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In Ontario, gloomy skies for solar power

Silfab Ontario has been making solar panels for barely four months in a refurbished factory west of Toronto, but already employees are nervous about the security of their jobs.

Plans to hire more people and expand production are on hold as demand for solar parts wavers and stock sits unsold. Several companies who install solar panels have been unable to pay for their orders because they're waiting for assurances the power projects will be connected to Ontario's electricity grid. A backup in the approvals process has brought the fledgling industry almost to a standstill.

Ontario has styled itself a leader in renewable power, offering some of the most lucrative incentives in the world to solar and wind producers since 2009. The government of Premier Dalton McGuinty has vowed to shut down all of the province's coal-fired power plants, create 50,000 clean energy jobs and build a lasting green industry to reinvigorate the beleaguered manufacturing sector.

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The province's green-energy economy should be roaring, but it's not. Thousands of jobs and $20-billion worth of investment commitments from around the globe are at stake.

"The possibility of expanding in 2011 would require a miracle, and I don't expect it to happen," said Paolo Maccario, Silfab's chief operating officer. "We have some very good customers who cannot pay us, and obviously, it's kind of difficult to run a business in that situation."

It seems unfathomable to many that miracles would be needed in a government-supported industry created with great fanfare just two years ago. The Liberals contend the Opposition Conservatives have wrought tremendous uncertainty in the renewable energy market by vowing to scrap incentives if they win the October provincial election. This is a factor, but the green-power economy was fracturing before the Tory pledge.

Silfab is not the only solar-parts manufacturer struggling. Other recently opened factories have laid off employees, and dozens of solar installers are without work. Many rural Ontarians who have proposed solar projects are worried about losing their investment because they're not sure when – or if – they will be hooked up to the transmission system.

These struggles will be laid bare at an Ontario Energy Board hearing on Thursday, when the nascent solar industry squares off against Hydro One Networks, the province's largest utility and the one fielding most connection requests.

The provincially owned utility is asking the regulator for more time to deal with the influx of applications for small renewable energy projects. The utility insists it has been overwhelmed by connection requests, unable to meet mandatory deadlines for assessing projects since November. The industry, however, contends the delays are unwarranted and significantly harm their businesses and threaten jobs.

Some companies are already regretting making the move into Ontario.

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"If I had thought that the utilities would simply not obey the rules and the government would do nothing about it, I would have never started here," said Michael Carten, chief executive of Calgary-based Sustainable Energy Technologies, which makes solar inverters.

The industry, he asserted, has been "sucker-punched."

At the start, the prospects seemed hugely promising. Along with guaranteed above-market prices for the production of renewable energy for 20 years, the Ontario government introduced domestic content rules for solar and wind projects, aiming to foster a new manufacturing niche. (The rules have triggered a complaint from Japan to the World Trade Organization.)

A green rush was born, particularly in solar, for which the most lucrative rates were offered – ranging between 44.3 cents and 80.2 cents per kilowatt hour. As solar applications – everything from homeowners wanting to install roof-top panels to large solar farms – poured in, developers, manufacturers and investors projected that 500 megawatts of production could be brought online in 2011. It was an appealing amount.

In the boardroom of his Mississauga factory, Mr. Maccario pulls out a bi-weekly update from the Ontario Power Authority, the government agency responsible for the province's electricity system. The numbers don't look good. They haven't for months.

"You look and you cry," Mr. Maccario says as he runs his fingers over the figures.

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With grid-connection backlogs, long waits for regulatory approvals and a looming election, 500 megawatts is a pipe dream, at least for this year. As of last week, 6,848 small and large solar projects totalling 69 megawatts have been put into production. More than 22,000 applications representing 1,375 megawatts are in the queue, many of them stuck.

Silfab has avoided laying off workers, but the Italian-based firm had expected to employ about 90 people by now instead of 60. It hopes eventually to create 200 jobs in Ontario, but only if demand for solar panels picks up. The manufacturer is scouring other countries for buyers. So is Siliken, a Spanish-based company that has also set up shop in Ontario.

When word of layoffs at Siliken's newly opened Windsor solar-panel plant leaked out last month, television news cameras rolled and politicians pointed fingers.

The Ontario government maintains that 20,000 jobs have been created as a result of its green energy legislation. But it won't disclose how many are permanent, how many are temporary construction work, or how many are on shaky footing. Before the cuts at Siliken, layoffs had remained largely outside of the public's view.

Heliene Canada, a solar panel maker in Sault Ste. Marie, sent 66 employees home for two weeks in May after customers suddenly cancelled two months worth of orders due to connection delays or after applications were rejected.

The lost business cost the firm $12-million in revenue. Plans to hire 26 additional workers are on the back burner.

"Orders were falling off the portfolio like rotten apples from a tree," recalled Heliene president Martin Pochtaruk.

"We should be doing better than we are. We could have created more jobs," he said. "We have not because basically everybody has been restrained for what they can install."

Brad Duguid, Ontario's Energy Minister, said the government is aware of these pressures and wants to get connections going as quickly as possible. He said the popularity of the feed-in-tariff program has presented a challenge to the province's transmission network. Upgrades to transformer stations and power lines are under way.

The government, Ontario Power Authority and Hydro One are also working on "creative ways" to address the delays facing proponents of solar projects, Mr. Duguid added. He said details will be made public soon.

Last week, the province announced modest changes to the regulatory process for large renewable energy projects and reduced the risk of contract cancellations. With the election campaign looming, it also revised a controversial deal with South Korean industrial giant Samsung Group, cutting multimillion-dollar incentives.

Many energy observers point to another problem. Ontario's green-power prices were set high without decreases staggered over time, spawning an early boom of applicants. A review of prices is scheduled for the fall.

On the floor of Silfab's $13.5-million plant – which once pumped out springs for the auto industry – Mr. Maccario remains hopeful. A banner celebrating the factory's recent opening hangs on freshly painted concrete walls. A photo of smiling workers clad in white lab coats and hairnets has been blown up. They've just produced their first solar panels.

Many of the firm's 60 employees were out of work, casualties of the economic downturn and the province's manufacturing decline. Silfab flew them to Croatia for training. The market here is young; the expertise is still building.

Silfab believes its financial position is strong enough to weather current challenges. But even if renewable energy incentives survive past the October election, a new consensus is emerging among developers, manufacturers and investors: Not everyone in Ontario's solar industry will be around next year.

"Most of the companies that have been attracted to Ontario are really suitcase companies, certainly in our sector of the market," said Mr. Carten of Sustainable Energy Technologies.

"As soon as the demand turns down, they'll shut the plant."

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