Originally published in Blakes Bulletin on CleanTech,
Energy, and Environmental, August 2011
On August 2, 2011, Brad Duguid, Ontario's Energy Minister,
announced that the Ontario government had initiated a change to
create greater contractual certainty at the project approval stage
of the province's feed-in-tariff (FIT) program.
As discussed in our April 2010 Blakes Bulletin: Ontario Announces 184 Feed-in Tariff Contracts
for 2,421 MW of Renewable Energy, the FIT program is North
America's first comprehensive guaranteed pricing structure for
renewable electricity production and has resulted in the most
substantial investments in green energy development in Canadian
history. The FIT program offers stable prices under long-term
contracts with the Ontario Power Authority (OPA) for energy
generated in Ontario from renewable sources, such as bioenergy
(biomass, biogas and landfill gas), onshore and offshore wind,
solar photovoltaic (PV) (ground-mounted or roof-top) and waterpower
(naturally flowing water). Section 2.4(a) of the FIT contracts
provides the OPA with the right to unilaterally terminate a FIT
contract before the OPA has issued a notice to proceed (NTP) and
the supplier has paid the incremental NTP security, upon notice and
repayment of the security deposit and pre-construction development
costs up to a prescribed limit. The pre-NTP stage in the FIT
contract is a lengthy process which exposes the supplier to risk
Effective from August 2, 2011, all FIT suppliers who are able to
demonstrate a completed domestic content plan and a manufacturing
equipment agreement, and all FIT suppliers who do not require a
domestic content plan, may request a waiver of the OPA's
termination rights under section 2.4(a) of the FIT contract. FIT
suppliers of PV or wind renewable fuel must submit additional
information to the OPA within the prescribed timeframe. Different
requirements and deadlines apply to capacity allocation
required (CAR) suppliers and capacity allocation exempt (CAE)
suppliers. In both cases, the termination provision is
automatically reinstated if the applications are not received
before the deadline.
As a result of this change, if a termination waiver is granted
to a supplier, any subsequent termination by the OPA in the absence
of a supplier default is subject to the ordinary rules of contract.
In his directive to the OPA, Minister Duguid stated that this
change is designed to eliminate the risk undertaken by suppliers
and strengthen the financing and purchasing of equipment from
Ontario manufacturers (to view the Minister's direction, click
here). Suppliers are still required to submit a financing plan,
connection impact assessment, and obtain all regulatory approvals
before proceeding to the construction stage.
This new directive has the potential to enable suppliers to
obtain waivers to protect up to 1,800 projects currently in the
pre-NTP contract stage (representing 3,500 MW of potential
generating capacity) from possible termination under section 2.4(a)
of the FIT contracts (to view an article about the directive, click
here). While the waivers would not eliminate the possibility of
FIT contracts being terminated by the OPA, the change removes the
contractual right of the OPA to terminate the contracts for
convenience and the limitation on the amount of costs that the
supplier would be able to seek to recover in such event. The threat
of termination has become an increasing concern to suppliers as the
leader of the Ontario Progressive Conservative Party has threatened
to cancel the FIT program if his party wins power in the October 6,
2011 provincial election.
While the August 2 announcement has outlined the principal terms
of the change, a number of matters such as the timing and process
remain to be detailed. The OPA will be hosting a web-enabled
teleconference to discuss the process for obtaining a termination
waiver and to answer questions. The teleconference will take place
on Tuesday, August 9, 2011 at 2 p.m. Eastern Standard Time. To
participate in the teleconference to listen to the session and view
the presentation, click here.
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