Canada: Ontario Announces The End Of The FIT For Large-Scale Renewable Projects

Last Updated: June 10 2013
Article by Andrew Lord

It appears that the rumours of the death of the Large FIT Project were not exaggerated.

Since re-launching version 2.0 of the Feed-in Tariff program, the Ontario Power Authority has focused exclusively on Small FIT Projects, being those under 500 kW (or 250 kW, depending on the line voltage to which they connect). Many in the industry wondered when, if ever, the OPA would open a new FIT application window for Large FIT Projects. Others wondered whether the OPA had already regulated the possibility of new Large FIT Projects out of existence by imposing strict project siting rules and a demanding priority points scheme. Those suspicions were put to rest yesterday by the Minister of Energy, who confirmed that Large FIT Projects will no longer be procured under the FIT program.

In a news release issued May 30, Minister Chiarelli indicated that “[w]orking with the Ontario Power Authority (OPA) and municipalities, the province will develop a competitive procurement process for renewable projects over 500 kilowatts (kW). The new process will replace the existing large project stream of the Feed-in Tariff (FIT) program and better meet the needs of communities.”

As discussed below, the announcement heralds yet another phase of uncertainty for the renewable power development market in Ontario.

What remains of the FIT?

The FIT program for Small FIT Projects and the microFIT program for projects under 10 kW will continue, although at a much slower pace and with an increased focus on municipal participation.

The Minister committed to making 900 MW of new capacity available for Small FIT Projects and microFIT projects through 2018. To fill that capacity, province intends to procure 150 MW of Small FIT and 50 MW of microFIT each year beginning in 2014. To put those goals in perspective, the OPA indicated in its Q4 2012 Supply Report that has contracted for 4,545 MW of renewable power under the FIT program since the program launched at the end of September 2009. That represents an annual average procurement rate of 1,398 MW per year, or over 9 times the Small FIT procurement rate proposed for coming years (recognizing that the rate of contract offers has been far from steady over the life of the program and that about three-quarters of the projects are still in the pre-NTP stage).

One of the ongoing criticisms of the FIT has been that it centralized decision making at the provincial level and did not give municipalities sufficient control over the approval and siting of projects. This was a deliberate policy choice made to overcome NIMBYism, which was perceived as a major obstacle to renewable power generation. That policy appears to be changing somewhat, as the Minister also announced changes to the FIT that are intended to strengthen municipal participation. The government intends to:

  • Revise the Small FIT program rules for projects between 10 and 500 kW to give priority to projects partnered or led by municipalities;
  • Work with municipalities to determine a property tax rate increase for wind turbine towers;
  • Provide funding to help small and medium-sized municipalities develop Municipal Energy Plans - which will focus on increasing conservation and helping to identify the best energy infrastructure options for a community.

The details of these proposed changes have not yet been announced.

How will large renewable projects be procured?

The Minister’s announcement only refers to a “competitive procurement process” for projects over 500 kW. The government has yet to provide any details about the scope, timing or requirements for the new process.

The move to new forms of procurement for large projects was foreshadowed by a Ministerial Directive issued to the OPA in January 2013 which moved hydro projects over 500 kW and under 5 MW out of the FIT into a new municipal program stream. The OPA does not seem to have announced the particulars of this new stream yet. In the same direction, the Minister reduced the near-term procurement target for this type of projects from 50 MW to 10 MW, but indicated that it would procure the remaining 40 MW at a later date.

What about other sources of uncertainty?

At least two other recent development will also impact the Ontario renewables market. 

The WTO agreed with Japan and the EU earlier this year that the domestic content rules of the FIT program violate Canada's free trade obligations. Ottawa and Queen's Park are no doubt discussing how to respond to the decision, although it seems likely that the domestic content requirements will have to be altered or removed in future procurement programs.

The IESO has begun implementing changes to their Market Rules to begin dispatching certain renewable projects on an economic basis.  Contract holders who were previously entitled to be paid for every kWh they generated are now negotiating contract changes with the OPA to be made whole for times that they are dispatched off.  These IESO changes are currently expected to be most relevant to existing transmission-connected wind projects.  However, future procurement programs will have to reflect the increasing complexity of integrating thousands of megawatts of renewables into Ontario's supply mix.

What does it all mean for developers and their financial partners?

For large and small projects alike, there will continue to be a significant amount of development activity around existing FIT contracts for the next 18 months to 2 years. About 3,236 MW of contracts remain in the pre-NTP phase and another 936 MW are under construction. Developers, suppliers, equity participants and lenders will remain busy getting these projects to commercial operation.

The market potential for new projects over 500 MW after 2014 will remain very uncertain until the government reveals the details of a new procurement program for large-scale renewable projects.

Developers of Small FIT Projects will have to compete for a more limited allocation of connection capacity going forward.  They will also have to comply with continually evolving FIT rules that will demand greater levels of cooperation with and support from municipalities.

As has been the case since the FIT program was just a rumour, all stakeholders will have to remain up to speed with the complex and evolving regulatory, operational and political landscape of Ontario's renewable energy sector. 

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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