The Ontario Power Authority (OPA) announced a change to its
Feed-in-Tariff (FIT) program yesterday that will alleviate a
significant amount of uncertainty for project developers. The
uncertainty surrounds Section 2.4 of the FIT Contract, which
provides the OPA with the right to terminate the FIT Contract in
its sole and absolute discretion until it has issued notice to
proceed (NTP) to the Supplier (the counterparty to the FIT
Contract). Pursuant to Section 2.4, the OPA's unilateral right
to terminate only expires upon issuance of the NTP.
In order to be eligible for an NTP, however, the Supplier is
required to meet four pre-requisites (NTP Pre-requisites), which
include (i) completion of environmental regulatory permits (for
wind and solar, a Renewable Energy Approval or "REA");
(ii) a completed financing plan confirming financing for a minimum
of 50 per cent of the expected development costs; (iii) for wind
and solar generators, a Domestic Content Plan; and (iv) completion
of impact assessments.
Despite the good intentions of the government to streamline the
environmental and municipal permitting process, the REA has proven
particularly hard to obtain. So much so that the OPA issued a
blanket one-year extension for project commercial operation dates
in an effort to curb force majeure claims for failure to
obtain an REA. Failure to obtain an REA has prevented many
Suppliers from applying for an NTP, thereby forcing them to
continue to develop their projects under significant
Although the "termination at will" right of the OPA
was originally intended to be used by the OPA to terminate badly
managed projects, with the election uncertainty industry became
much more concerned that Section 2.4 could be used as a political
tool by an incoming government to cancel FIT Projects on a
discretionary basis (through the OPA as its proxy) at a relatively
However, the OPA's recent announcement alters the OPA's
"termination at will" right and, consequently, the
ability of an incoming government to cancel FIT projects through
the provisions of the FIT Contract alone. Essentially, provided
that the Supplier meets the milestones below, the OPA will waive
its right to terminate the FIT Contract prior to the NTP.
The new milestones are:
Execute the Waiver by October 14, 2011;
File a Domestic Content Plan with the OPA by October 14, 2011;
Provide evidence of agreement(s) for the purchase of Generating
Equipment by November 30, 2011 (collectively, the "Waiver
The Waiver does not alter the NTP requirements under Section
2.4(b). The Supplier is still required to obtain an NTP prior to
starting construction, within the timeframes contemplated in the
FIT Contract (i.e. a minimum of six months prior to the Milestone
Date for Commercial Operation). The REA process is still one to be
reckoned with, especially if regulatory changes are contemplated by
an incoming government that is not keen on renewable energy (and
arguably, jobs in the sector). However, Suppliers with frame
agreements for wind turbines or solar panels will be especially
well placed to meet the Waiver Requirements.
While this is a positive development in terms of providing
contractual certainty to developers, it is by no means an
elimination of "sovereign risk" in the development
process. Indeed, the provincial government can always enact
legislation to cancel FIT Contracts and/or eliminate or restrict
the right to sue it or its affiliates/agencies. Changes to
municipal permitting under the Planning Act, which was
amended by the Green Energy Act to prevent municipalities
from restricting renewable power development through zoning
by-laws, are perhaps a bigger threat to developers.
Regardless of what the provincial election may bring in October,
the OPA's recent changes put developers in a stronger strategic
position and enable them to finance their projects more easily, in
that they will have enforceable contracts that the government would
need to pass legislation in order to repudiate.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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