Canadian Energy Law : Lawyers & Attorneys for Environmental Energy Law

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. 
 

The proposed amendments to the PPS will make it a “greener” document in terms of protecting human health and the natural environment and recognizing the importance of matters such as sustainability, transit-supportive development, climate change mitigation and adaption, biodiversity and linkages, management of water and natural resources and energy efficiency and conservation in the development of communities that are both strong and healthy. The PPS will continue to speak to the promotion of opportunities for energy generation facilities to accommodate current and projected needs, and the use of renewable energy systems. These policies are relevant to those renewable energy systems/projects that are not exempt from the amendments made to the Planning Act pursuant to the Green Energy Act and are therefore also subject to the PPS.
 

A number of proposed changes to the PPS may be beneficial to renewable energy systems subject to municipal approvals under the Planning Act. For example, zoning and development permit by-laws will be explicitly required under Section 4.7 to be kept up to date with official plans which is in accordance with Planning Act provisions, however, they will be newly recognized as important implementation tools of the PPS and will also need to be kept up to date with the PPS. By extension, zoning and development permit by-laws will therefore need to promote the development of renewable energy systems.

As an additional direction to municipalities to promote renewable energy, Section 1.8.1 will require that planning authorities support energy conservation and efficiency, improved air quality, and climate change mitigation and adaptation through land use and development patterns which among other matters, include the promotion of design and orientation which maximizes opportunities for the use of renewable energy.

Additional siting flexibility may also result from the deletion of previous references to where renewable energy systems could be located-settlement areas, rural areas and prime agricultural areas.

Notable changes to Definitions Section 6.0 relevant to renewable energy systems include the expansion of the definition of “renewable energy” to include biogas in addition to wind, water, biomass resource or product, solar and geothermal energy. Additionally, biomass has been added to the definition of “agricultural uses”. These additional changes will further promote the development of renewable energy systems that are subject to municipal Official Plans, zoning and development permit by-laws.
 

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.
 

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.

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.

GRWLP argued that it was exempt under O. Reg. 161/99 as a generator/transmitter which proposed to “transmit electricity for a price … no greater than that required to recover all reasonable costs”. GRWLP also took issue, as an entity whose principle business was generation, from being subject to the full complement of transmission licencing requirements that apply to transmitters like Hydro One (i.e., compliance with Affiliate Relationship Code, subject to rate regulation by OEB, have to establish standalone transmission company, etc.). 

In response, Board Staff queried whether O. Reg. 161/99 was intended to only exempt generators/transmitters that transmitted their own generation, in which case GRWLP would not be exempt since it also proposed to convey the generation of GRSLP. Board Staff argued that the language of O. Reg. 161/99 was not as plain as suggested by GRWLP and urged a contextual and purposive interpretation. In particular, Board Staff noted that the fundamental obligation on all transmitters to provide non-discriminatory access to their transmission systems could be undermined if GRWLP was not required to be licenced. Board Staff questioned whether it would be in the public interest to exempt generators/transmitters like GRWLP from open access requirements “especially when such transmission facilities are built on public road allowances [as] there are only a limited number of easily accessible rights of way available in many parts of Ontario”. Board Staff argued “this does not represent an optimal use of a sometimes scarce asset, and is generally not in the public interest”. Indeed in the earlier leave-to-construct proceedings Haldimand County Hydro Incorporated (HCHI) sought to preserve access to GRWLP’s transmission facilities so that HCHI could connect a new transformer station for its distribution system. With regards to GRWLP’s concerns about being burdened by transmission licencing requirements, Board Staff observed that the Board’s licencing powers permitted it to approve an “abbreviated” transmission licence for GRWLP to reduce the regulatory burden. 

In brief reasons released on July 5, 2012, the Board ruled that GRWLP was exempt based on the Board’s interpretation that the language of O. Reg. 161/99 exempted generators/transmitters from conveying their own generation and energy generated by third parties provided that it was transmitted for a price no greater than that required to recover all reasonable costs. The Board’s decision will provide helpful clarification for the increasing number of renewable generators that have to construct transmission connection facilities and may have been concerned about any new transmitter-related obligations. That said, the Board did not address ― and its decision does not resolve ― the transmission access and system planning concerns raised by Board Staff (and HCHI) and these issues may well resurface in future proceedings and other contexts.

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.

 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. 

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.

The dispute centred on whether GRW, a partnership of Samsung and Pattern, should be treated like a typical transmitter, which would carry with it a requirement to be licenced and an obligation to provide access.  Generally, transmission lines operated by generators are exempt from these obligations provided the line carries the generator’s energy.  The unique twist in this case is that the transmission line will not just carry energy from GRW’s wind farm, but also from a solar facility that will operated by a different entity as part of GREP.

GRW argued that it was exempt from the requirement to hold a transmitter’s licence because it would be generator and would transmit power from the solar project at cost. Board staff and other intervenors disagreed with this argument. In its decision, the Board acknowledged the issue was important, but determined that it was not necessary to decide the issue as part of a leave to construct application.

It is not clear from the decision how the Board intends to resolve this issue.  If HCHI intends to pursue the issue, it could make a specific application for access to GRW’s transmission facilities. Alternatively, the Board could convene a generic proceeding under its Transmission System Code to deal with the matter more generally. 

While the Ontario Feed-in Tariff program is structured differently than the FITs, the OPA indicated a price reduction will be considered in its review when it announced its review process (see our previous blog posting ). The Ontario government’s long-term energy plan (available from the Ministry of Energy ) referenced previously reduced tariffs in Denmark, German and France and the effect advances in technology and economies of scale have on costs of production when discussing the upcoming Ontario review process. It is likely elements from the UK review will affect Ontario’s review.

Also interesting is that the DECC review proposes adding new tariff rates for solar PV “aggregators”. Under the proposal, where a single individual or organization owns several PV installations, all installations under 250kW owned by that individual or organization with an eligibility date after April 1, 2012 will be subject to a lower tariff rate. The eligibility date is defined in the FITs contracts but is likely to occur after installation of the project. An aggregator’s rate for a 100-150kW system, for example, is proposed at 10.3p/kWh as compared to 12.9p/kWh for a non-aggregator (which itself is a reduction from the 19p/kWh currently offered).

The FITs also seeks to link energy production with energy efficiency. If implemented, the proposal would see all solar PV installations connected to a building with an eligibility date after April 1, 2012 qualify for the full FITs price only if the building meets a certain energy efficiency rating. Failure to meet such rating would result in the PV installation qualifying for a reduced FITs rate. The proposal recognizes energy efficiency measures are more complex for non-domestic buildings but proposes the requirements apply to both domestic and non-domestic buildings.

The UK’s FITs began in April 2010. As at the 18 month mark of the program, September 2011, 255MW of solar PV had been registered for FITs according to the DECC’s report. That represents more than two and a half times the targeted 94MW anticipated by that time.

The amendments will only apply to ground-mounted solar, wind and anaerobic digestion facilities where generation is ancillary to the main activity on the property. The aim is to reduce any disincentive property taxes may pose to individuals who are not ordinarily in the business of generation.

Consistent with current treatment, land, buildings and structures used for ground-mounted solar and wind facilities operated by entities whose primary business is generation will continue to be taxed at the industrial rate. Additionally, there is no change to the fixed rate applicable to ground-mounted wind turbines over 10kW: they will continue to be assessed at $40,000 per MW of installed capacity. As such, the amendments are meant to build upon the existing regulatory framework and establish greater clarity by creating additional categories for assessment based on the size and location of generation.

The Ministry is currently seeking public comment until August 29, 2011. Individuals wishing to do so may submit comments directly from the Regulatory Registry web site by clicking here:

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

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

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

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

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

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

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

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

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

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

Toll Free Phone Number: 1 (866) 212 9078

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

Starting November 1, 2011 these facilities will be required to submit both site-specific data in addition to their own forecasts. Once the IESO has implemented its central forecasting approach, renewable generators will no longer be required to submit their own forecasts. However, there is no indication from the IESO of an exact date centralized forecasting will be implemented.          

Of particular note, the market rule amendment specifies reporting standards. 

In addition to dynamic data, both wind and solar facilities will be required to provide information concerning the physical layout and details of the facility (“static data”) at the time of connection assessment and/or registration. A summary of these collection requirements are found below.

Wind  

For wind facilities, the following static and dynamic data will be required:

Additionally, the IESO had mandated collection standards for dynamic data listed above. At minimum, each facility will be required to provide this data from nacelle mounted data collection points. Every turbine is required to be within 5km from the nearest data collection point. Furthermore, each facility over 10MW will be required to provide data from at least one standalone meteorological tower. The number of towers required will correspond to the facility size (MW). Towers will be required located on the prevailing upstream side of the wind facility in areas that have representative microclimates and winds at hub height. Data is to be reported to the IESO in real-time every 30 seconds.

Solar

For solar facilities, the following static and dynamic data will be required:

Like wind, solar will be subject to data collection standards. At minimum, each facility will be required to have two meteorological data collection points. All solar arrays in that facility are required to be within 12km of a collection point. Data must be provided to the IESO every 30 seconds.

For both wind and solar PV, there is no requirement that the data collection devices be owned by the same owner of the facility.

Stakeholder Engagement

These new obligations are part of a larger IESO plan to accommodate the phase-out of coal and increased contribution of wind and solar. These developments will significantly impact Ontario’s electric grid. Declining demand and variability associated with renewable sources could result in a surplus of baseload generation. Furthermore, the IESO is facing a reduced flexibility to deal with the variability of supply due to increased regulatory constraints and limited ramping ability of gas facilities (compared to coal).

In an attempt to accommodate this variability, the IESO will implement changes to three major areas: forecasting, visibility and dispatch. The IESO is currently undertaking stakeholder engagement initiative (SE-91) in an effort to include stakeholders, such as developers and distributers, in the talks surrounding these changes.

Currently, eleven design principles have been approved relating to the three areas of change. This amendment is based upon SE-91 Renewable Integration Final Design Principles - Principles 1, 4 and 5. 

The Ontario Power Authority (OPA) is watching SE-91 closely. It has committed to working with supplies on OPA contract issues that may result from these IESO rule amendments (RESOP, RESIⅈ RESIII, FIT, HCI).

In any event, the IESO will continue consulting with stakeholders in renewable integration. Currently, two working groups for SE-91 exist: the Dispatch Technical Working Group and the Visibility Technical Working Group. This fall, the IESO intends to form a dispatch merit order working group that will comment on the order of curtailment in the event of baseload surplus.

For more information on SE-91 or to participate in the next meeting, email stakeholder.engagement@ieso.ca.

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/

While the C-FIT proposal re-opens the microFIT program to commercial aggregators, the terms of the program are not as rosy as they were when the microFIT program was first announced.  Under the C-FIT program, generators will earn 71.3 cents per kWh for rooftop solar PV projects and 44.3 cents/kWh for ground-mounted solar PV projects.  Under the microFIT program, projects of a similar size earn 80.2 cents per kWh and 64.2 cents/kWh, respectively.  Further, prior to applying under the C-FIT program, generators must obtain an offer to connect from the applicable local distribution company.  C-FIT applicants will also be charged an application fee of $500 per megawatt, with a minimum fee of $500.

Draft rules and the proposed C-FIT contract can be found on the OPA’s website.  Comments on the draft documents will be accepted until February 18, 2011.  The OPA expects to begin accepting applications for the CFIT Program in mid-March 2011.
 

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.

Subject to certain exceptions, Class 43.1 includes

1. a fixed location device that is a wind energy conversion system that
   
   
   1. is used by the taxpayer primarily for the purpose of generating electrical energy, and
   2. consists of a wind-driven turbine, electrical generating equipment and related equipment, including
      
      
      1. control, conditioning and battery storage equipment,
      2. support structures,
      3. a powerhouse complete with other ancillary equipment,
      4. transmission equipment; and
          
2. fixed location photovoltaic equipment that is used for the purpose of generating electrical energy from solar energy consisting of solar cells or modules and related equipment including inverters, control, conditioning and battery storage equipment, support structures and transmission equipment.

There are certain limitations that apply in determining the amount of CCA that may be deducted in any given taxation year. By virtue of the “available for use rules” in the Act, CCA for a Class 43.1 or 43.2 property that has been acquired and which is not considered available for use at the end of a taxation year may be restricted until such time as the property is available for use. In addition, property that becomes available for use in the year is subject to the “half-year” rule found in the Regulations, whereby only 50% of the normal CCA deduction is permitted in the year an asset becomes available for use. Finally, CCA is prorated in circumstances in which the taxpayer’s taxation year is less than 365 days.

Property included in Class 43.1 or 43.2 may be “specified energy property” in which case, the CCA that may be deducted by a taxpayer in respect of such property is limited to the taxpayer’s income from the business of selling the product of the property. This limitation does not apply to a corporation whose principal business is manufacturing or processing, mining operations or the sale, distribution or production of electricity, natural gas, oil, steam, heat or any other form of energy or potential energy, or to a partnership each member of which is such a corporation.

Canadian Renewable and Conservation Expense (“CRCE”)

Certain expenses incurred by a taxpayer in the pre-production development phase of renewable energy and energy conservation projects, for which it is reasonable to expect that at least 50% of the capital cost of the depreciable property to be used in the project would qualify for inclusion in Class 43.1 or 43.2, may qualify as CRCE if, among other things, they are not:

1. payable to a person or partnership with whom the taxpayer is not dealing at arm's length (such as a parent, subsidiary or sister company), or
2. specifically excluded from CRCE under subsection 1219(2) of the Regulations (see below).

Where expenses qualify as CRCE, they may be deducted entirely in computing Canadian taxable income in the year they are incurred or carried forward indefinitely and deducted in later years.

Examples of the types of expenses that are typically eligible for CRCE include expenses incurred by a taxpayer:

1. for the purpose of making a service connection to the project for the transmission of electricity to a purchaser of the electricity to the extent that the expense was not incurred to acquire property;
2. to determine the extent, location and quality of energy resources;
3. for clearing land to the extent necessary to complete the project;
4. for the construction of a temporary access road to the project site; and
5. for a “test wind turbine” that is part of a wind farm project of the taxpayer. 

Examples of the types of expenses that are not eligible for CRCE include:

1. amounts that would otherwise be included in the capital cost of depreciable property, including all costs directly associated with the acquisition and installation of the property, except those described in i) to v) above as qualifying as CRCE;
2. financing and interest charges;
3. administration and management expenses;
4. amounts paid to a non-resident person or a partnership any of the members of which is not a resident of Canada; and
5. costs related to the acquisition or use of land, as well as the grading and levelling of land, except those described in i) to v) above as qualifying as CRCE.
6. The determination of whether a particular expense incurred by a taxpayer will qualify for inclusion in CRCE must be made based upon a review of all of the facts relevant to a particular situation. 

Special Rules Applicable to Limited Partnerships

Where windpower or solar power projects are carried on through limited partnerships, additional considerations arise. A partnership is not a taxpayer for Canadian tax purposes. Rather, a partnership computes its income (or loss) as a separate person resident in Canada and then allocates the income or loss to its partners. If a taxpayer is a member of a partnership at any time in a particular taxation year, it will include in computing its income its share of the income or loss of the partnership for any fiscal period of the partnership ending in, or at the same time as, such taxation year.

There are two exceptions to this general scheme that are relevant to limited partnerships that carry on windpower or solar power projects.  First, any CRCE incurred by a partnership is not deductible in computing income or loss that is allocated to its partners but, instead, each partner deducts directly its share of any CRCE incurred by the partnership. In addition, in the case of a limited partner, the deduction of any loss of the partnership or CRCE incurred by the partnership is restricted to the limited partner’s “at-risk amount”. Generally, a limited partner’s at-risk amount in respect of its interest in the partnership at any time is equal to the cost of the limited partner’s interest in the partnership plus any income allocated to the partner for fiscal periods ending prior to that time less the sum of any losses of the partnership allocated to the partner for fiscal periods ending prior to that time and any distributions received by the partner from the partnership before that time. To the extent that a limited partner’s share of the loss from the partnership or CRCE incurred by the partnership exceeds the partner’s at-risk amount, such loss or CRCE may be deducted in a subsequent year to the extent that the amount of the loss or CRCE does not exceed the partner’s at-risk amount in that subsequent year.

In addition, the OPA has granted an extension regarding the 2010 domestic content requirements to eligible ground mounted solar PV applicants who applied to the microFIT program before 12 p.m. on July 2, 2010.  Such applicants will be deemed to have met the 2010 domestic content requirements of 40 percent if the project is installed and a connection request has been made by May 31, 2011.  Those applicants which submitted their applications after 12 p.m. on July 2, 2010 will be required to meet 2011 domestic content levels if they are not installed and connected by December 31, 2010. 

A webinar will be hosted on August 18 from 2 p.m. to 4 p.m. to answer questions about these recent developments.  Details on the webinar can be found at the OPA Website

FIT Rules and FIT Price Schedule amended to temporarily disallow applications for 10 KW or less

On August 16, 2010, the OPA announced that the FIT Rules have been revised such that applications for 10 KW or less are not permissible until the microFIT rules and application form have been updated to reflect the new price category and rules for microFIT ground-mounted solar PV projects.  The OPA has indicated new applications under the microFIT program will be accepted beginning on Friday August 20.  The FIT Price Schedule has been updated to reflect the revised price for ground mounted solar PV projects under 10 kW of 64.2 cents/kWh.

• FIT Prescribed Forms

On August 12, 2010, the OPA updated the Prescribed Forms for the FIT Contract.  The forms can be found at the OPA Website.

Large-scale facilities

The OPA announced the second tranche of FIT contracts on April 8 - more than 180 FIT contracts representing almost 2500 MW of generation capacity. This is the first time that large-scale renewable energy projects have been able to access a standard offer contract program offered by the OPA. The Renewable Energy Standard Offer Program (RESOP) was replaced by the FIT program, but was limited to projects of 10 MW or less. Projects offered contracts under FIT range in size from less than 1 MW to 300 MW. Although seventy-six contracts were offered to proposed solar projects (representing 651 MW), the majority of the proposed generation capacity comes from on-shore wind projects, with forty-seven contracts offered to projects totaling more than 1229 MWs of capacity. One FIT contract was offered to a proposed offshore wind project with a proposed capacity of 300 MW. Once the contracts are finalized, project developers have a limited time to bring these projects online - three years from the date of contract for solar and wind projects.

Renewable energy - truly a sustainable resource?

The unprecedented growth of the renewable-energy generation market in Ontario over the first six months of the FIT program has many people questioning whether this rate of growth can be sustained. More than 2600 MW of capacity has been contracted for under FIT, which is double the 1300 MWs of renewable generation that has been developed in Ontario since 2003.

Generation is only one component to the growth of the electricity market in Ontario. Transmission and manufacturing are two other critical keys to ensuring these six-hundred-plus projects can be brought on to the Ontario grid. The FIT contracts granted so far have been assessed in light of the province's current transmission and distribution capacity, and will not require substantial expansion of either grid. But there remain more than 250 projects waiting for the OPA's "Economic Connection Test" (ECT), having been deemed by the OPA not economically viable under current transmission and distribution capacities. The ECT is intended to reassess the viability of proposed projects as new transmission capacity comes online. The completion of the approval process of the Hydro One Networks Inc. (HONI) Bruce-Milton transmission project represents a significant expansion of HONI's transmission grid and will add 1500 MW of transmission capacity to that region. The OPA has planned to run the first ECT in early fall 2010 and expects the Bruce-Milton transmission line will result in new FIT contracts being issued to projects affected by this development. The critical question that remains is "what next?" - HONI has been issued a directive from the provincial government to significantly build out its transmission capacity, and while the OPA and HONI have indicated that work on this expansion has begun, the timeline for the completion of any new transmission work is not clear, even for the Bruce-Milton line. Historically, obtaining all necessary approvals for transmission development projects can take years, and components of the Green Energy Act intended to streamline this process have yet to be tested.

The projects offered FIT contracts so far may not have to worry about transmission but, for the wind and solar projects, the domestic-content rules under the FIT contract continue to represent a significant hurdle to bringing these projects online. Currently, solar projects must meet a 50% domestic-content threshold and wind projects must meet a 25% domestic-content threshold; in 2011 the solar requirement is increased to 60% and in 2012 the wind requirement is increased to 50%. The 2011 and 2012 deadlines have caused many developers to fast-track development and construction plans for facilities granted FIT contracts in order to avoid the significantly more difficult domestic-content obligations. The OPA has been working with FIT program participants to try to clarify developer obligations under this aspect of the FIT contract. In March, the OPA announced that it will review and provide comments on a project's domestic content plan before the "Notice to Proceed" date, a change that will allow developers to get the OPA's feedback on certain equipment prior to entering into supply agreements. Further, the OPA has also indicated that it will provide developers with a non-binding reliance letter confirming that a project will meet the applicable domestic-content obligations under the FIT program. This is aimed at minimizing the significant barrier to financing FIT program projects that many project developers have been facing. Even with the changes to the domestic-content obligations thus far, many developers are hoping that the 2011 and 2012 deadlines will be extended.

The FIT program remains open to new applications; the OPA has received almost one thousand applications to date and more are expected. The announcement of the issuance of FIT contracts is an important step towards realizing the provincial government's goals under the Green Energy Act, but it is just that - a step. There remains considerable work to be done by developers, the OPA, local distribution companies, HONI, and the provincial government before any of the announced 2600 MW of renewable generation capacity starts powering the homes of Ontarians.

FIT program - launch period closes

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

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

Ministry of Natural Resources - Crown land release process

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

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

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

Approval and permitting requirements for renewable energy projects

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

 

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

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

Key Recent Announcements

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

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

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

Critical questions

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

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

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

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

Key features of the FIT program

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

Application

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

Domestic Content

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

Launch Applicants

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

Advanced RESOP Applicants

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

MicroFIT

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

Renewable Energy Approvals

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

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

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

 

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

General REA obligations include:

 

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

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

Commentary

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

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

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

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

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

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

The Standard Offer Program is paying a price of 42 cents per/kWh. This high price, compared with other forms of generation, reflects the fact that although the capital cost is high per/kWh installed, the environmental consequences provide significant benefits. Large solar PV systems can be constructed within months on sites, on the ground or on buildings that are south-facing and with an incline of approximately 45 degrees.

A number of world solar PV developers have now entered into the Ontario market and a series of solar PV projects totalling approximately 100 MW have been announced. These announcements may have been encouraged by federal tax law. Accelerated capital cost allowance is potentially available for solar cells and related equipment, excluding electrical distribution equipment. . Certain expenses to support solar PV projects may also be eligible for Canadian Renewable Conservation Expense (CRCE). This would allow for a flow-through of this expense to the shareholders of a solar PV company.