Canada: What Is Going On With Ontario’s FIT?

On August 16, 2013, Ontario's Minister of Energy, Bob Chiarelli, issued a Directive to the Ontario Power Authority (OPA) to make changes to the Feed-In-Tariff (FIT) program. This Directive builds on a previous Directive issued June 12, 2013 that made significant changes to the FIT program. (See: Ontario Minister of Energy Issues New Directive on the Feed-in Tariff Program).

The most important changes that stem from this most recent Directive are the modifications to the domestic content requirements for renewable energy projects under the FIT program. 

As discussed below, the helpful clarity provided by the latest Ministerial Directive on the domestic content changes contrasts somewhat with the lack of clarity developing with regard to both the Ontario Renewable Energy Approvals (REA) process and the re-creation of a Large FIT program. 

Changes to the Domestic Content Requirements

On May 24, 2013 the World Trade Organization (WTO) issued a ruling from two WTO disputes which determined that Ontario's domestic content requirements violated Canada's trade obligations. (See: The WTO Decision – What it Means for Ontario FIT 1.0 and 2.0 Projects).

In response to this ruling, the Minister of Energy has now directed the OPA to take an interim step towards compliance by reducing the domestic content requirements for new FIT procurements. All new FIT contracts will require that facilities achieve domestic content levels lower than previous contracts. The new domestic content levels are as follows:

• On-shore wind facilities are required to maintain a minimum domestic content of 20%
• Solar photovoltaic (PV) facilities utilizing crystalline silicon are required to maintain a minimum domestic content of 22%
• Solar PV facilities utilizing thin-film PV technology are required to maintain a minimum domestic content of 28%
• Solar PV facilities utilizing concentrated PV technology are required to maintain a minimum domestic content of 19%

These new content levels will apply to the Fall 2013 procurement window for Small FIT, microFIT, pilot solar projects on unconstructed buildings and unused capacity carried over from the Small FIT that closed on January 18, 2013.

The Future of Domestic Content

The Ministerial Directive indicates that the new domestic content levels shall remain in effect until further direction is given by the Minister. This Directive is an indication that the provincial government is prepared to respond to the WTO ruling and demonstrates a willingness to begin a transition to the elimination of the domestic content rules. It remains unseen if further reductions or an all out removal of the domestic content rules will be implemented by the Ministry of Energy.

Pricing

The OPA has reviewed and updated the FIT and microFIT price schedule that it offers to renewable energy generators. Prices have been declining for both wind and solar contracts since the original FIT prices were set. In the most recent price schedule change effective August 26, 2013, prices have declined significantly for solar contracts with reductions ranging from 25.8% to 39% from previous levels. All wind project prices remain unchanged at 11.5 cents per kilowatt. These prices will apply to any new contracts that are issued until a new price schedule takes effect on January 1, 2014. The OPA has justified the price decreases as reflecting both the changes in upfront costs to develop a renewable energy project, and shifts in the ongoing operation and maintenance costs for projects.

FIT/microFIT Price Schedule Changes 

Source: Ontario Power Authority

Large FIT: New Competitive Procurement Process

The Large FIT program (more than 500 kilowatts) is being removed from the FIT program and being replaced with a new competitive EOI/RFP type procurement process which will require developers to consider input from stakeholders, municipalities and Aboriginal communities to assist in identifying suitable locations and siting requirements.

The OPA is currently in a consultation process with stakeholders to receive feedback regarding the proposed competitive bidding process. This new process is currently under development by the OPA, however, there is no set timeline regarding when the RFP process is to be implemented. The OPA will be providing the Minister with interim recommendations by September 1, 2013 and additional engagement activities are expected in fall 2013.

microFIT

The OPA will continue to procure renewable energy capacity through the microFIT program (10 kilowatts or less). The new microFIT application window is expected to open shortly for the remainder of 2013, which has a procurement target of 30 megawatts.  Following this, the next application window will begin in 2014, with a procurement target of 50 megawatts.

In the interim, though little noticed by the media, Ontario has managed to reach a cost-effective accommodation with the numerous grid-capacity constrained microFIT projects which were unable to connect to the Hydro One grid for technical reasons. 

Small FIT

The OPA will continue to procure renewable energy capacity through the Small FIT program (500 kilowatts or less), but will now include a priority system whereby municipalities and public sector entities will be provided with incentives such as priority points during the application process.

The upcoming application window for Small FIT projects is expected sometime in the fall of 2013, which has a procurement target of 70 megawatts. The new Directive states that beginning in 2014, the OPA will prepare annual schedules of planned Small FIT application windows which will be published in January of each year.

REA Changes for Large Projects

In contrast to the recent details on FIT domestic content and pricing, there are now two sources of uncertainty for proponents of large renewable energy projects.

The first uncertainty arises from a process initiated pursuant to the June Directive.  This Directive tasked the OPA with developing a new procurement process for large renewable energy projects that "takes into account local needs and considerations before contracts are offered". This task resulted in the OPA hosting an August 7^th webinar, conducting meetings during the week of August 12^th, and soliciting comments up to August 21^st.  These dates are input to the OPA providing the Minister with recommendations by September 1^st.  The only outcome offered publicly on this process is that it is "expected" that additional "engagement activities" will occur this fall.

But the OPA process is not the only uncertainty facing REA proponents.  On July 3^rd, the Ontario Environmental Review Tribunal released the landmark decision regarding the proposed Ostrander Point wind development, revoking the Director's REA (See: An Ontario First, Tribunal Revokes Wind Farm Approval).  On August 1^st, both the REA applicant and the REA Director at the Ministry of the Environment issued notices of appeal to Ontario's Divisional Court to have the Tribunal decision set aside and the REA confirmed.  The central issue in the appeal is regulatory authority over endangered species: how does the authority of the Tribunal under the REA statutory appeal co-exist with the authority of the Minister of Natural Resources to issue permits under the Endangered Species Act, 2007? Right now, proponents facing endangered species issues are subject to a two-part process whereby an ESA permit is necessary but not sufficient to address such issues.

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