Ontario goes for fixed purchase rates -- Investors guaranteed profitable return over 20 years

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Ontario's proposed new Green Energy Act "has the potential to be a game changer" for wind power development in Canada's largest electricity market, says the president of the Canadian Wind Energy Association (CanWEA), Robert Hornung. The sweeping legislation, expected to become law this spring, promises a guaranteed purchase price for renewable energy projects, priority access to the grid, streamlined project approvals and quicker action on transmission system upgrades.

"In many jurisdictions in Canada, we've had important steps taken, but I don't think we have many examples of an effort to approach the issue from a comprehensive perspective. I think the Green Energy Act does that," says Hornung. "Directionally it is all moving forward. I don't think there is an area of activity that we would have wanted to see touched on that wasn't."

The act, says energy minister George Smitherman, is designed to make it easier to bring renewable energy projects online in the province by cutting through permitting red tape and providing certainty to investors. Central to the plan is the creation of fixed power purchase rates, or tariffs, for renewable energy projects, regardless of their size. The Ontario Power Authority (OPA), the agency responsible for planning the province's electricity system, added flesh to the act's framework when it unveiled proposed rates last month that are tailored to different technologies and different project sizes.

For wind, the OPA recommends paying C$0.135/kWh for onshore projects, C$0.19/kWh for offshore production and C$0.144/kWh for community-based projects with capacity ratings of 10 MW or less. The energy minister estimates these rates and others, ranging from C$0.103/kWh for landfill gas project to C$0.802/kWh for small rooftop photovoltaic systems, will add about one per cent to Ontario electricity bills.

Far less risk

The OPA's Colin Andersen says the proposed rates are based on experience in Ontario, where the average price paid for wind in the province's most recent request for proposals, completed in January, was C$0.121/kWh. "It's going to enhance access to capital, it's going to increase certainty, and it's going to build investor confidence as well," he says. "The prices we are putting out today are designed to allow renewable energy projects to recover the cost of building and maintaining the project and also to earn a reasonable rate of return over the duration of the contract, which generally will be 20 years," he says.

The OPA now plans eight weeks of consultation with stakeholders, ending May 5, to come up with program rules and a power purchase contract design. It expects to implement the new rates starting this summer.

Excellent start

While the industry had not yet had a chance to review the OPA's proposal in detail, Hornung believes the recommended rates "provide an excellent starting point" for discussion. "They give us confidence that we will be able to develop a reasonable feed-in tariff price in Ontario."

The province has offered a fixed price standard offer contract for renewable energy projects less than 10 MW in size since 2007, but has always procured power from larger facilities through competitive requests for proposals. The industry has complained the approach creates a boom-and-bust cycle for development that leaves dozens of viable projects on the sidelines with no clear path to market, while a lot of development dollars go to waste.

Hornung believes standardised purchase rates for wind power feeding into the grid will increase the proportion of wind in Ontario's supply mix more than would otherwise have been the case. "We think this will allow a developer to enter the market with a higher degree of certainty," he says. "That translates into less risk and that translates into a more attractive investment opportunity," he says. The law also provides a "right to connect" for wind projects, as long as they meet a still-to-be-determined economic test justifying construction of transmission needed to interconnect a site.

Six month permit process

The legislation also promises to streamline permitting for projects, ending what Smitherman calls the "cumbersome processes that have created a patchwork of municipal bylaws" for developers to deal with. The act will exempt renewable energy projects from municipal planning authority and setting provincial standards for turbine setbacks from adjacent homes and environmentally sensitive areas. It will also create a "one window, one permit" approach to project approvals that guarantees a final decision on applications within six months.

Establishing exactly what the setback requirements will be is another important detail still to be worked out, says Hornung. The industry's position has always been that siting requirements should be determined on a case-by-case basis, but Hornung believes there is value in the simplicity and certainty universal standards would bring. "Whatever setback is established, perhaps we could ensure there are provisions that allow proponents to make the case for smaller setbacks if they feel they can justify that scientifically."

Fast transmission

Smitherman says the province also plans a "new and very different approach" to the development of the grid infrastructure necessary to take wind energy to market. Lack of capacity on the wires is emerging as a major roadblock for wind energy development in the province. The Green Energy Act, he says, contains measures to "substantially expedite the capacity to build new transmission in this province, instead of the snail's pace which has been the norm." An estimated C$3.2 billion will be spent on new transmission and distribution, as well as smart grid development, over the next five years.

The act gives the minister the power to set what Smitherman calls "reasonable," but so far unspecified, domestic content requirements for renewable energy. With a manufacturing sector that is shedding jobs by the thousands, the government has placed a lot of emphasis on the 50,000 jobs it says the legislation will help create over the next three years. Meeting that target, Smitherman told the legislature, depends upon the creation of "enhanced manufacturing capacity in the province."

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