Ontario considers fixed prices -- Small local projects

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The Ontario government should launch a five-year pilot program offering fixed price power purchase contracts to small-scale renewable energy generators that are disenfranchised by the province's "one-size-fits-all" competitive green power procurement processes, says the Ontario Sustainable Energy Association (OSEA). The province's energy ministry had asked OSEA to propose a pilot program for stimulating community-based renewable energy development.

Under OSEA's recommendation, the contracts should be available for projects up to 10 MW in size connecting to the distribution network at voltages of 44 kV or less. The 20-year purchase agreements would be available on a first come, first served basis to anyone who can demonstrate site control.

OSEA worked with Bernard Chabot, a renewable energy economist with France's Agence de l'Environnement et de la Maitrise de l'Energie, to develop recommended tariffs to be offered under the program. The system of sliding-scale tariffs proposed closely mirrors that used in Germany today for all wind generation.

For wind power, all projects would 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 program. "Significantly, this is only C$0.01/kWh more than the average bid price in the province's renewable RFP," the report says, referring to the Ontario government's request for proposals for green power (RFP) issued late last year which led to contracts for 395 MW of renewables, most of it wind power.

At medium speed wind sites, the proposed tariff would drop to C$0.09/kWh to average C$0.105/kWh over 20 years. A lower speed, or base case sites, the tariff would remain the same over the term of the contract.

"The pricing model provides minimum profitability at sites with moderate resources to stimulate strong and distributed market growth while at the same time it precludes undue profits at sites with energetic resources," OSEA says.

The incremental cost borne by electricity consumers, the report argues, will be "very slight" when spread across the entire rate base. "For example, if 1000 MW of base wind power is installed under this program, the incremental cost/kWh over the entire rate base would be C$0.0005, or five one-hundredths of a cent," it says.

Ontario, which has committed to shutting down its 7500 MW of coal-fired generation while struggling to meet growing demand, is in the process of buying 1600 MW of renewable energy generation following its first RFP late last year. Bids were due August 24 in a second RFP seeking 1000 MW of projects in the 20-200 MW range. The draft of a third RFP targeting 200 MW of projects less than 20 MW in size was released in July.

The problem with this approach, says the report, is that the RFPs are not designed to allow small scale developers like farmers, other rural landowners, co-operatives, First Nations groups and municipalities to compete. "The legal, financial, and interconnection requirements of the RFP were too onerous for them to participate."

Energy Minister Dwight Duncan has indicated he is ready to consider standard offer contracts for small, locally oriented projects. "At the end of the day, we want to make sure that everybody who has a way to produce power has the ability to do it," he said recently.

OSEA says several renewable energy co-operatives are preparing projects in anticipation of new legislation. "The province needs the power, we're prepared to supply it, but first we need to know that the province will buy our power -- standard offer contracts provide the certainty communities and co-ops need to help solve Ontario's looming energy crisis," says Doug Fyfe of Countryside Energy Co-op, a community group developing small wind farms in Huron and Perth counties.

The OSEA report also recommends the government establish a Community Power Innovation Fund (CPIF) that would give small project developers access to capital for organisation and project development. It suggests creation of community sponsored venture capital pools to aid local investment in projects.

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