Canadian Energy Law : Lawyers & Attorneys for Environmental Energy Law

The Court of Appeal overturned the trial decision on October 7, 2011. On the issue of nuisance, the appeal judges ruled that an allegation of reduced property values cannot succeed in the absence of "actionable, substantial, physical damage" to the property or substantial interference with a claimant's use or enjoyment of his or her land. Neither of those were present in the Inco case. The court specifically noted that public concerns about potential health effects are insufficient to establish liability unless the alleged contamination "caused actual harm to the health of the claimants or at least posed some realistic risk of actual harm to their health and wellbeing." The court was critical of the trial judge's approach to nuisance because it would have allowed claims to succeed based on "unfounded public concerns" and "junk science" even where a defendant proved the contamination did not pose a risk to human health. The trial judge's finding of liability under the rule in Rylands v. Fletcher was also set aside because Inco had operated the facility in a manner that did not create "extraordinary or unusual" risks beyond those incidental to virtually any industrial operation.

The Court of Appeal's decision is good news for wind developers confronted with loss of property value claims from nearby residents. As a result of Inco, a claimant cannot rely upon vague allegations of reduced property values; rather they will be required to demonstrate the reduction arises either from actual physical damage to the property or a substantial interference with their ability to use and enjoy the property.

The Court of Appeal's decision may not be the final word on the matter as the plaintiff in Inco has the right to seek leave to appeal the decision to the Supreme Court of Canada.

In February 2011, Ontario’s Feed-In Tariff contract-holders were granted a one year extension to their commercial operation date. In exchange for a similar extension, Samsung has agreed to a number of significant revisions to its original agreement signed in January 2010.

For instance, economic development payments to Samsung that were previously projected at $437 million have been reduced by 75% to $100 million. These payments will only become due upon commercial operation of manufacturing plants and renewable facilities. Additionally, the payments will be contingent on meeting job commitments made in the agreement.    

Moreover, the revisions will have the four clean-technology manufacturing plants operating one year earlier than expected. Plants in Windsor, Tillsonburg and Toronto are expected to begin operation shortly.

Section 2.4(a) permits either the OPA or the Supplier to unilaterally terminate the FIT Contract at any time before the OPA issues a NTP and the Supplier has paid the Incremental NTP Security.

Different submissions and deadlines will apply to Capacity Allocation Required (CAR) Suppliers and Capacity Allocation Exempt (CAE) Suppliers.

CAR Suppliers requesting the OPA waive section 2.4(a) are required to submit the following documents: (i) the waiver and a Domestic Content (DC) Plan by October 14, 2011; and (ii) evidence of one or more agreements for the purchase of Generating Equipment demonstrating the Supplier will meet or exceed the Minimum Required Domestic Content Level, by November 30, 2011. The DC plan will be reviewed for completeness and substantiation by December 31, 2011.   

CAE Suppliers are required to submit the waiver and DC plan by December 31, 2011.

In each case, OPA termination rights will be automatically reinstated if these deadlines are not met. Additionally, all Suppliers must continue to provide the OPA with a NTP Request and satisfy necessary NTP pre-requisites including a Renewable Energy Approval, Financing Plan, DC plan, and Impact Assessments.

The waiver and associated schedules are expected to be available shortly.

The OPA will be hosting a webinar to discuss the waiver process and answer questions on August 9, 2011 at 2:00 p.m. (ET). In the meantime, the OPA has requested Suppliers not contact their offices until after the webinar has been held. To participate in the webinar, you may log into the web link below. In order to ask a question, you will have to contact the toll-free number found below.

Toll Free Phone Number: 1 (866) 212 9078

Web link: http://www.snwebcastcenter.com/event/?event_id=2025

The Bruce to Milton Transmission Project is one of the largest transmission projects in Ontario in the past 20 years and will see the construction of more than 180 km of 500 kV transmission line between the Bruce Power facility in Kincardine to Hydro One’s Milton Switching Station. Although the earliest in-service date for the new line is the end of 2012, many renewable energy project developers have been eagerly awaiting any announcements on the implications of this additional transmission capacity on the availability of FIT contracts. The announcement follows the OPA’s June 3 announcement in which eligible proponents were granted five days to change the connection points of their projects in order to qualify for over 1,000 MW of capacity along the Bruce to Milton line. Contract offers were to be based on the results of DAT/TAT testing from the new connection points of all eligible projects, taken together with the priority ranking of projects in the Bruce and West of London transmission areas established in previous testing.

These contract offers are expected to be some of the last for large scale renewable energy projects prior to October’s provincial election.

Further information is available from the OPA’s FIT website: http://fit.powerauthority.on.ca/

In dismissing the request for intervenor status, the Board found that the group did not have sufficient interest in the proceeding as the proposed license amendments were not connected to the potential infringement identified by the First Nations. While the panel accepted that the duty to the consult could be triggered by the HCI contract, it held that there was an insufficient nexus between the potential infringement and the application to require a review of the Crown's consultation efforts by the Board. In support of its conclusion, the Board noted that it lacks approval authority over the HCI contract and that the application would have "no direct impact on water levels or flows" and was "peripheral at best" to the physical operation of the facilities. On that basis, the Board rejected the First Nations' argument that it was the final decision-maker and concluded that "the assessment of whether that duty has been adequately discharged will reside elsewhere."

There are obvious parallels between this case and the Supreme Court of Canada's decision in Rio Tinto, in which the Court found that a energy purchase agreement with no physical impact did not trigger a duty to consult. This is likely not the end of the road for this case as the First Nations group has already indicated it intends to appeal the decision to the Divisional Court.

Section 6.2.18 of the DSC requires an applicant to pay a connection cost deposit equal to 100% of the total estimated allocated cost of connection when the CCA is signed.  Again the purpose of the provision is to ensure that connection capacity is not tied up by projects that are not being pursued diligently.  The evidence before the Board established that it was difficult for waterpower proponents to obtain sufficient financing to meet this requirement at the CCA stage given the extensive regulatory processes that still need to be completed.  In place of section 6.2.18, the Board accepted a schedule under which an applicant will pay an initial deposit of $20,000 per MW of nameplate capacity with increased amounts due as various steps in the development process are achieved.

In making the decision, the Board emphasized that exemption was "strictly limited" and does not extend to the proponents of other renewable energy projects.  In that regard, the decision is a notable contrast to the Board's December 2010 decision  in which 12 power projects were granted a much more limited exemption to section 6.2.4.1(e) and a request for an exemption from section 6.2.18 was refused.

The well-publicized 550 metre wind turbine setback prohibitions in the original regulation required proponents to consider all noise receptors at the time of construction and did not contemplate that the surrounding conditions could change between the time of approval and time of construction. This created uncertainty for proponents as they could not necessarily rely upon an approval as compliance with the setback requirement at the time of construction. This concern has been addressed by these amendments, which only require proponents to consider noise impacts to surrounding noise receptors that existed as of the date the location of the facility was made public.To allow the MOE to assess the cumulative impacts of the facility, the amended regulation will also require proponents to consider all existing and publicly known projects in the surrounding area when complying with the noise setback requirements and determining a site plan.

Other changes under the amendments affect the public notifications required for renewable energy projects and revise the requirements for municipal consultations.

A summary of the changes has been posted on the environmental registry.

Modernizing and Building New Nuclear Power Plants

The Plan reiterates the Province’s commitment to nuclear generation and its intention to refurbish 10,000 MW of existing nuclear capacity at Bruce B and Darlington stations over the next ten to fifteen years. In addition, it is intended that two new nuclear units will be constructed at Darlington and investments in Pickering B will be made to extend its operation until 2020.

Developing Renewable Energy

The Plan indicates that growth in the renewable energy economy would be facilitated through the continuation of the FIT Program (as the same will be revised following the review of the program in 2011, including the revision of the price schedules to ensure that the interests of ratepayers are balanced against the encouragement of investment in renewables in Ontario). 

The Province has exceeded its goal in the 2007 IPSP which projected a total of 7,708 MW of hydroelectric capacity by 2010. The Province will continue to develop hydroelectric capacity with a goal of 9,000 MW of total capacity by 2018, achieved through new facilities and investments to maximize the potential of existing facilities.

Maintaining Natural Gas Generation

The Plan diverges from the 2007 IPSP that projected that 12,000 MW of natural gas would be required by 2015, on the basis that changes in demand and supply mean that less capacity is required. It is expected, as non-utility generation contracts with natural gas-fired generators expire, that the IESO and OPA will determine whether natural gas generation is required to ensure reliability. The government will direct the OPA to design contracts with these non-utility generators as is necessary.

Developing Combined Heat and Power (CHP)

The Province intends to procure a total of 1,000 MW of CHP through the OPA, including through existing contracts, individual negotiations for large projects, and a new standard offer program offered in specific locations for CHP under 20 MW.

Upgrading and Investing in Transmission and Distribution Systems

The Plan indicates that the Province will continue to invest in upgrades to the transmission and distribution systems (including for the purpose of enabling renewable energy supply as applications to the FIT Program outpace needed upgrades to the grid). Five transmission projects (including three new lines and two upgrades) have been identified as a priority. Together with the Bruce to Milton transmission line that is in development and other station and circuit upgrades, approximately 4,000 MW of additional renewable energy will be enabled. In addition, the Province will issue smart grid principles to the OEB which will be designed to provide guidance to local distribution companies in modernizing the distribution systems. 

Increasing Conservation

The Province remains committed to conservation. Local distribution companies are expected to meet certain conservation targets and will be supported by a combination of new and existing province-wide and local programs and initiatives. Examples of new programs include a province-wide electricity conservation and demand management program for low-income residential consumers, a low-income energy program comprised of gas conservation, customer service standards, and emergency financial assistance, and a proposed regulation requiring the public sector to adopt conservation plans. 

Pricing

It is anticipated that energy prices will rise per year over the next 20 years by 3.5 percent for residential users and 2.7 percent per year for industrial customers.   To offset the expense, the government proposed an Ontario Clean Energy Benefit to give Ontario residents and small businesses a 10 percent benefit on their electricity bills over the next five years. Cost savings initiatives for industrial users include the Industrial Accelerator Program and changes in the calculation of the Global Adjustment Mechanism.

Although PG&E’s fund is the largest to date, other companies like US Bancorp have also created tax-equity funds for solar installer companies.

PG&E’s fund represents another step forward for tax equity vehicles in the area of renewable energy. 

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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.

FIT program - launch period closes

On December 16, 2009, the OPA announced that more than 1200 microFIT applications (10 kW or less) and more than 1000 FIT applications were received throughout last October and November, representing nearly 9000 MW of potential electricity generation. Rooftop solar projects amounted to more than 97% of the microFIT applications. The OPA has already sent out more than 700 offers to enter into microFIT contracts for those applications received during the launch period and intends to start offering conditional contracts to those applications received after the launch period in February 2010. Project applications under the FIT program were divided between wind (79%), solar (16%) and biofuels and water (5%).

Although the OPA has estimated that there is approximately 2500 MW of available transmission capacity, the overwhelming popularity of the FIT program based on the submission of FIT applications to date and the announcement of the Samsung deal had left many potential developers wondering what progress has been made to develop new transmission capacity and when will that capacity be operable. The Distribution Availability (DAT) and Transmission Availability Tests (TAT), as well as the Economic Connection Test (ECT), all components of the application assessment under the FIT Program, will be critical tools to ensuring that the most shovel-ready projects can proceed as quickly as possible. The OPA has recently announced that it expects to start issuing contract offers to project launch applications in the next few weeks. Those projects not issued contracts will be subject to the ECT, which will be run on a regional basis and is tentatively scheduled to commence as early as the spring of 2010. It should be noted that DATs and TATs will be paused for periods of three months during the operation of an ECT in the applicable region - which will slow down the application review process. The OPA continues to accept FIT and microFIT applications and with the first ECT occurring imminently, prospective developers are working to ensure that new applications are received before the deadline for ECT consideration, being sixty days before the test begins.

Ministry of Natural Resources - Crown land release process

While project developers anxiously await news of FIT contract offers, the Ministry of Natural Resources (MNR) has released proposed revisions to its Crown land release process for windpower projects and the MNR and the Ministry of Environment (MOE) have each recently issued guides to the new permitting and approval framework for renewable energy projects in Ontario.

The MNR released draft revisions to its Windpower Site Release - Crown Land Policy and Procedure in late December, which outline the distinct stages in the process of developing windpower projects on Crown land including off-shore wind projects. Following the moratorium on Crown land applications for windpower projects in place since September 24, 2009, these proposed amendments represent the first phase of the MNR's review of its Crown land release process, and are intended to address the concerns of project developers with current applications under review by the MNR. The second phase of this review will focus on the long-term application of the site release process and the policy direction for renewable energy developments on Crown land in the context of Ontario's new green energy initiatives. It is unclear how the second phase of the review will affect developers who have not yet submitted applications under the site release process or when the MNR's review of this process will be completed.

The proposed revisions provide that the MNR will periodically establish "windows of opportunities" during which project developers may apply for the opportunity to secure Crown land. It is unclear how often and for what duration such "windows of opportunities" will be opened. The MNR must complete its initial review of an application for Crown land and schedule a pre-screening meeting with the applicant within 60 days after the receipt of the application. Following a required consultation process, the MNR will either issue an Applicant of Record (AoR) letter or deny the application. No estimate has been provided on how long the consultation process will take. Once an AoR letter has been issued, the formal site release process is complete. The MNR has expressly clarified that neither an application for Crown land nor an AoR status provides any right, title or interest in land and only the AoR status is transferable in limited circumstances. Following receipt of necessary approvals related to the proposed project, the MNR will instruct the applicant to submit an application for Crown land, which will include a current corporate profile and specified survey requirements. Authorization to construct the proposed project will be by Crown Lease, the term of which is generally 25 years. In certain instances, an interim Land Use Permit may be issued until all survey requirements are met (for a maximum period of one year).

Approval and permitting requirements for renewable energy projects

The MOE released its guide to the Renewable Energy Approval (REA) in late January, clarifying the new approval process that most renewable energy projects must undergo (there are limited exemptions for small-scale projects). The MOE, as the ministry responsible for coordinating the necessary review of proposed projects, has undertaken to complete the REA process within six months of receipt of a complete submission. Among the things that are to be included in submission packages are:

 

• a project description report
   
• a construction plan report
   
• a consultation report
   
• a design and operations report
   
• a decommissioning plan report
   
• technical reports
   
• proof that setback requirements are met, and
   
• archaeological and heritage resource studies/reports.

The REA regulations require that a project developer commence consultation with the applicable municipality, Aboriginal groups, and the public at least 90 days before submitting a REA application. Further, a developer must coordinate with the MNR in respect of certain issues falling under the MNR's scope of review, including those related to the Endangered Species Act and the Fish and Wildlife Conservation Act, in advance of a developer's REA application submission. As this new approval process has just begun, it remains unclear how long the entire process will take. This is particularly so given the need to file a complete application. Fulfilling the application requirements may be onerous and time-consuming, which may lead to uncertainty. Further, coordination with the federal environmental assessment process and the MNR release of Crown land process remains unclear.

Key Recent Announcements

Domestic Content Technical Notes: This component of the FIT program has raised extensive criticism from proponents. The OPA has indicated that the requirements set out in the original FIT contract will not be changed but has now provided further technical notes to assist proponents in interpreting these obligations. These notes can be found on the OPA website and will be updated periodically.

Agricultural Land Restrictions for Solar PV: The OPA has announced that it will provide guidelines for proponents that detail the benefits of more renewable energy with the need to protect Ontario's prime agricultural land and details on exemptions available for lands zoned for non-agricultural purposes. Contained within these guidelines will be details on the evidence that a proponent must provide for proposed projects on such lands. These guidelines have not been released as of the date of this update.

Transition options for microFIT (< 500 kW) projects: On October 30, 2009, the OPA announced new options for microFIT proponents that have projects in the late phases of development. These new options exempt such projects from domestic content requirements. Eligible proponents must have either a previous RESOP contract or have purchased generation equipment prior to October 1, 2009 and may elect to transition into the microFIT program or amend the RESOP contract to reflect microFIT prices.

Critical questions

Priority Access: As many generators are aware, Ontarian's demand for electricity has been, at certain times, well below the available generated load on the system. Renewable energy projects have been given a priority right of access to connect to the grid under amendments arising from the Green Energy Act (GEA) but have no defined prioritized right in the actual sale of generated electricity into the grid. As curtailment decisions from the Independent Electricity System Operator (IESO) and Local Distribution Companies (LDCs) become more common, renewable energy generators face the same risk of generation limitation that all other generators, including large scale gas generators, face.

Transmission and Distribution: The popularity of both the old Renewable Energy Standard Offer Program (RESOP) and the FIT program clearly indicates that there are countless project developers interested in entering the generation market. The current determining factor of how quickly these proponents are able to begin selling electricity is transmission and distribution capacity. Hydro One Networks Inc. (HONI) has been directed by the government to commence a large-scale transmission expansion program which is planned to be on stream between 2013 and 2017. Many proponents have raised concerns that the required expansions in both the transmission and distribution systems will cause significant delays in meeting the demand of proposed renewable energy generation facilities.

Conservation and Demand Management (CDM) and Smart Grids: Conservation was a key component to the GEA and it is expected that LDCs will play an important role in the development of CDM protocols. It is anticipated that CDM targets will be made a condition of distribution licences but the details of such an amendment have not been released. The Ontario Energy Board is expected to develop a CDM Code in the coming weeks which will provide a framework on licensing targets and CDM programs.

Despite the concerns raised by many renewable energy project proponents, the FIT program has been, thus far, very well received. As of November 10, 2009, the OPA had received more than 90 applications under the FIT program, representing more than 78 MW of generated capacity and nearly 500 applications under the microFIT program, representing more than 2.5 MW of generated capacity. In comparison to the RESOP program, which contracted more than 1,316 MW of renewable generation, these numbers seem small but the OPA has indicated that it expects these will more than double before the end of the Launch Period. After the November 30, 2009 deadline, the FIT program remains open to applications, although the standard contract rules for time stamping and transmission/distribution capacity allocation become applicable.

Key features of the FIT program

• Generally, in order to be eligible, projects must be (a) renewable generating facilities not already in existence; (b) located in Ontario, provided they are not located in expressly exempt areas; and (c) projects that do not have or have not had a prior power purchase agreement, unless such agreement was terminated prior to March 14, 2009 or more than twelve months before the date of application.
   
• Solar projects with a contract capacity greater than 100 kW are not eligible if located on certain high-quality Class 1 or Class 2 agricultural lands, and, if located on Class 3 agricultural lands, are only eligible if located on identified lands.

Application

• Application fees under the FIT program range from a minimum of $500 to a maximum of $5000, and the application security charge is $20/kW for solar projects and $10/kW for all other projects.
   
• A complete application must also include evidence of access rights to the project location. Such evidence may be in the form of a lease, an option, a letter of intent, a memorandum of understanding or a conditional grant contingent on obtaining a FIT contract.

Domestic Content

• The domestic content of a project is calculated based on the OPA's domestic content grid for each specified renewable energy source and contract capacity. This grid allocates a qualifying percentage to designated activities occurring within Ontario or completed by Ontario residents. Designated activities include the manufacturing and assembling of specified materials, certain construction and on-site labour, and certain consulting services.
   
• The following domestic content thresholds must be met:
   
  • wind power projects with a contract capacity greater than 10kW: (a) 25% for FIT contracts with a milestone commercial operation date (COD) prior to January 1, 2012; and (b) 50% for FIT contracts with a milestone COD on or after January 1, 2012;
     
  • solar projects with a contract capacity greater than 10 kW: (a) 50% for FIT contracts with a milestone COD prior to January 1, 2011; and (b) 60% for FIT contracts with a milestone COD on or after January 1, 2011;
     
  • solar projects with a contract capacity less than 10 kW: (a) 40% for FIT contracts with a COD prior to January 1, 2011; and (b) 60% for FIT contracts with a COD on or after January 1, 2011;
     
• The OPA must be provided with a plan, in a prescribed form, setting out how the FIT program applicant intends to meet the minimum required domestic content level, no later than six months prior to the milestone COD.

Launch Applicants

• All eligible FIT contract applicants who apply during the first sixty days following the launch of the FIT program (prior to November 31, 2009) will be assigned a time stamp, allocated in priority based on (a) the applicant's commitment to reduce the number of days between the date of contract and the milestone COD; (b) the project's acceleration characteristics, including whether it is REA exempt or has an executed EPC agreement; and (c) the date access rights were granted.

Advanced RESOP Applicants

• A Project Developer with a Renewable Energy Standard Offer Program (RESOP) contract can either: (a) retain the RESOP, unamended; (b) amend the RESOP before October 31, 2009, through the FIT program's Advanced RESOP FIT Amendment, where the RESOP is in respect to a wind generation project that has been issued a Certificate of Approval (Noise Emissions) from the Ministry of Environment; (c) repudiate and terminate the RESOP by applying through the FIT Program Launch, before November 31, 2009; or (d) repudiate and terminate the RESOP and apply through the standard FIT program after twelve months.
   
• The Advanced RESOP FIT Amendments include:
  
  
  • a substitution of the contract price with 12.1¢/kWh, comprised of a fixed portion of 9.68¢/kWh and an indexed portion of 2.42¢/kWh;
     
  • relief from the requirements of the RESOP to share with the OPA payments the applicant may be able to obtain under the ecoENERGY grant;
     
  • a requirement to maintain the completion and performance security, which will be returned on the COD; and
     
  • a requirement that the facility achieve commercial operation no later than December 31, 2010, with liquidated damages payable for each day commercial operation is late, culminating in an event of default if the COD is after December 31, 2011.
• Project developers who amend their RESOPs remain bound by the RESOP contract and are not subject to the terms of the FIT program, including domestic content requirements.

MicroFIT

• microFIT is a standard-offer program focused on homeowners and other micro-project developers. The rules and the governing contract have been simplified, but contain similar obligations regarding domestic content and environmental attributes. There are no application or security fees associated with contract application under the microFIT rules.

Renewable Energy Approvals

In addition to the commencement of the FIT program, the Ministry of the Environment released key regulations on September 24, 2009 relating to the Renewable Energy Approval (REA) amendment under the Environmental Protection Act.

A REA is required for all projects which were previously required to seek certificates of approval under s. 9(1) and (7) of the EPA (i.e. construction, altering, extending or replacing or operating any plant, structure, equipment, apparatus, mechanism or thing that may discharge or from which may be discharged a contaminant into any part of the natural environment other than water), s. 27(1) (waste management), and all those that generally were required by regulation to seek an "approval, permit or other instrument."

Prior to the EPA REA amendments, solar projects were not required to undergo an environment assessment (EA). Wind projects may have had to undergo an environmental impact study or potentially a full EA, depending on the location and the project's generation capacity. Certificates of Approval were required by regulation for both wind and solar projects.Projects are exempt from seeking a REA where:

 

• all approvals, permits and other instruments that are required to construct, install, operate or use the facility were obtained before May 14, 2009;
   
• no approvals, permits or other instruments listed above were required to construct, install, operate or use the facility and the construction or installation of the facility began before May 14, 2009;
   
• an EA Notice of Completion in respect of the facility was issued prior to May 14, 2009 and the facility has a power purchase agreement with the OPA;
   
• before May 14, 2009, (i) a power purchase agreement was entered into with the OPA; (ii) the use of the land at the project location was not prohibited by a zoning by-law or order under Part V of the Planning Act; and (iii) the facility was not an undertaking that was designated to be subject to the Environmental Assessment Act.

General REA obligations include:

 

• consultation with the public and aboriginal communities surrounding the project, including at least two public meetings;
   
• consideration of archaeological and heritage resources, where applicable;
   
• specified setbacks for wind energy facilities;
   
• submission of a project's construction plan report, construction report, decommission plan report, design and operations report, noise study report (for non-rooftop solar facilities with a capacity greater than 10 kW), project description report, and wind turbine specifications report or off-shore wind facility report (where applicable).

Care should be taken when reviewing the various transition provisions related to the RESOP and FIT programs and the REA requirements.

Commentary

The Ontario government should be pleased with the level of activity in the renewable sector these days. There is a flurry of new entrants, particularly from the U.S. and Europe, who are thoroughly investigating opportunities in Ontario, from both development and equity investment perspectives. At the same time, some organizations are suggesting that the FIT program needs to be more user friendly. For example, the solar industry is concerned about the restriction on the use of Class 1, 2 and 3 agricultural lands and is looking for certain relief from those provisions , as well as some loosening of the domestic content requirements. Those same domestic content requirements, which while lower for wind applicants, are also being raised as concerns by the wind industry. Both solar and wind proponents note that the current capacity in Ontario for meeting the domestic content requirements is seriously constrained and more time than the government has allowed may be necessary to meet the deadlines imposed. Finally, the great unknown-issues relating to transmission capacity constraints-will start to reveal themselves in the months to come, once the initial round of FIT applications are reviewed and queues start to form for new transmission development. Stay tuned for further word from the OPA as they work through the first round of mature applications that will be filed prior to the end of November 2009.

The launch of the FIT program and the commencement of the REA represent the final pieces that complete the implementation of Bill 150, which was first introduced in February. Watch for further guidance from both the OPA and the Ministry of Environment as these new pieces are "fit" into place.

We will continue to keep you regularly informed as the FIT marketplace develops and matures.

Although the requirement is not a condition for application to the FIT Program, it is important to note that certain projects will be required to achieve a certain level of "Provincial Content," pursuant to the FIT Contract. The definition of "Provincial Content" is still under review; however, other sections of the Program Rules make reference to an "irreversible manufacturing process" that occurs in Ontario.

The Program Rules also set out specific rules for Community Participation Projects and Aboriginal Participation Projects. Community and Aboriginal Participation will be assessed based on the aboriginal or community proponent's economic interest in the project. A project that receives either of these designations receives, among other benefits, reduced security requirements and an increased price/MW.

One of the most significant changes to the Program Rules is the inclusion of rules that specifically apply to early applications - i.e., Program Launch (a time period to be defined by the OPA).  These rules include "rated criteria," whereby applicants receive points for non-mandatory attributes.  The new rated criteria indicate the OPA's focus on ensuring that the initial projects awarded FIT Contracts will be able to begin construction immediately and achieve commercial operation on an expedited basis, to assist the Government of Ontario in achieving the goals of the GEA.

The stated purpose of the discussion paper entitled Staff Discussion on the Regulatory Treatment of Infrastructure Investment for Ontario's Electricity Transmitters and Distributors (Discussion Paper) is to fulfill the objectives of the GEGEA by incentivizing investment in distribution and infrastructure while ensuring that the interests of ratepayers continue to be protected. The Discussion Paper draws heavily on FERC's Rule 679, Promoting Transmission Investment through Pricing Reform, by identifying a range of mechanisms for alternative cost treatment of infrastructure investment, some or all of which could be applied in the context of a cost of service review, a multi-year rate adjustment mechanism or a specific rate application (or in the course of approving distributors' or transmitters' infrastructure investment plans as mandated by the GEGEA). The alternative mechanisms for cost recovery identified in the Discussion Paper include recovery of costs for abandoned facilities, accelerated cost recovery, the inclusion of construction work in progress (CWIP) in rate base, accelerating depreciation and providing for incentive-based ROE.

Similarly, in accordance with FERC's view, OEB staff suggest that beyond identifying certain investments that would be presumed to qualify for alternative cost treatment, it is not appropriate to be more prescriptive. Staff suggest that establishing more prescriptive criteria would limit flexibility by pre-judging which projects are eligible for alternative treatment and limiting the ability of applicants to request a combination of alternative cost mechanisms. Accordingly, staff suggest that the Board "should exercise its discretion to allow alternative treatment on a case-by-case basis for appropriate infrastructure investments by electricity transmitters and distributors in a manner that facilitates the achievement of the Government's policy objectives as reflected in the GEGEA while protecting the interests of ratepayers".

OEB staff have outlined 26 issues for written comment. These issues include the appropriateness of the foregoing alternative cost mechanisms and whether the OEB should be more prescriptive as to which types of investments qualify for alternative treatment and which do not. Staff have asked that written comments be filed by July 7, 2009 and have outlined the framework for cost award eligibility.

The OPA published its "Draft Program Rules" on September 7, 2006, which were open for public comment until September 22, 2006. The results of the public consultation process are to be published before the end of the year.

To be eligible under the RESOP, a project must be based in Ontario with an installed generating capacity of 10,000 kW or less (the OPA is considering a separate program for smaller renewable project of 10 kW or less). Projects must use one of the following methods: wind, thermal electric solar, voltaic solar, biomass biogas, biofuel, landfill gas or water.

While an application package is not yet available from the OPA, applicants are being advised that they must provide evidence that each has met the prescribed requirements for application.

For example, an applicant must send out a "community notification" to the relevant local government, setting out, among other things, the size of the project and the estimated commercial operation date of the project .In addition, for projects over 10KW in size, the applicant must provide a "business plan review" that includes written confirmation from a chartered accountant, professional engineer or similar accredited professional that the business plan is complete, and that the applicant's cost estimates and critical path for the project can reasonably be achieved.

Power generators are to be paid a base rate of 11.0 cents per kWh for electricity that is delivered to the grid under contract with the OPA. Twenty per cent of this base rate will be indexed for inflation based on the CPI. In addition, a premium of 3.52 cents per kWh will be paid for electricity delivered during peak hours to generators who can operate reliably during those hours. Note, however, that solar photovoltaic system generators will be paid 42.0 cents per kWh, but this rate will not be subject to indexation for inflation or the peak-hour premium.

All prospective applicants must be aware of the fact that there are, or will be, parts of the Ontario transmission grid that will not be able to accept incremental power, and the OPA may limit applications in certain areas or restricted sub-zones of the province. The OPA will, at some point, publish details of what these restricted areas are, but, importantly, that information is not yet available.