are particularly high for geoexchange and solar PV installations. “Split incentives” are also a problem: since designers and builders do not pay the resulting home’s energy bills, their priority is to minimize capital costs for new homes in order to win bids and maximize profits.[15]

Some proponents of alternative energy systems believe the best method of increasing market share is to include these systems within “premium” house energy efficiency labels (e.g., ENERGY STAR®, LEED, R-2000). Premium labels can address the concern of split incentives by fostering a market premium for energy efficiency due to increased awareness of efficient buildings. However, a recent study noted that direct “incentives to builders are more likely to drive efficiency, because they directly offset incremental costs without requiring buyer awareness.” Without financial incentives, costs may remain a barrier.

There are currently no federal or provincial grants for new homebuyers or for builders wishing to invest in alternative energy technologies. Previously, funds and incentives existed for homeowners wishing to retrofit certain alternative energy technologies, but these have been discontinued (see section 8.2 below). Existing incentives focus on traditional energy efficiency measures (e.g., efficient air conditioners, boilers, etc.) rather than alternative energy systems. Builders can only obtain an incentive for alternative measures if they demonstrate that it is cost-effective. The OPA’s new home construction program provides builders with incentives to construct homes that include energy efficiency standards above the current Building Code. However, as the ECO has previously noted, the use of high discount rates in cost-effectiveness tests often penalizes measures that have high up-front costs, but deliver energy savings for long periods of time – a description that applies to many alternative energy investments.

Previous provincial and federal funding has generally focused on installations of alternative energy systems in individual projects or buildings, not the design of neighbourhood scale projects. However, in recent years, the federal government has allocated some funds directly for community projects and, indirectly, through support of external initiatives, such as the Federation of Canadian Municipalities’ Green Municipal Fund. In addition, the OPA has supported community initiatives in Toronto, Guelph, London, and East Gwillimbury. It has also provided funding assistance to the Canadian Urban Institute for research on energy and land use mapping and developed a Community Energy Partnership Program.

Capacity Barriers

The lack of government incentives – or the uncertainty caused by rapid changes to incentive programs – has contributed to a lack of capacity in alternative energy industries. There are a limited number of energy auditors and installers for particular types of alternative energy systems, and without stable, consistent programs and a long-term commitment to government incentives, the number of available professionals may shrink.

ECO Comment

The layout of a community determines, in large part, its energy usage. An overarching concern of the ECO is the failure to plan for energy efficiency at the neighbourhood level. Since energy planning, particularly for alternative energy systems, largely focuses on individual residential units, there are few expectations for improving the energy efficiency of a subdivision as a whole. Moreover, energy planning in Ontario has conventionally been done in silos, with the planning of gas supply separate from electricity supply, with distribution separate from transmission, and with all energy systems separate from land use, transportation and water. Energy use has been an unplanned consequence of land use planning decisions, rather than being taken into account in an integrated way from initial planning stages.

To achieve broad-scale change, Ontario cannot continue to treat the implementation of alternative energy systems on a one-off, project-by-project basis. Planning for alternative energy and energy use should be integrated with community planning at the neighbourhood and landscape scale. This would further the uptake of alternative energy systems when neighbourhoods are being built. All alternative technologies can benefit when a neighbourhood focus is used. For example, solar technologies benefit from better neighbourhood layout that improves house orientation and layout for solar energy capture, and geoexchange and combined heat and power benefit from economies of scale that arise from building larger systems that can serve multiple units. Organizations such as Quality Urban Energy Systems of Tomorrow and the Canadian Urban Institute, along with government and agency partners, have been examining ways of integrating energy planning with community design.

Another challenge is creating real value in the form of higher sale prices for homes with alternative energy technologies. An unexploited opportunity exists in the as yet unproclaimed provision in the Green Energy Act, 2009 that would make home energy ratings mandatory at the time of sale of a property. As noted in the ECO’s Annual Energy Conservation Progress Report - 2009 (Volume Two), mandatory energy ratings build capacity and assist market transformation to a high efficiency residential sector.

The ECO again urges the government to remove barriers to alternative energy and enact this important provision.

Solar PV vs. Solar Thermal: A Perverse Consequence of Ontario’s microFIT Program

The Ministry of Energy claims on its website that “the Ontario Government has some of the most attractive incentives in the world for solar water and air systems.” Sadly, this is no longer true, since all of the province’s incentive programs have been discontinued and the government has no plans to offer incentives to install solar thermal systems in single family residences.

  • PowerHouse was a loan and rebate pilot program funded by the Ministry of Energy that offered zero-interest loans or rebates for residential installations of solar thermal, PV, geothermal and wind turbine systems completed by February 15, 2009.
  • The Solar Energy Systems Rebate, offered by the Ministry of Revenue, returned the Retail Sales Tax paid on solar energy systems to homeowners or builders who installed, expanded or upgraded a qualified solar energy system – including a solar thermal system – in residential or multi-residential premises between November 26, 2002 and December 31, 2009.
  • The Ontario Home Energy Savings Program (HESP) was introduced in April 2007 to provide residential rebates of up to $5,000 for energy efficiency retrofits – including up to $1,250 for the installation of a solar domestic hot water system – and reimburse homeowners for 50 per cent of the cost of a home energy audit. The retrofit component of the program, which matched the rebates offered by the federal ecoENERGY rebate program, ended April 2011. The program will continue to fund home energy audits, however, until April 2012.

ECO Comment

Although the provincial government no longer offers homeowners incentives to install solar thermal systems, it does provide – through the OPA – an enticing incentive for installing solar PV systems: the microFIT program. As noted in the ECO’s Annual Energy Conservation Progress Report – 2009 (Volume Two), Ontario’s microFIT program is an important tool for developing renewable energy sources and will help the province phase out coal-fired electricity.

When combined with the recent discontinuation of solar thermal programs, however, the microFIT program creates a perverse incentive for homeowners to use their limited roof space and capital dollars to outfit their homes with solar PV rather than solar thermal systems. This is unfortunate because solar thermal systems, which use solar energy directly rather than convert it into electricity, are generally more energy efficient and deliver greater energy (and cost) savings than solar PV. Moreover, because most Ontario homes rely on fossil-fuelled heating, solar thermal systems can more effectively reduce GHG emissions.

The government’s unintended favouritism for solar PV over solar thermal brings into question whether the government prioritizes generating renewable electricity over conserving energy and reducing overall GHG emissions. (This apparent focus on electricity generation – rather than energy conservation and GHG reductions – mirrors the Long-Term Energy Plan’s myopic emphasis on electricity.) Unfortunately, without a comprehensive energy plan, there is little evaluation of what initiatives would best reduce GHG emissions.

In June 2007, as part of its “Go Green” climate change strategy, the government announced that it would help equip 100,000 homes with solar power. At the same time, a Solar Task Force was created to provide advice on how to achieve this target. This task force was launched in February 2008 with a focus on residential solar hot water systems, which were considered by the government to be “a key element in achieving the target.” In October 2008, the Solar Task Force completed its report and made many recommendations, a number of which have not yet been fulfilled and could still be implemented to move closer to the government’s 100,000 solar roof target.

Examples of these recommendations include:

  • Permanently exempting solar hot water systems from provincial sales tax;
  • Providing a zero-interest loan program across the province; and,
  • Allowing municipalities to use local improvement charges for supporting renewable energy improvements on private property.

While solar PV is a generation measure and solar thermal largely a conservation measure, both types of technologies have value and should be promoted through incentives to meet government goals, including reducing GHG emissions. To this end, the government could resurrect the effective and popular HESP, which provided more than $1.3 million between 2007 and 2011 to help finance more than 1,100 solar domestic hot water systems. Uptake in this particular component of the program had grown enormously by the program’s last year.

Moreover, to reverse the favouritism for solar PV caused by the microFIT program, the government may have to adjust the solar PV tariff so as not to compete with the financial benefits of installing solar thermal systems. Previously, the ECO commended the OPA for establishing a microFIT program advisory panel to provide advice on program development.132 At the time, the ECO suggested that the panel should address the evolution of microFIT tariffs, and review the experience of other jurisdictions’ feed-in tariffs for guidance. Given the current circumstances, the panel could examine whether the province is favouring solar PV in applications where solar thermal would be better from a GHG reduction perspective.

Finally, the government could consider implementing a feed-in tariff for renewable heat, as has been proposed in the United Kingdom (UK). With feed-in tariff schemes already in place that encourage the generation of renewable electricity, in March 2011, the UK government announced plans to improve the limited support afforded to renewable heating by introducing a Renewable Heat Incentive policy. This policy is the first financial support scheme for renewable heat of its kind in the world and will provide long-term financial support to renewable heat installations, including residential solar thermal systems, thus “making renewable heat not just an environmentally sound decision, but also a financially attractive one.”[16]

The ECO recommends that the Ministry of Energy adjust the relative financial incentives available for solar thermal and solar photovoltaic in residential buildings to appropriately reflect the economic and environmental benefits of each technology.

References

  1. ↑ Standing Committee on Natural Resources, Combining our energies: Integrated energy systems for Canadian communities (Ottawa, Ontario: House of Commons, 2009), 1, 18, 19.
  2. ↑ Norbert Lechner, Heating, Cooling, Lighting: Sustainable Design Methods for Architects, Third Edition (New Jersey: John Wiley and Sons Ltd, 2008), 205.
  3. ↑ Standing Committee on Natural Resources, Combining our energies: Integrated energy systems for Canadian communities (Ottawa, Ontario: House of Commons, 2009), 9.
  4. ↑ L. D. Danny Harvey, “Reducing energy use in the buildings sector: measures, costs, and examples,” Energy Efficiency 2 (2009): 139.
  5. ↑ Ontario Power Authority, “2011-2014 Consumer Program,” http://archive.powerauthority.on.ca/Storage/118/16582_Consumer_Program_Presentation_100421.pdf (accessed April 11, 2011).
  6. ↑ Ontario Ministry of Municipal Affairs and Housing, “Building Regulation – Appendix A: Energy Conservation,” http://www.mah.gov.on.ca/Page9295.aspx (accessed April 11, 2011).
  7. ↑ Ontario Ministry of Municipal Affairs and Housing, A Study of Prescriptive Requirements for EnerGuide 80 in Ontario’s Building Code, March 2010, http://www.mah. gov.on.ca/Asset8297.aspx?method=1 (accessed March 28, 2011).
  8. ↑ Minister of Energy and Infrastructure George Smitherman, Directive to the Ontario Energy Board, September 8, 2009. http://www.oeb.gov.on.ca/ OEB/_Documents/Documents/Directive_to_the_OEB_20090908.pdf
  9. ↑ Ontario Energy Board, Decision on a Preliminary Motion, Enbridge Gas Distribution Inc. EB-2009-0172, December 22, 2009.
  10. ↑ Minister of Energy and Infrastructure Brad Duguid, Directive to the Ontario Energy Board, March 31, 2010, section 6 (h). http://www.oeb.gov.on.ca/OEB/_Documents/GEGEA%20Implementation%20and%20Readiness/minister_directive_20100423.pdf.
  11. ↑ Toronto Atmospheric Fund and the Toronto Energy Efficiency Office, “Solar Neighbourhoods Pilot Project Report,” http://www.solarneighbourhoods.ca/findings. php (accessed March 15, 2011).
  12. ↑ Government of Ontario, Provincial Policy Statement,2005, Section 1.8.1 (e): Energy and Air Quality, 14.
  13. ↑ Ontario Ministry of Municipal Affairs and Housing, “Planning By Design: A Healthy Communities Handbook,” http://www.mah.gov.on.ca/Page6737.aspx (accessed March 15, 2011).
  14. ↑ Ontario Ministry of Municipal Affairs and Housing, “Provincial Policy Statement, 2005 Performance Monitoring Indicators,” http://www.mah.gov.on.ca/ Page9100.aspx (accessed March 15, 2011).
  15. ↑ National Academy of Sciences, National Academy of Engineering and National Research Council, Real Prospects for Energy Efficiency in the United States (Washington: The National Academies Press, 2010), 99.
  16. ↑ UK Department of Energy & Climate Change, Renewable Heat Incentive, (London, UK: 2011), 5.



Citing This Article:
Environmental Commissioner of Ontario. 2010. Annual Energy Conservation Progress Report, 2010 (Volume One): Managing a Complex Energy System. Toronto, ON : Environmental Commissioner of Ontario. pp. 53-58

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