Ontario Minister of Energy Brad Duguid issued a directive today requiring the Ontario Power Authority ("OPA") to offer FIT contract holders the option of getting a waiver of the OPA's pre-Notice to Proceed ("NTP") termination rights. The directive has the potential to remove a very significant obstacle to the development of many projects under the FIT program. It may also help the Liberal government make good on its green collar job creation promises in advance of this fall's election.
Under the FIT contract, the OPA is permitted to terminate the contract unilaterally at any time before the supplier has received its Notice to Proceed from the OPA. A supplier cannot request a NTP until it has completed all of the following:
- obtained a Renewable Energy Approval;
- completed impact assessments with the applicable distributor or transmitter;
- submitted a Domestic Content Plan; and
- obtained financing commitments for at least 50% of project costs.
If the OPA exercises its right to terminate pre-NTP, it may still have to pay damages in respect of certain pre-construction development costs. However, such damages are expressly capped at a modest (some would say almost trivial) amount (which varies depending on project size and renewable fuel).
For many in the industry, particularly those being asked to finance projects, the OPA's pre-NTP termination rights meant that a FIT contract was worth only slightly more than the paper its was written on until a NTP was issued. Because of project development delays, particularly with respect to the Renewable Energy Approval process with the MOE and MNR and the impact assessment process with the utilities, very few project are in a position to request NTP. Many developers found themselves caught in a chicken-and-egg scenario where a NTP was required to finance a project but financing was required to move the project forward before getting a NTP.
Today's directive will require the OPA to waive its pre-NTP termination rights, provided that suppliers agree to certain conditions. Non-Capacity Allocation Exempt projects will have to submit the waiver, a Domestic Content Plan and evidence of agreement(s) for the purchase of Generating Equipment as follows:
- the Waiver by October 14, 2011;
- a Domestic Content Plan, in the Prescribed Form titled FIT Contract Form of Domestic Content Plan (Waiver), by October 14, 2011 (wind and solar projects only); and
- evidence of agreement(s) for the purchase of Generating Equipment, in the form of a Statutory Declaration, by November 30, 2011 (wind and solar projects only).
Capacity Allocation Exempt projects must submit the waiver and a Domestic Content Plan by 5 p.m. December 30, 2011. Details are available on the FIT website. The OPA will post the necessary forms shortly.
By waiving the pre-NTP termination rights, the OPA will potentially make it easier for developers to finance projects. Once projects are financed, developers will be able to place binding equipment orders.
It is likely that the government issued the directive to help unleash demand for equipment. Recall that the FIT program requires that solar and wind projects incorporate a substantial percentage of domestic (i.e., Ontario) content. As a result, many manufacturers have committed to establishing operations in Ontario. These manufacturers will create many of the green collar jobs that the Liberal government promised under the FIT program. In the lead up to the provincial election, the government has been emphasizing these new jobs as evidence of the success of the FIT program. Opposition parties have responded that the job creation numbers are artificially high, because the represent potential future job, not actual current jobs. By having the OPA waive its pre-NTP rights, the government no doubt hopes that local manufacturers start filling the jobs they have promised to create.