Gerson-Lehman Group on Energy

Samsung Buries Ontario Deep into Third-World Abyss
January 24, 2010

this Analysis by: GLG Expert Contributor
Analysis of: [Canada]Samsung Signs $6.6 Billion Deal to Build Wind and Solar Power in Ontario
Published at: greeninc.blogs.nytimes.com
Summary
Economies of the Third-World are usually defined by “sweat shops” or “branch-plants” operations. The definition has recently been enforced onto the province of Ontario by Samsung’s “Green Deal” as a reminder to all, that the auto-industry “branch-plant” policies of 60’s have just found a worthy successor which -- as opposed to the already known perils of car industry – has, in the long run, all the features of setting the Province on the slide into the socio-economic oblivion.

Analysis


[ 1 ] Let’s start with assorted problems first, In 2006, the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy did a review of recent literature discussing the "non-technical barriers" and suggestions to make renewable energy use more palatable. We shall mention a few major issues that should have had a substantial impact on the Samsung decision-making deal and, as it is, would have cast even more ominous impact on the Province :


[1.1] High capital cost of renewable energy technologies compared with conventional energy.

[1.2] Failure to account for all costs and benefits of energy choices. This includes failure to internalize all costs of conventional energy (e.g., effects of air pollution, risk of supply disruption) and failure to internalize all benefits of renewable energy: e.g., cleaner air, energy security. ( NOTE: This issue is clearly ideologically tainted as the “air pollution”, if needed, can be totally alleviated by a fraction of the cost of installing the brand new -- and never, so far, having fullfiled the promises, anywhere in the world where it was installed – energy distributing environment from the scratch.)

[1.3] Inadequate workforce skills and training. This includes lack in the workforce of adequate scientific, technical, and manufacturing skills required for renewable energy development; lack of reliable installation, maintenance, and inspection services; and failure of the educational system to provide adequate training in new technologies.


[1.4] Contract bidding mechanisms: Governments place an obligation on supply companies to accept electricity from renewable energy generating technologies which have been awarded contracts by government. Generators win these contracts by taking part in a competitive bidding process organized by the government or a specified agent of the government. Historically, competition has usually taken place within technology 'bands', that is, such that competing bids are only compared between generators employing the same technology. For example, wind generator against wind generator. Essentially, this means there are usually different competitions going on at the same time for each technology. Generally, the lowest bids are awarded contracts, provided they meet any criteria set down by the government as part of the competitive process. Examples of such a mechanism in practice include the UK's Non-Fossil Fuel Obligation (NFFO), Ireland's Alternative Energy Requirement (AER) and the French EOLE.The only problem there is the lack of stakeholder/community participation in energy choices and renewable energy projects.
.


[ 2 ] Let us now leave out the first two issues that are highly important; however, as they have been completely omitted by the Ontario-Samsung deal, there are issues [1.3] and [1.4] that tell the story in full:

[2.1] R. Denley wrote in The Ottawa Citizen:”…. In a global economy, the winners are the countries that develop companies of international scale, companies that create high-value jobs at home and produce big taxes that support their national governments. The also-rans can buy a slice of the second-tier action if they are willing to offer big enough incentives. It's much like colonialism, but the countries with the money don't have to go to the bother of running the colonies directly….” TheThird World definition indeed. It directly answers the issue [1.3] above that has been the Ontario curse from the day one and, with the 80’s to the new century educational and immigration patterns; it has fast started on the sure way South.

Ontario governments like to crow about how great this province is. The Samsung deal reflects a much different reality, a tacit admission that the best the Province is capable of is assembling things under careful supervision from foreign companies (Auto-Pact revisited.) To make it even more vivid, Samsung, which is a relative newcomer to the green energy business, has said it is looking to use expertise from its other heavy industry divisions, including its shipbuilding group, to establish itself as a major manufacturer of wind turbines!

[2.2] the deal had a familiar shape of a developing country “standard”. One partner was a successful international consortium with deep pockets and manufacturing expertise, the other a backward jurisdiction so hungry for jobs that it had to pay the big company what amounts to a bribe to do the deal. The whole thing was arranged directly with the jurisdiction's leader without the bother of competition. It's the kind of deal one might expect in the Third World, except that it was Ontario on the Third World side of the equation. But the worst is yet to come:


[2.3] there are numerous Ontario companies trying to get a foothold in the green energy business. After all, “wind turbines derived from the shipbuilding”, as was Samsung claim, don’t seem to be a rocket science métier. If the government had cut a similar deal to support made-in-Ontario innovation, it could perhaps have been justified. Instead, it is slamming the door on these Ontario companies right in their own backyard.

"The Samsung deal is not just about manufacturing wind turbines," said OEC spokesperson Paul Kahnert."…It's a private scheme to generate electricity at outrageous ... rates -for years to come…." Kahnert said the province's electrical utilities operators can buy, install and maintain made-in- Ontario windmills more cheaply without Samsung in the picture. The fact of the matter is therefore quite simple. The Ontario Government has given away $7B of taxpayer’s money to offshore interests with NO assurance that Ontario society’s investment will create the promised jobs and economies of scale for alternative power generation. There are, at least, two of possible explanations for this:


[2.3.1] One possibility is that companies make bids against future cost reductions, taking advantage of the preparation period that the mechanisms usually allow before the payment period begins. If the economics of development are not sufficiently attractive towards the end of this period then the project does not go ahead.

[2.3.2]Another possibility is that some companies actually make bids they know will never become economic and will never be developed purely to deny the opportunity for a successful bid to their competitors.

Analyses are solely the work of the authors and have not been edited or endorsed by GLG.This author consults with leading institutions through GLG
Questions for the authorEngage this author or other Legal, Economic & Regulatory Affairs experts

Contributed by a Member of the GLG Legal, Economic & Regulatory Affairs Councils

Request a Consultation with this Author

Econ.Dev't Agency News

the Business Retention and Expansion (BRE) program is at the heart of everything we do here at ADEDA. Why? First and foremost, it gives us the opportunity to express our thanks for the contribution you've made to the community. BRE also enables us to effectively link local, provincial and federal programs and services. We also get a better sense of the specific business issues our entrepreneurs in Annapolis Digby are facing. Through the BRE process, we have learned that many local companies would like to improve their marketing skills. Here’s a great opportunity to do so:

INTERNET MARKETING FOR SMALL BUSINESS
Expert Internet marketing know-how can hard to come by, particularly when you’re working flat out at running your own business. The Broadband for Rural Nova Scotia initiative, with support from the Department of Economic and Rural Development, is sponsoring an inexpensive internet marketing workshop. Session topics include ‘Building Websites that Sell’ and ‘What is Social Media and How Do I Use It?’ You can also sign up for free 1-on-1 consultations with experts who will critique your website.

TV SHOW GENERATES VALUABLE EXPOSURE
Speaking of marketing, Chef Lynn Crawford really gave our region a boost with the broadcast of her new TV show, Pitchin' In, on Canada's Food Network, earlier this month. Aside from all the great PR for our lobster industry, the media time is worth $288,000 to our region, a figure well beyond our current marketing budgets.

STUDENT JOBS PROGRAM
The Federal government has announced the launch of Canada Summer Jobs 2010, which supports work experiences for students and helps provide important community services. Funding will be offered to not-for-profit, public-sector and small private-sector employers to create high-quality summer job opportunities for young people 15 to 30 years old who are full-time students and intend to return to school in the next school year. Here are the details.

Is Nova Scotia Running Out of Agricultural Land?
The short and long term future of the existing agricultural lands will be the subject of a province-wide consultation later this month. According to Canadian census figures, cleared farmland has declined steadily since at least 1901. There are only 181,915 hectares of active farmland left in Nova Scotia, with a large concentration here in the Annapolis Valley. A series of public meetings will take place to look at what the future holds for our agricultural resources.

GOING SOMEWHERE?
Winter driving is hazardous so please remember to check road conditions before getting behind the wheel. You can do this by viewing highway webcams or simply by calling 511. The province is, in fact, asking for your feedback on the 511 highway service info line … do you have suggestions for improvements?

Here’s something for those who would like to take part in the local arts scene: Secret Seeds, one of the region’s newest cultural endeavors, is an event built around a series of short plays. Organizers will be meeting on Saturday to discuss ideas … you are invited to share your expertise and enthusiasm!

Officials Were Warned About Wind Farm

(Source: The Daily Item)By Marcia Moore, The Daily Item, Sunbury, Pa.
Jan. 22--SUNBURY -- Two separate Northumberland County boards of commissioners were cautioned since 2006 by three legal advisers about "shortcomings" in a Sunbury firm's wind farm proposal.

At issue is the land-lease agreement between the county and Penn Wind, a 29-year deal that is in the midst of being renewed and has been in jeopardy for months.

The two sides are hoping to keep the project afloat and plan to meet early next week.

Commissioner Vinny Clausi, who has loudly voiced his displeasure with the financial details and discrepancy about the amount of land involved, and Commissioner Kurt Masser said they're optimistic about reaching an agreement.

Since 2007, the county has been leasing land in Coal and East Cameron townships to the company for $1 a year, with an agreement that the county would receive $56,000 a year once the site begins generating wind energy.

Late last week, Penn Wind CEO Justin Dunkelberger revealed the company's intention to sell the lease to an unidentified California company for $1 million and allow it to set up wind turbines on the land.

Masser said he was surprised to learn an outside company might be stepping in, but said he's willing to work with any business that's able to bring jobs and revenue to the county.

"I want to do what's right for the taxpayer," he said, agreeing that the county should reap more financially from the project.

Masser played down the impact of political contributions he received from Penn Wind representatives during the 2007 election, including $600 from James Garman and $500 from Chris Purdy, both of Sunbury, and $100 from Dunkelberger, of Northumberland.

"If I was pushing to get (the deal) done, it might be an issue," Masser said. "But I've been saying all along that we should put our concerns on the table and lay out what we want."

He said that will likely occur when commissioners return to the negotiating table with Penn Wind next week.

And, Masser said, "Unless everyone can agree to the terms, I won't vote for it."

Even before the first contract was signed in 2007, then-county solicitor Guy Schlesinger raised questions about whether the county would receive its fair share. The former board, headed by Samuel Deitrick, along with Masser and Frank Sawicki, went ahead with the contract to lease about 500 acres for $1 a year until a 23-acre site is developed.

In 2008, solicitor Hugh Jones wrote to the commissioners recommending the contract not be signed.

He cited "shortcomings" in the deal cited by former planning Director Steve Bartos, including the lack of provisions for giving the county a percentage of the wind energy revenue and failure to place a limit on how long Penn Wind can lease the property at $1 a year without developing the site.

Despite the concerns addressed by Jones, the current board -- Sawicki, Masser and Vinny Clausi -- signed the deal for another year.

Assistant solicitor Kymberley Best added her concerns about the project last week in a letter in which she described the contract as "disadvantageous" to the county.

On Friday, three days after Best's letter was written, the commissioners learned that Penn Wind planned to sell its lease and allow an outside company to develop the site.


Copyright (c) 2010, The Daily Item, Sunbury, Pa.

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.