Cancellation of BC power deals by BC Hydro: Cleaning house or policy shift?

Rachel V. Hutton -

The challenges of bringing smaller-scale energy projects to fruition are not in debate.  But the BC Government’s August 30 announcement that BC Hydro will cancel as many as 10 electricity purchase contracts (and defer up to nine more) is raising eyebrows in the BC energy sector. 
 
An optimistic take on this news is that the endangered projects are those least likely to prove viable.  If true, then this move by BC Hydro to jettison “dead weight” can be viewed as efficient, sensible, and potentially to the benefit of projects with hallmarks of feasibility:  credible management, sound financing/ownership and good prospects for overcoming environmental, First Nations and other approval hurdles.  Moreover, BC Energy and Mines Minister Bill Bennett confirmed that the 19 projects in question have not met their contractual obligations and none are yet in “serious construction mode”. 

The other view is that this announcement heralds a shift away from the goals of the BC Clean Energy Act, which requires 93% of BC’s energy to come from clean or renewable resources.  Criticism of governmental support for independent power producers is nothing new: many projects fail to reach operation and they are significantly more costly sources of energy.  This criticism has extended to BC Hydro’s IPP-friendly initiatives (2006 and 2008 Clean Energy Calls and the Standing Offer Program that facilitates 15MW-and-under projects).
 
It remains to be seen whether we are witnessing cooling of affection for IPP projects, or just a sensible house-cleaning.  Both the identification of the cancelled/deferred projects and a close look at BC Hydro’s recently-released draft Integrated Resource Plan will permit more insight as to where BC energy policy is headed.

Auditor General releases special report on cancelled gas plant in Mississauga

Andrew Sullivan -

On April 15, 2013, the Office of the Auditor General of Ontario (AGO) released its highly anticipated special report (the Report) on the Ontario government’s decision to cancel and relocate the Greenfield South Power Plant. The proposed 280 MW gas plant had been under construction for nearly six months when it was cancelled in late 2011 and subsequently relocated from Mississauga to Sarnia.

The decision is estimated to have cost approximately $275 million according to the Report. The gross cost is estimated to have been as high as $351 million when considering the cancellation and relocation costs in isolation. However, the AGO attributes a $76 million savings in association with the relocated plant's lower electricity prices and delayed construction schedule that better matches Ontario's electricity demand forecast. Of the $275 million, the AGO estimates that $190 million is being paid by Ontario taxpayers with the balance being paid by electricity ratepayers.

Among the key findings, the Report states that the decision to cancel the plant during construction weakened the Ontario Power Authority’s bargaining power and likely resulted in higher costs due to concessions made to the developer to halt construction.

OPA Announces FIT Window

On December 14, 2012, the Ontario Power Authority (OPA) will begin accepting SmallFIT applications (for projects between 10 and 500kW). The OPA plans to award 200MW worth of contracts during this window, 100MW of which will be allocated to capacity set aside aboriginal and community participation projects. There has been no indication of how long this application window will be open.

The OPA is reminding applicants to carefully review the new FIT program documents that have been revised in accordance with the November 23, 2012 and December 11, 2012 directives from the Minister of Energy. More information and the revised FIT version 2.1 documents will be available by the OPA as of December 14, 2012, as well.

For interested stakeholders, the OPA will is hosting a web-conference on December 18, 2012 to review the revised FIT Program and answer questions. Further details on this web-conference will be posted on the FIT website.
 

Happy Holidays? Minister Bentley Announces Small FIT Window

At the CanSIA conference on December 4, 2012, Ontario’s Minister of Energy, Chris Bentley, announced the Ontario Power Authority (OPA) will start accepting applications for Small FIT on December 14, 2012. We understand that the window may be open for as little as thirty days. Additional details will be available on December 14, 2012. In preparation for the influx of applications, the OPA website will be shut down for maintenance on December 13, 2012 from 3:00pm until the opening of the application period.The positive news was welcomed by many in attendance but grumblings about vacation plans were heard soon afterward.

Minister of Energy issues directive to Ontario Power to continue FIT Program

Andrew Sullivan -

On November 23, 2012, the Minister of Energy (MOE) issued a directive to the Ontario Power Authority (OPA) to continue the Feed-in Tariff (FIT) and MicroFIT programs in furtherance of the directions issued on April 5 and July 11, 2012.

This latest directive follows the Land Use Working Group’s submission of recommendations regarding siting of ground-mounted solar projects on rural zoned lands with multiple primary uses and rural/agricultural zoned lands with abutting residential uses.

The following is a summary of the significant policies the MOE has directed the OPA to implement.

The MOE has directed the OPA to open the Small FIT application window as soon as possible and follow through with awarding 200MWs of projects. Additionally, the MOE directed the OPA to continue to develop rules and a contract as soon as possible for applicants with unconstructed buildings wishing to apply to Small FIT.

Ground Mounted Solar Photovoltaic Projects Siting

The directive provides further restrictions on the siting of ground-mounted solar photovoltaic projects (GM Solar Projects) larger than 10kW. These restrictions are to apply to rural zoned lands with multiple primary uses, where the residential is one such primary use (Rural Lands) and rural/agricultural zoned lands with abutting residential uses (Abutting Residential Lands).

For Rural Lands and Abutting Residential Lands, the MOE directed the OPA not to award new FIT contracts or consent to a site amendment of an existing FIT contract unless the Supplier commits to the three conditions. First, for GM Solar Projects between 10kW and 10MW on or proposed to be on Rural Lands, the Supplier must implement a minimum setback of 20 meters from all property lines. For GM Solar Projects larger than 10MW on Rural Lands or for GM Solar Projects larger than 10kW on Abutting Residential Lands, a 100 meter setback from all property lines is required. In each case, the 100 meter setback may be reduced to 20 meters if the municipality in which the GM Solar Project is located (Relevant Municipality) provides a resolution agreeing to such a reduction. Second, the Supplier must visually screen the GM Solar Project from bordering properties zoned to permit residential as a primary use. Third, the Supplier must make arrangements to maintain the visual screen of the GM Solar Project for the term of the FIT contract.

These conditions, among others, will not apply to existing FIT contract Suppliers who, prior to April 5, 2012, notified the OPA, the Relevant Municipality or the MOE in writing of the Supplier’s proposed site amendment and who provide evidence of such written notice to the OPA no later than Sunday, December 23, 2012 (Exempt Suppliers). However, the MOE has directed the OPA to make reasonable efforts to negotiate with Exempt Suppliers to include the setbacks, visual screening and maintenance arrangements for Solar Projects.

Community and Aboriginal Set-Aside

In an effort to prioritize community and Aboriginal participation, the directive allocates 100MW of contract capacity set-aside (“CCSA”) divided as follows:

For Small FIT:

  • 18.75MW for First Nation equity participation projects;
     
  • 7.25M for Small FIT Metis equity participation projects; and
     
  • 25MW for Small FIT community equity participation projects.

For Large FIT:

  • 18.75MW for First Nation equity participation projects;
     
  • 7.25M for Metis equity participation projects; and
     
  • 25MW for community equity participation projects.

In all cases, CCSA projects must have 50% community or Aboriginal equity participation.

In the event that any category of Aboriginal (First Nation or Metis) CCSA target is not reached, then, to the extent there are additional CCSA projects in another category that exceed the target, those projects will be considered in the undersubscribed category.

Once the CCSA targets are met or once all CSSA applications have been processed, then the OPA will no longer prioritize CCSA projects and will process applications for all projects based on prioritization points set out in the Prioritization Points Table in Appendix A of the July 11, 2012 Direction, which may include community or Aboriginal projects. 

The OPA has been directed to review FIT applications to verify that those applications seeking community or Aboriginal participation project priority points meet required economic interest criteria.

Re-launching the Community Energy Partnerships Program (CEPP) and Aboriginal Renewable Energy Fund (AREF)

The MOE has directed the OPA to align program rules and funding parameters of the CEPP and AREF to provide for Pre-FIT funding or Partnership Funding. Pre-FIT funding is meant to provide financial support to community and aboriginal projects submitting a FIT application. Partnership Funding provides aboriginal projects with support to perform due diligence associated with entering partnership agreements. Total funding from the CEPP and AREF is not to exceed $500,000 each. A number of rules limiting funding will apply. The CEPP will be developed and delivered through one or more third party provider.

Connecting Constrained MicroFIT Projects

The MOE has provided the OPA with a number of options to connect otherwise constrained MicroFIT projects. 
 

Ontario Court dismisses offshore wind damages claim

Michael Nilevsky -

Trillium Power Wind Corporation (TPWC), the Toronto-based developer interested in building offshore wind turbines in Lake Ontario, is appealing a decision of the Superior Court of Ontario after a judge ruled in favor of the defendant, the province of Ontario, to strike TPWC’s statement of claim.

On October 5, 2012, the Ontario Superior Court of Justice delivered its decision with respect to Trillium Power Wind Corporation v. Ontario (Natural Resources) by striking out the action brought by TPWC against the Ontario government seeking $2.5 billion in damages in relation to the province’s February 2011 moratorium on offshore wind farms.

In 2004, TPWC applied to the government of Ontario and was approved by the Ministry of Natural Resources (MNR) as the Applicant of Record to construct and develop an offshore wind farm project in Lake Ontario near Main Duck Island off Prince Edward County, roughly 35 Km south of Kingston. However, in 2006 and then again in 2011, the province imposed a moratorium on offshore wind farms. As a result, TPWC was never able to get its project off the ground despite having spent over $5 million in development surveys and environmental reports.
In September 2011, TPWC initiated their claim against the government setting out numerous causes of action, including but not limited to: breach of contract, unjust enrichment, negligent misrepresentation and intentional infliction of economic harm. In turn, the province brought a motion to dismiss the action on the grounds that the claim failed to disclose a reasonable cause of action.

Siding with the province, the court ruled that although TPWC obtained Applicant of Record status in 2004, they were never approved for an offshore wind project, nor did they ever obtain a Renewable Energy Approval. The MNR letter granting TPWC Applicant of Record status clearly stated that:
 

“There are no rights or tenure associated with this Applicant of Record status and it does not constitute MNR approvals of your proposed project. In addition, this Applicant of Record Status does not provide the right to make any alterations or improvements on Crown land.”


Furthermore, the court found that the Defendant, acting through various ministers of the Crown, was empowered to set and amend wind energy policies. That is, s. 47.3 of the Energy Protection Act clearly states that the Minister of the Environment may “in writing, issue, amend or revoke policies in respect of Renewable Energy Approvals.” As such, the court found in favor of the province’s argument that the decision to impose a moratorium was a core policy decision and could not be found to be illegal.

Overall, given that TPWC never obtained a contract with the government to develop a wind farm, nor was the government’s decision to impose a moratorium illegal, the court held that TPWC’s $2.25 billion dollar claim had no bearings.
 

Proposed regulation to expedite approvals process for ground mount solar in Ontario

Michael Nilevsky -

On September 8, 2010, the comment period closed for the new proposed regulations regarding adding Small Ground-Mounted Solar projects to the Environmental Activity and Sector Registry (EASR) system. The EASR system is being implemented by the Ministry of the Environment to allow businesses to register prescribed activities in the EASR system instead of seeking an Environmental Compliance Approval through the standard application and review process (i.e. the EPA’s Renewable Energy Approval Process). The new public, web-based EASR system is intended to speed up the approval process for activities that are “routine, well understood and have minimal environmental impacts.”

To date, three prescribed activities have been included in the EASR system: automotive refinishing facilities, heating systems and standby power systems. The government is now proposing to add three new activities to the registry system, one of the main ones being Ground-Mounted Solar projects. The proposed regulation would require ground-mounted solar facilities with a name plate capacity greater than 10 kW and less than or equal to 500 kW and with a maximum power output capacity less than or equal to 750 kVa (at each transformer) to register under the EASR system. In order to be able to register under EASR the facilities would also need to meet certain design requirements, including, but not limited to, ensuring that any noise generating equipment does not have a sound power level greater than 90 dBA and meeting minimum setback requirements for noise receptors. Finally, the proposed regulation aims to direct solar projects to properties currently or formerly zoned for agricultural, industrial, commercial or institutional use.

A full version of the proposed regulation may be found here.

 

FIT 2.0 contract finalized

Matt Cameron -

Following the draft feed-in-tariff (FIT) contract released on April 5, 2012 (our commentary on the draft is available here), the Ontario Power Authority released the final form of the new FIT contract on August 10, 2012.  With this contract and the new rules released on the same day, Ontario has reformatted its FIT Program – FIT 2.0 – to give greater incentives to developments by or including aboriginal groups, community groups and education and health providers.

Applications for “small” FIT contracts, being projects which, subject to the voltage of their connection line, are under 500 kW, will be accepted between October 1, 2012 and November 30, 2012.  During that period, FIT applications made under the existing FIT Program framework may transition to the new FIT 2.0 regime.  For further discussion on the new FIT rules, see our blog post here.

Below is a summary of material points in the new contract:

Changes to Project Specifications
As was proposed in the draft contract, the OPA will be able to arbitrarily refuse any change to the specifications of a project listed in the contract or the application.  Based on FIT 1.0 experience, this could include minor changes to the connection point, GPS location, feeder and so on.  Under FIT 1.0 the OPA could not unreasonably reject those changes.  Developers should be cautious to carefully review and double-check their site specifics before submitting an application.

Pre-NTP Termination
The final version of the contract affirms the OPA’s right to assume any security paid by the developer as damages if the developer opts to terminate the contract before it obtains “notice to proceed”.  This is consistent with the OPA’s current practice.  The OPA is also entitled to terminate the contract before the notice to proceed is issued provided any security payments are returned to the developer and documented pre-construction costs, up to a maximum limit.

The final version of the contract clarifies that the “Stop Work Direction”, by which the OPA can force a developer to stop all construction and development, can only be issued if the OPA exercises its pre-NTP termination right, which was not clear in the draft contract.

Post-NTP Termination
Developers hoping to finance their projects will likely breathe a sigh of relief as the right the OPA had in the draft contract to terminate the contract at its convenience after notice to proceed was issued has been removed from the final version of the contract. Many lenders had suggested to us that they would not be prepared to lend to FIT 2.0 projects if the termination-for-convenience right remained in the contract.

Deadline Changes
While small FIT projects used to be able to submit their NTP requests at any time before the milestone date for commercial operation, an NTP request under FIT 2.0 contracts must be submitted at least 3 months before the milestone date.  Large FIT projects will still need to submit the request at least 6 months before the milestone date as failure to do so is an event of default that entitles the OPA to terminate the contract. Under the final version of the contract, large FIT projects that miss that deadline must provide whatever information the OPA requires, which will include at least status information regarding the project and a “credible and detailed project plan” demonstrating how the project will achieve commercial operation.

The milestone date for rooftop solar projects has been reduced to 18 months following the contract date whereas, under FIT 1.0, such projects had the same timeframe as those for projects using other types of fuel (i.e. 3 years).  However, rooftop solar projects can maintain the 3 year milestone date if they are part of a portfolio of two or more projects and the developer’s application for a designation as a portfolio is accepted by the OPA.  Developers should be cautious applying for portfolio status – once a project is part of a portfolio, the OPA will consider it to always be part of the portfolio and the developer may not be able to sell each portfolio in parts.

Term and MCOD Penalties
While under the FIT 1.0 contract, a developer could miss the milestone date and buy-back the portion of the 20-year term lost by the delay by paying liquidated damages, the term of FIT 2.0 contracts will now start to run on the milestone date and a term “buy-back” is not available.  Accordingly, each day after the milestone date before the project achieves commercial operation is one day of lost FIT revenue.  We expect this change will cause lenders to exert significant pressure to ensure projects achieve commercial operation on or before their milestone dates.

The additional $0.25/kW payable per day as liquidated damages for failing to reach commercial operation by the milestone date, as contemplated in the draft contract, has been deleted.

Contract Capacity
The OPA has reverted to substantially the same obligation as previously existed under the former FIT regime regarding meeting contract capacity, meaning a developer can satisfy its obligations by building a project which is able to produce at least 90% of its contract capacity at the commercial operation date.  As in the FIT 1.0 contract, if the project is above 90% but below 100% at commercial operation, the developer can still bring the project’s contract capacity up to 100% within 1 year after commercial operation.

Rooftop solar facilities, however, cannot be overbuilt by more than 120%.  In particular, the DC nameplate rating of the installed modules cannot be more than 120% of the AC nameplate rating of the installed inverters.

Domestic Content – Operation and Maintenance
The OPA has revised the domestic content obligations of wind and solar projects.  In addition to being developed and constructed in order to meet the minimum required domestic content level (e.g. 50% for wind and 60% for solar, based on the satisfaction of specific designated activities), each of those projects are also required to operate and maintain the project in accordance with the minimum required domestic content level.

Although the contract entitles the OPA to audit at any time, the developer is only required to retain records for a limited period of time and the developer only reports on its domestic content activities within 90 days after achieving commercial operation.  These audit and reporting obligations were not changed in the final version of the contract.  Thus, while the developer has an obligation to maintain the facility in accordance with its domestic content obligations, it’s unclear how it would demonstrate those obligations after it submits its domestic content report and its record retention obligation expires.

Regardless, developers should be cautious of this obligation when considering which designated activities it will rely upon to meet its domestic content obligation and whether the warranties offered by the equipment suppliers for those designated activities will satisfy the designated activities.  Developers should also take this obligation into consideration when looking at its insurance coverage.

Domestic Content Report
The domestic content report regime has improved from the draft 2.0 contract. The OPA is now required to review and respond to the report within 90 days of its receipt of the report rather than having a “reasonable” time.  Both parties are required to cooperate after the OPA requests any additional information in order to finalize the report within a reasonable period.  Under the FIT 1.0, the OPA had 60 days to review, then the developer had 30 days to respond and the OPA then had 30 more days to review the response.

REA Representation
As was the case in the draft, developers represent that they have made due inquiry into the requirements to obtain a renewable energy approval (where applicable).  The effect of this representation is that the developer will not be able to claim force majeure for any issue related its REA which ought reasonably to have been known to the developer at the time it made its application.  Developers requiring an REA should perform due diligence investigations prior to applying for a 2.0 FIT contract to ensure it can reasonably obtain an REA.

Participation Points
Developers who are relying on community, aboriginal or education or health equity participation should carefully review provisions relating to participation projects and the applicable definitions.  If, for instance, a developer has a community co-op as an equity participant and that co-op fails to maintain the minimum required number of members (who must, in addition to being a co-op member, also own land in the community in which the project is built over a rolling 2 year window), the OPA will be entitled to terminate the FIT contract.  Although there are certain rights to cure that kind of a default, it may be difficult for the developer to recruit new members to a co-op or to convince co-op members to remain landowners in the area.

Those relying on points for hosting the project on an education or health facility should seek comfort that the facility will remain an education or health facility for at least 5 years after commercial operation. Subject to the ability of the supplier to cure by either becoming a participation project or replacing the education or health host with a new education or health host (both of which may be difficult to do after the project is operational), if the facility changes use before such time (which could occur through no fault of the developer), the developer will be in breach of the FIT contract.  While still risky, the 5 year milestone will be more palatable to developers than the 10 year milestone contemplated by the draft contract.
 

Final FIT 2.0 Rules Released

Lanette Wilkinson -

As described in greater detail in our April 9, 2012 and July 12, 2012 posts, in response to a direction by the Minister of Energy, the Ontario Power Authority (OPA), released drafts of version 2.0 of the Feed-in Tariff Program Rules (the Rules), Contract (the FIT Contract), and related documentation on April 5, 2012 for comment. On July 11, 2012, the Minister of Energy issued a further directive that mandated certain amendments to the Rules and FIT Contract. The final version 2.0 of the Rules was released by the OPA on August 10, 2012 and included several changes compared to the April 5, 2012 draft Rules (the Draft Rules). The OPA has also posted a list of frequently asked questions here.

Application Prioritization and Ranking

Priority Points

There have been several changes and clarifications to the “Priority Points” criteria, as follows:

  • Pre-existing applications submitted on or before July 4, 2011 are eligible for 1 Priority Point;
  • Pre-existing applications submitted on or after July 5, 2011 are eligible for ½ of a Priority Point;
  • The points available if applicants submit evidence of “Project Readiness” have been reduced from 2 to 1 Priority Points;
  • All local municipalities in which the Project is located must provide a resolution in the prescribed form to receive 2 Municipal Council Support Priority Points; and
  • Only Small FIT Projects that are located on First Nations lands and that have received the support of all Aboriginal communities resident on such lands, are eligible to receive 2 Aboriginal Support Resolution Priority Points.

Contract Capacity Set-Aside Projects

As mandated in the July 11, 2012 Directive, the Rules will continue to prioritize community and aboriginal participation projects. All applications that have a community or Aboriginal participation level equal to or greater than 15% will continue to receive 3 Priority Points and be eligible for a price adder under the FIT Contract; however, applicants that have a community participation level in excess of 50% that is held by a co-operative with membership of 50 or more local property owners or an Aboriginal participation level in excess of 50% (collectively referred to as “Contract Capacity Set-Aside Projects”) will now also receive a higher ranking than all other applications. Contract Capacity Set-Aside Projects will be ranked amongst other projects of the same class firstly, as to the number of Priority Points they receive, then by time stamp, and lastly if there is still a tie, by random selection.

Applicants may apply for designation as a Contract Capacity Set-Aside Projects by so identifying in their application. If so designated by the OPA, a failure to maintain a participation level of greater than 50% will constitute an event of default leading to a termination right on the part of the OPA.

The Rules now permit applicants with pre-existing applications to assign applications to an assignee for the purpose of designation as a Contract Capacity Set-Aside Project; however, any such assignment must be structured in compliance with other restrictions in the Rules relating to assignment.

Project Siting

A number of clarifying changes have been made in the Rules regarding project siting, including as follows:

  • Projects (other than waterpower projects) must not be located 50 km or more from the proposed connection point;
  • The definition of “Site” has been revised to expressly exclude land on which connection lines are located, and accordingly these lands are not subject to the restrictions in the Rules limiting the ability of applicants to site multiple projects on a deemed single property;
  • Unless a project is located on provincial Crown lands, an application must now include evidence of access rights for all of the proposed Site (which as mentioned above, excludes connection line lands). Under the Draft Rules, it was only necessary to submit evidence that the applicant had site control over lands sufficient to build and operate its project;
  • The Rules now provides that a property is considered to “Abut” another property if the properties share a common border or are only separated by a right-of way having a width of not greater than 15 meters. This change, in turn, helps to clarify whether certain properties would qualify as a deemed single property and whether a ground-mount solar project would satisfy siting rules that prohibit such projects from abutting a residential property; and
  • There are a number of special considerations and evidentiary requirements now contained in the Rules for projects located on provincial Crown lands and for waterpower projects.

Additional details have also been provided in respect of the restrictions and documentation required for siting ground-mount solar projects. In the Draft Rules, there was a blanket restriction preventing ground-mount solar projects from being sited on organic and Class 1, 2, and 3 soils. Although the drafting of the Rules is not clear, it appears that projects can now be located on properties that contain Class 1, 2, or 3 soils or organic soils as long the project itself is not located on the portion of the property containing Class 1, 2, or 3 soils or organic soils, or so long as the project is located on lands that are used for certain non-agricultural purposes set out in the Rules (such as lands used as an aerodrome, closed landfill, military installation, contaminated property, or for industrial use or lands that are owned by a municipality).

Multiple Projects

Deemed Single Property

Pursuant to the Rules, there is a limit on the aggregate contract capacity that can be located on a deemed single property of 10 MW for solar and 50 MW for waterpower projects, which aggregate limit now includes the contract capacity of any renewable energy generating projects under contract with the OPA or the Ontario Electricity Financial Corporation.

Disclosure

The OPA now requires an applicant and any applicant related person to disclose whether it has submitted a separate application in respect of a separate project under the FIT Program.

Rooftop Portfolios

An applicant may apply to the OPA for a Rooftop Portfolio designation if it has a portfolio of two or more rooftop solar facilities with FIT Contracts and with an aggregate contract capacity greater than 15 MW. Rooftop Portfolios will benefit from an option to extend the Milestone Date for Commercial Operation under the FIT Contract to 36 months following each Contract Date; however, such projects may not be separately assigned under the FIT Contract.

Existing Applications

There are a number of changes to the transitional provisions for pre-existing applications in the Rules, as follows:

  • A resubmitted application may not have a contract capacity that exceeds that specified in the pre-existing application;
  • An applicant must still be the same person and have the same name as the pre-existing applicant, except as follows:
  • The name of the applicant in a resubmitted application may be changed (i) for the purpose of qualifying the project as a participation project or a Contract Capacity Set-Aside Project; or (ii) where the name of the applicant has changed due to circumstances other than an assignment or a change of control, with the consent of the OPA; and
  • A pre-existing applicant may assign its application in prescribed circumstances set out in the Rules.

 Pricing

The Rules provide that the contract price and the price adder will be those in effect at the time a contract award is made, not at the time that the application was submitted. If the prices set out in the offer for a FIT Contract are less than those at the date of the application, the applicant may elect not to enter into a FIT Contract and the OPA will return all application security.

Next Steps

The OPA has announced that the application window for small FIT projects is anticipated to open on October 1, 2012 and remain open until November 30, 2012. The OPA anticipates awarding 200 MW of small FIT contracts. The OPA will announce the timing for the large FIT project application window once details are finalized, but the OPA has not yet given any indication of when that window will open.

Once FIT contracts have been offered to successful applicants, all applications that were submitted in the first application window that do not receive contracts and those pre-existing small FIT applications that are not resubmitted in the first application window will be terminated and their time stamp will be lost. Application security for such applications will be returned.

Panel orders TransAlta to return coal generation units to service

Brandon Mewhort and Aleksandra Rennebohm -

On July 23, 2012, TransCanada Corporation announced that it received a favorable ruling from an independent arbitration panel regarding its dispute with TransAlta Corporation over TransAlta’s force majeure and economic destruction claims.

In December 2010, TransAlta shutdown two coal-fired generation units at its Sundance power plant just west of Edmonton (the Units) after testing revealed problems with the boiler tubes. TransAlta declared that the Units could not be economically repaired and claimed force majeure and economic destruction. TransAlta issued a formal notice of termination of the Power Purchase Arrangement (PPA) with respect to the Units in February 2011. TransCanada rejected these claims and the matter was referred to the arbitration panel pursuant to the dispute resolution provisions of the PPA.

The arbitration panel dismissed TransAlta’s economic destruction claim and upheld the PPA, ordering TransAlta to repair and rebuild the Units. The panel limited TransAlta’s claim for force majeure to begin from November 20, 2011, and to run until such time as the Units are restored and returned to service. TransAlta estimates the cost to repair the Units at about $190 million. The arbitration panel stated that TransAlta must now decide how it will honour this decision and establish a reasonable schedule to return the Units to service.

Under the PPA, TransCanada is entitled to 100 per cent of the generating capacity of the Units until the PPA expires at the end of 2017. Until the Units are returned to service, TransCanada will not realize these revenues, but it will be relieved from making capacity payments to TransAlta during that time.

Minister of Energy issues directive to Ontario Power to continue FIT Program

Annie Pyke -

On July 11, 2012, the Minister of Energy issued a directive to the Ontario Power Authority (OPA) providing further direction regarding the FIT 2.0 Rules and Contract. Among other items, this directive provides further details on the prioritization and ranking of applications, land use restrictions and project location, directs the OPA to design a new pilot stream for microFIT applicants with unconstructed buildings and also extends the voluntary withdrawal period for existing FIT Contract holders to September 30, 2012.

A brief summary of the main points of the directive follows.

Priority Points and Ranking

The directive provides that all projects that applied prior to July 4, 2011 automatically receive one priority point and those projects that applied on or after July 5, 2011 will receive half of a priority point. A FIT contract will only be awarded where the project has achieved at least one priority point.

Community and Aboriginal participation projects will continue to be prioritized. All applications with greater than 15% community or Aboriginal equity interest will still receive 3 priority points and those applications with greater than 50% community or Aboriginal equity interest will be offered contracts in advance of all other applications within the same application window.

The directive indicates that the FIT contract will be revised such that, where a project has received priority on the basis of a 50% or greater community or Aboriginal equity interest, any change in the ownership that would result in such ownership falling below the 50% threshold is prohibited and will constitute an event of default leading to a termination right on the part of the OPA. The OPA termination right will arise following a six-month cure period during which time the supplier can remedy the default. There will also be a six-month cure period in the instance of the community or Aboriginal equity interest falling below the 15% threshold required in order to be awarded prioritization points. With respect to community equity interest projects, in order to have the benefit of the cure period, a supplier must report the change in the membership of the co-operative within 12 months of any change that leads the supplier to fall below the 50% or 15% equity interest threshold.

Project Siting

With respect to project siting, as described in our April 9, 2012 post, the draft FIT 2.0 Rules prohibited ground-mount solar projects from being located on a site comprised (in whole or in part) of CLI Class 1, 2 or 3 Lands, Specialty Crop Areas or CLI Organic Lands. The directive provides that while a ground-mount solar facility cannot be located on any of these lands,  the site can contain a mix CLI Class 1, 2 or 3 Lands, provided that the ground-mount solar facility will not actually be located on the CLI Class 1, 2 or 3 Lands, as evidenced by a peer reviewed soil study. In addition, non-hydroelectric projects will not be permitted to be located 50 km or more from their proposed connection point to the existing transmission or distribution grid. This distance will be measured based on the distance to the connection point from land which the supplier has access rights over at the time of application.

FIT Contract Changes

As discussed in our earlier post, the draft FIT 2.0 Contract contained a new right for the OPA to terminate the contract for convenience at any time following Notice to Proceed. The directive appears to remove this provision and states that only those rights of termination in favour of the OPA which existed in prior versions of the FIT Contract shall be contained in the final FIT 2.0 Contract. It is not clear whether this also applies to the right of the OPA to give a “Stop Work Direction” under the draft FIT 2.0 Contract.

The directive also provides that, with respect to rooftop solar facilities, the Milestone Date for Commercial Operation will continue to be 18 months following the Contract Date, except in the case of a “portfolio of rooftop solar facilities greater than 15 MW”, for which the Milestone Date for Commercial Operation will be 36 months following the Contract Date.

The OPA is expected to release revised drafts of the FIT and microFIT Rules and Contract to reflect this directive and also to open an application window for microFIT and Small FIT Contracts.

OPA FIT 2.0 program prescribed forms posted

The OPA has posted draft prescribed forms for FIT 2.0 on its website. The OPA notes that the forms are for reference only and may be revised. No opportunity for public comment has been provided.

In a review of the draft FIT 2.0 Prescribed Forms, the following items are of note:

  1. The OPA has issued a Municipal Council Support Resolution, as well as a Municipal Council Blanket Support Resolution. The blanket resolution enables a municipality to declare its support for all projects located anywhere within the municipality for a period of twelve months after its adoption by Council. The municipality can offer its support for all or select technologies in issuing a Municipal Council Blanket Support Resolution. Unlike the Aboriginal Support Resolution, which is a general declaration of support for the application and the project, each of the municipal council support resolutions are stated to have the sole purpose of enabling the applicant to achieve priority points.
     
  2. The prescribed forms of Zoning Opinion and Zoning Certificate for Non-Rooftop Solar Facility do not provide additional clarity on the OPA’s interpretation of the land use restrictions on ground-mount solar PV under the FIT 2.0 Rules.
     
  3. Despite the flexibility afforded in the definition of “Economic Interest” for ownership interests other than equity in a corporation or a partnership interest in a partnership and for indirect as well as direct interests, which the OPA may determine in its sole and absolute discretion to constitute an “Economic Interest”, the prescribed forms of Aboriginal Participation Project Declaration and Education or Health Participation Project Declaration are best designed to address direct ownership of securities and partnership interests or units.

The OPA has not yet released any of the prescribed forms relating to the FIT 2.0 Contract, other than the prescribed form for the Consent of Co-op Member & Property Owner Declaration for Community Participation Project Declaration, which is in a substantially similar form to that required under the FIT 2.0 Rules.

Ontario Assessment Review Board rules wind farm does not affect property value

Patrick Duffy and Sean Gibson -

The Ontario Assessment Review Board has ruled that there is no evidence the presence of a wind farm affected the value of Ed and Gail Kenney’s waterfront property on the west end of Wolfe Island, a rural community located in the Township of Frontenac Islands on Lake Ontario.

The Municipal Assessment Property Assessment Corporation (MPAC) assessed the Kenney property at $357,000 for the 2009, 2010 and 2011 taxation years, a valuation that the Kenney’s objected to due to their proximity to the Wolfe Island Wind Project, the second largest wind farm in Canada, which has been in commercial operation since June 2009. The Kenney’s property is located within 1 km of three turbines, 2 km of 14 turbines and 3 km of 27 turbines. The Kenney’s argued that the existence of the wind farm reduced the value of their property because of the various nuisances or annoyances that it caused.

The Board rejected the Kenney’s arguments. In particular, the Board found that:

  • the noise from the wind turbines has not restricted the Kenneys’ activities;
  • there was no direct link between Ms. Kenney’s complaints about tinnitus and the wind farm;
  • neither “shadow flicker” or lighting on the turbines interferes with the Kenneys’ enjoyment of the property;
  • the Kenney’s view of the waterfront from their property (a view which could affect property value) was unaffected;
  • there was no evidence presented to show that industrial traffic from the farm causing increased wait-times for the island ferry reduced the value of properties on Wolfe Island; and
  • there was no evidence presented to demonstrate that the wind turbines caused a degradation of the natural environment on the Kenney property.

Because MPAC has not yet developed a category in its assessment formula for proximity to wind turbines, the only way for the Board to assess whether the property was over-valued was through analysing sales of similar property on Wolfe Island. The Board examined listings and sales of property on the island, focusing on sales of waterfront property, and found that sales of such property following the approval, construction and operation of the wind farm had not slowed and that the selling price of the properties did not indicate that the wind farm had any depreciative effect on value.

As a result of these findings, the Board concluded that there was nothing to indicate that the value of the Kenneys’ property had been negatively affected by the creation or operation of the wind farm and confirmed MPAC’s assessment of the property at $357,000.

For more information, see Kenney v. Municipal Property Assessment Corp. Region No. 05.

FIT 2.0 draft contract released

Following the issuance of the Minister’s Directive to the Ontario Power Authority on April 5, the OPA released a draft of version 2.0 of the FIT contract, “FIT 2.0”.  The new FIT contract is intended to implement the recommendations made following the 2-year review of the program and is open for public comment until April 27, 2012.  See here for copies of the draft contract and for more information on how to provide feedback.

Some of the changes from the original FIT contract include:

Contract Changes

The OPA will no longer have any obligation to consent to reasonable changes in the facility features or specifications.  This may limit a supplier’s ability to change the connection point, feeder, transformer, site location, design or layout of the project after the application is made.

Pre-NTP Termination

The new FIT contract maintains the OPA and seller’s respective rights to terminate a FIT contract before Notice to Proceed is issued.  Current contract holders will recall the OPA offered to waive its pre-NTP termination right under version 1 of the FIT contract in the fall of 2011.

Like in past versions of the FIT contract, if the OPA exercises its termination right, the supplier will be entitled to claim its development costs incurred prior to the termination date, up to a predetermined limit (which for example is $250,000 per facility plus $10.00 per kW of contract capacity in the case of solar and $400,000 per facility plus $2.00 per kW of contract capacity in the case of wind).

The new FIT contract also introduces a new right in favour of the OPA whereby the OPA can issue a “Stop Work Direction” pursuant to which the Supplier will permanently cease development and construction of the Facility.  As currently drafted, it is not clear whether the supplier is entitled to any compensation if it receives a Stop Work Direction.

Post-NTP Termination

In addition to maintaining the OPA’s right to terminate before Notice to Proceed, the new FIT contract introduces a right for the OPA to terminate the FIT contract for convenience following the issuance of Notice to Proceed and on 20 days’ notice.  In the event that the OPA exercises this termination right, the supplier is entitled to its “Sunk Costs” (being the reasonably incurred costs to develop, construct and commission the facility) and to the net present value of the supplier’s anticipated profits during the term.

The OPA is also entitled to issue a Stop Work Direction following Notice to Proceed.  As with the OPA’s right to issue a Stop Work Direction prior to NTP, it is unclear whether the supplier is entitled to any compensation if it receives a Stop Work Direction based on the current drafting of the new FIT contract.

Penalties for failing to achieve the Milestone Date for Commercial Operation (MCOD)

The new FIT Contract requires all suppliers to pay $0.25 per kW multiplied by the contract capacity of the facility for each day of delay in achieving commercial operation beyond the MCOD.  In the existing FIT contract such penalty only applied to first-mover projects that elected to advance their MCOD. 

The new FIT Contract also specifies that the twenty-year term (or forty-year term in the case of waterpower) will commence on the MCOD even if the facility has not yet achieved commercial operation (as does the existing FIT contract); however, unlike the existing FIT contract, there is no longer an opportunity to buy-back the term for a penalty of $0.15 per kW multiplied by the contract capacity of the facility for each day of delay in achieving commercial operation beyond the MCOD. 

As a result, the supplier will face monetary penalty and a loss of term as a result of a failure to achieve commercial operation by its MCOD.  These changes should be noted by rooftop solar developers, in particular, as such projects will have a MCOD eighteen months following the contract date in contrast to three years under the existing FIT contract.

Contract Capacity

While the old contracts allowed a facility to be built at 90% of its contract capacity, the new draft, as a condition to achieving commercial operation, requires the facility to be built at 100% of the contract capacity and requires the seller to deliver an independent engineer’s certificate certifying same.  Prior to delivering this certificate, the Supplier may elect to reduce the contract capacity to a lower amount, provided that such amount is no less than 75 percent of the original contract capacity.

Force Majeure

The new FIT contract has tightened the force majeure provisions.  In particular, a party will now not be able to invoke force majeure to the extent that the event was within the reasonably control of such party or if it was as a result of the failure or performance of a third party (unless the failure of performance of such third party was itself caused by a force majeure event).  Further, upon the OPA’s request, the supplier must provide documentation or information evidencing the commercially reasonable efforts undertaken by the supplier to remove or remedy the force majeure and must represent and warrant that such documentation or information is complete and not misleading.

Domestic Content

The timing for the post-COD domestic content report has been removed.  While the original draft required the OPA to respond within 60 days of its receipt of a domestic content report, the new draft proposes only a “reasonable” time period.  Further, while it was unclear in the existing FIT contract what the effect would be if the seller repeatedly submitted a deficient domestic content report to the OPA, the current draft provides only that the supplier and the OPA will cooperate to finalize the domestic content report “within a reasonable time period”, if the OPA finds the domestic content report deficient following its initial submission. Given that lenders are already concerned with the post-COD nature of the domestic content report, the removal of a firm time line is unlikely to make lenders more comfortable.

REA Representation

A supplier is required in the new contract to represent that it is not aware of any reason, and that there are no reasons of which the supplier ought to have been aware, for which the supplier would not obtain a Renewable Energy Approval (where applicable).  The supplier will not be entitled to make a force majeure claim with respect to any delay in obtaining a REA where those representations prove untrue; however if this representation is not true it will not constitute an event of default

Secured Lender Provisions

Unlike the existing FIT contract that prohibited a secured lender’s security agreement from securing indebtedness that is not related to the facility (except in relation to one or more renewable generating facilities in Ontario that are owned by the seller),  the new FIT Contract allows a secured lender’s security agreement to secure indebtedness related to other facilities (other than a facility under a microFIT contract) in Ontario that are also the subject of a contract with the OPA and that are owned by the Supplier or its affiliates.

Participation Projects

As with the existing FIT contracts, there are special provisions for Aboriginal and Community Participation Projects.

Price adders will only apply if the projects retain status as participation projects as at the commercial operation date. If during the term, the applicable participation level decreases, the seller must provide written notice to the OPA and the price adder may be recalculated. If the participation project no longer qualifies as a participation project at any time prior to or during the term (1) and such project is not a rooftop solar facility, such failure will constitute an event of default; or (2) and such project is a rooftop solar project, then the supplier will no longer be entitled to a price adder.  If a rooftop solar participation project fails to qualify as a participation project on or at any time during the term prior to the fifth anniversary of commercial operation, such failure will constitute an event of default.

For Community Participation Projects, the supplier will be obligated to certify on the commercial operation date and each anniversary of such date that it has the requisite number of “Qualifying Members” and to update its list of Qualifying Members” to reflect any changes to the participating co-op property owners.  We note that a Qualifying Member must be a co-op member and property owner; however, the definition of property owner requires such person to be a registered owner of real property two years prior to the date of a FIT application, which creates an impractical result over a twenty-year or forty-year contract.

Stikeman Elliott's Energy Group will be discussing the changes to the Feed-in Tariff Program and the operational and commercial implications it may have on renewable power generators and others at a seminar on Wednesday, April 18 (8:00 am – 9:30 am). For further details or to receive an invitation, please contact Lyne Montpetit.

FIT 2.0 draft rules released

Following the issuance of the Minister’s Directive to the Ontario Power Authority on April 5, the OPA released drafts of version 2.0 of the FIT Rules.  All interested parties are encouraged to review the proposed changes and submit comments. Comments will be accepted by the OPA until April 27, 2012.   See here for a copy of the draft FIT Rules and for more information on how to provide feedback.

The draft FIT Rules take a much more prescriptive approach to applications and application requirements, with multiple opportunities for the OPA to terminate applications at an early stage. A brief summary of certain proposed changes to the Rules follows.

 Small FIT Projects and Large FIT Projects

The Rules now differentiate between "Small FIT Projects" and "Large FIT Projects." A "Small FIT Project" is defined as a capacity allocation exempt small embedded distribution generation facility. A Small FIT Contract must be no more than 250 kW where the facility is connected to a line of less than 15 kV or no more than 500 kW where the facility is connected to a line of 15 kV or greater. A "Large FIT Project" is defined as a project that is not a Small FIT Project.

Evaluation of Applications

Under the revised FIT Rules, it is proposed that evaluation of applications will now occur in four stages:

Stage 1 - Application Completeness Requirements - this is a pass/fail stage based on the application requirements specified in the Rules.

Stage 2 - Eligibility Requirements - this is a pass/fail stage based on the eligibility requirements specified in the Rules.

Stage 3 - Ranking by Prioritization and Time Stamp - applications will be ranked based on the number of "Priority Points" and their time stamp, as discussed below.

Stage 4 - Connection Availability and Procurement Limits - contracts will be awarded to applications, based on their ranking pursuant to stage 3, which are able to pass the TAT and, if applicable, the DAT, and subject to any applicable procurement limits.

The following is a brief summary of certain proposed changes to the Rules:

Application Prioritization and Ranking

Applications can be awarded "Priority Points" based on specified criteria. Every application must obtain at least one Priority Point in order to be eligible for a FIT Contract. Priority Points are awarded based on "Project Type" or "Non-Project Type" criteria.

Project Type Priority Points:

  • Community Participation Projects (3 points): To qualify, a Co-op (with at least 50 Co-op members for a Large FIT Project and 35 Co-Op members for a Small FIT Project) must have a direct economic interest in the Project.   The Co-op members must be “Property Owners” (defined as natural persons that are and were, as of the date two years prior to the application, a registered owner of real property in the municipality in which the Project is to be located, in whole or part).  Any economic interest in the Co-op by any entity or any affiliate of an entity whose primary business is, or of any person whose employment is in, the development of non-community based electricity projects will be discounted from the calculation of the Community Participation Level in the Project.
  • Aboriginal Participation Projects (3 points): An Aboriginal Community must have at least a 15% economic interest in the applicant or supplier to qualify for these points.
  • Education or Health Participation Projects (2 points): Projects where a university, school, college, hospital or long-term care has at least a 15% economic interest in the applicant or supplier qualify for these points.

Non-Project Type Priority Points:

  • Municipal Council Support Resolution and Aboriginal Support Resolution (2 points): These points will be awarded to a project that has received a Municipal Council Support Resolution or an Aboriginal Support Resolution, in the form provided by the OPA.
  • Project Readiness (2 points): These points will be awarded to projects which are able to evidence that they have title to, or a legally enforceable lease or option to lease for, the project site.
  • Education or Health Host (2 points): These points will be awarded to projects located on a site which they have been granted access to by a university, school, college, hospital or long-term care centre.
  • System Benefit (1 point): One point is available for a project which uses waterpower, renewable biomass, landfill gas or biogas, as its renewable fuel, or an on-farm biogas facility.

Project Type Priority Points cannot be combined with each other, but can be combined with Non-Project Type Priority Points. Non-Project Type Priority Points are cumulative. It is unclear whether the OPA can award partial points. Projects will be ranked according first to the number of Priority Points they achieve and then based on their time stamp. The time stamp assigned to pre-existing applications will be that assigned to it under the prior versions of the FIT Rules.

Project Siting

While it is still sufficient to evidence Access Rights through a lease, option to lease, letter of intent, memorandum of understanding or other grant, in order to be eligible for “Project Readiness” Priority Points under the new ranking system (as described above), it will be necessary to evidence a greater degree of site control.

For rooftop solar projects, the applicant must represent in the application that it has obtained written certification from an independent engineer (and provide the certificate) that the subject rooftop has sufficient useable surface area for the project and that it is either suitable to support the project or that it will be following improvements (the particulars of which must be described in the certification).

The rules for siting of ground-mount solar projects have become much more stringent. Projects cannot be located on a site that is comprised (in whole or in part) of CLI Class 1, 2 or 3 Lands, Specialty Crop Areas, or CLI Organic Lands. In addition, ground-mount solar projects cannot be located on a property (i) which is or includes residential property or abuts another property that is a residential property - unless the property is agricultural and residential use is ancillary to agricultural use; or (ii) on which commercial uses and/or industrial uses are permitted and one or more ground-mount solar projects would constitute the main or primary use of the property.  In an application for a ground-mount solar project, the applicant must provide a map showing the grid cell number and site where the project is to be located and a written opinion of a Land Use Planner or written certification of a chief building official, municipal chief administration officer, municipal clerk, or equivalent, opining or certifying that the project satisfies the land use restrictions on non-rooftop solar projects set out in the Rules.

Connection Availability and Procurement Limits

Following the ranking, applications will be assessed, in order of rank, as to availability of, and impact on, the applicable transmission system and/or distribution system for the project, based on the transmission availability test and distribution availability test. Applications will also be assessed in light of any applicable "Procurement Limits". The OPA has reserved the right to specify limits on the procurement of renewable energy, based on fuel type, within each specified Application Period.

Domestic Content

On-shore wind projects will continue to be required to achieve 50% domestic content and solar PV projects will continue to be required to achieve 60% domestic content.

Pricing

As discussed in our earlier blog post, the price schedule has been revised and the Rules indicate that pricing will be reviewed every year. The contract price will be the price in effect at the time a contract award is made, not the time that the application was submitted. Aboriginal and community projects will continue to be eligible for price adders, however, unlike the existing FIT Program, for all projects other than rooftop solar, the price adders will be available for all project sizes and technologies and will be based on the level of equity participation (namely, between 15% and 50% or above 50%). The Settlement Provisions have not changed.

Multiple Projects on the Same Property

The Rules have provided the following guidance on whether multiple projects can be located on a single property:

  • An application cannot be made in respect of a proposed project located on the same property as (i) a project developed under the microFIT Program that uses the same renewable fuel; (ii) a project that has been the subject of any previous application unless that project has achieved commercial operation; or (iii) another project that is the subject of an application submitted during the same application period that is the same as or substantially similar to the proposed project;
  • Co-Located Projects cannot exceed 10 MW for solar PV projects and 50 MW for waterpower projects; and
  •  In general, project splitting will not be permitted by the OPA, as discussed further below.

Project Splitting

The Rules specifically prohibit the splitting of a project in order to obtain a higher contract price, to circumvent the eligibility requirements, or to obtain any other benefit under the FIT Contract.

If the OPA determines that a project has been split, it may (i) terminate all applications in respect of the split projects; (ii) apply the contract price to such split projects which would have applied had the project been assessed as a whole, or (iii) take such other action as it may determine. In making the determination of whether a project has been split, the OPA may consider, among other factors, whether the applicants are the same person or related persons, the relative locations of the projects and the renewable fuel(s) used by such projects.

Assignment

An applicant may not assign its application to another person or permit a change of control of the applicant, failing which the OPA may terminate the application and draw on the application security as liquidated damages.

Existing Applications

Applications that were submitted prior to April 5, 2012 may be resubmitted under FIT 2.0 provided that the proposed project is located on the same Site and that the applicant is the same person and has the same name (other than name changes made for the purpose of the project qualifying as a Participation Project).

Pre-existing applications must be resubmitted (1) during the first application period for Small FIT Projects, in respect of existing Small FIT Projects or Large FIT Projects (provided that the Large FIT Project is restructured such that the resubmitted application is for a Small FIT Project); or (2) during the first application period for Large FIT Projects, in respect of Large FIT Projects. No information or supporting evidence in the corresponding pre-existing application will be considered in reviewing the resubmitted application.  The OPA will return or cancel any existing application fee and security, and the applicant will be expected to submit a new application fee and application security with the resubmitted application.

If such pre-existing applications are not resubmitted during these initial application periods, the OPA may terminate the pre-existing application and will return or cancel the application fee and application security submitted to the OPA in connection with such existing application. 

The OPA is proposing a non-refundable application fee of at least $500 and minimum application security of at least $1,000.00. The OPA has also expressly stated that an applicant will not be permitted to correct its application, including by providing the correct application fee or security following submission. Applications must also include specific representations and warranties from the applicant, including with respect to the requirements of the Renewable Energy Approval. The OPA may terminate any application it determines is incomplete, ineligible or which does not include satisfactory information.

Applications will only be accepted during specified application periods, to be announced by the OPA.

Stikeman Elliott's Energy Group will be discussing the changes to the Feed-in Tariff Program and the operational and commercial implications it may have on renewable power generators and others at a seminar on Wednesday, April 18 (8:00 am – 9:30 am). For further details or to receive an invitation, please contact Lyne Montpetit

Ontario government releases feed-in tariff program review

Lanette Wilkinson -

The Province released its Two-Year Review Report summarizing the results of its FIT Program review.  The Report proposed the following material revisions to the FIT Program.

Commitment to 10,700 MW Original Target - The Long-Term Energy Plan target of procuring 10,700 MW of non-hydro renewable energy generation by 2015 will be maintained. At the end of 2013, the government will explore whether a higher target is required.

Prioritizing Projects - The time stamps of applications in the FIT Production Line will no longer solely establish the priority of contract award.   The Report proposes the introduction of a point system into the application review process to give priority to certain applicants

Points will be awarded to applications as follows:

  • 3 points for a minimum of 15% equity coming from either Aboriginal groups or the local community (being at least 50 or more property owners in the municipality where the project is located).
  • 2 points for a minimum of 15% equity coming from public schools, colleges, universities, hospitals or long-term care facilities or if such facilities host the project.
  • 2 points if a project has a resolution evidencing municipal council and/or aboriginal community support.
  • 2 points to wind, solar ground-mount or bioenergy projects with a firm lease, firm option to lease or purchase or ownership of the subject land sufficient for the project or in the case of solar rooftop applicants that do not own the host building, with a firm lease or option to lease.
  • 1 point will be granted to FIT projects with an ancillary system benefit (i.e. water or bioenergy).

Also, at least ten percent of the remaining capacity in the 10,700 MW target for 2015 will be reserved for local and Aboriginal projects with greater than fifty percent equity participation and up to 50 MW will be reserved for hydroelectric projects.

Ground-mount Solar - Solar ground-mount projects over 10 kW will be prohibited on prime agricultural land that contain class 1, 2, and 3 soils. All zoning exemptions that permitted projects to be located on lands zoned to permit non-agricultural uses as of October 1, 2009 will be removed. Ground-mount solar projects will be permitted in commercial or industrial uses where energy generation is a secondary use; however, regardless of size, will not be permitted in or bordering residential areas.

Rooftop Solar PV - The milestone date for commercial operation for rooftop solar PV will be shortened from three years following the Contract Date to eighteen months following the Contract Date, which does not affect the eligibility of these projects under the Program; however, it may affect project feasibility for existing applicants.

Interconnection – The OPA is to consult with stakeholders to develop a rule regarding the maximum distance between a project site and its connection point. Further, the Report dictates that where the OPA’s screening process indicates that upgrades are required to connect a project, the OPA will only offer contracts where the need for minor transmission upgrades are identified.

Transition Process – Because some existing applications will be rendered ineligible by the changes, there will be a transition process for all pre-existing FIT applications (which will also be available generally for microFIT applications submitted on or after September 1, 2011) that will allow applications to transition to eligibility requirements under the new rules. A revised application will retain its original timestamp.

Changes to the Price Schedule – Prices for renewable energy projects have been reduced by more than 20 per cent in the case of solar and fifteen percent for wind. The revised price schedule follows:



The Province will review the Price Schedule each year. It is expected the revised Price Schedule will be published each November, commencing on November 2012, with pricing to take effect on January 1st of the following year. The contract price will be the price in effect at the time a contract award is made, not the time that the application was submitted.

As with the existing FIT Program, a portion of the FIT contract price will escalate for inflation following commercial operation. The portion of the FIT contract price that escalates will remain 20% for wind and waterpower and 0% for solar; however, the Report has increased the escalation percentage from 20% to 50% for bioenergy.

In addition to prioritizing Aboriginal and community projects through the application process (as described above), these projects will still be eligible for price adders. Unlike the existing FIT Program, however, the price adders will be available for all project sizes and technologies (other than rooftop solar) and will based on the level of equity participation (namely, between 15% and 50% or above 50%).

Renewable Energy Approval (REA) - The Report recommends streamlining the REA process by expanding self-screening for small-scale solar (less than 500 kW) and bio-energy projects and shortening the timelines for agency review. MicroFIT solar projects will remain exempt. For the remaining projects, two streams of REA approvals are recommended.

Reestablishing Municipal Engagement - Proponents and project developers of large FIT projects will be required to meet with the municipality in a contract launch meeting. Further, the municipal consultation form for the REA will be revised in consultation with the Association of Municipalities of Ontario and the Ministry of Energy to better reflect municipal concerns.

The Report made several other notable recommendations:

  • The OPA will allow existing contracts to voluntarily withdraw from the FIT Program for a period of time and have their security fees returned.
  • A domestic content grid will be created for concentrated solar PV to facilitate participation in the FIT Program.
  • FIT project due diligence will be strengthened in areas such as awareness of regulatory approvals, structural safety and application security for small FIT.
  • Multiple projects on the same property will continue to be permitted on the basis of the aggregate MW price, as under the existing FIT Program. Future projects will also be permitted to be built on existing project sites so as long as the original project has reached commercial operation.
  • The Ministry of Natural Resources is to review its approach to renewable energy development on Crown land to release Crown land for renewable energy.
  • The OPA will not proceed with the Economic Connection Test.
  • The OPA will not launch the Municipal Renewable Energy Program or the Commercial FIT (CFIT) program, which was originally proposed to address commercial aggregators.
  • There will be certain changes to the microFIT Program, including limiting one microFIT contract per individual, removing the requirement that Aboriginal communities, schools, public colleges, and universities, hospitals, long-term care facilities and social housing own the land on which the project is located, and provided for an application approval notice, which will be valid for six months, instead of a conditional offer.

The Ontario Power Authority (OPA) will complete draft Rules and a draft Contract based on the Report’s recommendations and will post such materials to the microFIT and FIT website for review and comment.

Layperson evidence on alleged health effects limited

Patrick Duffy and Sean Gibson -

The Environmental Review Tribunal (ERT) has released a decision limiting the ability of laypersons to testify about health effects allegedly caused by proximity to wind turbines without providing medical records/expert opinions to substantiate their testimony.

The issue arose in an appeal to the ERT by the Middlesex-Lambton Wind Action Group of a Renewable Energy Approval (REA) issued to Zephyr Farms Limited for a wind farm under the Environmental Protection Act In its appeal, the Appellant alleged that the proposed wind farm would negatively affect the health of the surrounding community. In pre-hearing disclosure, the Appellant listed numerous witnesses aiming to testify that they had suffered negative health effects caused by living in the vicinity of wind turbines. The Appellants provided no corresponding medical reports to substantiate, further explain, or allow professional medical scrutiny against, these statements.

In response, the Ministry of the Environment (MOE) requested an order for the Appellants to produce medical reports to corroborate the allegations. The MOE argued that, without medical reports properly subjected to medical scrutiny, the ERT did not possess the necessary expertise to judge how relevant, applicable and transferable the witnesses’ experiences would be to Zephyr Farms’ proposal. Consequentially, the MOE claimed that layperson evidence would be of little use in determining whether the Zephyr Farms project will cause serious harm to human health.

The Appellant argued that, largely due to the expedited timeline for the hearing of the appeal, the time and cost it would take to obtain the necessary medical records to buttress the witnesses’ statements made the exercise impractical and that if the ERT did require such records for its consideration, a significant adjournment would be necessary.

The ERT largely agreed with the MOE, and citing its own decision in Kawartha Dairy Limited v. Director, Minister of the Environment, found that the ERT cannot simply accept the assertion of a layperson that they suffer from a certain medical condition, let alone the cause of that condition. Such conclusions require the diagnostic skills of a qualified health professional. Accordingly, the ERT would only be willing to hear and consider the subjectively reported symptoms of such a witness. One can assume, though it is not explicitly stated, that the ERT would give little weight to such subjectively reported symptoms. The ERT also refused to grant an adjournment because the Appellant knew of the time constraints on REA appeals when it filed its Notice of Appeal and was unable to provide any viable explanation for its inability to obtain a single medical record for any of the witnesses it proposed to call. 

Following the decision, the Appellants withdrew their appeal to the ERT.

Court rejects application of the prudent investment test to collective bargaining agreements

Glenn Zacher and Patrick Duffy -

In two appeal decisions released this past week, the Ontario Divisional Court rejected the application of the “prudent investment test” to forecast costs under collective bargaining agreements negotiated between a utility and its unionized employees.  

The prudent investment test is a regulatory principle that was first articulated by Justice Brandeis of the United States Supreme Court in the 1923 decision of Southwestern Bell Telephone Co. v. Public Service Commission.  The purpose of the prudent investment test is to protect utility shareholders in respect of past investments in large capital projects that later prove to be unnecessary. Because of the long lead times for constructing infrastructure projects, courts and regulators have ruled that it would be unfair to utility shareholders to assess the prudence of the investment with the benefit of hindsight. Instead, managerial prudence is initially assumed and any subsequent challenges are assessed on the information available to a utility’s management at the time the investment was made.

In their respective rate cases before the Ontario Energy Board, Ontario Power Generation (OPG) and Hydro One Networks Inc. (HONI) argued that the Board was required to presume the prudence of their claimed compensation costs.   They argued that the costs were set by previously negotiated collective bargaining agreements and the Board was limited to assessing the options available to the utility at the time it entered into the agreements.  As successors to Ontario Hydro, the utilities had historic collective bargaining agreements that in some cases had a no strike/lockout provision that required disputes to be settled by arbitration. Effectively, the utilities were arguing that the Board was required to defer to the settlement negotiated between the utility and its unions or, where no settlement could be reached, to the decision of the labour arbitrator.

The Board disagreed. Rather than being limited to assessment of the utilities options in the collective bargaining process, the Board held that it could rely on benchmarking studies that compared the performance of the utilities with their industry peers. These studies showed high staffing levels, excessive compensation and, in the case of OPG, that the performance of its nuclear business unit was poor. Accordingly, the Board disallowed $145 million in compensation costs for OPG and $31 million for HONI. In disallowing these costs in OPG’s case, the Board recognized the constraints imposed by the utilities unionized workforces (and moderated its disallowance in this respect), but nevertheless determined that ratepayers should only be required to bear reasonable costs.

Each of the Board’s decisions was appealed to the Divisional Court. The Court heard the two cases together and issued companion decisions dismissing both appeals. In endorsing the Board’s decisions, the Divisional Court ruled that the Board, as a “market proxy”, needs the ability to consider how each utility was performing in comparison to its peers and cannot be limited to the type of retrospective review advocated by the appellants. This is particularly important in circumstances where the agreements were negotiated between a regulated monopoly that passes its costs onto to customers and a “near second monopoly” on labour in form of the unions.  If the Board was bound to the outcome of the collective bargaining process, it would not be able to perform its statutory function of promoting market efficiency and protecting consumers. Further, the Court noted that, unlike other cases where the prudent investment test applies, the total compensation costs are not set solely by the collective bargaining agreements and the utilities have the ability “to manage, on a go-forward basis, to reduce total compensation costs within the framework of those agreements.”

The decisions discussed in this article are Ontario Power Generation v. Ontario Energy Board, 2012 ONSC 728 and Power Workers Union v. Ontario Energy Board, 2012 ONSC 1080. Glenn Zacher and Patrick Duffy acted as counsel for the Ontario Energy Board on the OPG appeal.

Drummond on energy

Patrick Duffy and Daniel Suss -

The much hyped Don Drummond Report released Wednesday is an appeal for a more sustainable and rational approach to fiscal policy in Ontario.

Energy features prominently in Drummond’s report. Beyond a general emphasis on maximizing efficiencies across the board, there are specific recommendations regarding the FIT review, energy procurement, and the future of Ontario Power Generation (OPG), Hydro One, and local distribution companies (LDCs). The focus is on sending more efficient price signals to the marketplace to encourage more optimal levels of investment in electricity infrastructure and capitalize on export opportunities for domestic goods and services.
 

FIT Review

The Drummond report advocates for the reduction or elimination of various energy subsidies, most notably the Ontario Clean Energy Benefit, and takes aim at the above-market-level rates that have been offered through the feed-in tariff (FIT) program for renewable energy generators. 

Drummond recommends lowering the initial prices offered in the FIT contract and introducing degression rates that reduce the tariff over time. He cites the example of Germany’s equivalent tariff program that builds in an annual nine per cent rate reduction. Beyond mitigating the impact on electricity prices, the purpose is to encourage innovation and discourage reliance on public subsidies.

Energy Procurement

The report suggests procuring larger generation facilities through a request for proposal (RFP) process, and making wholesale electricity prices inclusive of transmission costs as part of a comprehensive restructuring of the wholesale electricity market. Drummond also raises the possibility of locational marginal pricing when he suggests that consumers located nearer to generation stations should have the benefit of lower electricity prices.

OPG and Hydro One

Drummond suggests the province consider the full or partial sale of OPG and Hydro One if net, long-term benefits can be clearly demonstrated through comprehensive analysis. As well, he tells government to stay out of rate setting, a practice that often leads to greater costs down the road. Drummond’s report also recommends public-private partnerships for these government enterprises as a means of promoting efficiency in order to service and retire the debt and liabilities of the old Ontario Hydro as soon as possible.

LDCs

Drummond singled out the inefficiency of Ontario’s 80 LDCs as an area for improvement. His report recommends consolidating LDCs along regional lines to create economies of scale and potentially save $1.35 billion now spent on operations, maintenance and administrative costs.
 

Ontario Government Announces FIT Review

On October 31, 2011, the Ontario Government announced its first review of the FIT program. The review, which will be led by Deputy Minister Fareed Amin, aims to tackle issues including price reduction, long-term sustainability, job creation, new technologies and local consultation.

Ontarians are invited to participate in the review during the consultation period from October 31, 2011 to December 14, 2011. The OPA will also be holding a webinar tomorrow, November 2, 2011 at 10 a.m. in order to provide additional information.

Any FIT contracts awarded subsequent to today’s announcement will be subject to the new rules and pricing schedule that result from the review. Existing contracts will not be affected. The OPA is offering to refund application fees for those who wish to withdraw their application as a result of today’s announcement.

Ontario Court ruling an important precedent for wind farm developers

Patrick Duffy -
 
Wind farm developers in Ontario are being threatened with litigation from neighbouring residents who claim property values are suffering because of the perceived health concerns associated with wind turbines.  These claims were recently the subject of an investigation undertaken by the CBC that reported homes near wind farms were selling for less and taking longer to sell than other homes.  The issue has also been raised before the province's Assessment Review Board by property owners seeking to lower their property tax assessments.
 
A recent ruling from the Ontario Court of Appeal in Ellen Smith v. Inco Limited will provide the province's wind developers with  stronger hand in fighting back against such claims.  The claimants in the Inco case alleged that their property values were reduced by nickel contamination that originated from Inco’s refinery in Port Colborne.  They succeeded at trial and Inco was held liable for the tort of nuisance and under strict liability imposed by the rule in Rylands v. Fletcher.   The ruling was notable as the refinery had adhered to the applicable environmental regulations during its operation and the level of nickel contamination did not present a threat to human health or otherwise impact the complainants' ability to use and enjoy their property.  Nonetheless, the trial judge held Inco liable for the loss of property value because the contamination led to a negative public perception about the contaminated land.

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.

Ontario amends Samsung agreement

The Ontario government has announced the amendment of its green energy investment agreement with Samsung C&T Corporation and the Korea Electric Power Corporation (Samsung). The $7 billion dollar agreement is for the development of 2,500 megawatts worth of renewable energy generation (wind and solar) in addition to building four clean-technology manufacturing plants.

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.

OPA waives pre-NTP termination rights for FIT contracts

On August 2, 2011, the Ministry of Energy directed the OPA to allow Suppliers under Ontario’s Feed-In Tariff (FIT) program to obtain a waiver of the OPA’s termination rights contemplated in section 2.4(a) of the FIT Contract.

Obtaining a waiver of this termination right is meant to expedite issuance of a Notice to Proceed (NTP) by reducing contractual termination risk and allowing Suppliers to procure financing for equipment orders. 

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

Bruce to Milton Line FIT contracts announced

Yesterday the Ontario Power Authority offered Feed-in Tariff contracts to 19 large scale on-shore wind projects and 6 ground-mount solar projects, totalling nearly 1,046 MW of new renewable energy projects. 750 MW of wind-based contracts were offered in the Bruce Area and the remaining 296 MW were offered in the West of London Area, 27.5 MW for ground-mount solar and 268.4 MW for on-shore wind.

The biggest winner of the contract offers is Boulevard Associates Canada, Inc., with 335 MW offered in the Bruce Area. International Power Canada, Inc. received offers for 198 MW in the West of London Area.

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/

Energy Board denies First Nations Intervenor Status

Patrick Duffy -

In case with strong echoes of Rio Tinto Alcan Inc. v. Carrier Sekani Tribal Council, the Ontario Energy Board has recently denied a request from a group of twelve First Nations for intervenor status in a licensing application.

The application seeks licence amendments related to eight hydroelectric generating stations owned by AbitibiBowater. The amendments will facilitate the sale of the generating stations to Bluearth Renewables, which intends to take advantage of incentives for upgrades and expansions offered by the Ontario Power Authority's Hydroelectric Contract Initiative (HCI). The First Nations group requested intervenor status with the intention of exploring the adequacy of the Crown’s consultation efforts with respect to potential infringements of their Aboriginal rights. The group argued that the sale of these facilities to Bluearth would result in increased or expanded hydroelectric generation under the HCI, which would change water levels and flows and impact their ability to harvest wild rice.

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.

Ontario Energy Board grants Distribution System Code exemption for waterpower projects

Patrick Duffy

In an oral decision made on May 5, 2011 the Ontario Energy Board granted an application by Ontario Waterpower Association (OWA) for an exemption from sections 6.2.4.1(e) and 6.2.18 of the Distribution System Code (DSC) for hydroelectric projects with a nameplate capacity of between 1 and 10 MW that are located on provincial Crown or federally-regulated lands.

Section 6.2.4.1(e) of the DSC requires a distributor (in this case Hydro One) to remove an applicant's connection capacity allocation if the applicant has not signed a connection cost agreement (CCA) within 6 months of receiving the allocation.  The provision was introduced in the fall of 2009 to ensure that connection capacity was not tied up by projects that were not being pursued diligently. The Board found there was no evidence that the 28 hydroelectric projects at issue in the application were "laggards" and noted that such projects face unique challenges because of their site-specific nature and the extensive approval processes involved. Accordingly, the Board granted these waterpower projects an indefinite exemption to this requirement. 

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.

OPA offers 40 new FIT contracts

This morning, the Ontario Power Authority announced contract offers for 40 large scale renewable energy projects under the Feed-In Tariff Program, representing over 872 megawatts of renewable power.

Although only four of the contracts offered are for on-shore wind projects, on-shore wind is the energy source for over 70% of the capacity offered.  Thirty-five solar projects (33 groundmount and two 500kW rooftop) represent over 29% of the capacity. A single water-power project of 500 kW makes up the balance. By region, 49% of the capacity is in the central region, 22% in the east and 28% in Niagara.

The announcement reflects the long anticipated results of the OPA’s transmission and distribution availability tests (so called TAT and DAT). Contract offers for smaller capacity allocation exempt(or CAE) projects are expected to follow over the coming weeks.

The list of contracts offered is available from the OPA FIT website.

Ontario halts offshore wind projects

The Ontario government announced on Friday that the province will not proceed with any proposed offshore wind projects until further scientific research is completed. The press release circulated mid-Friday afternoon noted that no renewable energy approvals for offshore projects have been issued to date, no new applications for offshore wind projects under the OPA’s FIT program will be accepted and current applications for such projects will be suspended.

To date only one off-shore wind project has been granted a FIT contract, although without the necessary renewable energy approval from the Ministry of Environment, the project will be unable to meet its obligations under such contract. Three additional off-shore wind projects are listed as awaiting connection tests under the FIT program; today’s announcement will see such applications suspended.

This announcement comes as the Ontario government is attempting to balance its commitment to renewable energy in the face of increasing public criticism of wind energy projects related to health and safety and environmental concerns.

United Kingdom to begin comprehensive review of Feed In Tariffs program

The government of the United Kingdom announced today that they are launching a review of their current Feed in Tariffs (FITs) program. This review comes less than a year after the launch of the FITs program and follows concerns that commercial-scale solar farms are accessing money that was meant to help homes, communities and small businesses generate their own electricity.  The FITs program is restricted to projects of 5 MWs or less and was intended to encourage small scale installations with price tariffs for projects as small as 1.5kW.  Into its first year, already more than 21,000 installations have been registered under the FITs program, with the majority being domestic solar photovoltaic installations. The total installations under the FIT program have a combined capacity of 76.66MW. 

The review is also part of the UK government's commitment to reduce the costs of FITs in 2014-2015 by 10%. Initially, FITs was scheduled for a review to commence in 2012 but the concern over large-scale solar farms and the need to give industry added certainty to invest prompted the government to begin the review early.  The review is expected to be completed by the end of the year and tariffs are expected to remain unchanged until April 2012. Click here for more information on the review and the FITs program.

The UK government's response is similar in principal to that of the Ontario Power Authority's announcement last week for commercial aggregators under the microFIT program. Governments appear to be increasingly aware of the commercial incentives to small-scale renewable generation projects when done in large numbers and are attempting to create programs that balance the overall goals of a Feed in Tariff system with commercial realities.

Ontario amends Renewable Energy Approvals regulation

The Ontario government has published amendments to the Renewable Energy Approvals Regulation (O. Reg. 359/09) that will take effect on January 1, 2011.  We reported on an earlier version of the proposed amendment in an October blog posting.

The most significant changes in the amended regulation concern noise receptors and setback requirements for wind faculties. As a result of the amendments, the term “overnight accommodation” in the definition of noise receptors will be replaced with a definition of “dwelling” based on the definition in the Building Code. The definition of “dwelling” was also modified by replacing the words “intended to be used” with “capable of being used”.These changes appear to set a higher threshold for what structures qualify as a dwelling.

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.

Ontario's long term energy supply plan

Lanette Wilkinson

In 2006, the Minister of Energy directed the Ontario Power Authority (the OPA) to develop an Integrated Power System Plan (the IPSP) that focused on creating a sustainable energy supply in the Province over the next twenty years. In 2007, an IPSP was introduced to the Ontario Energy Board (the OEB), but the hearings were subsequently suspended. On November 23, 2010, the Province released a long-term energy supply plan (the Plan) that is intended to address developments in technology, the uptake of renewable energy arising out of the Province’s feed-in tariff program (the FIT Program), and shifts in demographics and the economy since the release of the IPSP in 2007. A proposed supply mix directive based on the Plan has been posted on the Environmental Registry for a forty-five day comment period ending January 7, 2011, after which time the directive will be finalized and issued to the OPA. The OPA is to develop an IPSP to be submitted to the OEB for review. Once finalized, the IPSP will constitute the new system plan for the next 20 years and will be updated every three years as required by regulation. The Plan contemplates the following:

Eliminating Coal by 2014

The Province remains committed to eliminating coal generation by shutting down two units in Nanticoke in 2011 and converting Thunder Bay Generating Station and Atikokan Generating Station to respectively use natural gas and biomass by 2013. The Province is also considering accelerating the closure of the remaining six units of coal-fired generation (at Nantioke and Lambton) and converting these units to natural gas.

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.

Ontario release long term energy plan

The Ontario Ministry of Energy has released a Long-Term Energy Plan (LTEP), which is a 20-year plan to guide the province's electricity system. The LTEP forecasts demand growth of 15 percent between 2010 and 2030. Key features of the LTEP include a recommitment to eliminate coal-fired generation by 2014, refurbishment and expansion of nuclear capacity, continuation of FIT and microFIT programs, and the development of a Combined Heat and Power standard offer program for projects under 20 MW. The government will also be proceeding with five priority transmission projects immediately.

As part of the LTEP, the government will be posting a proposed supply mix directive on the Environmental Registry for a 45 day public comment period. Once this process is complete, the directive will be finalized and sent to the OPA and will form the basis for the OPA's new Integrated Power System Plan (IPSP).

FIT Program Update: Updated Timeline

On October 18, 2010, the OPA released an updated timeline for the FIT Program indicating that Transmission Availability Tests and Distribution Availability Tests would commence on October 18, 2010 for non-capacity exempt project applications submitted between December 1, 2009 and June 4, 2010.  The results of such tests are intended to be released in late November 2010.  The existing timeline which was released on June 1, 2010 contemplated that the results of the tests would be released in early July 2010. 
 
Non-capacity allocation exempt applications submitted after June 4, 2010 will be reviewed following the completion of the upcoming Economic Connection Test.  The OPA intends to post an update on the timing of the Economic Connection Test.
 
Applications for capacity allocation exempt projects are reviewed and offered contracts on an ongoing basis.  Contract offers for applications submitted after June 4, 2010 are expected to begin in late October 2010.

Oakville generating station not moving forward

Ontario's Minister of Energy Brad Duguid announced today that the Ontario government has directed the Ontario Power Authority not to proceed with plans to build a highly controversial gas-fired power plant in Oakville.  The government has decided that changes in demand and supply in ontario electricity sector mean the plant is no longer needed and that the needs of the Southwest Greater Toronto Area can be served by investing in a new transmission. 
 
The proponent of the facility, TransCanada, has issued a statement that it will begin discussions with the OPA "where both sides mutually agree to terminate the contract and discuss reasonable payments TransCanada is entitled to."

Ontario Ministry of Environment posts draft amendments to the Renewable Energy Approvals Regulation

The Ontario Ministry of the Environment has posted a draft amend to the Renewable Energy Approvals Regulation (O. Reg. 359/09) to provide clarity with respect to the regulatory requirements that proposed renewable energy projects must satisfy.  The proposal notice and a draft of the regulation can viewed on the Environmental Registry.
 
Perhaps the most notable amendments include changes to the definition of noise receptors and clarification of the noise receptor setback prohibitions for wind facilities. Uncertainty over the proper interpretation of the current requirements has been a concern of the developers of these facilities.   Other changes of note include stronger requirements for mandatory consultations with the public, Aboriginal communities, municipalities and the Niagara Escarpment Commission, and changes to the assessment of protected properties, protected properties, archaeological and heritage resources, and natural heritage assessment and water assessment.

Instructions on FIT NTP

On September 15th, 2010, the Ontario Power Authority released instructions on applying for Notice to Proceed ("NTP") under the Feed-In Tariff Program (the "FIT Program"). The NTP is used to provide confirmation to begin building a project under the FIT Program. The OPA  will issue an NTP when it is reasonably confident that a Project has (i) secured proper financing; (ii) completed all necessary Impact Assessments; (iii) received any applicable environmental and site plan approvals; and (iv) there is sufficient evidence that the Project will be capable of meeting any Domestic Content Level requirements.

Ontario to update LTEP

On September 20th, 2010, the Ontario government began the process of updating the Long-Term Energy Plan (the “LTEP”). The LTEP was first introduced in 2006 and directs the development of new generation and transmission capacity in the Province. The 2006 plan led to the development of approximately 8,000 megawatts of new generation in Ontario. The new LTEP will incorporate the Province’s commitment to shutdown all coal-powered generating stations by 2014. The general public is invited to comment by answering a series of questions regarding demand, price, generation, transmission and conservation,  on the Ministry of Energy website. The government will also conduct more formal consultations with key stakeholders such as utilities, environmental organizations, businesses, First Nations and Métis organizations, and consumer groups.

The end result of this consultation will be the issuance of a new Supply Mix Directive, which will be posted for comment on the Environmental Registry. Once the Minister of Energy finalizes and issues the Supply Mix Directive it will be used by the Ontario Power Authority to inform the development of the Long-Term Energy Plan which will be submitted to the Minister for approval and then submitted to the Ontario Energy Board for review. The Minister anticipates the LTEP will be finally approved in 2011.
 

B.C. seeking input on feed-in tariff

Under B.C.’s Clean Energy Act, the feed-in tariff (“FIT”) program will involve BC Hydro and Power Authority (“BC Hydro”) entering into supply contracts with small-scale electricity providers producing power from clean sources such as biomass, biogas, geothermal heat, hydro, solar, ocean, wind and other prescribed resources.

The B.C. government will seek to pass FIT program regulations by early 2011, and is currently accepting comments regarding its Feed-In Tariff Regulation Consultation Paper released last month.

According to the Consultation Paper, FIT programs are intended to support investment in emerging clean technologies in the earlier stages of commercial deployment, as well as to spur growth in areas of the province that would benefit from greater grid integration and job creation. 

FIT programs will not finance clean power projects, but rather create a marketplace for clean power by offering rates of return of about five to ten per cent. Rates paid to FIT operators are expected to vary depending on the project's size, resource type, location and other factors.

The Consultation Paper states that the B.C. Ministry of Energy, Mines and Petroleum Resources has made the following proposals regarding FIT projects:

  1. To cap the size of FIT projects at five megawatts, meaning that FIT projects will not function as general power procurement tools for BC Hydro;
     
  2. To limit annual spending on all power acquired under FIT projects to $25 million above the cost of acquiring the same volume of electricity through BC Hydro’s Standing Offer Program, a similar BC Hydro initiative to support clean energy but with fixed rates paid to program participants; and
  3. To limit the term of most FIT projects to five years, with the option of securing an Electricity Purchase Agreement with the project at the end of term at the rates under the Standing Offer Program.

The comment period for the Consultation Paper will close September 30, 2010. 

Nova Scotia is presently developing its own FIT program, and Ontario's FIT program (see here, here and here) is entering its second year.

Ontario Power Authority directed to enter into biomass arrangement at Atikokan

The Ontario Power Authority has been directed to enter an agreement to purchase biomass power that will be produced at the Ontario Power Generation’s Atikokan station starting in 2012.

This development is part of the OPA’s 20-year plan that began in 2007, and proposed that the province phase-out coal-based electricity by 2014 and invest approximately $14.6 billion in renewable energy sources. Pursuant to Ontario Environmental Protection Act regulations made under the OPA plan, the Atikokan station is one of several coal facilities that will cease coal-fired steam electricity generation. 

However, unlike the Lambton and Nanticoke stations that will be permanently decommissioned, OPG will convert the Atikokan station to use wood pellets as a biomass fuel source.

Frank Chiarotto, OPG’s Senior Vice-President (Thermal), acknowledged the benefit to the community by converting the Atikokan station, as opposed to shutting its doors.

Atikokan can provide Ontario with a new source of renewable energy and Northwestern Ontario with economic benefits for years to come ... This is good news for OPG, Northwestern Ontario and the province.

Quality Wind Project receives Environmental Assessment Certificate

 Edmonton’s Capital Power announced this week that the British Columbia Environmental Assessment Office had granted an Environmental Assessment Certificate under the B.C. Environmental Assessment Act for its proposed Quality Wind Project, to be located northeast of Tumbler Ridge, B.C.

The $455 million project will consist of 79 wind turbines to be manufactured by Vestas and have a capacity of 142 MW. 

Capital Power expects to commence construction later this year and have the project fully operational by 2012.  An electricity purchase agreement was signed with BC Hydro in April, 2012.

Ontario MNR approves revised onshore windpower policy and procedure

On July 5, 2010 the Ontario Ministry of Natural Resources has approved revisions to its Onshore Windpower Development on Crown Land policy and procedure.

The revisions apply to all onshore Crown land windpower applicants and are part of the MNR’s broader review of Ontario’s Crown land release process applicable to renewable energy projects begun in September 2009.

The aim of the new revisions for onshore wind projects is to eliminate duplication with renewable energy approval processes, provide procedural clarity to applicants currently within the site release process and to align with Ontario’s Green Energy initiative. Revised policy and procedure for offshore windpower projects will follow the government’s broader decision on draft rules regulating off-shore wind turbines proposed by the Ministry of the Environment. The window for new renewable energy applications for Crown land will remain closed until the completion of the phased review.

OPA posts updated FIT contract and rules

The Ontario Power Authority posted Version 1.3.1 of the FIT Contract, FIT Rules, and Standard Definitions on July 2, 2010. A summary of changes of the changes to the FIT Contract, FIT Rules, and Standard Definitions can be found on the OPA's website.  The Ontario Power Authority has also posted a revised Price Schedule to reflect the proposed new pricing for ground-mounted solar PV projects and an updated Program Overview.

FERC wants feedback on electricity storage

The Federal Energy Regulatory Commission (“FERC”) is seeking feedback regarding recent developments in the field of electricity storage.

Electricity storage technologies like rare earth metal batteries, pumped hydro and pre-compressed gas turbines can increase the value of renewable assets, such as solar and wind, by making supply coincide with periods of peak consumer demand. For grid management purposes, electricity storage can also provide “ride-through” during outages, reduce harmonic distortions, and eliminate voltage sags and surges.

FERC is seeking stakeholder input regarding how FERC’s accounting and reporting requirements should account for the capital and operating costs associated with new electricity storage facilities.  FERC is also seeking guidance on the rate-setting treatment for facilities that serve multiple purposes, some in and some outside of FERC’s jurisdiction, as well as the regulatory implications of open-access electricity storage services.

Comments are due July 26, 2010.

Federal government to impose stringent standards on coal-fired generation

On June 23, 2010, the federal Minister of the Environment, the Honourable Jim Prentice, announced that in keeping with its commitments under the Copenhagen Accord to reduce GHG emissions by 17 percent below 2005 levels by 2020, the federal government will soon introduce legislation to regulate GHG emission in the electricity sector by applying performance standards to coal-fired electricity generation units.

Prentice announced that draft regulations to reduce GHGs from the electricity sector are expected to be published in Canada Gazette early in 2011 and final regulations will be published later that year. The proposed regulations will apply a stringent performance standard to new coal-fired electricity generation units and those coal-fired units that have reached the end of their economic life. 

Said Prentice, "Our regulation will be very clear — when each coal-burning unit reaches the end of its economic life, it will have to meet the new standards or close down," he said. "No trading, no offsets, no credits."

The proposed regulation may represent a shift in government policy, as the government has previously stated that it would coordinate emission reduction plans with U.S. legislation. 

Prentice also announced that the Government of Canada will invest $400 million in international climate change initiatives for the poorest and most vulnerable countries. This investment represents the 2010 portion of Canada's share of the fast-start financing promised by developed countries under the Copenhagen Accord.

PG&E finances residential solar installations

PG&E Corporation has established a $100 million tax-equity fund to finance residential solar installations by SunRun, a start-up company that leases photovoltaic arrays to homeowners.

The fund promises to support solar installations for 3500 homes.  Homeowners in various states, including California, Arizona, and New Jersey, can now sign a power purchase agreement with SunRun that fixes the cost for monthly electricity payments for as many as eighteen years; in exchange, SunRun installs, owns, and maintains the solar systems.

The infusion of tax equity has greatly encouraged the growth of the solar lease market.

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. 

OPA Issues hundreds of FIT Contracts

Alison Forbes

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.

Renewable power continues to energize project development in Ontario

Alison Forbes and Jim Harbell

As the dust finally settles from the 60-day initial launch period in the Fall of 2009 under the Ontario Power Authority (OPA) Feed-in Tariff (FIT) program, many project developers, renewable energy generation equipment manufacturers, investors, lenders and governmental agencies are quickly realizing that Ontario's renewable energy market is experiencing explosive growth. This article briefly reviews some of the most recent developments.

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.

Clarifications and updates to the OPA FIT Program

Alison Forbes

Since its release of the Feed-In Tariff (FIT) program on September 30, 2009, the Ontario Power Authority (OPA) has faced both commendation and criticism. Throughout the Launch Period, ending November 30, 2009, the OPA has released several clarifications and amendments to the initial FIT program. The following is a summary of the key announcements made throughout the past two months and some of the issues that remain outstanding.

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.

OPA's FIT program kicks off and REA regulations come into force

Jim Harbell and Alison Forbes

As Ontarians turned off their air conditioners earlier this month, the Ontario Power Authority (OPA) opened the gates to the widely anticipated Feed-In-Tariff (FIT) Standard Offer Contract Program. The FIT program was officially launched on October 1, 2009, finally allowing renewable-energy project developers to put the FIT framework to the test. The OPA has stated it intends to respond to project developers within sixty days of receiving a complete application, although the anticipated high number of applicants may cause delays to the expected execution of FIT contracts.

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.

OPA releases new FIT Program rules

Annie Pyke

On July 10, 2009, the Ontario Power Authority (OPA) released updated rules (Program Rules) for the Feed-In Tariff Program (FIT Program). The purpose of the FIT Program is to promote the development of renewable energy sources within the province of Ontario through the creation of a standardized application and approval process for renewable electric generation. The FIT Program is an important element of the Green Energy and Green Economy Act (GEA). The following briefly highlights the basic FIT structure and significant revisions to the Program Rules.

The basic eligibility requirements for the FIT Program are that the facility must: (i) be a new or incremental generating facility; (ii) be located in Ontario; and (iii) generate electricity from one or more of: wind, solar (photovoltaic), landfill gas, waterpower, biogas, or renewable biomass. A new requirement is that applicants must also provide evidence of the necessary title and access rights to construct the project (the "Access Rights," as defined in the Program Rules), which is more detailed than the previous requirement of "Demonstrated Location Access." The Program Rules also move the requirement that applicants give evidence of resource assessment/planning and Renewable Energy Approval from the application stage to the FIT Contract stage.

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.

OEB proposes cost-recovery changes to spur renewable infrastructure investment

Glenn Zacher

The Ontario Energy Board (OEB) continues to rapidly introduce changes intended to facilitate implementation of the Green Energy and the Green Economy Act (GEGEA). In May 2009, it issued a notice to amend the Distribution System Code to enhance the generation connection process, proposing measures aimed at removing the backlog of generation projects in the current queue. Earlier this month, the OEB issued a further notice to amend the Distribution System Code in order to reduce the costs that renewable generators pay to connect to the distribution system (this follows on similar proposed amendments to the Transmission System Code). Most recently, on June 10, 2009, OEB staff issued a discussion paper aimed at facilitating investment in distribution and transmission infrastructure by dramatically changing current cost recovery treatment.

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.

Standard offer program for small renewable energy projects

Andrés Durán

In our October 2005 Energy Law Update we advised you that the Federal government had allocated $97 million over five years, and a total of $886 million over fifteen years, to stimulate the development of renewable energy, such as small hydro, wind, biomass and landfill gas. The Update also noted that provincial governments were developing renewable energy programs, with the Ontario government setting a target of 2,700 megawatts of electrical power to come from new renewable energy sources by the year 2010.

As part of this initiative, the Ontario Power Authority (OPA) and Ontario Energy Board (OEB) have designed a standard offer program (RESOP) for small renewable energy generation programs, and the name of the game (according to the OPA) is to simplify eligibility requirements and contracting and to offer standard pricing in an effort to eliminate barriers that prevent small renewable energy projects from succeeding.

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.