Ontario Fund to Invest in Green-Energy Projects

By Hyun Young Lee

As global recession fears weigh on new investments and jobs, Ontario is trying to ward off the threat with a major financial boost for renewable energy.

In March, Canada's most populous province announced a 1.15 billion-Canadian-dollar ($892 million) fund to help develop promising green technologies over the next five years that could eventually backstop Ontario's environmental targets. These technologies aim to lessen the environmental impact of human development, by using renewable sources of energy or cutting pollution from industry and transportation.

The provincial government is also hoping to create a hub in Ontario for the fledgling renewable-energy industry to rake back jobs lost in the manufacturing sector. "With the world looking for innovative ways to conserve energy and fight global warming, some place is going to secure thousands of jobs by researching and developing new solutions, and we want that place to be Ontario," Dalton McGuinty, Ontario's premier, said this summer.

Auto Dependent

Ontario was suffering well before the financial crisis raised the specter of recession and mass layoffs. As a major vehicle producer, the province relies heavily on General Motors Corp., Chrysler LLC and Ford Motor Co. But Detroit's Big Three auto makers have axed 11,270 jobs here since 2005, three-quarters of their total cuts across Canada. Other auto makers and parts suppliers have shed at least another 2,000 jobs.

In the past five years, more than 230,000 jobs have disappeared from Ontario's manufacturing sector.

The new Ontario technology fund, dubbed the Next Generation of Jobs Fund, is a small start in trying to reverse this trend. The manufacturing job losses will dwarf any potential gains. But, as frozen credit markets complicate financing efforts even for large, established companies, the fund could be a crucial backer for the small firms driving new developments in renewable energy.

Companies like 6N Silicon Inc., which won the fund's second grant of just under C$8 million in July, have already benefited. Using a process developed by its founder in his basement, 6N Silicon purifies low-grade silicon to a quality that can be used in commercial photovoltaic cells. After two years of lab and pilot tests, the company is ready for production and to start capitalizing on the boom in solar energy.

The grant has been a "huge boost" for 6N Silicon, not least because the company would likely have struggled to get bank loans, said David Dunnison, its vice president for business development.

“Safer Investment”

"There's definitely strength for us that we've had that kind of endorsement and that kind of monetary help," he said. "We've been fortunate in the investment interest we've experienced . . . but with a government fund, it makes us a safer investment and a more attractive investment."

The company has opened its head office and a 2,000-metric-ton-a-year production plant in Vaughan, Ontario, and plans to grow rapidly. Many of its 84 new employees were auto workers.

By helping promising technologies go commercial, the fund fits neatly with Ontario's existing renewable initiatives. Like other Canadian provinces, Ontario has agreed to buy renewable power at higher rates than for electricity from fossil fuels, reflecting the higher generation costs. Several U.S. states, mostly in the Northeast, have done the same as concerns about climate change concerns meet still-high fossil fuel prices.

Ontario, for example, guarantees 11 Canadian cents per kilowatt-hour for electricity from renewable sources -- double the amount from coal and natural gas -- while electricity from solar gets 42 cents a kilowatt-hour.

But a sense of urgency has rarely accompanied renewable initiatives in Canada, largely thanks to the country's abundant natural resources. Environmental efforts tend to focus on curbing emissions from the country's oil and gas industry, such as Alberta's C$2 billion fund to develop carbon capture and storage projects. The as-yet unproved technology aims to capture carbon dioxide from industrial emissions and sequester it underground, usually by injecting it into maturing oil and gas wells.

Moreover, hydroelectric power is usually included in renewable targets, as is the case with Ontario's goal to generate 43% of its electricity from renewable sources by 2025.

The provincial power authority is currently looking at toughening up this target to see "whether it's solid enough, not whether it's too solid," said George Nutter, spokesman for Ontario's energy and infrastructure ministry.

The technology fund is open to sectors other than the renewable industry, notably biopharmaceuticals and information technology. There are no quotas for each industry, so renewable initiatives may end up receiving a small chunk of the total funds. The differences between the industries will also make it difficult to estimate the potential for new jobs.

Another C$7 Billion?

By stumping up 15% to 20% of the total investment, the fund could attract another C$7 billion "at least," reckons Fernando Traficante, director of the fund's secretariat.

"And I suspect the money will run out" before the fund's five years are up, he said. "If we can prove success, then hopefully we'll get more money" from the Ontario government.

The manufacturing sector's woes have been compounded by the financial crisis. Canada's banking sector is based in Toronto, and the province is now staring at its first budget shortfall in four years. Ontario expects a C$500 million deficit in the current fiscal year, and has refused to make any further budget projections.

Another big unknown is what sort of impact the credit crunch will have. Mr. Traficante sees one of two scenarios: either companies pull back on all investments, spooked by recession fears; or they invest to put themselves in a leading position when the economy improves in a few years' time.

"There are some companies, perhaps fewer than yesterday, that still take that latter view," Mr. Traficante said.

For companies like 6N Silicon, the market stresses may throw up a silver lining. The company locked up its funding and started production before the markets went into a tailspin, while potential competitors are now experiencing "some level of difficulty," Dunnison said.

"It will be interesting navigation - the fact that others might have struggled, people might question how strong we are," he said. "But if we continue to execute well, we're going to have a good purchase in our market."