The Ontario Government Releases Two-Year Review of Feed-in Tariff Program
Volume 3 - Special Issue

Introduction:

On Thursday March 22, 2012, the Ontario Government released the much anticipated results of its review (the “FIT Review”) of the Ontario Feed-in Tariff program (“FIT Program”). The FIT Review provides numerous recommendations on changes to the FIT Program which are organized into six specific areas with detailed recommendations under each area. A final set of technical recommendations is included at the end of the report that deals with program planning and transition issues involving the OPA.

The Review does not recommend any changes in the pricing or terms of the FIT Contracts which have already been allowed and signed by the Ontario Power Authority (“OPA”). The Province has indicated that they will adopt all of the recommendations in the FIT Review. The responsibility will now be turned over to the Ontario Power Authority to revise the FIT Program Rules and Contract to reflect the recommendations.

Several major changes to the FIT Program will likely arise from these recommendations. While the specifics won't be clear until the OPA issues the revised rules and contract, these changes will likely include a reduction in FIT Program pricing for wind and solar as well as revised price adders for aboriginal and community projects, a decision not to proceed with the Economic Connection Test (“ECT”), the implementation of a point based system to assign priority to new FIT Applications, and tighter change of control and assignment provisions for aboriginal and community projects that were given priority because of this status.

Led by Deputy Minister Fareed Amin, the FIT review process was launched on October 31, 2011 and ended on December 14, 2011. During that time the Deputy Minister met with 80 energy sector stakeholders and received 200 written submissions and received about 2,900 on-line responses to survey questions.

The FIT Review was followed on March 27^th 2012 by the Ontario Budget which contained additional recommendations of interest to the electricity sector. For example, the government indicated that it would launch a review of the sector and its various agencies in an effort to further reduce costs and reduce administrative burden.

This article provides a detailed summary of the key recommendations of the FIT Review.

FIT Review Recommendations:

Continue Ontario's Commitment to Clean Energy:

1. Ontario should procure 10,700 MW of non-hydro renewable energy generation by 2015.
2. At the end of 2013, the government should review Ontario's electricity supply and demand forecast to explore whether a higher renewable capacity target is warranted.
3. Up to 50MW of the remaining FIT contract supply should be reserved for hydroelectric projects.
4. Beginning this year, conduct an annual review of FIT prices to reflect current costs—setting and publishing prices each November that will take effect on January 1^st of the following year.

2. Streamline Processes and Create Jobs:

1. In conjunction with the MOE, MNR, MTCS change REA requirements to improve service and ensure that the scale of the environmental approval processes correspond to the size and impacts of projects. Three approval streams are recommended:

(a) Exemption: microFIT solar projects should remain exempt from REA regulations but subject to enhanced land use protection;

(b) Self-Screening: MOE's self-screening registry system, the Environmental Activity and Sector Registry should be expanded to include eligible small-scale solar (less than 500 kW) and bio-energy projects. The Review expects that this change could reduce timeframes from 18-24 months to 2-3 months;

(c) Full Environmental Approvals including REA regulations: large projects should continue to require the full EA process. Regulatory Ministries should reduce duplication, improve service standards and streamline the process by: i) final comment letters that MTCS and MNR provide proponents should be a required part of a complete submission rather than required before the final pubic meeting; ii) timelines for MNR's review of Endangered Species Act permit applications should be reduced; iii) MTCS should create a streamlined process to review archaeological reports.

2. MNR should review and update its policy approach to renewable energy development on Crown land. The release of Crown land should be aligned with provincial energy plans.

3 The commercial operation milestone for rooftop solar PV should be shortened from three years to 18 months.

4 Create a new Renewable Energy Committee that includes senior officials from relevant ministries to drive the progress of projects through the approvals process.

3. Encourage greater community and Aboriginal participation

1. Introduce a system to prioritize FIT applications for small and large projects that award “points” to projects with minimum equity participation from Aboriginal and local communities, public schools, colleges and universities and health care facilities. While not discussed in the Review, this suggests that the OPA may introduce application phases during which FIT applications must be submitted and then reviewed. No details of whether such a process is contemplated are specified in the Review.

2. Maintain adders for community and Aboriginal projects with adjusted prices. The adders should align with new participation and equity requirements for the FIT program.

3. Set aside a minimum of 10% remaining FIT contract capacity for local community and Aboriginal projects with greater than 50% equity participation.

4. Improve Municipal Engagement

1. The OPA should introduce a point system for small and large FIT applications that award points to projects that have demonstrated support from local municipalities or Aboriginal communities.

2. Enhance municipal engagement in the FIT Program:

(a) For large FIT projects, require contract launch meetings with municipalities, developers, government officials, utilities and agencies to define expectations.

(b) MOE should also revise the Municipal Consultation Form in the REA process in consultation with the Association of Municipalities of Ontario (“AMO”).

3. Clarify and strengthen project siting rules to ensure responsible project development. a) enhance protection of agricultural lands by prohibiting solar ground-mount projects over 10 kW on prime agricultural land; b) prohibit solar ground-mounted projects of any size in residential areas and lands bordering residential areas. Permit projects in commercial or industrial areas only when they are producing renewable energy as a secondary use.

4. Support municipalities in the development of new resources and protocols to support the integration of renewable energy in communities by: a) allocating $100,000 annually of Community Energy Partnership Program funding to the development of a community guidance and outreach project with AMO; b) Renewable Energy Facilitation Office should update the Municipal Guide to renewable energy projects with AMO; c) ensure project developers and other stakeholders work with AMO to develop best-practise guidance materials.

5. Reduce price to reflect lower costs:

1. FIT program prices for wind and solar should be reduced by more than 20% for solar and about 15% for wind. The current prices for other renewable technologies should remain the same.

2. Set prices when contract is offered rather than at the time of contract application for small and large FIT projects.

PRICE SCHEDULE

*New project size.

6. Expand Ontario's Clean Energy Economy

1. MEDI and the Ministry of Energy should develop a “Clean Energy Economic Development Strategy” that includes: a) financial support through the Smart Grid Fund to support Ontario-based demonstration projects; b) with key stakeholders consider establishing a “Clean Energy Institute” to spur domestic innovation; c) support manufacturers by showcasing smart energy solutions through an export strategy; d) create a “Clean Energy Task Force” to advise the Minster of Energy and MEDI on strategies for the clean energy sector.

2. The Government should explore partnerships for renewable energy projects in off-grid Aboriginal communities.

3. Establish a working group to explore opportunities for self-consumption or net-metering programs in Ontario that build on the FIT design.

7. Technical Recommendations:

These recommendations relate to additional proposed adjustments to the FIT Program.

• OPA should allow for a window during which existing contracts can voluntarily withdraw from the FIT Program without penalty;
• Provide a transition process for 1) all pre-existing FIT applications and 2) micro-FIT applications submitted after September 1, 2011. All these applications to transition to the eligibility requirements in the new FIT and micro-FIT programs;
• OPA should work with Hydro One and Local Distribution Companies (“LDCs”) to implement the Minister's Directive from August 19, 2011 to allow for the participation of constrained micro-FIT projects.
• Update the micro-FIT process to include an Application Approval Notice instead of a Conditional Offer of micro-FIT contract;
• Following commercial operation, a portion of the FIT price should escalate with inflation over time to reflect ongoing operations and maintenance costs.
• Strengthen FIT project due diligence requirements in areas like awareness of regulatory approvals, structural safety and application fees for small FIT projects.

8. Transmission and Distribution

• To promote efficient use of land and connection infrastructure, the OPA should consult with stakeholders to develop a rule regarding the appropriate maximum distance between a project site and its connection point.
• Maintain Hydro One's technical limit for connecting micro-sized projects to its distribution system (“7 per cent rule”), pending the results of additional studies.
• Regularly update and publish FIT transmission availability tables following, at a minimum, each round of FIT contract awards.
• Where the OPA's screening process indicates that upgrades are required to connect a project, the OPA should offer contracts only to projects where the need for minor transmission upgrades is identified.
• Based on planned transmission projects and recommended changes to the FIT Program, do not proceed with the Economic Connection Test (ECT).
• Establish best practices and processes for local distribution companies (LDCs) and transmitters that will improve communication, transparency and coordination between the OPA, LDCs, transmitters and generators regarding the Connection Impact Assessment (CIA) process and the status of applications.

Conclusion:

The recommendations have been formally adopted by the government and sent to the OPA to complete a draft Program Rules and draft Contracts to implement the recommendations. These materials will be posted on the OPA's web site for review and comment in the coming weeks.

Dr. Stephen Andrews is a Government Relations advisor at Borden Ladner Gervais LLP and National Administrator of the firm's Climate Change Group. Stephen can be reached at 416.367.6219 or sandrews@blg.com.

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