Canada: The FIT 2.0 Rules And Contract Released By The Ontario Power Authority

On August 10, 2012, the Ontario Power Authority ("OPA") issued the new Feed-in-Tariff Program rules ("FIT 2.0 Rules") and contract ("FIT 2.0 Contract").1 Version 2.0 of the FIT Program was implemented pursuant to Directions issued by the Minister of Energy dated April 5, 2012 and July 11, 2012 supplementing the Direction previously issued by the Minister of Energy and Infrastructure dated September 24, 2009. The final FIT 2.0 Rules and Contract replace the draft FIT 2.0 Rules and Contract released in April 2012 for comment (the "Draft 2.0 Rules and Contract").

The Ontario government is affirming, through the FIT 2.0 Rules and Contract, that it wishes the FIT Program to continue. But the changes to FIT 2.0 Rules and Contract may pose significant challenges to project developers and financing parties.

The following is a non-exhaustive list of key differences between the Draft 2.0 Rules and Contract and the FIT 2.0 Rules and Contract (some of which are explored in further detail in this article). The FIT 2.0 Rules and Contract:

1. remove the controversial termination for convenience and stop work order provisions which developers and the financial community found very problematic;

2. add additional points available to Applicants for Applications submitted before certain dates;

3. add Time Stamps as a factor considered when an Application is being reviewed;

4. clarify the "Property Owner" definition used in relation to Co-op Members;

5. provide for the assignability of Resubmitted Applications in very limited circumstances;

6. introduce the concept of a Contract Capacity Set-Aside Project which will receive a higher ranking than all other Applications;

7. change the points available in the Aboriginal Support Category to be applicable only to a small FIT project; and

8. provide an option for an Applicant that has entered into two or more FIT Contracts that qualify as a Rooftop Portfolio to extend the Milestone Date for Commercial Operation to 36 months following each Contract Date.

The FIT 2.0 Rules and Contract contain numerous amendments that developers and potential investors and participants should consider carefully. As a whole, a developer can expect greater challenges to obtain a FIT 2.0 Contract under the new Rules. The new Rules set out procurement targets, application periods, and priority ranking based on the significant involvement of groups not historically in the business of generating electricity – community, Aboriginal, and public sector groups.

The OPA will maintain an application package, including the Application for the FIT 2.0 Contract, and detailed instructions on how to apply for a FIT 2.0 Contract, on its website.

With the release of the FIT 2.0 Rules and Contract, all those active (or who want to be active) in the renewable energy space in Ontario are reviewing and strategizing the new Rules to best determine how to conform to the new Rules and how to use the Rules to their benefit.

The following is a summary of the major changes under the FIT 2.0 Rules and Contract. We would be happy to discuss the FIT 2.0 Rules and Contract in more detail with you at your convenience.

I. Major Differences between the Draft 2.0 and FIT 2.0 Rules and Contract

Controlled Scope – Procurement Targets; Application Periods

Unlike the initial open-endedness of the FIT Program, the issuance of Contracts will now be subject to periodic procurement targets set by the OPA in its discretion.

In addition, FIT applications will now be accepted only during specific application periods, rather than on an ongoing basis. The OPA will also determine the type of FIT Project that may be the subject of a particular application submitted during an application period.

As directed by the Ministry of Energy, the OPA will award 200 MW of small FIT (under 500 kW) Contracts first. The application window for this first round of small FIT 2.0 projects is anticipated to run from October 1 – November 30, 2012.

Applicants will be competing with each other and will be ranked based on points, time stamps, and availability of grid capacity. Applications will be prioritized with points awarded based on project type (community participation, Aboriginal participation, or public university, publicly-funded school, public college, hospital or publicly-owned long-term care home participation or where they are a host), municipal support, Aboriginal support, project readiness, and electricity system benefit.

Applications will first be judged on whether or not they meet the completeness requirements set out in Section 3 of the FIT 2.0 Rules. Then each Application will either pass or fail depending on whether the Application meets the eligibility requirements set out in Section 2 of the FIT 2.0 Rules. In Stage 3, each Application will be evaluated to determine whether it qualifies as a Contract Capacity Set-Aside Project and will be awarded a point score based on the prioritization process contained in Section 6 of the FIT 2.0 Rules. Applications will then be ranked by their qualifications as a Contract Capacity Set-Aside Project, as applicable, Priority Points, and by Time Stamp (or a Resubmitted Application's Pre-Existing Application Time Stamp). Finally, Applications will, in order of rank, be assessed under the Transmission Availability Test and the Distribution Availability Test (as applicable) and, if it passes and availability remains within the applicable Procurement Target, an Application will receive an Offer Notice.

New restrictions around change of control and assignment have been added to ensure that the economic interest and membership levels specified under the project type category (e.g. Aboriginal or community economic interest) do not fall below the level that resulted in the project receiving priority points during the application review process. Additional points are also now available based on the time stamp of a pre-existing application: One point is available for projects that applied on or before July 4, 2011, and one half point is available for projects that applied on or after July 5, 2011.

Project Eligibility

A number of changes have been made to eligibility requirements, some of which affect specific types of renewable fuels.

Solar Projects

  • Ground-Mounted Solar Projects may not be located on residential property or on property abutting residential property. However, for property where the lawfully permitted use is agricultural, these types of projects are permitted on the property or on an abutting property if residential use is permitted on both properties as ancillary to the agricultural use.
  • Such projects are permitted on commercial or industrial property as long as the project is not the main, primary, or only use of the property.
  • Such projects cannot, with few exceptions, be located on:
  • Specialty Crop Areas,
  • CLI Organized Lands, or
  • CLI Class 1, 2, or 3 Lands (in whole or part). If the project is located on CLI Class 1, 2 or 3 Lands, exceptions exist if the project is on an airport or aerodrome, a closed landfill, a federal military installation, a Contaminated Property, a Property which is being legally used for industrial uses and the Project would not be a Principal Use of the Property, or a Property that is owned by a Municipality (re. CLI Class 3 Lands);
  • a Residential Property that is not an Exempt Residential Property;
  • a Property that abuts a Residential Property unless such Resident Property is an Exempt Residential Property; or
  • a Property in respect of which one or more Non-Rooftop Solar Project would constitute the Principal Use.
  • Solar (PV) Projects continue to be limited to a maximum of 10 MW.
  • A Rooftop Solar Facility must reach commercial operation within 18 months of receiving a Contract, but if the Facility forms part of a Rooftop Portfolio with more than 15 MW of projects contracted from the same application window, the Applicant can have 36 months to reach commercial operation.

Waterpower Projects

  • These projects continue to be limited to a maximum of 50 MW.

There are also specific provisions for co-locating projects and limitations on developers submitting similar projects during the same application period.

In addition, a proposed project (other than a waterpower project) will need to be located within fifty kilometres of the facility's contemplated connection point.

Application Requirements

All project applicants, including those with small FIT projects, will need to submit application security under the new Rules. The size of the application security is representative of the size and development complexity of a potential project – either $20 per kW of capacity for solar PV, $10 per kW for other projects, or $1,000, whichever is greater. Lower security rates apply to projects with greater than 50% community or Aboriginal participation.

In addition, an applicant must provide representations and warranties which attest to an awareness of certain project requirements, such as environmental permitting and particular FIT Program Rules, and which confirm that certain preparatory actions have been completed in respect of the project, such as obtaining all access rights and supporting documentation (e.g. independent engineer report, a written opinion of a Land Use Planner, maps, requisite consents and statutory declarations, Environmental Site Assessments, land titles or land registry search, soil study, etc.). The effect is to place a greater degree of responsibility as well as additional costs on the applicant to ensure the viability of its proposed project.

Pricing

FIT prices will be reviewed annually, with prices published in November that will take effect on January 1st of the following year.

In a significant departure from the previous FIT Program, an applicant offered a FIT 2.0 Contract will be offered the pricing (and Price Adder, as applicable) in effect when the Contract offer is made, not the price in effect when the application was filed. If the Contract Price or Price Adder (as applicable) set out in the Offer Notice is less than the Price and Adder in effect as of the date of the Application, the Applicant may by notice to the OPA elect not to enter into a FIT Contract; in such circumstance, the OPA will return the Application Security.

Following the assessment of Applications, the OPA will post on its website (1) the Offer List – listing Applications in respect of which Offer Notices are to be issued; and (2) the Amended Site List – listing Applications that are given the opportunity to make certain amendments (e.g. to revise the dimensions of the applicable Site to conform with the available provincial Crown lands, reduce the Contract Capacity, etc. and resubmit the Application) or to terminate the Application.

Domestic Content

The FIT 2.0 Contract maintains domestic content requirements, set at 50% for wind and 60% for solar (pv) facilities.

Priority Points System

Under the FIT 2.0 Rules, a new priority points system will be used to rank applications with the time stamp now acting as tie breaker. An application may only proceed if the proposed project can receive at least one point. The new system clearly assigns priority to projects that have a community, Aboriginal or municipal, education or health ("MUSH" sector) component, whether as a direct participant in the project or as supporting entity.

The FIT 2.0 Rules do not permit a project to obtain more than one type of participation project points but do permit certain combinations of project and non-project points under certain situations.

FIT Contract – Certain Key Differences

  • Supplier Termination of FIT 2.0 Contract

If the Supplier terminates the Contract in accordance with Section 2.4(a) of the Contract, then the OPA's sole and exclusive remedy shall be the payment of liquidated damages by the Supplier to the OPA unless the Supplier can provide evidence to the OPA that a limited exception under Section 2.4(c)(ii) has been met.

  • NTP Requests

For a Large FIT Facility, the Supplier must provide the OPA with a completed NTP Request no later than 6 months prior to the Milestone Date for Commercial Operation. If the Supplier does not do so, the Supplier shall provide the OPA with such information as the OPA may require in its sole and absolute discretion (which may include information regarding the Project's status and a project plan).

For a Small FIT Facility, the Supplier must provide the OPA with a completed NTP Request no later than three months prior to the Milestone Date for Commercial Operation.

  • Milestone Date for Commercial Operation

Liquidated damages will no longer be payable by a Supplier for failing to attain Commercial Operation by the Milestone Date for Commercial Operation. However, the OPA will now have the option to terminate the Contract for such failure under Section 9.2 of the Contract.

II. If a FIT application with a project 500 kW or smaller has already been submitted...

Pre-existing small FIT applicants who wish to participate in the FIT Program will need to submit a revised application between October 1, 2012 and November 30, 2012 in order to maintain their original time stamp. New and resubmitted applications will be reviewed according to the FIT 2.0 Rules. Applications can be modified to conform but the legal applicant name and location must stay the same to retain the original time stamp. The project must also be located on the same site. However, applicants will be allowed to change the legal applicant name on the application if they are adding participation of 15% or more from an Aboriginal or local community, school, college, university, hospital, or long-term care home.

New evidence and security must be submitted, along with a new application fee; the application fee and security submitted with the Pre-Existing Application will be returned.

Existing applicants who do not wish to proceed under the FIT 2.0 Rules may withdraw their application and they will have their application fees and application security returned. Any existing application that is not resubmitted within the required window will be terminated and the fees and security returned.

III. If you are an existing contract holder...

Current FIT projects will continue to be managed under the existing terms of the relevant FIT Contracts. If the project is a ground-mounted solar PV project, and a site amendment is required, the new agricultural, residential, and commercial/industrial land-use restrictions will apply to the proposed new site.

An existing FIT Contract may be terminated by the FIT Contract holder (but not by the OPA), without penalty, for any reason, until September 30, 2012. If terminated before this deadline, the security will be returned within 20 business days of the OPA receiving an executed Termination Agreement that is sent to the current FIT Contract holder following the holder's submission of a completed Supplier Notice of Termination.

Footnotes

1 Any capitalized term in this bulletin, not otherwise defined, has the meaning given to it in the FIT 2.0 Rules or FIT 2.0 Contract.

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