Canada: Ontario Power Authority Publishes Final Program Rules For Standard Offer Program

Last Updated: November 24 2006

Article by Robert Power and Kevin-Paul Deveau, © 2006, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Electricity, November 2006

On November 8, 2006, the Ontario Power Authority (OPA) released the Final Program Rules (the Rules) for the Renewable Energy Standard Offer Program (SOP, or the Program). The Rules were developed pursuant to a directive issued by the Minister of Energy in March 2006. The SOP is designed to remove barriers to the participation of small renewable generators in Ontario’s electricity market.

The OPA has indicated that the SOP standard contract and a web-based application form will be available on its Web site by November 22, 2006, the date on which it intends to start accepting applications for the SOP.

Eligibility Requirements

A project which seeks to enrol in the SOP must generate electricity from any of the following sources: wind, thermal electric solar, photovoltaic solar, renewable biomass, biogas, biofuel, landfill gas, or water. Eligibility is limited to projects located in Ontario which have a gross nameplate capacity of no more than 10,000 kW.

The Rules limit the SOP to projects which are connected to the IESO-administered grid via single connection of 50 kV or less. Output from projects must be metered in accordance with the requirements of the OEB’s Distribution System Code for settlement purposes. Proponents are solely responsible for any costs associated with these connection and metering requirements.

The Rules permit phased projects under a single SOP contract; however, only those phases which achieve commercial operation by the third anniversary of the contract date (except in the case of waterpower projects) are eligible for the SOP. The Rules also allow for incremental projects which increase electricity output from existing facilities or which restore abandoned facilities to service; however, only the increase in output resulting from the incremental capacity is eligible under the Program.

The Rules stipulate that certain projects are ineligible for the Program: projects which have achieved commercial operation prior to applying to the Program, unless commercial operation was achieved on or after November 7, 1998, but prior to December 31, 2006; projects owned by Ontario Power Generation Inc. (OPG), its affiliates, or any entity in which OPG has a material interest; and projects which have been or are subject to the non-utility generation program established by Ontario Hydro, to a renewable energy supply contract issued by the OPA, or to any standard offer program administered by the OPA.

The Rules do not limit the number of projects or the combined capacity of projects which a proponent can seek to enrol in the SOP.

If all eligibility requirements are satisfied, a proponent is required to complete a connection impact assessment, to perform the applicable environmental assessment, and to demonstrate site access.

Transmission Constraints

Certain areas of the province’s transmission system have limited or no ability to accept new generation. As such, the OPA will establish certain restricted sub-zones for the SOP, which will be updated as generation and transmission facilities are upgraded or otherwise changed.

Sub-zones will receive one of three designations:

  • Green: A green zone is an area which has no transmission constraints, and a project in a green zone will be approved under the SOP provided that all Program criteria are satisfied.
  • Yellow: A yellow zone is an area for which existing or potential transmission constraints are recognized, and SOP contracts will be granted on a first-come, first-served basis, dependent upon the completion of a Connection Impact Assessment from the local distribution company.
  • Orange: An orange zone is an area which has significant transmission constraints, and only micro projects of less than 10 kW and farm-based bioenergy projects of less than 250 kW (to a combined maximum of 10 MW in any particular orange zone) will be approved under the SOP.

Commercial Operation

The Rules require that projects (except waterpower projects) must declare commercial operation within three years of the effective date of a SOP contract. For waterpower projects, the proponent must obtain:

  • for projects located on provincial watercourses, written approval from the Minister of Natural Resources for the location of the waterpower project and its plans, and/or
  • for projects located on federal watercourses, an interim licence issued under the Dominion Water Power Regulations (Canada).

within three years of executing a SOP contract. Waterpower projects are required to attain commercial operation within eight years of the effective date of the contract.

The OPA has indicated that the SOP standard contract will allow a proponent to rely upon the force majeure provision therein to receive an extension to this commercial operation requirement. For waterpower projects, a proponent can rely upon force majeure to extend the date by which it must receive necessary regulatory approvals; however, the project must, in any event, achieve commercial operation within eight years of the effective date of the contract.

Contract Pricing

All SOP projects, except those using photovoltaic solar generation, will receive 20-year contracts which provide a base price of 11.0 cents per kW. Twenty per cent of the base price will be adjusted annually according to the year-over-year change in the Ontario Consumer Price Index (CPI), commencing May 1, 2007. In any year where the CPI is negative, the base price will remain unchanged. Photovoltaic solar projects will receive a 20-year contract which provide a base price of 42.0 cents per kW. This base price will not be adjusted for inflation.

The Rules also provide that projects which can operate during 80 per cent of peak hours (defined as 11:00 a.m. to 7:00 p.m. EST on business days) each year will qualify for an additional 3.52 cents per kW for electricity delivered during peak hours. Projects with intermittent generation, such as wind and photovoltaic solar, are not eligible for this additional payment.

The Rules provide for the OPA to review pricing under the Program periodically; however, any modification to pricing is not retroactive, and will not amend executed contracts.

OEB Licensing

All participants in the Ontario real-time electricity market are required to obtain a licence from the OEB. The OEB has established a SOP generator licence, which is more simplified than the traditional generator licence. The OEB has also reduced the licensing application fee from CAD 800 to CAD 100 for generators with a capacity of less than 10 MW, and has waived the CAD 800 annual registration fee for such small generators.

In addition, on October 30, 2006, the OEB announced amendments to the Distribution System Code and the Retail Settlement Code (the Amendments). The Amendments are intended to support the implementation of the SOP and to ensure that the OEB’s regulatory instruments do not act as a barrier to investment in new generation capacity or to the development of renewable energy. The Amendments also intended to facilitate the connection of embedded generation facilities to distribution facilities and to address related settlement issues.

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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