Canada: Feed-In Tariff Review: Ontario's New Renewable Energy Procurement Strategy


Ontario's Feed-in Tariff (FIT) Program was launched in 2009 to create new clean energy industries and jobs, boost economic activity and the development of renewable energy technology, and to improve air quality by phasing out coal-fired generation by 2014. The Ontario government launched its scheduled two-year review of the FIT Program in October 2011. The two-year review report was released on March 22, 2012 and the following provides a brief summary of the Two-Year Review Report (Report) and its recommendations. For access to this Report, click here.

The Report contains recommendations in six strategic areas:

A. Continue commitment to clean energy

Currently, Ontario is committed to bringing online 10,700 MW of non-hydro renewable energy generation by 2018 as well as 9,000 MW of hydro by 2030. The Report outlines how the Ontario government plans to achieve this commitment:

  1. Ontario should procure 10,700 MW of non-hydro renewable energy generation by 2015.
  2. The government should determine whether a higher renewables capacity target is warranted at the end of 2013.
  3. Up to 50 MW of the remaining FIT contract capacity should be reserved for hydroelectric projects.
  4. FIT prices should be reviewed annually each November and take effect on January 1st of the following year.

The bottom line: The Ontario government has made it clear that it continues to see the renewable energy sector as one that will provide continued growth, jobs and overall economic development. However, this commitment will become more strategically focussed, as evidenced by the additional recommendations in the FIT review. Interestingly, the Report indicates a slight shift in focus by emphasizing the contribution development in smart grid technology will make to the Ontario economy going forward.

B. Streamline processes and create jobs

The following Report recommendations are designed to help encourage job creation by making sure approvals align with the size and characteristics of a project, simplifying the process and increasing accountability.

1. The regulatory approval processes should be streamlined and unnecessary delays or duplication eliminated. Three approval streams are recommended:

i. Exemption: microFIT projects should remain exempt from REA regulations, but subject to enhanced land-use protection.

ii. Self-screening: MOE's self-screening registry system should be expanded to include eligible small-scale solar and bio-energy projects.

iii. Full environmental approvals: Large, complex projects should continue to require the full environmental approval process, including REA regulations.

2. The Ministry of Natural Resources should review and update its policy approach to renewable energy development on Crown land as soon as possible.

3. The commercial operation milestone for rooftop solar photovoltaic should be shortened from three years to 18 months.

4. A new renewable energy committee should be created that includes senior officials from relevant ministries to help drive the progress of projects through the approvals process.

The bottom line: Despite the best intentions of the various ministries involved in the regulatory approvals process for renewable energy projects, little if any advancement has been made in streamlining approvals. In fact, the Renewable Energy Approval (REA), introduced in 2009 and meant to function as an omnibus environmental approval, has proved detrimental to project development since a hold up in one area of the REA delays the entire process. Additionally, REAs that have made it through the initial application stages are now being appealed. It remains to be seen how the Environmental Review Tribunal and possibly, the Divisional Court, treat such appeals. The regulatory approvals process will likely continue to be a major development hurdle in the near future.

Regarding the shortening of the commercial operation milestone date for rooftop solar, the solar industry is categorically opposed.

C. Encourage greater community and Aboriginal participation

Renewable energy projects with local or Aboriginal community partnerships create economic opportunities and jobs for the community. The Report outlines how the Ontario government plans to achieve greater community and Aboriginal participation, including:

1. Introduce a system to prioritize FIT applications for small, capacity allocation exempt projects and large projects that awards points to projects with minimum equity participation from Aboriginal and local communities, public schools, colleges, universities, hospitals and long-term care facilities.

2. Maintain adders for community and Aboriginal projects with adjusted prices. The adders should align with new participation and equity requirements for the FIT Program.

3. Set aside a minimum of 10% of remaining FIT contract capacity for local community and Aboriginal projects with greater than 50% equity participation.

4. To maintain continued participation, strengthen limitations on assignment and change of control for priority participation projects, except rooftop solar.

5. Extend support funding to Aboriginal communities partnering with Green Energy Investment Agreement projects.

6. Dedicate support funding for projects that are already in the design/development and regulatory approvals phases.

The bottom line: There have been several successful projects in which Aboriginal communities have partnered with non-Aboriginal entities to develop renewable energy projects. The benefits on all sides are evident and the government sees the FIT Program as a way to spur economic development in Ontario's First Nations and Métis communities. As the land tenure system for development on reserves continues to evolve, this should be viewed as a good opportunity for both Aboriginal and non-Aboriginal communities alike to develop strategic partnerships and good projects.

D. Improve municipal engagement

There is room for municipalities to play a greater role in the development of projects. The Ontario government plans to improve municipal engagement by:

1. Introducing a point system for FIT applications that awards points to projects that:

i. have minimum equity participation from an Aboriginal or local community and projects with participation by public schools, colleges, universities, hospitals or long-term care facilities;

ii. have demonstrated support from the local municipalities or Aboriginal communities;

iii. are water or bio-energy project which have ancillary electricity system benefits;

iv. with respect to wind, ground-mount solar and bio-energy projects, have a firm lease, option to lease/purchase, or have ownership of the land.

Solar rooftop applicants that do not own the host building should be eligible for project readiness points if they provide proof of firm site control in the form of a firm lease or option to lease. Furthermore, the technical guidelines in the Report recommend that the OPA should require a FIT project to earn a minimum of one point to be eligible for a FIT contract. The points allocation system is set out below:

2. Enhancing municipal engagement in the FIT Program:

i. For large FIT projects, require contract launch meetings with interested parties to facilitate early discussion, share information and define expectations.

ii. MOE should revise the municipal consultation form in the REA process to better reflect areas of municipal concern, in consultation with the Association of Municipalities of Ontario.

3. Clarify and strengthen project siting rules to ensure responsible project development:

i. Enhance protection of agricultural lands by prohibiting solar ground-mount projects (over 10 kW) on prime agricultural land that contain class 1, 2 and 3 soils. Expand protection to include organic and mixed soils and remove zoning exemptions.

ii. Prohibit solar ground-mount projects (of any size) in residential areas and lands bordering residential areas. Permit projects in commercial or industrial areas only when producing renewable energy is a secondary use.

The bottom line: The introduction of a points system to determine which projects go ahead should be viewed as the biggest change to the FIT Program and the change most likely to impact current FIT applications. The fact that applicants will need a minimum of one point to even participate is significant. The provincial government is, fairly or unfairly, squarely placing the responsibility of building project support within host communities on developers. The details and criteria as to what constitutes "support" will also be significant.

The government is also putting the brakes on ground mount solar by significantly restricting the areas for project development and lowering the FIT contract price for such projects (see below). This is likely purely a function of cost. The aggregate capacity of ground mount solar projects under the FIT Program, none of which are currently operational, is slated to grow to over 900 MW and will significantly impact electricity prices once these projects are completed. Nimbyism for solar projects, while growing, is not nearly as significant for wind power projects, which further indicates that the reduction in solar procurement is based on price impact.

The implementation of "contract launch meetings" may also cause serious issues for developers unless such meetings also function to crystallize siting of wind and solar power facilities.

E. Reduce prices to reflect lower costs

The Report recommends that the Ontario government reduce current FIT contract prices. Specific recommendations include:

  1. FIT Program prices for wind and solar technologies should be reduced by more than 20% for solar, depending on size, and approximately 15% for wind. Maintain current prices for water, biogas, biomass and landfill gas.
  2. Rather than setting a price at the time of project application for small and large FIT projects, price should be set when the contract is offered.

The bottom line: The Canadian Solar Industry Association (CanSIA) has already issued a press release saying that, while the price reductions are aggressive, it expects that its members will be able to work within the confines of the new pricing regime, with the exception is microFIT solar PV projects, which saw a price reduction of up to 31.5%. Setting aside for the moment domestic content rules (which remain unchanged), developers may be able to benefit from decreasing costs of modules.

The proposed 15% price cut to wind power facilities has come as a surprise to some. It remains to be seen whether the market will support wind power projects at 11.5 cents/kWh being developed in Ontario's somewhat onerous (and thereby expensive) regulatory regime.

F. Transmission and distribution

Going forward, the OPA will develop a rule regarding the appropriate maximum distance between a project site and its connection point. Furthermore, where the OPA's analysis indicates that upgrades are required to connect a project, the OPA should offer contracts only to projects where the need for minor transmission upgrades is identified.

The bottom line: Large wind projects will likely be most adversely affected by this change, since they require larger upgrades to the transmission system. Depending on the appropriate maximum distance between the project site and connection site determined by the OPA, other types of renewable projects may also be affected.

Next Steps

The revised FIT program will not affect projects that have achieved commercial operation. Those projects with a FIT contract in place but that have not achieved commercial operation will operate under the old FIT regime, however it is possible that some of the new land use restrictions will now apply to those projects as well. McCarthy Tétrault will provide updates as they become available. Proponents with a FIT application in the queue will have their applications and fees returned and are eligible to resubmit under the new rules and prices, while retaining their timestamp priority.

The government has stated in its press releases that it will move quickly to implement all of the recommendations contained in the Report. Industry associations such as CanSIA and the Canadian Wind Energy Association have each committed to continue to dialogue with the government on some of the recommendations that the associations have deemed unacceptable. The new FIT contract and FIT rules are expected shortly, and will be reviewed carefully by McCarthy Tétrault.

The Market Rule amendments being proposed by the Independent Electricity System Operator (IESO) for renewable generators must also be watched closely, since the dispatch procedures being proposed by the IESO will directly impact wind and solar generating facilities, with wind facilities expected to be the most adversely impacted. McCarthy Tétrault will continue to update clients as developments regarding FIT and dispatch procedures progress.

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.

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