Edited by Paul H. Harricks

Ontario Re-Boots FIT 2.0 With Ministerial Directive

Introduction

On July 11, 2012 Ontario's Minister of Energy issued a directive (directive) to the Ontario Power Authority (OPA) clarifying certain policies and slightly adjusting the feed-in tariff (FIT) program rules and contract. The directive was issued following the Ontario government's review of feedback regarding the draft rules, contract forms and definitions for the revised FIT 2.0 program issued in April of this year.

Summary of the Directive's Key Points:

i. Prioritization of Community and Aboriginal Participation Projects

The ministerial directive clarified that the OPA will prioritize applications for projects with (a) greater than 50 per cent community equity interest held by a co-operative with at least 50 members being local property owners, or (b) greater than 50 per cent Aboriginal equity participation. With respect to the contract capacity set aside for projects with at least 50 per cent community or Aboriginal equity participation, the OPA is now directed to offer contracts to projects described in (a) or (b) before offering contracts to other projects in the application window.

Further, it has now been made clear that a change in the prescribed levels of community and Aboriginal participation will constitute grounds for termination of the contract.

ii. Other Changes to Priority Points

The directive amended the FIT program priority points. The modified priority point system table was set out in Appendix A of the directive.

One key modification was the expansion of the project readiness category:

  • One priority point will now be awarded for projects that applied on or before July 4, 2011; projects that applied on or after July 5, 2011 will be awarded 0.5 priority points.
  • These points may be added to the one point that is awarded if a solar rooftop applicant owns or has firm site control, or if an applicant has sufficient space and a firm lease/option or ownership of the land for a wind, solar ground-mount, bioenergy or waterpower project.
  • There is a maximum of two points to be awarded for this category.

iii. Protection of Agricultural Lands

Ground-mounted solar photovalic (PV) facilities greater than 10 kW are now prohibited from being located on (or relocated onto) any of the following sites:

  • Land with any class 1, 2, and 3 soils (as per the Canada land inventory agricultural capability maps), unless the site is located on one of the following: airport/aerodome, closed landfill, contaminated site, a sited zoned and primarily used for industrial use, a federal military installation, or for class 3 soils only, a site owned by a municipality at the time the application was made.
  • Land with a mixture of class 1, 2, or 3 soils with another soil class. However, if the solar facility is located on the part of the property that is not class 1, 2 or 3, the site is not prohibited.
  • Land with organic soils (as per the Canada land inventory agricultural capability maps).
  • Land that is designated as "specialty crop areas" by the provincial policy statement.

Note: The land restrictions above do not apply to existing FIT contract holders who requested site amendments before April 5, 2012.

iv. Community Energy Partnership Program (CEEP) Eligibility

The ministerial directive instructs the OPA to amend the CEEP eligibility requirements to match those for community projects under the FIT rules, as set out in the April 5, 2012 directive.

The OPA is also directed to allocate $1,000,000 a year for education funding and capacity building, $100,000 of which is to be specifically allocated to the Association of Municipalities of Ontario for education programs.

v. Land Use Rules

The directive also instructs the OPA not to amend existing FIT contracts to permit relocation of facilities greater than 10 kW to properties that are any of the following:

  • Zoned to permit residential use or border a property zoned to permit residential use.
  • Zoned for commercial or industrial use, but where not such use is occurring.
  • Zoned for commercial or industrial use and the solar ground-mounted PV generation facility is (or will be) the sole or primary use of the property.

Going forward, the Ministry of Energy will establish a working group made up of a number of interested stakeholders (including the OPA). The working group will provide recommendations and solutions to project siting issues. Further revisions to the FIT rules may arise out of this working group.

vi. Connection Point and Project Location Proximity

The directive instructs the OPA to amend certain rules for non-hydroelectric plants. Specifically, the rules are to provide a limit on the distance between such a project's connection point on the transmission or distribution grid and the area of the project property that the applicant has access rights to. Further, the distance between a proposed project and its proposed connection point on the grid can be no greater than 50 km.

vii. microFIT 'Offer to Connect' Timelines

The microFIT rules (for projects of 10 kW or less) will be amended to require applicants to seek an Offer to Connect within 30 days of the OPA confirming their application. The applicant will then have a 90-day period in which they must receive and accept an offer to connect from the local distribution company.

viii. Changes to the FIT Contract

In direct response to strong feedback from the project development and finance committees, the minister has directed that the proposed FIT 2.0 contract clauses pertaining to termination for convenience (which would have made most projects non-viable) be set aside. The OPA will not change termination for convenience clauses from the FIT 1.0 contact.

In addition, the voluntary withdrawal period for existing FIT contract holders is now extended to September 30, 2012.

ix. Pilot Program for Solar Projects on New Buildings

By the end of 2012, the OPA is now directed to create and implement a pilot program in which applicants with unconstructed buildings can apply for small FIT rooftop solar contracts. Up to 15 MW of the overall 2013 small FIT contract capacity will be reserved for the pilot program.

Analysis:

With the launch of Japan's feed-in tariff program and the anticipated renewable industry growth in South America, South Africa and Central Europe, analysts expect less attention to be focused on the slowing Ontario market. Although significant panel, turbine and EPC supply opportunities still exist in respect of FIT 1.0 contracts to be fulfilled, the policy complexity and uncertainty associated with FIT 2.0 is expected to slow the pace of new market entry in the province.

At this stage the OPA now needs to implement the changes associated with the ministerial directive – a process which we expect to see competed over the course of the summer months.


Japan's newly launched FIT program

Introduction

On June 18, 2012 Japan's Ministry of Energy, Trade and Industry (METI) approved a system of feed-in tariffs (FIT) for renewable energy generation.1 The new FIT program presents a rare suite of new business opportunities in the development of renewable energy in Japan. The push for renewable energy production is aimed at cutting reliance on nuclear, oil and liquefied natural gas for Japan's energy needs. Japan's investment in clean energy will help the world's third-biggest economy shift away from a reliance on nuclear power after the Fukushima disaster.2

The Opportunity in Japan

Bloomberg estimates that the Japanese market in solar PV could be worth nearly $10 billion, due to the very generous FIT tariffs that are being offered by Japan's METI.3 The high tariff rates will increase the demand to participate in the program, not only by local solar panel makers such as Panasonic and Sharp, but also by international firms vying for a piece of the Japanese market.

With renewable energy subsidies falling in established markets, the Japanese market represents a chance for investors to benefit from the tariff-driven returns.

Japan's Feed-In- Tariff Program

The Agency for Natural Resources and Energy (ANRE) is a department of METI and is responsible for Japan's policies in regard to energy and natural resources. The Japanese FIT program is similar to other FIT programs around the world. The Japanese government will pay tariffs to businesses, individual households and other organizations to generate renewable electricity. That power is then sold to the utilities at a fixed rate over a set period of time. The utilities will offset the costs of the new tariffs by charging their customers a surcharge for electricity generated from renewable sources. METI estimates that consumers will be required to pay an additional 1.2% per month on average for a 300 kWh electricity bill.4

The new FIT program began on July 1, 2012 and electric utilities are obligated to purchased electricity from suppliers of renewable electricity that have obtained the approval of METI. Utilities will also be obligated to inter-connect their electric transmission and other electricity facilities with the power generation facilities of the specified suppliers.

The terms of the power purchase agreements, including the price and annual period will be set by METI and executed by the electric utility operators.

Under the new program, utilities will buy solar, biomass, wind, geothermal and hydro power. The tariff price is based on the type of renewable fuel and the contract capacity. For instance, solar power firms with nameplate capacity of more than 10 kW can charge $0.53/kWh over 20 years. Firms with nameplate capacity of less than 10 kW can also charge $0.53/kWh, but only for 10 years.5

The wind power firms with nameplate capacity of more than 20 kW can charge $0.29/kWh for 20 years, while projects yielding under 20 kW can get $0.73/kWh for 20 years.6

Geothermal plants producing more than 15 MW get $0.35 for 15 years, while those producing under 15 MW get $0.53/kWh, for 15 years.7

At $0.73/kWh Japan's kWh tariff rates for wind are among the highest, if not the highest, in the world.

There are some obstacles to the Japanese FIT program, METI does not guarantee a grid connection and it is up to the suppliers to cover all grid connection costs. Additionally, planning barriers in Japan are significant and may substantially increase development costs and delay deployment.

Given the likely barriers and capital investment required, the potential of the market opportunity is difficult to assess. However, it is estimated that solar and wind projects over 20 kWh could produce equity returns of 44% and 51% respectively.8 The Japanese government seems to be committed to making the FIT project a success since, for the first time in 40, years Japan will not be using nuclear energy as the government has closed down all 50 nuclear plants for maintenance.9 Even though the nuclear reactors will be restarted as the maintenance and safety checks are completed, the shut down underscores the government's commitment to renewable energy production. Further, as of July 2nd of this year, 44 solar and wind power facilities have received approval to join the program.10

The standard terms and conditions of Japan's new FIT program and detailed pricing are available at the MEIT's website at www.meti.go.jp.

How It Measures Up Against Ontario

It is important to note that Japan has filed a complaint with the World Trade Organization asserting that the domestic content requirements of Ontario's FIT program are in violation of The General Agreement on Tariffs and Trade (GATT).11 As a result, it is not surprising that Japan's FIT program does not contain a domestic content requirement.

Ontario is a sub-national energy market with a population of 13.3 million people12, compared to Japan which is a national market with a population 126.4 million people.13 Unlike Ontario, Japan's utilities market is divided into ten regulated companies and the nation is the fourth largest consumer of electricity in the world.14 In 2011, Japan produced 937.6 billion kWh of electricity and consumed 859.7 billion kWh15, compared to Ontario's total energy production of 143.8 billion kWh and consumption of 124.6 billion kWh.16 The Fukushima disaster last year has placed a strain on Japan's energy resources and the opportunities to develop renewable energy solutions in Japan are currently very lucrative.

Since the launch of Ontario's FIT program in 2009, the province has made significant progress in developing cleaner renewable energy through wind, solar, and bioenergy projects. Ontario is projected to increase its capacity of renewable energy from about 1,700 MW in 2010 to 10,700 MW by 2018.17 Many analysts expect similar results with the launch of Japan's FIT program.

The table below provides a high level comparison between the FIT programs in Japan and Ontario.


Privacy and the Smart Grid: How Privacy Protections Were Designed Into Ontario's Central Meter Data Repository

By its nature, a smart electrical grid improves efficiencies by better utilizing information in the operation and management of an electricity system. Gathering and processing information about consumers of electricity is central to a smart grid. This is illustrated by the U.S. Department of Energy's definition of "smart grid" which is set out below:

"A smart grid is an electrical grid that uses computers and other technology to gather and act on information, such as information about the behaviors of suppliers and consumers, in an automated fashion to improve the efficiency, reliability, economics, and sustainability of the production and distribution of electricity18."

Given the central role that consumer information plays in the concept of a smart grid, it is not surprising that issues of privacy often arise when the smart grid is discussed. It is also not surprising, given the public's relative lack of understanding of the electrical grid and how it operates, that privacy concerns about the smart grid have risen to extremes. For example, the Toronto Star newspaper ran a story in its May 12, 2011 issue entitled "Can smart grid know too much?". The article included photographs of terrified individuals with the caption "They know when you are sleeping...they know when you're awake...they know when you're in the shower!"

Fears about taking showers aside, consumer concerns about how the smart grid treats their personal information are warranted. With the development of the smart grid, new avenues for the collection of personal information, such as smart meters, have been implemented and entirely new libraries of personal energy use information have been created. Ontario's Privacy Commissioner Dr. Anne Cavoukian summarized the implication of these privacy concerns as follows:

"The underlying rationale is that consumer confidence and trust in the Smart Grid, and in one's local electricity distributors, is vital in achieving the vision of a more energy efficient electrical grid."19

In recent years the Ontario Independent Electricity System Operator ("IESO") has taken great strides to make Ontario's electrical grid significantly "smarter". These strides include the design, operation and administration of a Smart Metering Entity and a related central meter data repository for Ontario's electricity market. This article will document how the IESO's design, operation and administration of Ontario's Smart Metering Entity and its central meter data repository has designed privacy protections into the control framework for Ontario's smart meter data management system.

For consumers of electricity, an understanding of how privacy protections have been embedded into these new developments will help dispel fears about how personal information is treated by the smart grid. For organizations, the IESO's Smart Metering Entity provides an example of how to build proactive, default privacy controls into complex data management systems. Organizations planning to build or implement such systems of their own should look to the IESO's accomplishments for a better understanding of how systems can be designed and implemented to comply with privacy requirements.

Ontario's Smart Metering Initiative and the MDM/R

Ontario's Smart Metering Initiative (SMI), led by the Government of Ontario, is intended to create a conservation culture and support demand management through province-wide smart meter deployment. The SMI intends to support a more sustainable and efficient electricity system by:

  • Laying the foundation for a Smart Grid
  • Improving reliability
  • Improving operating efficiency
  • Increasing conservation
  • Providing more accurate and timely energy use information
  • Reducing or deferring the need for new power generators20

As of February 2012, there were 4.7 million smart meters installed and over 3.8 million customers on time-of-use billing in Ontario.21

In July 2007, the Government of Ontario designated the IESO as the Smart Metering Entity (SME) that will play a central role in the management of Ontario's system of smart meters.22

The IESO, as Ontario's independent electricity system operator, is responsible for monitoring Ontario's electricity system and identifying what is required to maintain its reliability. Acting as the SME, the IESO's role has been expanded to include the operation of a central meter data repository (the Meter Data Management and Repository, or "MDM/R") in support of Ontario's more than 70 local electricity distribution companies ("LDCs").

The MDM/R acts as a central hub providing a common platform for storing, processing and managing hourly electrical consumption information in a reliable and secure manner. The MDM/R receives consumption data daily from smart meters through the LDCs' systems. Working in conjunction with the LDCs' metering and billing systems, the MDM/R provides consumers with detailed, accurate and timely information about their electricity use.23

The SME provides the following services:24

  • manages the MDM/R
  • coordinates the MDM/R's design, technical architecture and standards
  • manages changes to the MDM/R to ensure they are implemented in a controlled manner
  • performs testing to ensure the MDM/R functions and operates as designed, and fulfils audit requirements
  • provides first-level incident response and resolution
  • coordinates shared services across IESO functions to fulfill its obligations as the SME.

Privacy and the MDM/R

Ontario's Privacy Commissioner and her work advocating privacy in the smart grid context are very familiar to Ontario's electricity industry. Commissioner Cavoukian is probably best known for espousing that seven foundational privacy principles, which she calls "Privacy by Design", be embedded in the smart grid from its initial design through implementation and operation.25

These foundational principles are:

  • Be Proactive, not Reactive
  • Make Privacy the default setting
  • Ensure privacy is embedded into the design
  • Strive to achieve full functionality of the underlying technology in a positive-sum, not zero-sum, manner
  • Instill security into the system in an end-to-end manner
  • Ensure the system is transparent
  • Ensure the smart grid is user-centric in a manner that respects user privacy26

The following outlines how the IESO has successfully instilled these seven foundational privacy principles in the MDM/R and the operating policies and procedures that apply to it.27

1. Proactive Privacy

A proactive approach to privacy can be facilited through regular monitoring and audits of systems and managerial controls.

To accomplish this, the IESO has implemented an Enterprise Risk Management process to proactively address potential risks and to foster a risk conscious internal control environment. This process includes IESO Senior Management reviewing the risks to the administration and operation of MDM/R services on at least a quarterly basis and reporting to the IESO Board at least twice yearly. The IESO Internal Audit department reviews IESO operations and supporting information systems including the IESO's system of internal control, risk management and governance processes. Results of all such audits are reported in writing to IESO senior management and the audit committee of the IESO's board of directors.

2. Privacy - the default setting

The IESO uses certain automatic technological processes and business practices to ensure that privacy is maintained in the MDM/R as the "default setting".

This is demonstrated by the IESO's use of controls to provide assurance that only authorized organizations are processed as registrants with access to the MDM/R. To do so, the IESO reviews organization registration applications and issues an Organization ID to the applicant. The IESO's Operational Service Provider (OSP) sends details of additions to its file transfer service to the IESO who confirms that the update is complete and accurate.At this point the IESO exchanges self-signed certificates with the newly registered organization and the OSP loads a digital certificate into its web services connections to enable the new registrant, confirming completion of this step to IESO.

Only LDCs and their designated agents have the ability to provide information to, or pull information from, the MDM/R. The IESO does not share smart meter data with energy retailers or other agents of consumers. The LDC controls online read-only access to customer consumption data and daily billing quantity data, and is responsible for authorizing access to this data by retailers and other customer agents. The LDC will identify organizations authorized to access the online data, and will grant read-only access to retailers or other agents for those specific customers who have chosen to enter into contracts with energy retailers or other agents.

3. Embedding Privacy into the MDM/R design

The IESO utilizes access controls to restrict access to the information in the MDM/R to authorized organizations and user accounts. Several automatic processes facilitate this restriction by default. These processes include:

  1. the MDM/R automatically restricts access to data to organizations who configured permissions during registration
  2. the MDM/R automatically notifies the LDC when files are transmitted to or from an LDC
  3. the MDM/R automatically associates manual verifications or edits made to data with the authorized user that is interacting with the system
  4. the MDM/R employs automatic restrictions on read-only use and editing use of data to authorized users
  5. requests for new user access or changes to existing user access must be made using originally signed prescribed forms. Each form must be reviewed and approved by the IESO
  6. new user Ids and passwords are sent directly to the requester in separate messages
  7. the MDM/R automatically authenticates user access through a login process that is governed by password control.

The MDM/R uses the following controls to provide assurance that meter-read data it receives from LDCs is recorded in the MDM/R completely, accurately and in a timely manner:

  1. the MDM/R automatically checks incoming data to verify that relevant fields are populated, rejecting records that do not meet the required criteria
  2. the MDM/R automatically performs checks of data provided to it against master data
  3. exceptions revealed by the two checks mentioned above are automatically reported to the LDC

To provide assurance that master data updates received by the MDM/R are processed completely, accurately and in a timely manner, the MDM/R:

  1. automatically processes, checks and tests synchronization file sets and reports errors found to the submitting organization
  2. automatically reports updates made by synchronizations to the submitting organization.

4. End-to-end Security

The IESO instigated the following controls to ensure the MDM/R systems are secured to prevent unauthorized use, disclosure, modification, damage or loss of data:

  1. the IESO entered into an agreement with its systems service provider that requires the use of up to date access controls
  2. user access to the MDM/R system and data is based on documented and approved management requests
  3. the IESO performs quarterly reviews of all MDM/R user access to determine that the MDM/R's user lists align with the user lists maintained by the IESO's registration and enrollment group and identified exceptions are remediated within defined service levels
  4. only administrators designated by the IESO's systems service provider have access to add/remove/modify user Ids
  5. the IESO's systems service provider is required by contract to update user access to the MDM/R upon notice by the IESO on a timely basis

Security and other privacy protections are applied to the MDM/R on an "end-to-end" basis through a privacy-protected change management process. Change management controls are utilized to provide assurance that requested changes to the system are authorized, tested and implemented in a controlled manner so that unintended consequences (including unintended consequences for privacy) are prevented.

The following change management controls were put in place regarding the MDM/R:

  1. requested changes are documented, categorized and implementation risks are assessed
  2. the environment for the testing of the requested change is segregated from all production environments
  3. the scope and level of testing of the change is determined based on the level of risk and complexity associated with the change
  4. required testing must be reflected in test plans and test results that are accepted by IESO management
  5. IESO management must review and approve the request to promote the change to the production level
  6. defects identified in testing are either received prior to change implementation or are identified and communicated to the LDCs.

5. System Transparency

To promote transparency, the IESO maintains a website for MDM/R service recipients that provides an overview of the SME, SME services, MDM/R governance documents, manuals and procedures and key contact information. The IESO's MDM/R Service Desk provides a single point of contact for information requests, service requests and reporting of incidents for MDM/R service recipients, including providing updates on status of requests and incidents.

The IESO users the following administrative controls to accountability, visibility and transparency of the business practices of the MDM/R's operational service provider:

  1. IESO management reviews the scope, control objectives, control descriptions and conclusions reported by the MDM/R service provider on a quarterly basis
  2. if exceptions affecting the MDM/R are identified in a service provider report, IESO management follows up with the service provider to develop a corrective action plan and to identify compensating controls to mitigate associated risks.

6. Making the System User Centric

To ensure the MDM/R system meets user needs, IESO management monitors system performance against defined service levels and escalates problems with service providers and the IESO board. The IESO also meets weekly with its operational service provider to review issues and priorities with MDM/R service providers.

Responding appropriately to operations incidents is another key aspect of ensuring the MDM/R system satisfies user needs. The IESO has controls in place to provide reasonable assurance that operations incidents are identified, recorded, responded to, resolved or investigated, reviewed and analyzed in a timely manner. These controls include:

  1. identified operations issues are logged into the MDM/R's service desk system and classified into agreed upon severity categories
  2. updates regarding the incident status are provided to the incident originator on a periodic basis
  3. the IESO reviews and discusses resolution timeliness of outstanding issues on a periodic basis.

Conclusion

The management practices of Ontario's Smart Metering Entity and its design and administrative policies pertaining to Ontario's Meter Data Management and Repository are examples of how privacy protections can be instilled in the smart grid "by design". A better understanding and communication of these practices and policies will help dispel consumer fears about how personal information is treated by the smart grid. Organizations can look to Ontario's IESO's practices and policies as examples of how to build proactive, default privacy controls into complex data management systems.

Footnotes

1 Japan's METI approves feed-in tariffs for solar PV generationSolar Server (June 20, 2012), online: Solar Server Online Portal to Solar Energy http://www.solarserver.com.>.

2 Yuko Inoue and Leonora Walet, Japan approves renewable subsidies in shift from nuclear powerReuters (June 18, 2012), online: Reuters Edition UK < http://uk.reuters.com.

3 Chisaki Watanabe, Solar Boom Heads to Japan Creating $9.6 Billion MarketBloomberg (June 18, 2012), online: Bloomberg http://www.bloomberg.com >.

4 Supra Note 1

5 Ibid

6 Ibid

7 Ibid

8 Japan Renewable Energy Feed-In Ready for SignatureSustainable Business (26 April 2012), online: Sustainable Business.com < http://www. sustainablebusiness.com >

9 Ibid

10 Feed-in tariff era gets under wayThe Japan Times(2 July 2012), online: The Japan Times Online < http://www. japantimes.co.jp >.

11 Julius Melnitzer, Japan seeks WTO hearing on Ontario's Green Energy ActLegal Post, online: Financial Post http://business.financialpost.com >.

12 Ontario Fact Sheet 2012 (6 June 2012), online; Ontario Ministry of Finance http://www.fin.gov.on.ca.

13 Background Note: Japan (5 March 2012), online: U.S. Department of State http://www.state.gov >.

14 The World Factbook JapanCIA, online: CIA The World Factbook https://www.cia.gov.

15 Ibid

16 Center for Energy, Ontario-Statistics, online; Center for Energy http://www.centreforenergy.com.

17 2011 Annual Report of the Auditor General of Ontario, Electricity Sector Renewable Energy Initiatives (Ontario: Auditor General of Ontario, 2011) at 93.

18 U.S. Department of Energy, "Smart Grid/Department of Energy" http://energy.gov/oe/technology-development/smart-grid

19 Commissioner Cavoukian, Electric Light & Power Magazine, www.elp.com

20 Independent Electricty System Operator and Information Privacy Commissioner, Ontario Canada, Building Privacy into Ontario's Smart Meter Data Management System: A Control Framework

21 Supra note 3.

22 Ontario Regulation 393/07, as amended by Ontario Regulation 233/08.

23 Supra note 3.

24 Supra note 3.

25 Privacy by Design: Achieving the Gold Standard in Data Protection for the Smart Grid, Dr. Anne Cavoukian, Information and Privacy Commissioner of Ontario, June 2010

26 Operationalizing Privacy by Design: The Ontario Smart Grid Case Study, February 2011

27 Supra note 3.

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.