‘Total destruction of the market’: Investments in clean tech cool off as subsidies end

OTTAWA — New data show Canadian investment in clean technology has cooled off over the past three years, despite myriad programs introduced by Ottawa to boost spending on green infrastructure and shift the country towards a lower carbon economy.

Canadian private sector investment in clean technologies have fallen by half since 2014, dropping to a combined US$9.4 billion over the past three years, compared with US$19.5 billion between 2012-2014, according to data from Bloomberg New Energy Finance. Investments rose to US$3.3 billion last year, compared to US$2.3 billion, but is less than half of the peak in 2014. Investments in the first two quarters of 2018 appear to be below the fourth-quarter running average, BNEF data shows.

The slower pace of growth mirrors a global trend, in which new investment in clean tech has eased — largely due to slower renewable energy growth in China. BNEF data shows new investment in renewable energy globally grew 3 per cent last year.

The moderate investment levels appear to contradict Ottawa’s mantra that a suite of new incentive programs, coupled with falling costs for renewables such as wind and solar, would inevitably push clean technology investment to new heights.

Analysts say the trend is instead a result of uncommonly high investment levels from 2010-2015, spurred in part by provincial and federal programs that have since been wound down. The federal Wind Power Production Incentive Program and Ontario’s feed-in tariff program ended in 2016, while Quebec met its previous target of installing 4,000 megawatts of wind capacity, in turn ending its incentive program. B.C. has ended its own program for clean energy growth.

“Any time you have a ratcheting down of subsidies, in the immediate aftermath you see a total destruction of the market,” said Amy Grace, head of North American research at Bloomberg New Energy Finance.

The gap left by those provinces is unlikely to be filled by smaller provinces like Alberta or Saskatchewan, she said, especially as Canada nears its capacity for emissions-free electricity. Today, roughly 80 per cent of Canada’s grid is powered by zero-emissions sources, mainly hydro. Canada hopes to reach 90 per cent clean sources by 2030. That leaves little space for investment to rise dramatically any time soon.

Merran Smith, executive director of Clean Energy Canada, said it is natural for investments in solar, wind and other clean technologies to flatten out due to their decades-long life cycles.

“These are long-term infrastructure projects, it’s not like buying a new iPhone which you might do every couple of years,” she said.

The investment outlook is brightest in Alberta, which opened up bids to the private sector to install 600 megawatts of clean energy capacity in 2017, and another 700 megawatts in 2018. In its most recent bid, Alberta achieved the lowest wind power costs in the country at $37 per megawatt hour.

“I’d say the shining light is Alberta,” Smith said.

Even so, investment in clean technologies is likely to remain stalled without immense spending on the electrification of Canada’s transportation system and heating appliances. Currently, only a tiny slice of Canada’s vehicle fleet are electrically powered, while most furnaces run on natural gas. Even the more bullish forecasts suggest electrifying the world’s vehicle fleet will take decades.

Some still see clean tech investment levels rising. Dave Sawyer, the head of policy advisory at EnviroEconomics, expects renewable energy spending in Canada to increase $7 billion annually to 2030, a 45 per cent rise from current levels.

In a response to questions Tuesday, a spokesperson for the environment ministry said decisions around electricity capacity are largely a provincial issue, and that “provincial policies make a difference” in reducing emissions.

In its 2017 budget, Ottawa introduced $1.4 billion in new funding through Export Development Canada and the Business Development Bank of Canada for clean tech firms, both in the form of equity financing and working capital arrangements. That was on top of roughly $1.8 billion over four years earmarked for research and development and financing efforts, including Sustainable Development Technology Canada’s clean tech fund.

Chris Ragan, the chair of Canada’s Ecofiscal Commission, said lower investment in clean tech could also be partly tied to generally lower investment levels, which have slumped amid a worsening Canada-U.S. trade ties and renegotiations of the North American Free Trade Agreement.

“Investment in general in Canada has been low, and remains low,” he said.

Some firms could also be holding off on new investments, Ragan said, due to uncertainty around the federal carbon tax, which is disputed by Ontario, Saskatchewan, Newfoundland and potentially soon Alberta. Last week, newly elected Ontario premier Doug Ford officially announced the province would be pulling out of the cap-and-trade market it shared with Quebec and California, effectively eliminating the price on carbon emissions in the province.

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