Canada: OPA Launches Ontario´s Feed-In Tariff Program - A First In North America

On September 30, 2009, the Ontario Power Authority (OPA) (re)released the official feed-in-tariff (FIT) rules and contract. The FIT program is intended to encourage and promote greater use of renewable energy sources including wind, waterpower, renewable biomass, bio-gas, landfill gas and solar for electricity generating projects. The FIT program is designed for generating facilities with a maximum capacity of 10 MW for solar (PV) projects, 50 MW for waterpower projects and unlimited capacity for projects using other renewable fuels.

Under the FIT program, the OPA will have no responsibility to assess the viability of a project. To be eligible to participate in the FIT program, a proposed generating facility must:

1. be a renewable generating facility of the types mentioned previously;
   
2. be located in the Province of Ontario;
   
3. meet the contract capacity requirements discussed above;
   
4. in the case of solar (PV) projects that are not rooftop facilities and have a contract capacity greater than 100 kW, not be located on certain agricultural classes of land;
   
5. not be an existing generating facility (although some limited exceptions apply for upgrades and expansions); and
   
6. connect to a distribution system, and (vii) not have had a power purchase agreement in respect of the facility.

The OPA began accepting applications as of October 1, 2009. Applications will be accepted for the initial launch phase of the FIT program until November 30, 2009. The OPA's target for processing applications is 60 days following delivery of notice to the applicant that its application is complete.

Applicants that have entered into a connection cost agreement in respect of the project must terminate any such agreement prior to applying for the FIT program, unless physical construction of the connection asset relating to the impact assessment had commenced as of September 24, 2009.

Highlights of the FIT program include:

• Upon acceptance of an application, the OPA will determine whether the transmission system has sufficient connection resources to accommodate the connection of the project. If there are insufficient resources, the application will be subject to an economic connection test. If there are sufficient resources, a FIT contract will be awarded;
• The OPA will then determine whether the applicable distribution system has, or will have, sufficient connection resources to accommodate the connection. Where an application does not specify a connection point, it will be deemed not to pass the distribution availability test. If there are, or will be prior to the milestone date for commercial operation, sufficient distribution system resources to accommodate the connection, a FIT contract will be awarded. If there are approved plans to accommodate the connection of the project, but such resources will not be in service prior to the milestone date for commercial operation, the applicant will be added to the production line. If there are no such distribution resources, actual or planned, the applicant will be subject to an economic connection test;
• An economic connection test will be run at least every six months for each region of the province to ensure that costs of connecting a project that will ultimately be borne by rate-payers are reasonable. The test will assess the economics related to the investments necessary to connect proposed new generation, to the extent that such investments will be allocated to transmitters and ultimately passed on to rate-payers. The transmission and distribution tests discussed above will be conducted on all projects in the production line to determine whether the project should be awarded a FIT contract, remain in or moved to the production line, moved to the FIT reserve or withdrawn from the program;
• Projects in the production line are intended to provide input into the transmission and distribution planning processes, as the cost of connecting these projects is within economic thresholds, and similarly, the FIT reserve is intended to support the production line until such time as the cost of connecting these projects is within economic thresholds;
• The Supplier, as defined in the FIT contract, is required to own or lease the generating facility for the term and to design, build, operate and maintain the facility in compliance with all applicable laws and policies;
• The FIT contract term is for a period of 20 years, or for facilities using waterpower, for a period of 40 years.
• The FIT contract will require that facilities utilizing windpower with a contract capacity greater than 10 kW or utilizing solar (PV), achieve a minimum percentage of domestic content. There are as follows:

• Projects may qualify for the ecoENERGY for Renewable Power Program, and if so, must transfer half of all payments received to the OPA;
• Projects may not be divided into smaller projects for the purpose of obtaining a higher contract price or any other benefit under the FIT program. If the OPA determines that a project has been divided into smaller projects, it may reject all applications, apply the contract price that would have been applied had all projects been the subject of a single application, or such other action as it may determine; and
• Projects for which 10% or more of the applicant or Supplier is held by an aboriginal community, will have an amount added to the price payable by the OPA pursuant to the terms of the FIT contract. Similarly, projects for which 10% or more of the applicant or Supplier is held by either individuals resident in Ontario, a registered charity with its head office in Ontario, a not-for-profit organization with its head office in Ontario or a co-operative corporation whose members are resident in Ontario, will have an amount added to the price payable by the OPA pursuant to the terms of the FIT contract. Where a project may have combined aboriginal and community participation, both price additions shall apply, provided that the total shall be subject to the greater maximum price adder.

Where the project is (i) exempt from the new renewable energy approval process set out in the Green Energy Act, (ii) an applicant, or any person who controls or is controlled by the applicant, who own or have executed a fixed or guaranteed maximum price contract with an equipment supplier, or (iii) where the applicant has taken delivery and registered and beneficial title has passed from the equipment supplier; the supplier may have an advantage. Similarly, applicants, or any three full time employees of the applicant or its control group who have successful experience with planning and developing a similar facility as either prime contractor or as design/builder, and applicants who have a tangible net worth of CAD$500 or more per kW of proposed contract capacity at the end of the most recent fiscal year, may also have an advantage.

There are no residency requirements for applicants other than in respect of aboriginal and community projects as discussed above. Applicants may not assign an application, other than to a related person, without the prior written consent of the OPA. An applicant may not permit or allow a change of control without the prior written consent of the OPA. An applicant will not be permitted to assign an application or permit or allow a change of control of the applicant until one year following the submission of the application.

The OPA will accept applications in respect of a generating facility that is the subject of a standard offer contract which has not achieved commercial operation (as defined in the applicable standard offer contract). The applicant will be required to repudiate and terminate the standard offer contract, impact assessment and connection cost agreements associated with the facility. If a Certificate of Approval (Noise Emissions) has been issued by the Ministry of Environment (Ontario), the party to such standard offer contract may request, no later than 30 days after the program launch, an amendment to the standard offer contract, which will result in (i) the substitution of the contract price, (ii) relief from the requirement to share with the OPA payments made under the ecoENERGY, (iii) a requirement to maintain the completion and performance security and (iv) a requirement that the facility achieve commercial operation no later than December 31, 2010.

The FIT program pricing is intended to cover development costs plus a reasonable rate of return for projects meeting certain assumptions relating to cost and efficiency. For certain renewable fuels, the price shall be escalated annually on the basis of cumulative increases on the CPI between the base date of the price schedule and the earlier of (i) the milestone date for commercial operation, and (ii) the commercial operation date. The pricing for each renewable fuel is set out below:

The FIT program and Green Energy Act are intended to promote and facilitate the connection of renewable generating facilities in an efficient manner. Applicants are cautioned that in certain areas of the Province, it is not currently economically or technically feasible to connect additional generating facilities to a distribution system or the IESO-controlled grid, including projects connected directly to host facilities. Projects in these areas may not be able to obtain a FIT contract immediately and will be reserved until conditions change.

The FIT program is critical to the Green Energy Act's objectives of increasing conservation and creating a culture of conservation in the Province of Ontario, creating 50,000 "green" jobs in three years and developing a smart grid in Ontario. The FIT program will be beneficial to investors, manufacturers, developers, generators and the residents of Ontario because it will ensure standard rules, contracts and pricing for electricity, differentiated only by the energy source and capacity of the facility.

The Province is keen to develop "green" industries through new investment and job creation, as well as to provide incentives for investment in renewable energy technologies. Developers, manufacturers, operators, investors and various other parties will have a rare opportunity to become involved in the development of Ontario's generation, transmission and distribution systems at the ground level.

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.