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Progressive approach in North America -- Ontario offers premium prices for distributed wind power

For the first time in two decades, North America is launching a major wind power market based on standard offer contracts. Fixed premium prices for wind power have been common in Europe, underpinning extensive wind power development in Denmark and Germany, but they have not been a feature of the American market since the California wind-rush of the 1980s. Now the Ontario government has unveiled a standard offer contract (SOC) program for small scale renewable energy projects that is expected to significantly expand wind development in the Canadian province.

The much anticipated program, to start in the fall, will offer 20 year power purchase contracts at a fixed price of C$0.11/kWh ($0.095/kWh) for wind, biomass and small hydro projects up to 10 MW in size; solar photovoltaic installations will receive C$0.42/kWh. To qualify for the program projects must be connected to the grid at the level of the distribution system at voltages up to 50 kV. The aim is to secure a geographic spread of small projects using the available capacity on the distribution network.

The Ontario Power Authority (OPA), the government agency that will buy the electricity, has also recommended paying an additional C$0.0352/kWh for all electricity delivered during peak periods by projects that "can demonstrate generation control."

Potential

No limits have been placed on the volume of new capacity built using SOCs, although the government estimates the market framework will add about 1000 MW to the province's power grid over the next ten years. "There is definitely more potential out there than that," says Robert Hornung of the Canadian Wind Energy Association (CanWEA), though without naming a figure. In Denmark, with a population of five million, fixed prices led to 3000 MW of wind power over two decades. The Ontario power market, one of the largest in North America, serves a population of 12.6 million, more than a third of the population of Canada, and has a peak demand of about 25,000 MW.

"I think the question is, how will experience with standard offers prove out in terms of issues related to interconnection, access to lines, how many projects will be able to go at eleven cents? These are all questions that I think we are only going to gain answers to through experience," says Hornung.

Progressive policy

Paul Gipe, a US-based wind energy advocate who worked with the Ontario Sustainable Energy Association (OSEA) on a 2005 report recommending an SOC design, believes the program could have "far-reaching potential" for new renewables development. "It is the most progressive renewable energy policy in North America in two decades," says Gipe. "It is comprehensive because it covers all the technologies. It is designed to be profitable under the conditions it was designed for, so that we encourage investment. And there is no program cap."

There is a "tremendous pent-up demand" among smaller-scale renewable energy developers for some way to bring their projects online, says Gipe, including a number of community-based renewable energy co-operatives that have formed in the last few years to develop mostly wind power projects.

To date the province has been using requests for proposals to procure renewable energy, including 1310 MW of wind, but the process has proven too costly and complex for small projects to compete. Adding new players to the mix will help diversify Ontario's wind industry, says Hornung. "It opens up opportunities for a much broader range of participants in the market place. There is a lot of potential for new development on distribution lines."

Setting the price

The government based its C$0.11/kWh tariff using pricing data from its latest request for proposals as a starting point and adjusting it to account for the differences in economies of scale. The price also includes a credit for reducing transmission losses by generating power close to where it will be consumed. Both Hornung and Gipe believe the price is high enough to continue to drive some wind power development.

Gipe, however, is disappointed the government did not adopt OSEA's recommendation to introduce tiered pricing for wind energy. In its report, OSEA recommended all wind projects be paid C$0.133/kWh for the first five years. For the following 15 years, the tariff for high wind speed sites would drop to C$0.069/kWh, resulting in an average price of C$0.091/kWh over the life of the contract. At medium speed wind sites, the proposed tariff would drop to C$0.09/kWh to average C$0.105/kWh over 20 years. But OSEA, says Gipe, is already lobbying the OPA to reconsider a tiered system.

"It will enable us to get a higher price for wind energy in lower wind areas so that we can spread distributed generation over more of the province and get more landowners involved, get more farmers involved, get the wind turbines away from concentrations on Lake Huron where there is the beginning of a backlash against wind," he says. At the same time, it would preclude undue profits at high wind sites that could jeopardise support for the program. Pricing and other program elements, says the OPA, will be reviewed regularly and adjusted in response to changing market circumstances. The first review is expected to take place after two years.

The only other jurisdiction in North America paying a fixed price for wind is the Canadian province of Prince Edward Island, which has placed limits on how much can be developed. "Ontario has done what no other jurisdiction in North America has done," says Gipe. "The government's intent is really to make this work and that is what has driven this forward."

The OPA plans to work with the Ontario Energy Board and other stakeholders to ready the program for implementation in the fall.

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