The results of the much anticipated review of the Ontario Feed‐in‐Tariff Program (the "FIT Program") were released today (the "Review Report").
The FIT Program, North America's first comprehensive renewable energy feed‐in‐tariff regime was enabled by the Green Energy and Green Economy Act (Ontario) in 2009 and began accepting applications in October 2009. Since that time, the Ontario Power Authority (the "OPA") has received over 10,000 applications for power purchase agreements under the program (each a "FIT Contract") and gone on to execute FIT Contracts representing over 4,600 MW of renewable energy capacity.1
The Review Report:
- confirms and strengthens Ontario's commitment to the development of renewable energy generation and a clean economy;
- institutes an annual review of FIT prices, setting and publishing prices each November, effective January 1st the following year;
- establishes a target of 10,700 MW of non‐hydro renewable generation by 2015 (instead of by 2018, the previous target) and recommends another FIT Program review at the end of 2013 to determine if a higher MW target is warranted;
- reduces FIT prices for solar and wind by 20% and 15%, respectively, on average;
- maintain current prices for waterpower, biogas, biomass and landfill gas;
- recommends initiatives to streamline the regulatory approval process; and
- institutes a new points system that encourages greater community and Aboriginal investment in FIT Program projects and improves municipal engagement.
This bulletin describes the significant changes proposed to the FIT Program.2 These changes will need to be implemented by the OPA in revised FIT Program rules and a revised FIT Contract in due course.
The Pricing Scheme
The FIT Program will continue to offer varied contract prices based on energy source and project size. Contract prices will remain the same for all technologies except wind and solar, as set out below3:
In a departure from the FIT Program's two‐yearly review cycle, contract prices will now be reviewed on an annual basis, starting in November this year. The new prices will then apply to those FIT Contracts offered by the OPA after 1st January in the following year. Prices for new projects will not, therefore, be set at the time an application for a FIT Contract is made, but rather when the FIT Contract is offered.
In a further change, the percentage of the biogas and biomass contract price that will be subject to indexation, has been increased to 50%. Wind and waterpower remain at 20%. Escalation percentages will be reviewed again in November 2012. It remains to be seen if such reviews will take place annually going forward, as part of the new annual price‐review.
Price adders applicable to projects with Aboriginal and community participation will continue to apply to all technologies except rooftop solar. The rates have been standardised across all eligible technologies and will vary based on the level of equity participation by the relevant group, with only projects with an equity participation level of more than 15% qualifying for the base level adder.
New Points System
Although the Review Report does not recommend reinstating the local planning authority over renewable energy projects removed by the Green Energy and Green Economy Act (Ontario), it does see a greater role for municipalities and local communities in the planning and development of such projects. The Review Report recommends that a minimum of 10% of the remaining FIT Program's contract capacity be reserved for projects with significant community and Aboriginal participation. It also recommends the introduction of a points system that prioritizes applications by awarding points to projects that have significant community and/or Aboriginal equity investment and/or demonstrated municipal or Aboriginal support.
Under the new system, points will also be awarded to waterpower or bio‐energy projects that have ancillary electricity system benefits and for "project readiness" in respect of wind, solar and bio‐energy projects with demonstrated firm site control on Aboriginal Reserve or private land.
All applications will be required to earn a minimum of one point to be eligible for a FIT Contract.
New Technologies Covered under the FIT Program
It appears that concentrated solar PV will be introduced into the FIT Program. While domestic content requirements will apply to this new technology, the applicable domestic content threshold is yet to be disclosed and a domestic content grid will be developed by the OPA in due course.
The Review Report makes a number of recommendations to improve the regulatory approvals process by reducing inter‐ministry duplication, improving service standards and streamlining processes, including the Renewable Energy Approval ("REA") process. Solar projects less than 500 kW and bio‐energy projects will now be subject to an environmental self‐screening process. Larger projects will continue to be subject to the full REA process although efforts will be made to shorten the process by up to 4‐5 months. The Review Report gives a number of examples of how this might be accomplished: reducing timelines for review of Endangered Species Act (Ontario) permit applications; a streamlined process to review archaeological reports; and submission of final Ministry of Tourism, Culture and Sport and Ministry of Natural Resources (MNR) comment letters as part of a REA Application submission, as opposed to at the time of the final public meeting (which is prior to the submission of a REA Application).
The Review Report also recommends that MNR review its Crown land release and development policies to bring them into line with provincial energy plans and programs; the creation of a Renewable Energy Committee comprising senior ministry officials, to assist in driving projects through the approvals process; and shortening the commercial operation milestone for rooftop solar PV from 3 years to 18 months to encourage timely project completion.
The new FIT Program rules will prohibit the construction of ground‐mounted solar projects, greater than 10 kW, on prime agricultural lands (Classes 1‐3). Currently, ground‐mounted solar projects may be located on Class 3 lands if designated as "available" by the OPA or, on any class of agricultural land if zoned for non‐agricultural use as of October 1, 2009. While prime agricultural lands comprise only 12% of Ontario's 89 million hectares, the vast majority of these lands are concentrated in southern (south of Orillia) and eastern Ontario.4 In addition to agricultural land restrictions, ground‐mounted solar projects of any size will be prohibited in or bordering residential areas and will only be permitted in commercial or industrial areas if renewable energy generation is secondary to the primary use of land in such areas.
Transmission and Distribution
Currently, if an application for a FIT Contract identifies a point of interconnection to a distribution network or the transmission system that has insufficient capacity to connect the project (or the transmission system if otherwise constrained in the area), the OPA conducts an "economic connection test" to determine if ratepayer investment can be justified to carry out the required upgrades to connect the project. To date, the economic connection test has not been carried out and the Review Report directs the OPA not to proceed with it. Further details on the treatment of those applications currently awaiting the economic connection test will need to be determined in due course. It is, however, clearly set out in the Review Report that the OPA should not offer FIT Contracts to projects where there is a need for transmission upgrades that cannot be classified as "minor".
The Review Report also directs the OPA to consult stakeholders to develop a rule for the maximum distance a project may be from its nearest point of interconnection to a distribution network or the transmission system. It is not yet clear if this will form a new FIT Contract eligibility requirement or be factored into the new points system.
Transition to the New FIT Program 2.0
As previously announced by the OPA, the revised FIT Program (including the new eligibility requirements and points system) will apply to all applications going forward, regardless of whether those applications were submitted and time‐stamped before or after the review of the FIT Program was announced on October 31, 2011. This includes applications that have been accepted and await the economic connection test and have been ranked on a priority ranking list. As such, the Review Report makes it clear that all current applications must comply with the new eligibility requirements (or be withdrawn). While existing applications for FIT Contracts may be "transitioned to eligibility requirements in the new" FIT Program rules and retain their original time stamps, the award of FIT Contracts will be prioritized based on the new points system discussed above. Applications which are withdrawn will receive a full refund of application security and fees.
Note however, that the revised FIT Program should not apply to developers that have already executed a FIT Contract. If you are a FIT Contract party, the terms of that FIT Contract (including contract price) and the FIT Program rules applicable to that FIT Contract should continue to govern, regardless of the changes announced today.
1 OPA BI‐WEEKLY FIT and microFIT REPORT, with data as of March 19, 2012.
2 Please note that this newsletter does not cover amendments to the microFIT program.
3 Ontario's Feed‐in‐Tariff Program Two Year Review Report, Ministry of Energy.
4 John Turvey and Barb Konyi, "Ontario's Agricultural Policies, Sustainable Urban Communities and the Greenbelt" Ontario Ministry of Agriculture, Food and Rural Affairs and Ontario Ministry of Municipal Affairs and Housing presentation to the Post World Planners Congress ‐ Planning for Food Seminar (June 21, 2006), slide 3.
About Fraser Milner Casgrain LLP (FMC)
FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit: www.fmc-law.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.