Although many kinks and details in the Ontario Power Authority
(OPA) Feed-in-Tariff (FIT) program continue to be ironed out, more
than six hundred developers of renewable energy generation
facilities have been awarded FIT contracts since early March,
representing approximately 2600 MW in generation capacity. The
impressive uptake of the program seems to have come as a surprise
to both the OPA and the provincial government, although the
economics of developing renewable-energy generation projects under
the FIT program was no secret among developers.
Capacity allocation exempt facilities
The OPA announced the first tranche of FIT contracts on March 10
- more than five hundred FIT contracts were offered to developers
of projects with a generation capacity of less than 500 kWs. These
"Capacity Allocation Exempt" (CAE) facilities represent a
total of 112 MWs of generation capacity and are largely comprised
of rooftop solar projects. CAE facilities are not required to
provide initial application security upon the submission of an
application under the FIT program, and are exempt from the
OPA's distribution and transmission capacity testing. Although
the OPA had originally intended to offer contracts to CAE project
applications immediately after applications had been deemed
complete, no further CAE facility FIT contracts will be offered
until June, at the earliest.
Large-scale facilities
The OPA announced the second tranche of FIT contracts on April 8
- more than 180 FIT contracts representing almost 2500 MW of
generation capacity. This is the first time that large-scale
renewable energy projects have been able to access a standard offer
contract program offered by the OPA. The Renewable Energy Standard
Offer Program (RESOP) was replaced by the FIT program, but was
limited to projects of 10 MW or less. Projects offered contracts
under FIT range in size from less than 1 MW to 300 MW. Although
seventy-six contracts were offered to proposed solar projects
(representing 651 MW), the majority of the proposed generation
capacity comes from on-shore wind projects, with forty-seven
contracts offered to projects totaling more than 1229 MWs of
capacity. One FIT contract was offered to a proposed offshore wind
project with a proposed capacity of 300 MW. Once the contracts are
finalized, project developers have a limited time to bring these
projects online - three years from the date of contract for solar
and wind projects.
Renewable energy - truly a sustainable resource?
The unprecedented growth of the renewable-energy generation
market in Ontario over the first six months of the FIT program has
many people questioning whether this rate of growth can be
sustained. More than 2600 MW of capacity has been contracted for
under FIT, which is double the 1300 MWs of renewable generation
that has been developed in Ontario since 2003.
Generation is only one component to the growth of the electricity
market in Ontario. Transmission and manufacturing are two other
critical keys to ensuring these six-hundred-plus projects can be
brought on to the Ontario grid. The FIT contracts granted so far
have been assessed in light of the province's current
transmission and distribution capacity, and will not require
substantial expansion of either grid. But there remain more than
250 projects waiting for the OPA's "Economic Connection
Test" (ECT), having been deemed by the OPA not economically
viable under current transmission and distribution capacities. The
ECT is intended to reassess the viability of proposed projects as
new transmission capacity comes online. The completion of the
approval process of the Hydro One Networks Inc. (HONI) Bruce-Milton
transmission project represents a significant expansion of
HONI's transmission grid and will add 1500 MW of transmission
capacity to that region. The OPA has planned to run the first ECT
in early fall 2010 and expects the Bruce-Milton transmission line
will result in new FIT contracts being issued to projects affected
by this development. The critical question that remains is
"what next?" - HONI has been issued a directive from the
provincial government to significantly build out its transmission
capacity, and while the OPA and HONI have indicated that work on
this expansion has begun, the timeline for the completion of any
new transmission work is not clear, even for the Bruce-Milton line.
Historically, obtaining all necessary approvals for transmission
development projects can take years, and components of the Green
Energy Act intended to streamline this process have yet to be
tested.
The projects offered FIT contracts so far may not have to worry
about transmission but, for the wind and solar projects, the
domestic-content rules under the FIT contract continue to represent
a significant hurdle to bringing these projects online. Currently,
solar projects must meet a 50% domestic-content threshold and wind
projects must meet a 25% domestic-content threshold; in 2011 the
solar requirement is increased to 60% and in 2012 the wind
requirement is increased to 50%. The 2011 and 2012 deadlines have
caused many developers to fast-track development and construction
plans for facilities granted FIT contracts in order to avoid the
significantly more difficult domestic-content obligations. The OPA
has been working with FIT program participants to try to clarify
developer obligations under this aspect of the FIT contract. In
March, the OPA announced that it will review and provide comments
on a project's domestic content plan before the "Notice to
Proceed" date, a change that will allow developers to get the
OPA's feedback on certain equipment prior to entering into
supply agreements. Further, the OPA has also indicated that it will
provide developers with a non-binding reliance letter confirming
that a project will meet the applicable domestic-content
obligations under the FIT program. This is aimed at minimizing the
significant barrier to financing FIT program projects that many
project developers have been facing. Even with the changes to the
domestic-content obligations thus far, many developers are hoping
that the 2011 and 2012 deadlines will be extended.
The FIT program remains open to new applications; the OPA has
received almost one thousand applications to date and more are
expected. The announcement of the issuance of FIT contracts is an
important step towards realizing the provincial government's
goals under the Green Energy Act, but it is just that - a
step. There remains considerable work to be done by developers, the
OPA, local distribution companies, HONI, and the provincial
government before any of the announced 2600 MW of renewable
generation capacity starts powering the homes of Ontarians.
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