Canada has never been thought of as a leader in renewable energy development. Domestic solar and wind firms typically find more business in Europe and the United States than in their own backyard. But that is changing, particularly with the passage in May of the Ontario Green Energy and Green Economy Act. Some in the industry say the legislation is poised to make Ontario the leader in renewable energy in North America. “The act has changed the landscape,” says John Phyper, CEO of Mondial Energy Inc. in Toronto, which finances and manages renewable energy projects.

Phyper admits the act isn’t perfect, and many details still need to be worked out. “We just made this massive jump forward, so no one wants to piss on the parade in terms of the nuance of it,” he says.

But those nuances are crucial. And with other jurisdictions thinking about how best to implement renewable energy, the pressure is on Ontario to deliver.

The act, introduced by the Liberal government, is significant because it is the first to establish a widespread feed-in tariff (FIT) in North America. Under that scheme, utilities are obligated to buy electricity from renewable power producers at artificially high prices set by the government. Wind, solar and biomass projects can be hugely expensive, and sometimes downright uneconomical. But FITs let investors get a return, and they create a guaranteed market for renewable electricity, which encourages development. In Ontario’s case, the rates are guaranteed for up to 20 years.

Critics argue that FITs are a needless expense — that other policies, such as a cap-and-trade system, could provide similar benefits at lower cost to consumers. Proponents say FITs stimulate job creation and innovation, and point to Germany as a success story. The country implemented an aggressive FIT program in 2000, and now boasts 280,000 employees in the renewable energy industry. Germany’s FIT rates will gradually be reduced, incentivizing companies to develop more efficient technology. The country has also reduced greenhouse-gas emissions by 5.2% between 2000 and 2007. (Canada’s rose by 4.2% during the same period.)

The German FIT has been a boon for clean-tech companies, including a few from Canada. Day4 Energy Inc. (TSX: DFE), a B.C. manufacturer of solar modules, conducted more than 90% of its business in Germany last year, and virtually none in Canada. But Ontario’s act will change that. “It means we have a market in Canada,” says CEO John MacDonald. “We didn’t have one before.”

In fact, Ontario implemented a watered-down version of a FIT in 2006, but the rates were not high enough to attract much interest from industry. The new program, on the other hand, is particularly generous for rooftop solar projects. Producers are paid anywhere from 54¢ to 80¢ per kilowatt-hour, depending on the size of the installation, under the proposed rates. That is good news for Phyper at Mondial, as well. He’s had to scrap several rooftop solar proposals in the province because they would not be profitable. “There was no sense in doing any agreements,” he says. But Phyper still has concerns the rates for certain sizes of solar projects may not be high enough for investors to see a return.

The Ontario Power Authority is conducting a consultation process to determine the final rates, and setting them correctly is crucial. Spain has struggled with its FIT rates in recent years. The government made them too generous and the barriers to entry too low, and received more renewable power applications than it knew what to do with. Nicolas Morgan, director of business development for Toronto startup Morgan Solar Inc., says Ontario has found the right balance. “If you look at the costs of developing a solar farm, you’re looking at between 7% and 10% return on investment,” he says. “You can definitely pitch that to a bank.”

Aside from rates, local-content rules have yet to be finalized, and there are rumours that 40% of the equipment used in renewable energy projects must be produced in Ontario, which MacDonald argues is too high. “I’m not against Ontario content, as long as they don’t set the threshold so high that they kill the thing on Day 1,” he says. “They need to take the approach that if they develop a real market in Ontario, people will invest.”

But job creation is a huge factor in the government’s thinking. The goal is to create 50,000 jobs over three years, which even some in the industry say is optimistic. “If you get too enthusiastic about that, you deter investment, and you don’t create jobs,” MacDonald says. He points out that part of the reason Germany’s FIT is successful is that there are no local-content provisions in place.

One effect of FITs is an increase in electricity prices. Mark Jaccard, a climate-change policy expert at Simon Fraser University, questions the benefit. He points to British Columbia’s policy of mandating that nearly all new forms of electricity generation be emissions-free, which ensures consumers don’t pay more than necessary. “With a fixed feed-in tariff system, Ontario consumers will pay more than needed for those suppliers whose cost of production is less than the tariff,” according to Jaccard.

B.C. has an abundance of emissions-free hydro power to tap into, of course, unlike Ontario and the Prairies, which means a FIT may not be as pressing. In terms of price, the Germans like to say renewable energy costs consumers no more than a pint of beer on their monthly electricity bills. But the Ontario Progressive Conservative Party commissioned London Economics International LLC to determine the total costs of the Green Energy Act; it found that all elements of the legislation (which includes more initiatives than just FITs) could cost households between $20.58 and $52.58 per month between 2010 and 2025.

Robert Hornung, president of the Canadian Wind Energy Association, argues assessing the cost of renewable energy is meaningless unless compared to other scenarios, which the London Economics study does not do. “It needs to be assessed not in the context of what the costs are today,” he says. “It needs to be assessed in terms of where costs are going.”