The Ontario Minister of Energy has directed the Ontario Power Authority ("OPA") to undertake a pilot program to sell, track and audit a limited number of environmental attributes ("EA") from clean energy projects under contract with the OPA. The pilot program will be limited in scope and duration, but should provide the OPA and generators with a better sense of the long-term revenue potential of EAs. It may also be a first step towards unbundling EAs from the power sold to the OPA.
Many power purchase agreements with the OPA, including those under the FIT program and recent Renewable Energy Supply calls, stipulate that the OPA retains the rights to any EAs associated with the power purchased by the OPA. The definition of EA is very broad, and could includes carbon offsets resulting from the displacement of fossil fuel generation by the clean energy projects.
The pilot program may result in increased burdens for clean power project owners. The EA provisions in the OPA's power purchase agreements generally provide that the OPA can direct the supplier to take actions to certify, obtain, qualify and register EAs. However, suppliers may be entitled to reimbursements from the OPA for their costs of undertaking such activities.
The Minister's Directive is brief but provides the following specific direction:
- the pilot will not exceed 18 months;
- by March 15, 2011, the OPA must select a "Program Manager" to implement the pilot;
- the Program Manager must be selected in a "competitive, fair and open procurement process";
- the Program Manager will be entitled to share in the revenue generated by the sale of EAs;
- the OPA can cancel the pilot if it will not be of net benefit to ratepayers.
The directive also provides that EAs sold under the pilot must be retired in Ontario. As a result, the EAs cannot be sold for use as offsets in compliance markets outside of Ontario. The Directive is silent as to whether the pilot will be integrated with a cap-and-trade market in Ontario, which the province has indicated it will implement as part of its membership in the Western Climate Initiative.
The market for the EAs may therefore be limited to Ontario buyers who want offsets for voluntary corporate social responsibility programs. This market is fairly limited in Ontario. Prices of the EAs under the pilot may therefore be correspondingly low. Nevertheless, the pilot program will provide the OPA (and the broader market) with better data regarding the revenue generating potential of EAs. Such data will influence future price setting by the OPA. It may also open the door for new contractual models in which the value of (and rights to) electrons and EAs are unbundled.