The Minister of Energy issued a directive to the Ontario Power Authority (the “OPA”) pursuant to the Electricity Act

On June 12, 2013, the Minister of Energy issued a directive to the Ontario Power Authority (the “OPA”) pursuant to the Electricity Act, 1998 to amend the Feed-in Tariff (FIT) Program (the “Directive”).

The amendments follow on the May 30, 2013 announcement by Ontario Energy Minister Bob Chiarelli of major changes to the procurement and planning processes for renewable power generation in the Province as part of his speech to an industry association.

This bulletin outlines the recent changes to Ontario’s Feed-in Tariff (FIT) Program. In short:

  • Large FIT – The OPA will no longer procure any additional capacity under the FIT Program for Large FIT projects and all Large FIT applications submitted prior to June 12, 2013 will be discontinued by the OPA. The OPA will be replacing the existing standard-offer FIT Program for large renewable projects with a new competitive procurement process.
  • Small FIT – The OPA will continue to procure new Small FIT Projects, with the next application window to open in the Fall of 2013 to procure up to 70 MW (plus the remains, if any, of the 200 MW of capacity from the current procurement). Between 2014-2018, the OPA  will award up to 150 MW of contracts per year for Small FIT projects.
  • Municipal and Public Entity Involvement – To further support local participation in new renewables, the OPA will provide special incentives similar to those already given to community projects for Small FIT Projects undertaken by municipalities, publicly funded schools, public colleges, public universities, hospitals, publically owned long-term care homes, public transit services and Metrolinx through the provision of a “price adder” to the standard FIT pricing, the provision of priority points during the application process, and the creation of capacity set-asides. In addition, municipalities and the public sector entities noted above will have access to funding for costs associated with design and development of their Small FIT projects. This funding will be similar to that funding that is already available for community co-op and aboriginal sponsored projects.
  • MicroFIT – The OPA will also continue to procure up to 50 MW of projects in each  year between 2014-2018 under the MicroFIT program. Up to an additional 30 MW will be made available for 2013 after the OPA issues its revised pricing schedule.
  • Domestic Content – The Minister has indicated his desire and intent that the FIT Program be brought into compliance with the recent World Trade Organization (“WTO”) rulings on the domestic content obligations by pursuing the necessary legislative and other steps to achieve this outcome. The Minister expects this would affect the domestic content requirements in the new FIT program launched after May 24, 2013.
  • Aboriginal Projects on Reserve Lands – In acknowledgement of the unique and significant land control challenges facing Aboriginal FIT projects on reserve lands, the OPA has been directed to offer a 4 year extension to the Milestone Date for Commercial Operation to existing Large FIT contracts for Aboriginal Participation Projects where the generating facilities are located entirely on reserve lands.

Large FIT

Projects greater than 500kW, or greater than 250kW if connected at voltages less than 15kV (“Large FIT”)

The OPA will no longer procure any additional capacity under the FIT Program for Large FIT projects and all Large FIT applications submitted prior to June 12, 2013 will be discontinued by the OPA. Under the terms of the Directive the OPA will return the application fee and all application security that had been paid in relation to those discontinued applications.

The OPA will be replacing the existing standard- offer FIT Program for large renewable projects with a new competitive procurement process. The OPA indicated during its June 7th management teleconference that it is going to work together   with energy stakeholders to determine what the new competitive procurement process will look  like. Pursuant to the Directive, all discontinued applicants will be eligible to participate in the OPA’s upcoming stakeholder engagement regarding the creation of a new competitive process. Discontinued applicants would be well advised to attend these stakeholdering sessions.

One key change in this new competitive procurement process is the increased importance municipal interests will play in identifying appropriate locations and siting requirements  for future renewable energy projects. Developers that want to re-bid projects that were discontinued under the FIT Program should reach out to their local municipalities in order to maintain or increase municipal support for their project.

Another key change in the procurement process is the addition of Ontario Power Generation (“OPG”). While no rationale was provided in the Directive, the inclusion of OPG should create additional competitive tension in the process.

Following a summer of stakeholder consultations, the OPA is required to report back to the Minister of Energy with interim recommendations on September 1, 2013. A further Minister’s direction will be issued at a later date to authorize the commencement and content of a competitive procurement. Such a direction will follow the completion of the Long-Term Energy Plan review.

Small FIT

Projects 500kW or less, if connected at voltages greater than 15kV, otherwise projects 250kW or less (“Small FIT”)

The Directive indicates that the OPA will continue to procure new Small FIT Projects, with the next application window to open in the Fall of 2013 to procure up to 70 MW of Small FIT Projects. If any of the 200 MW of capacity remains unused after contracts are awarded from the latest Small FIT Window, this unused capacity will be added to the 70 MW target for Fall 2013. Between 2014-2018, the OPA will award up to 150 MW of contracts per year for Small FIT projects. If capacity is remaining at the end of a year, that capacity will be added to the procurement target for the following year. To further support local participation in new renewables, the OPA will provide special incentives similar to those already given to community projects for Small FIT Projects. Specifically, projects undertaken by municipalities, publicly funded schools, public colleges, public universities, hospitals, publically owned long-term care homes, public transit services and Metrolinx will benefit from a new “price adder” to the standard FIT pricing, the provision of priority points during the application process, and the creation of capacity set-asides.

In addition, the OPA has reserved 15 MW of capacity for a pilot program for rooftop solar projects on un-constructed buildings and 10 MW of capacity for municipal hydroelectric projects (which initiatives were previously announced in July 22, 2012 and January 21, 2013 directives).

MicroFIT

Projects 10kW or less (“MicroFIT”)

The OPA will also continue to procure up to 50 MW of MicroFIT projects in each year between 2014-2018. The OPA is currently undertaking a MicroFIT price schedule review for 2013. Once the new price schedule is published, the OPA will award up to 30 MW under the MicroFIT program for the balance of 2013. As with the Small FIT Program, if there is remaining capacity at the end of a given year, that amount will be added to the MicroFIT procurement target for the next year.

Domestic Content

On December 19, 2012, the WTO circulated the Panel report in Canada – Certain MeasuresAffecting the Renewable Energy GenerationSector. In this dispute, Japan and the European Union (“EU”) challenged Ontario’s domestic content requirements in the FIT Program and the individual FIT and MicroFIT Contracts for wind or solar photovoltaic sources which have been concluded by the OPA since the inception of the FIT Program.

The three-person WTO Panel unanimously found that the Minimum Required Domestic Content Level prescribed under the FIT Program, and also the individual FIT and MicroFIT Contracts executed under the FIT Program since its inception, violated Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994. Canada’s appeal of this decision was unsuccessful. For the violations under Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994, Canada must bring itself into compliance with the recommendations and ruling of the dispute settlement body.

In accordance with the foregoing, the Minister in the Directive has indicated the Ministry’s desire and intent that the FIT Program be brought into compliance with these WTO rulings. The Minister has indicated that the government will be pursuing legislative and other steps to achieve this  outcome. The Minister expects this would affect the domestic content requirements in the new FIT program launched after May 24, 2013.

It is unclear at this stage how the Ministry and the OPA intends to bring the domestic content provisions in existing FIT Contracts back in-line with the WTO rulings. The Minister intends to issue a further direction to the OPA at a later date.

Aboriginal Projects on Reserve Lands

In acknowledgement of the unique and significant land control challenges facing Aboriginal FIT projects on reserve lands, the OPA has been directed to offer a 4 year extension to the Milestone Date for Commercial Operation to existing Large FIT contracts for Aboriginal Participation Projects where the generating facilities are located entirely on reserve lands.

Conclusion

Renewables procurement in Ontario will undergo a considerable amount of change over the summer and fall of 2013 as the OPA implements the Ministerial Directive. The impact of the directive on the Large FIT program will remain unclear pending additional consultation and stakeholdering.

New pricing initiatives, points, capacity set-asides and funding for municipal and public sector entities to participate in Small FIT Projects will likely facilitate increased involvement by such entities in the sector and may well provide additional opportunities to developers and other parties working with them.