This week, Japan launched a World Trade Organization
("WTO") dispute against the domestic-content requirements
in Ontario's landmark Feed-in Tariff ("FIT") program,
which is North America's first comprehensive guaranteed pricing
structure for renewable electricity production.
FIT Program
Ontario's ambitious FIT program is intended to help Ontario
eliminate coal-fired power by 2014 - one of the single largest
climate change initiatives in Canada. The FIT program provides
standard program rules, contracts and pricing over a 20-year
contract period (40 years for hydroelectric). The prices vary
according to energy source and the size of the project, ranging
from 10.3 ¢/kWh for landfill gas projects up to 80.2
¢/kWh for small roof-top solar projects. The FIT payments are
designed to cover typical capital and operating costs and to
provide a reasonable return on equity to the developer - roughly an
11 percent return over the term. The FIT program also has minimum
domestic-content requirements of up to 60 percent by 2011 and a
streamlined approvals process.
Unprecedented Investment
The Ontario Power Authority ("OPA") began accepting FIT
applications on October 1, 2009 and received applications totalling
over 9,000 MW during the first 60 days of the initial FIT launch
period. Since then, the OPA has awarded approximately 2,100 MW of
first-round FIT contracts, which generally reflects the amount of
Ontario's current excess transmission capacity. The Ontario
government has also contracted with a Korean consortium for an
additional 2,000 MW of wind power and 500 MW of solar power, which
is expected to lead to four manufacturing facilities being
constructed in Ontario. Collectively, this represents an investment
of well over $10 billion in the province and is Canada's most
significant regulatory initiative in the renewable sector.
WTO Dispute
Japan claims that the FIT program's minimum domestic-content
requirements afford less favourable treatment to imported renewable
energy equipment from Japan. Japan's view is that such
requirements are inconsistent with Canada's international trade
obligations. As a result, Japan has requested formal bilateral
consultations under the WTO, which is the first step in the WTO
dispute process that could take years.
The Ontario government has stated that it "struck the right
balance" with the Green Energy Act, which invoked the
FIT program, pursuing both renewable energy production and job
creation. While Ontario no doubt weighed the risk of trade
sanctions when enacting domestic-content requirements, it is not
clear whether the government will be as committed to the FIT
program if it can no longer deliver new jobs in the province.
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