In the fall of 2009, the government of Ontario enacted the Green Energy and Green Economy Act, 2009 (the “Green Energy Act”) with the dual objectives of sponsoring the development of renewable energy generating capacity within the Province and simultaneously facilitating the development of Ontario’s “green” economy.
Ontario’s Feed-in Tariff program (the “FIT”) was ground-breaking for Canada, representing a rare suite of new business opportunities for companies to become involved in the development of Ontario’s generation, transmission and distribution systems at the ground level.
Since 2009, the FIT Program has evolved –undergoing substantial changes as regulators have assessed market response, worked through operational challenges and improved the legal wording of the original program document set.
FIT Program Highlights
In 2009, the Ontario Power Authority (the “OPA”) was granted the authority to create the FIT program. Since the program began, over 2,500 FIT projects and 11,000 microFIT projects have been offered contracts.
To be eligible to participate in the FIT program, proposed generating facilities must (i) be generating electricity from one or more renewable sources and delivering that electricity through a meter, (ii) be located in the Province of Ontario, (iii) in the case of solar (PV) projects that are not rooftop facilities and have a contract capacity greater than 100 kW, not be located on certain agricultural classes of land, (iv) in the case of capacity allocation exempt facilities, be deemed by the OPA to be capable of connecting at the proposed connection point, (v) not be an existing generating facility (although some limited exceptions apply for upgrades and expansions), and (vi) not have had a power purchase agreement in respect of the facility.
Grid Capacity and the Economic Connection Test
Upon acceptance of a FIT application, the OPA will determine whether the applicable transmission or distribution system has, or will have, sufficient connection resources to accommodate the connection. If there are sufficient system resources to accommodate the connection, a FIT Contract will be awarded. If there are approved plans to accommodate the connection of the project, but such resources will not be in service prior to the milestone date for commercial operation, the project applicant will be added to the production line. If there are no such distribution resources, actual or planned, the applicant will be subjected to an economic connection test and added to the “ECT pool”. The economic connection tests were to be run at least every six months for each region of the province but there have been substantial delays.
The FIT Contract
Under the terms of the FIT Contract, project developers are required to provide evidence that they own or hold sufficient lease or easement rights to the lands on which generating facilities are located for at least the term of the FIT Contract itself (20-40 years depending on the type of project). In many cases this evidence takes the form of a fully developed lease or easement agreement. In other instances, site-acquisition options are proffered.
Domestic Content Obligations
In addition to establishing project construction timelines, detailed power delivery obligations and pricing models, the FIT Contract also requires solar facilities and certain wind facilities to achieve a minimum percentage of domestic content. A table of the percentages are available here.
Where 10% or more of the equity in a project is held by an aboriginal community, that project may be eligible to have an amount added to the price payable by the OPA pursuant to the terms of the FIT Contract. Similarly, projects with substantial ownership by individuals resident in Ontario, a registered charity, a not-for-profit organization or a co-operative corporation may also be eligible to receive the $0.01/KWh Community Price Adder for wind and solar projects.
There are no residency requirements for applicants (other than with respect to the price-adder for aboriginal and the Community Price Adder discussed above).
Opportunities with Government Entities
The Green Energy Act requires the Environmental Commissioner to provide yearly reports on both energy conservation and greenhouse gas emission reductions in Ontario. The report on energy conservation is required to cover Ontario’s initiatives over the last year and describe the progress made to meet targets, reduce consumption, and increase efficiency. The Environmental Commissioner is also charged with identifying barriers to the development and implementation of conservation measures. It is worth noting that the Green Energy Act mandates that the government of Ontario be guided by certain principles in the construction, acquisition, operation and management of government facilities. Government will be required to have knowledge of greenhouse gas emissions associated with its facilities and ensure energy efficiency, environmentally and financially sound investments, and use of renewable energy sources. As a result of these requirements, substantial new opportunities will exist to provide products and services to the Ontario government and its various agencies.
Recent Changes Made to the FIT and microFIT Programs (December 2011)
Waiver of Termination Rights – August 2, 2011
Unless waived, the OPA’s unilateral right to terminate the FIT Contract expires upon the issuance of a notice to proceed with project construction.
In August of 2011, FIT contract holders were given an opportunity to have the OPA’s termination rights under section 2.3(a) of the FIT Contract waived. If the Supplier’s renewable fuel was solar or wind power, the waiver would have terminated if a Supplier failed to submit a Domestic Content Plan (specifying local content obligations under the FIT Program) to the OPA by November 30, 2011.
Extension for Commercial Operation Dates – February 9, 2011
The difficulty in obtaining a renewable energy approval also led to the OPA offering to amend contracts of all FIT counterparties who have yet to reach commercial operation. Throughout February and March of 2011, the OPA contacted FIT suppliers regarding the execution of an amending agreement to extend their milestone date for commercial operation by up to one year. Suppliers were required to surrender certain Force Majeure claims and rights in order to benefit from the extension.
Rule Change for Capacity Allocation Exempt Applications – February 9, 2011
On February 9, 2011, the OPA indicated that FIT Applicants who submitted their capacity-allocation exempt FIT applications on or after December 8, 2010, would be required to obtain a Connection Impact Assessment from their local distribution company (“LDC”) once a contract is issued. The assessment will determine the impact of the project on the electricity system and provide details on the cost and time involved in connecting the project.
microFIT – Requirement for Grid Capacity – February 9, 2011
In February of 2011, the OPA made a rule change requiring all microFIT Applicants who submitted their applications on or after December 8, 2010, to request and receive an offer to connect from the applicable LDC before a conditional offer is issued. Under the amended microFIT Rules, the OPA is required to notify the applicant of this obligation after completing its review of eligibility requirements.
Constrained microFIT Applicants – August 19, 2011
Pursuant to a direction by the Minister of Energy on August 19, 2011, upon written notice to the OPA, microFIT Applicants that have been unable to connect their project (“Constrained Applicants”) will be given an option to relocate their project to another location in Ontario. The directive also applies to Constrained Applicants with up to 50 constrained projects with a combined nameplate generation capacity of no more than 500 kW.
Constrained Applicants will also be given the option to assign their conditional offers to other Constrained Applicants so long as those parties are Eligible Participants under the microFIT Eligible Participant Schedule. MicroFIT industry participants await the issuance of detailed rules and guidelines by the OPA at this time.
FIT and microFIT Program Review – October 31, 2011
The FIT and microFIT programs are currently undergoing their two-year review pursuant to the FIT and microFIT Rules. This review will consider the following:
- FIT and microFIT price reduction;
- ensuring the long-term sustainability of clean energy procurement;
- continuing to build on the success of Ontario-based manufacturing and clean energy job creation;
- consideration of new technologies and fuel sources; and
- local consultations and the renewable approval process.
The review period began on October 31, 2011, and will run until December 14, 2011.