The feed-in tariff (FIT) program is intended to encourage and promote greater use of renewable energy sources including wind, waterpower, renewable biomass, bio-gas, landfill gas and solar for electricity generating projects. The Ontario Power Authority (OPA) has released draft FIT program rules as well as a draft FIT contract for stakeholder consultation as of July, 2009. Upon the proclamation of the Green Energy and Green Economy Act, 2009, the OPA will officially launch the FIT program. It is designed for generating facilities with a maximum capacity of 10 MW for solar PV projects, 50 MW for waterpower projects and unlimited capacity for projects using other renewable fuels.
Under the FIT program, the OPA will have no responsibility to assess the viability of a project. To be eligible to participate in the FIT program, a proposed generating facility must (i) be a renewable generating facility as discussed above, (ii) be located in the Province of Ontario, (iii) meet the contract capacity requirements discussed above, (iv) not be an existing generating facility (although some limited exceptions apply for upgrades and expansions), (v) connect to a distribution system, (vi) have separate metering suitable for data collection and settlement purposes, (vii) not have had a power purchase agreement in respect of the facility, and (viii) comply with any provincial content requirements set by the Ministry of Energy and Infrastructure. It is expected that the OPA will begin accepting applications for the FIT program in the fall of 2009. The deadline for consideration in the first transmission availability test will be posted on the OPA’s website – www.powerauthority.on.ca in due course.
Highlights of the FIT program include:
- Upon acceptance of an application, the OPA will determine whether the transmission system has sufficient connection resources to accommodate the connection of the project. If there are insufficient resources, the application will be subject to an economic connection test. If there are sufficient resources, a FIT contract will be awarded.
- The OPA will then determine whether the applicable distribution system has, or will have, sufficient connection resources to accommodate the connection. If there are, or will be prior to the milestone date for commercial operation, sufficient distribution 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 these resources will not be in service before the milestone date for commercial operation, the applicant will be added to the production line. If there are no such distribution resources, actual or planned, the applicant will be subject to an economic connection test.
- An economic connection test will be run at least every six months for each region of the province, to ensure that cost of connecting a project that will ultimately be borne by rate-payers are reasonable. The transmission and distribution tests discussed above will be conducted on all projects in the production line to determine whether the project should be awarded a FIT contract, remain in the production line, moved to the FIT reserve or withdrawn from the program.
- Projects in the production line are intended to provide input into the transmission and distribution planning processes, as the cost of connecting these projects is within economic thresholds, and similarly, the FIT reserve is intended to support the production line until such time as the cost of connecting these projects is within economic thresholds.
- The Supplier, as defined in the FIT contract, is required to own or lease the generating facility for the term and to design, build, operate and maintain the facility.
- The OPA will pay for the electricity generated and delivered by the facility during any hour, provided that the electricity is successfully injected into a distribution system or electrical system, as applicable, at the price set out in the Pricing Schedule to the contract. The price will increase annually based on increases in the CPI.
- The pricing is intended to cover development costs plus a reasonable rate of return for projects meeting certain assumptions relating to cost and efficiency.
- The FIT contract term is for a period of 20 years or, for facilities using waterpower, for a period of 40 years.
- The FIT contract will require that certain facilities meet a minimum level of provincial content, failing which the Supplier will be required to pay liquidated damages to the OPA. The OPA may also terminate the FIT contract if the shortfall is greater than a certain threshold.
- Projects may qualify for the ecoENERGY for Renewable Power Program, and if so, must transfer half of all payments received to the OPA.
- Projects for which more than 10% of the applicant or Supplier is held by an aboriginal community will have an amount added to the price payable by the OPA under the contract. A similar concept will apply to a project that is owned by a community. The definition of a community project and the required participation levels have not been settled as of the date of this writing.
- Applicants, or any person who controls or is controlled by the applicant, who own or have executed a fixed or guaranteed maximum price contract with an equipment supplier, and where the applicant has taken delivery and registered and beneficial title has passed from the equipment supplier, may have an advantage as the application will be awarded one point. Similarly, applicants who have successful experience with planning and developing a similar facility as either prime contractor or as design/builder, and applicants who are willing to reduce the time between the contract date and the milestone date for commercial operation, may also have an advantage.
There are no limitations as to ownership of a project. The FIT contract specifically provides for a non-resident Supplier. If a Supplier is a non-resident, as is defined in the Income Tax Act (Canada), the OPA may reduce the payments owed to the Supplier by the amount of any such withholding taxes or other taxes incurred by the OPA.
The FIT program is intended to be a simpler method for Ontario to procure and develop electricity generation. It is critical to the Green Energy Act’s objectives of increasing conservation and creating a culture of conservation in Ontario, creating 50,000 “green” jobs in three years and developing a smart grid. The FIT program will ensure standard rules, contracts and pricing for electricity, differentiated only by the energy source and capacity of the facility.
The OPA released the draft microFIT rules and contract on August 14, 2009. The microFIT rules are designed to encourage and support small renewable energy projects, such as a home or small business installation, that are 10 kW or less in generating capacity.