The cornerstone of Ontario's new "Green Energy" strategy is the Feed-in Tariff program or "FIT." In embracing FIT, Ontario is breaking ground in North America by providing a mechanism for individuals and organizations at all levels in the community and the marketplace to develop renewable energy-generating facilities without regard to the criteria of economic efficiency and cost-effectiveness, previously applied to approvals of traditional energy generation sources.
In enabling private parties to develop generation facilities and to "feed-in" power to the existing grid in return for a guaranteed long-term pricing structure (the "tariff "), the program will permit developers to receive an economic return on their investment. Through this mechanism, Ontario believes that it can materially enhance the capacity of renewable electricity generation in the province.
The key eligibility conditions for new generation projects to participate in the program are:
(i) that the facility fall within one of the qualifying categories of renewable energy generation (essentially water, wind, solar and bio-energy);
(ii) that the facility be located in Ontario; and
(iii) that it use equipment that meets prescribed Ontario "domestic content" requirements (ranging from 25% for wind power in the first two years to 60% for solar after the initial two years).
As a key part of the FIT Program's infrastructure for widely distributed power generation, the government has established North America's first comprehensive pricing structure for renewable electricity production. The program provides a fixed framework for the government to contract with private parties for renewable energy generation, including standardized program rules, prices and contracts that will apply to anyone who is interested in developing a qualifying renewable energy project.
By moving away from the previously applied criteria for assessing the viability of generation projects (economic efficiency and cost-effectiveness), and adopting as the key criterion a project's overall environmental impact, the program essentially makes all renewable energy feasible. By ensuring that power transmitters and distributors provide priority access to their systems for renewable energy projects, the program ensures that a project will have a market for the power produced, provided that certain technical connectivity and economic viability conditions are met (such as availability of transmission facilities and the economic viability of any additional resources required to deliver the electricity to the grid).
To participate in the FIT Program, an applicant must invest in the generation facility as well as the connection and metering systems, bear certain on-going costs and risks of operation and enter into a "FIT Contract" with the Ontario Power Authority ("OPA") to sell the electricity into the system. Suppliers must comply with established regulatory instruments relating to the generation and distribution of power (amended to enable the FIT Program) including the Distribution System Code, the Transmission System Code and the Independent Electricity System Operator ("IESO") Market Rules.
A supplier will need to make contractual arrangements with either the local electricity distribution company ("LDC") (such as a municipal hydro corporation or Hydro One) or a transmitter connected directly to the province's high-voltage transmission system. In general, projects of 10 MW or less will connect to a distributor while those of greater than 10 MW will connect to the transmission system. Settlement of payments for the purchased electricity will be made by the LDC on behalf of the OPA for projects connected to the distribution system, and for projects connected directly to the transmission system, by the OPA and the IESO. In all cases, the purchaser of power and the party ultimately responsible for payment is the OPA.
A FIT Contract, in addition to obligating the OPA to pay for the electricity, will set out project-specific information, milestones to reach commercial operation and various rights and obligations of the supplier. Contract terms will be 20 years (40 years for water power). Under the contract, the OPA will own environmental attributes generated by the project, including carbon credits.
An important pre-condition to the acceptance of an application for a FIT Contract will be connection availability. In addition, under amendments to the Environmental Protection Act, a "Renewable Energy Approval" will be required to address facility location and other environmental conditions for many projects. For example, the Province is proposing standardized, mandatory setbacks for certain energy projects (such as wind) from the nearest residence.
A significant feature of the FIT Program is the incentive framework for projects undertaken by aboriginal and other community groups. Incentives in the form of "price adders" to the tariff as well as financial support to such groups are designed to encourage local partnerships to develop projects with aboriginal and community equity participation.
Finally, it should be noted that the program offers a means for very small (under 10 KW) renewable power generation facilities to be developed by individual homeowners and small businesses such as family farms. Under the "microFIT" stream, a simplified application and contracting process is used. In all cases, microFIT participants will contract with the OPA for sale of the electricity and with their LDC (which in almost all cases will be their current power supplier) for delivery and payment settlement.
Detailed information for potential FIT and microFIT applicants is available on the OPA website at http://fit.powerauthority.on.ca/. This information includes the application form, the FIT and microFIT "Rules" and the forms of contract.
Ontario's FIT Program, while not revolutionary (it largely follows an established European model), has the potential to create a significant shift in Ontario's energy dependence paradigm. The program has the potential to develop within the province a sizable "home-grown" energy capacity while concurrently promoting Ontario-based design and manufacture of alternative energy systems. Whether this initiative achieves a rebalancing of the national energy equation will be interesting to observe.