Wind Development In Ontario And The Green Energy And Green Economy Act, 2009: The New Rules Of Engagement

The Green Energy and Green Economy Act, 2009 (the Act), which introduces a new feed-in tariff (FIT) for renewable energy projects and streamlines the regulatory approval process, became law in July 2009. However, amendments to several existing statutes, including the Environmental Protection Act, Environmental Assessment Act, and the Planning Act, were not proclaimed into force when the Act passed into law, as the underlying regulatory regime had yet to be developed.

These amendments became effective as of Thursday, September 24, 2009. Following a public announcement by Minister of Energy George Smitherman, new environmental regulations that underpin the Act were introduced and the Ontario Power Authority (OPA) announced that it will accept FIT applications as of October 1, 2009.

The impact of the regulatory changes on projects currently in the development phase in Ontario will be profound. All wind industry members should therefore be aware of the legislative and regulatory changes, and the milestones that determine whether a project proceeds under the old rules or the new rules. This newsletter is designed to provide you with a high-level overview of the changes and the applicable transition rules.

Highlights of the Green Energy and Green Economy Act, 2009

The Act introduces five primary changes applicable to wind developments in Ontario:

1. European-style feed-in tariff granted for a 20-year period, but dependent on domestic content requirements.
2. Right to connect and priority access to the grid for renewable energy.
3. Municipal zoning override.
4. Renewable Energy Approvals ("REA") which are tied to specific setbacks and which replace the conventional environmental assessment and approvals process.
5. Limited grounds on which environmental approvals can be appealed to the Environmental Review Tribunal.

1. European-Style Feed-In Tariff

The Act creates a European-style FIT system for various renewable energy sources. In order to obtain the benefits of the FIT, developers need to sign a 20-year contract with the OPA. The FIT contract is available on the OPA's web site, along with detailed rules setting out the requirements for FIT applications. The OPA will start accepting applications on October 1, 2009.

Pricing

The FIT pricing structure for wind power is as follows:

The standard FIT contract provides that if a proponent applies for the ecoENERGY credit, half of the credit must be signed over to the OPA. All environmental attributes, such as future carbon offsets, must be signed over to the OPA in their entirety.

Projects that are subject to an existing standard offer contract (i.e., RESOP) and have already obtained their environmental Certificate of Approval may be eligible for an "advanced RESOP FIT amendment" that increases the standard offer contract price to 12.1 cents/kWh, with a portion of that price tied to the consumer price index. The deadline for rescinding a RESOP contract and applying under FIT is 30 days after the program launch.

Price settlement for Independent Electricity System Operator (IESO) market participants will take place on a monthly basis based on the difference between the FIT price and the spot price. However, the FIT rules provide an alternate system for non-market participants that is more flexibile.

Domestic Content Requirements

To qualify for FIT, applicants need to meet the following domestic content requirements:

• 25 percent domestic content if the project has an expected in-service date prior to January 1, 2012.
• 50 percent domestic content if the project has an expected in-service date of January 1, 2012 or later.

The domestic content calculation, which is set out in Table 1 of Exhibit D of the standard FIT contract, works on a points-based system, with different components being allocated different percentages. For example, it is possible to gain 16 percent domestic content simply by casting the wind turbine blades in Ontario, while only two percent are allocated to the winding of pad mount transformers in Ontario.

Importantly, "domestic" in the context of FIT refers to Ontario content, not Canadian content.

Program Launch

For 60 days after October 1, 2009, special launch rules apply. Applications submitted during this period will be time-stamped and prioritized in order of expected commercial operations date rather than in order of submission. Deficient applications will be returned and not be eligible for re-submission until the first transmission availability test (see below) under the program has been conducted. After the expiry of the launch period, applications will be prioritized in order of submission.

The FIT rules contain a number of criteria specific to launch applications that should be reviewed carefully prior to submitting an application, especially in light of the temporary loss of eligibility of deficient applications.

Eligibility Requirements

FIT applications will only be considered if the applicant has secured the necessary land rights (i.e. option agreements or, in the case of Crown land, confirmed "Applicant of Record" status).

Filing fees depend on the proposed capacity of the facility. Applicants cannot roll over an existing power purchase agreement into FIT. Any existing power purchase agreement must have been terminated prior to March 14, 2009, or at least 12 months before the FIT Application is submitted, subject to the "advanced RESOP FIT amendment" discussed above. Any existing system impact assessment or connection impact assessment must be rescinded when applying under FIT.

Unless the application applies to a capacity allocation exempt facility, the OPA and IESO will determine if the relevant transmission system has sufficient capacity by conducting a transmission availability test. If capacity is insufficient, the applicant, together with any other applicants trying to connect to the same transmission system, will be placed into the "economic connection test" process, which will take place at least once every six months. The economic connection test process assesses whether the cost to ratepayers of building additional transmission infrastructure would be reasonable in light of the circumstances (see comments on the "right to connect" below).

An assignment of a FIT contract or change of control of the applicant requires the consent of the OPA, which the OPA is not allowed to unreasonably withhold. However, no assignment or change of control is allowed in any case until one year after the application was submitted, and no assignment or change of control is allowed once the OPA has provided an Offer Notice. Developers intending to create a single-purpose vehicle to own and operate a facility once it is built should take notice of this restriction.

2. Right to Connect and Priority Access

Wind power developers have traditionally been subject to substantial delays in connecting proposed generation facilities to Ontario's transmission or distribution grid, and occasionally have been refused connection entirely by the transmitter for economic reasons. New amendments to the Electricity Act, 1998 legislate a "right to connect," although there remains an underlying proportionality requirement.

More importantly, the amendments legislate priority access to the grid for renewables. Once a renewable project enters the IESO's committed generation queue, it jumps ahead of non-renewable projects in the queue. However, no relative priority is allocated amongst renewable energy sources; for example, wind shares priority with other sources such as hydroelectric power, solar photovoltaic and biomass.

3. Municipal Zoning Override

All Canadian municipalities derive their power from provincial laws. A significant part of this power is the ability to enact zoning by-laws. Highly vocal local opposition has frequently resulted in municipalities using restrictive zoning to prevent otherwise meritorious wind power developments. The Act contains an amendment to the Planning Act that creates a provincial override and requires project opponents to become involved at the provincial approvals level rather than interfere at the municipal level. As of September 24, 2009, proponents no longer require municipal zoning amendments, and, more importantly, will no longer be subject to potential appeals to the Ontario Municipal Board.

When first proposed, this amendment led to a number of complaints by municipalities and grassroots organizations across Ontario. In an effort to address these concerns, the final version of the Act contains an amendment requiring the Act to be administered, "in a manner that promotes community consultation." This consultation requirement is reflected in the REA process set out below.

The municipal zoning override is not contingent on projects proceeding under the REA process, as there are no transition provisions to mirror those set out in the REA Regulation described below. It is possible for a project to be subject to the municipal zoning override while still proceeding under the old environmental approvals regime.

4. Renewable Energy Approvals and the New Setback Requirements

The new REA process is intended to streamline the approvals process by reducing them to a single regulatory review process. O. Reg. 359/09 sets out the requirements for REA applications (the REA Regulation).

Transition Rules

The following transition rules apply to wind projects currently under development (see section 9 of the REA Regulation). For each rule, the target date is the date the amendments to the Environmental Protection Act came into force, i.e. September 24, 2009.

A project is subject to the old environmental approval regime unless one of the following milestones have been reached by the date the amendments came into force:

• All environmental Certificates of Approval had been obtained.
• No Certificates of Approval are required and construction or installation has begun.
• The project has received a Notice of Completion under the Environmental Assessment Act and is subject to a signed power purchase agreement with the OPA.
• The project is subject to a power purchase agreement with the OPA, the proposed land use is not prohibited under Part V of the Planning Act or a municipal by-law, and the project is not subject to an environmental screening, review or assessment under the Environmental Assessment Act.

If the project does not fall under any of the above-mentioned exceptions, it is subject to the new REA regime.

Turbine and Substation Setback Rules

The streamlined REA process comes at a price, payable in the form of more stringent turbine and substation setbacks. Unless a proponent is prepared to conduct a noise study, the following minimum mandatory setbacks apply to turbines and transformer substations:

In addition to the Point of Reception Setbacks outlined above, section 38 of the REA Regulation requires minimum setbacks from various natural features, such as significant wetlands, areas of natural and scientific interest, significant woodlands, significant wildlife habitat, provincial parks, and certain lakes. The Greenbelt and the Oak Ridges Moraine have their own setback rules.

"Table 1" Reports

Any proponent applying for an REA must complete the reports specified in Table 1 of the REA Regulation. Table 1 enumerates detailed requirements for construction plan reports, consultation reports, decommissioning plan reports, design and operations reports, noise studies, wind turbine specifications reports, and other requirements. Reports will not be accepted by the Ministry until the requirements are met. Archaeological and natural heritage studies will continue to be required under the new REA regime as well.

Consultation

Consultation that previously took place under the auspices of the Environmental Assessment Act will now take place under the REA process, which contains an extensive but streamlined list of requirements. Proponents will be required to publish a notice and serve landowners, aboriginal communities, municipalities, roads and local services boards, among others. Each renewable energy project will require at least two public consultation meetings. Additional specific consultation requirements are set out with respect to municipalities and aboriginal communities.

5. Limited Grounds for Appeal

Concurrent with the creation of the new REA process, the Environmental Protection Act has been amended to limit the available grounds to appeal such an approval to the Environmental Review Tribunal (the Tribunal). A decision granting an REA can only be appealed on the basis that, "engaging in the renewable energy project in accordance with the renewable energy approval will cause serious and irreversible harm to plant life, animal life, human health or safety, or the natural environment."

Impact on Current and Future Wind Projects

For projects currently in the development phase, September 24, 2009 constitutes an important milestone. Depending on project specifics, proponents may prefer to continue under the existing regime to avoid being caught by the new setback requirements, or to continue under the new approvals regime which provides a more streamlined process. Most proponents have addressed and continue to address this issue in direct consultation with the Ministry of the Environment.

For new projects, the FIT and REA regimes provide a powerful incentive to invest in Ontario that is somewhat marred by the strict domestic content requirements that accompany it. The wind turbine manufacturing industry in Ontario is still in its infancy, which will impact the ability to meet the 25 percent and 50 percent domestic content thresholds. However, if and when a solid manufacturing base is developed in Ontario, this will be one of the most competitive jurisdictions in North America for wind power.

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.