Ontario tariff rules fuel uncertainty

CANADA: The Ontario government has relaunched its feed-in tariff (FIT) for renewable energy after it was paused last autumn for a scheduled review of the system's progress.

Saturation: A surplus in electricity supply and a network that needs upgrading is making life difficult for developers in Ontario
Saturation: A surplus in electricity supply and a network that needs upgrading is making life difficult for developers in Ontario

Google Translate

But wind developers will have to wait to see when their chance to win a contract comes again.

"The real issue for large-scale projects is that there is no transparency right now," says Ernie Belyea, a partner at law firm Bennett Jones. "There is no clear window for accepting applications."

The Ontario Power Authority (OPA) issued the rules for FIT 2.0, as the revised programme is called, in August. At the same time, it announced it would begin by accepting applications for renewable-energy projects of 500kW and below.

The expectation is the OPA will award up to 200MW of contracts to these small projects, with most expected to go to solar facilities, and only then open the market to large-scale procurement. While some observers think this could happen as early as the first quarter of 2013, others believe it could be another year or even two.

A number of factors contribute to the uncertainty, says Belyea. The first is that Ontario is currently dealing with surplus electricity supply issues. "We really don't need new generation at the moment," he says. "The other issue is that there are many areas of the province where it is just not possible to connect a large project. The system won't allow any more. The cost of upgrading the system to allow large Fit projects to connect is a significant issue.

"With those two things holding back a large Fit procurement, my guess is that we won't see an application window open until this time next year, with contracts awarded in 2014. And it could be later," Belyea adds.

Points system

Once the application window does open, developers face some new requirements for securing a contract. The OPA has devised a point system to assess applications, with clear priority given to projects with community or aboriginal First Nation backing. In a province that has become somewhat notorious for its well-organised anti-wind opposition, however, finding that support could prove challenging for some projects.

"Not all projects will be able to reapply with priority points, so there will be a fairly significant rejig of the queue based on the current rules," says David Timm, vice-president of strategic affairs at International Power-GDF Suez North America.

How much transmission connection capacity is left after the small Fit contracts are awarded will also play a role in what projects are able to move forward, Timm adds. "It's still a bit of a wait-and-see process for many large developers," he says. "There are a number of variables in play right now, but what is constant is that the government remains committed to the programme and its goals. That is encouraging."

The Fit programme, the first of its kind in North America, made Ontario the largest wind market in Canada and one of the most active on the continent. The province aggressively contracted for new renewable energy after the programme launched in 2009 in an effort to kick-start the transition to a green economy and attract wind and solar manufacturing. It offered power purchase agreements to nearly 3.2GW of wind alone, and committed to an additional 2GW in a separate side deal with a Samsung-led consortium.

New caution

There is no doubt that the OPA is being more cautious with the new rules, says Jason Chee-Aloy, managing director at consultancy Power Advisory. "The way to look at Fit 2.0 is that it is a natural evolution in terms of where the power system in Ontario is at," he says.

The uncertainty around when new contracts will be awarded could lead to a drop in developer interest in the market, says Matt DaPrato, an analyst at IHS Emerging Energy Research. "These developers want to go to places where they can develop and they have certain time horizons for it. If they have to keep pumping money into a project to keep it alive, and they have no idea when or if there is ever going to be a potential market to participate in, it can certainly lessen their enthusiasm."

Have you registered with us yet?

Register now to enjoy more articles
and free email bulletins.

Sign up now
Already registered?
Sign in